What is Privity?
Anyone who hasn’t played a direct part in the contract should not enforce anything or have something enforced against them.
So someone who isn’t a party should not have an agreement he didn’t accept enforced against them.
Equally they shouldn’t be able to take the benefits of the contract if they have contributed nothing to it.
E.g. Tweddle v Atkinson
Why controversial?
Only the parties in the contract can be classed as part of the contract. Trad. this excludes those outside a contract, even if you are someone who is meant to benefit form the contract.
can produce unfair results: Dunlop Pneumatic Tyre Co. Ltd v Sleight [1915]
Darlington Borough Council v Wiltshier Northern [1995]
the case that really showed that privity had to change - showed that the law had to serve contractual intentions. This is the modern idea.
The case for recognising a contract for the benefit of a third party is simple and straightforward
a burden should not be imposed on a third party without his consent. But there is no doctrinal, logical or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where that is the expressed intention of the parties.
EXCEPTIONS TO PRIVITY
- Assignment
- Claiming damages on behalf of the 3rd party
- Specific performance
- Collateral contracts
- Statutory reform
Negligence- we don’t need to do this until next year cause its tort.
Claiming damages on behalf of the third party
Where the third party have really lost something.
Construction contracts where a subsequent purchaser is envisaged: Linden Gardens v Lenesta (1994)
Jackson v Horizon Holidays (1975)
Holiday went really wrong. He could claim damages for his own but also for his family even though his family wasn’t on the contract.
These show where the court fights for justice even when the strict privity rules don’t.
Claiming damages on behalf of party
Mr Jackson contracted for a luxury family holiday. But it was very unsatisfactory. He wanted to claim on behalf of the whole family. But originally this was unsuccessful.
Then Lord Denning steps in…
Claimed that it was possible to claim the damages because he created constructive trusts in them- Group contracts in social contexts.
Equity can intervene through SPECIFIC PERFORMANCE:
If there is a breach of contract that causes no loss to a contracting party, but does cause a loss to a third party, the contracting party might ask the court for an order for specific performance which would have the effect of obtaining performance of the contract on behalf of the third party
Beswick v Beswick (1968)
Alllowed fairness without formally undermining pivity.
After the uncle’s death, the nephew would pay the auntie widow . He didn’t pay so she sued and won.
Collateral contracts:
Exists by the side of the main contract-
It can allow someone who is not a party to the main contract, but who is a party to the collateral contract, to take action when they sustain a loss caused by a breach of the main contract.
Shanklin Pier v Detel Products (1951)
EXCEPTIONS TO PRIVITY: STATUTE
- Several statutes provide for exceptions to privity of contract in certain specific circumstances. Examples relating to insurance claims include:
- Married Women’s Property Act 1882
- Road Traffic Act 1988 - you could get around the fact that you weren’t part of the agreement between the road user and the user’s insurer when they cause damage to your car for example.
- Third Parties (Rights Against Insurers) Act 2010
Reforming Privity: Law Commission Report 242
recommended reform of privity because:
- effect was not being given to parties’ intentions
- rule was unfair to 3rd parties, who might rely on a contract that they couldn’t enforce
- The rule was causing difficulties on commercial life
- methods of avoiding the rule and exceptions to it were rendering the law complex, artificial, expensive and uncertain and highlighted the basic injustice of the rule.
- 3rd party rights are recognised in the legal systems of most member states of the EU and in much of the common law world.
Became the Contracts (Rights of Third Parties Act 1999)
Became the Contracts (Rights of Third Parties Act 1999)
May confer a benefit on a non-party enforceable by that non-party against the parties
cannot impose a duty on a non-party or bind a non-party to give up any right
preserves the existing exceptions around privity.
How has the Contracts (Rights of Third Parties) Act 1999 changed the how Privity of Contract operates since May 2000?
- If one of the people confirms to benefit a specific thing/ person etc. They must be specifically named and identifiable
- If the contract says the third party can enforce it- so if they are named In there and if it is obvious that they have a benefit they may be able to sue, provided they are not excluded by any part of the contract.
- Third parties can claim on these specific exceptions.
Does the Contracts (Rights of Third Parties) Act 1999 enable a party who is not a party to a contract to be sued under that contract?
No it doesn’t. Because it confers rights but no obligations. They can not be sued on it. Because if A and B have a contract, why should you be able to sue C.
What conditions must be met for a third party to bring an action under the Contracts (Rights of Third Parties) Act 1999?
IF EITHER
* s1(1)(a) – the contract expressly provides that he can
OR
* S1(1)(b) – the contract purports to confer a benefit on him (unless it appears that the parties did not in fact intend to do so – s1(2)).
AND
S1(3) – the third party must be expressly identified in the contract by name, as a member of a class or answering a particular description.
Tweddle v Atkinson 1861
2 fathers agreeing to settle money on their children who were getting money on eachother. But they both died and the son said they still owed him money. But because he was not a party to the contract, he couldn’t sue on it. The court couldn’t get around this one.
If this was done today, it would be sufficient because it was specifically stated that the son was named to benefit in the contract. (s1 - 1a) and S1 (3)
Beswick v Beswick 1968
Uncle sells coal business to nephew in return to pay his uncle’s benefit and when he dies, he has to pay the uncle’s wife.
This was before the 1999 act so The issue was she was the executrix. This person has the same authority as the deceased person does and because she stepped into the uncle’s shoes and basically became the uncle’s identity. So unlike T v A, the court could get around this but today it would have a different reason for being right. s1 (1b) and s1 (3)
Dunlop Pneumatic Tyre Co. Ltd v Sleight [1915]
