Privity problem Question framework
When can promisee sue under a contract for the benefit of a TP
General position: Promisee can’t recover as he has suffered no loss
Albazero Exception1: A promisee can recover a third party’s loss on a contract
relating to property where the parties contemplated that the property in
question would be transferred to the third party or where the parties otherwise
contemplated that loss in respect to that property would be suffered by the third
party.
 Recognised and developed in Linden Gardens 1994 and Darlington BC 1995
Jackson v Horizon Holidays 1975: Lord Denning’s view that the Husband could
recover damages for his own loss as well as the loss suffered by third parties,
namely his wife and children.
 Rejected by HL in Woodar v Wimpey 1980: The traditional rule was that the
promisee recovered for his own loss and not for the loss of a third party.
However, Jackson was not overturned.
S (4) (Rights of Third Parties) Act 1999: The promisee retains his right to sue
under the contract even though it is now also enforceable by the third party.
 Any right the promisee may have, he retains.
Panatown 2001: Promisee can’t sue for TP loss unless he is accountable to TP
for it.
1
There is some useful discussion of this issue in Treitel’s 13th Edn at [14-026]-[14-030].
The Albazero narrow ground is based on the idea that the carrier has it in their
contemplation that 3rd parties will derive benefit from the contract by reason of a
subsequent transfer in title of the goods – and those subsequent parties losses would fall
into a black hole if the employer cannot recover those damages as their own. It is, if you like,
a policy-based construction of the parties intentions. But that construction won’t fly –
because it is unnecessary – in cases in which the 3rd party acquires contractual rights
against the carrier: there is no need to contemplate some future happening when it has
already happened! This bit in Panatown because of the duty of care deed.
The broad ground was not accepted by the majority in Panatown, its origins are mainly in
Lord Griffiths speech in Linden Gardens and it is given credence by Lord Goff mainly
inPanatown. The broad ground seeks to treat losses sustained – be they by third parties or
contracting parties – as damage to contractual rights themselves, which are compensable.
No need to worry about black holes or construction: if I contract with Hitesh to build a house
for Jake, the value my contractual right is the value of the performance to Jake, so if Hitesh
stuffs up (which, let’s be frank, he probably will), then I can argue that I have sustained
damage in the form of a loss of my contractual rights. The damages I seek are, in effect, to
vindicate my right to performance – and it does not matter that that performance was for
Jake’s benefit, or that he has an independent cause of action against Hitesh. This is similar to
the argument that is occasionally run about Ruxley: he should have be awarded the full costs
of rebuilding the pool because that was the value of his performance interest under the
contract; alternatively, the nominal sum awarded to him was reflective of that interest.
Robert Stevens has a field day with this sort of stuff, as does Brian Coote.
Privity problem Question framework
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Exception: Agent, Trustee or Bailiff for TP
Broad ground exception: Suffers indemnity loss
Third Party
General common law position: did not give consideration/ was not a party to the
contract (Tweddle v Atkinson 1861)
The Contracts (Rights of Third Parties) Act 1999 lays down two separate tests
Section 1(1)(a): Allows a third part to enforce a term in a contract where the
contract expressly provides that he may
Section 1 (1) (b): Allows a third part to enforce a term in a contract where the
term purports to confer a benefit on him
 S 1 (2): S 1 (1) (b) does not apply if the parties did not intend the term to be
enforceable
o Nisshin Shipping 2004: Must prove such intention, neutrality not
enough
 Dolphin Maritime 2009: ‘Purports to confer a benefit’  language used by
the parties shows that a purpose of their bargain (rather than incidental
benefit) was to benefit third party
 Burrows: The words ‘purport to confer a benefit on [the third party]’ were
added by the Law Commission to convey the idea that the presumption of
intention in the second test is triggered only where the third party is to
receive the benefit directly form the promisor.
 Law comm suggests that White v Jones 1995 falls outside scope
 Beswick 1968 clearly falls within
S 1 (3): The Third party does not need to be named. It is sufficient that it is
expressly identified in the contract ‘as a member of a class or answering a
particular description, but need not be in existence when the contract was
entered into’
S 1 (5): Any remedy third-party would have had if he had been a party to the
contract is available to him(and the rules relating to damages, injunctions,
specific performance and other relief shall apply accordingly).
S 1 (6): Also covers negative rights (exclusion clauses and limitation clauses)
S 5: Any sum recovered by promisee in respect of the third parties loss or his
expense in making good that loss to the third party will reduce the damages
received by the third party.
 Does not include recovery in respect of promisee’s own loss, opens up the
promisor to double liability
Can third parties rely on exclusion clauses?
Privity problem Question framework
S 1 (6): Also covers negative rights (exclusion clauses and limitation clauses)
Scruttons 1962: Cannot rely on exclusion clause if not party to contract
 The Eurymedon 1975: Named party can rely on exclusion clause. Collateral
contract formed.
o The Starsin: Held that shipper makes contract with third party made
through the agency of the carried. TP can rely on exclusion clause the
moment it renders services, thereby providing consideration for the
contract.
 London Drugs 1993 (Canadian case): Employees can gain benefit of
exclusion clause when
1) Acting within the scope of the clause
2) Clause expressly or impliedly extended to them
Other ways in which third party can sue
Agency: both agent and principle can sue under contract (but can disclosed agent
be sued?)
 Burrows: Disclosed agent not really an exception as he simply ‘drops out of
the picture’. Undisclosed agent real exception.
Tort of Negligence
 White v Jones: Solicitors were held liable to a prospective beneficiary of a
will in what is best considered the enforcement by the third party of the
solicitor’s contractual duty of care.
Trust of promise created in favour of TP
 Leopold Walford 1919: Implied trust of promise created on terms
o Now, only express trust will suffice
Imposition of Burden on a Third Party
Third party can be held liable in some cases
Morris v Martin 1965: Sub-bailee can be sued directly for loss caused by his
servant (stolen coat case)
The Pioneer Container 1994: TP to subcontract bound by exclusive jurisdiction
clause in it as it consented to the subcontract being formed on any terms
 Limit – Swiss Bank Corp 1979: C can’t get injunction against TP who has
been given a charge in breach of contract b/w C & A where the TP did not
have actual knowledge (constructive notice not enough)