Law of Contract
Privity of Contract/Third
Party Rights
Third party rights
Doctrine of Privity of Contract
1) Only a party to a contract can
be sued on a contract
2) Only a party to a contract can
sue on a contract
Third party rights
1)
Common law rules &
exceptions
2) Common law amended by
Contracts (rights of third parties)
Act 1999
Third party rights
Two general common law rules of
doctrine
1) A 3rd party cannot be
subjected to a burden by a
contract
2) A person who was not party
to a contract could not sue upon
the contract, in order to obtain
the performance, and benefit from it.
(even if it was intended to benefit him)
No privity to be sued
Dunlop v Selfridge (1915)
Facts : Dunlop contracted with Dew &
Co and at their request Dew & Co, had
placed a minimum sale price in their
contract with Selfridge.
Selfridge sold some tyres below the
minimum price.
Held : Dunlop cannot sue selfridge as
they were not party to the contract
between Dunlop and Dew.
No privity to sue
Tweedle v Atkinson (1861)
Facts : The fathers of married couple
agreed in writing that both should pay
money to the husband, adding also that
the husband should have the power to
sue them for the respective sums.
Held : The husbands suit was
dismissed as he had no privity to sue in
the contract.
No privity to sue
Beswick v Beswick (1968)
Facts : Peter Beswick sold his coal
business to his nephew John Beswick, in
return for a promise to pay £6 10s a week to
Peter Beswick for the rest of his life and
thereafter £ 5 a week to Peter Bewick’s wife
for the rest of his life. John stopped paying
his Uncle’s wife upon his uncle’s death.
Held : Mrs Beswick cannot sue in her
personal capacity as she had no privity to the
contract.
Privity-Statutory exception
The rule of the doctrine that prohibits the
conferring of benefits to a third party via a
contract that he has no privity to has been
amended by statute:
Contracts (Rights of 3rd parties Act 1999)
Harsh rule-common law exceptions
If Privity was inflexibily applied it would cause
considerable injustice and inconvenience :
Common law exceptions :
1) Collateral Contracts
2) Agency
3) Trusts
4) Restrictive Covenants
5)
Statutes
Collateral Contracts
A contract between two parties may be
accompanied by a collateral contract between
one of them(either the promisor or the
promisee) and a third person relating to the
same subject matter.
Collateral Contracts
Shanklin Pier v Detel Products [1951]
Facts : The Plaintiff ’s had employed
contractors to paint a pier. They told them to
buy paint made by the defendants. The
defendants had told them that the paint would
last for seven years. It only lasted three
months.
Held : The court decided that the plaintiffs
could sue the defendants on the collateral
contract.
Agency
Scruttons Ltd v Midland Silicones Ltd [1962]
Facts : The claimants who were the owners of a drum of
chemicals entered into a contract with a firm of shippers
for the transportation of the drum. Under the contract the
shippers limited their liability to the claimants to £500 per
package.
Stevedores who were employed by the carriers to offload
the drums negligently dropped it.
The claimants brought an action in tort against the
stevedores.
The stevedores sought to rely on the exemption clause.
Agency
Scruttons Ltd v Midland Silicones Ltd [1962]
Held : as per Lord Reid
1) There was no doctrine of vicarious immunity in
the English law.
2) The limitation clause only referred to the carrier
shipping company, and thus in capable of
protecting the stevedores.
This lead to immense commercial inconvenience,
because it became difficult for employers to give his
employees and agents the benefit of an exclusion
clause negotiated by the employer.
Agency
Scruttons Ltd v Midland Silicones Ltd [1962]
As per Lord Reid’s obiter :
The stevedores could have claimed if :
1) The bill of lading makes it clear that the stevedore
is intended to be protected by the provisions.
2) The carrier in addition to contracting for these
provisions on his own behalf is also contracting as
agent for the stevedore.
3) The carrier has authority from the stevedores to do
that.
4) consideration must move from the stevedore
Agency
New Zealand Shipping Co. v A M Satterthwaite
(The Eurymedon) [1975] Privy Council :
Facts : Similar to the Scruttons case Held :
1) When the consignor signed the bill of lading
they made an offer to all the world that anyone who
unloaded their goods would be entitled to the
benefit of the exclusion clause.
2) This offer was accepted once stevedores started
handling the goods.
3) The consideration supplied was the performance
of the contractual duty owed to the shipper.
Trusts
A trust is an equitable obligation to hold property
on behalf of another.
Les Affreteurs Reunis v Walford [1919] HL
Facts : Terms of charterparty between a shipowner
and a charterer stated that the shipowner would pay a
commission to the broker who had negotiated the
contract but was not party to the contract.
Held : It was held that the broker was a “beneficiary”
of the trust, : the subject matter of the trust being the
contractual right of action created by the promise of
the shipowner
Tort / Restrictive covenants
Tulk V Moxhay (1848)
Facts : P owned several houses in Leicester Square,
and he sold the garden in the cenre to Elms, who
covenated that he would keep the gardens and railings
in their present condition.
The land was sold to the defendants who knew of the
restriction contained in the contract. The defendant
wanted to build on the land and the claimant sought
to get an injunction to stop the defendant.
Held : The covenant could be enforced in equity in
land law, against all subsequent purchasers who had
notice of the covenant.
Statutory exceptions
Price maintenance agreements
Various insurance contracts
Married Woman’s Property Act 1882
S148(4) Road Traffic Act 1927 : allows injured
party to recover compensation from insurance
company.
Damages for 3rd party
The question of the extent to which a contracting
party may recover for loss sustained by a third party
who is intended to benefit from the contract was
raised in :
Jackson v Horizon Holidays [1975] : Lord Denning
Facts : Plaintiff recovered £500 for “mental stress”
due to disastrous holiday.
CA thought that the amount was reasonable because
he was also claiming for the distress that the family
suffered.
But see Woodar Investment Development v Wimpey
Construction (1980) where the HL decided that a
contracting party cannot claim for loss of 3rd party.
Criticisms of Doctrine of Privity
General criticisms against the doctrine :
1) that it failed to give effect to the expressed
intentions of the parties e.g. Tweddle v Atkinson
2) Law was unduly complex, as exceptions lie in trust,
tort & “artificial” exceptions like collateral contracts
3) It was commercially inconvenient. e.g. The
Eurymedon, Scruttons v Midlands
4) Would lead to results that were fundamentally
unjust. e.g. Tweddle v Atkinson, Beswick v Beswick
Contracts (Rights of third parties) Act 1999
Upon the recommendations of the Law commission
report (1996), the 1999 Act was passed.
S1(1)a & b of the act provides : Right of 3rd party to
enforce contractual terms
S1 (1): subject to the provisions of this act, a person
who is not a party to a contract may in his own right
enforce a term of the contract if a) the contract expressly provides that he may, or
b) subject to subsection (2), the term purports to
confer a benefit on him.
Contracts (Rights of third parties) Act 1999
S (3) The third party must be expressly identified in
the contract by name, as a member of a class or as
answering a particular description but need not be in
existence when the contract is entered into.
S(5) …there shall be available to the third party any
remedy that would have been available to him in an
action for breach of contract, if he had been a party…
S(6) Where a term of contract excludes or limits
liability in relation