Privity

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Privity =

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A contract doesn't confer enforceable rights on a 3rd party to the contract, nor does it impose an obligation on them.

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Similar to this...

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consideration. (must move from promisee)

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No party can sue unless...

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a) he is a party, and

b) they have provided consideration

case:

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Tweddle v Atkinson

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no consideration from the groom to father in law.

BUT - could also have failed on the fact that groom wasn't a party to the contract.

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Viscount Haldane LC

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said they were distinct in Dunlop Pneumatic Tyre Co v Selfridge & Co

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Dunlop Pneumatic Tyre Co v Selfridge & Co

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Dunlop had a contract with Dew & Co - included 'undertaking' not to sell at prices below Dunlop's except:

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To trade customers.

Then what happened -

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They also have to get THEIR customer to agree the same.

Selfridge bought from Dew and agreed. Broke the promise.

Dunlop tried to sue.

House of Lords - you have no contract between them.

Lord Dunedin said:

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Dew could have = agent for Dunlop.

Which means -

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Latter was a party and could in theory BUT Dunlop would have to prove they had provided consideration TO Selfridge.

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Contracts (Rights of 3rd Parties) Act 1999

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Allows a third party who is neither a party to the contract nor has provided consideration, to enforce a term of the contract in certain circumstances.

BUT 3rd party cannot BE sued on a contract to which not a party.

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This does not mean

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privity is abolished, Act only provides a statutory exception.

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Circumventing Privity

Common Law:

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Agency

Assignment

Trusts

Collateral Contract

Actions in Tort

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Agency

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Agent, expressly or impliedly, authorised to contract on behalf of the PRINCIPAL.

Principal will be bound by contract made with other that falls within the scope of the authority

(which authority?).

Could be argued this isn't an exception as the agent is never actually a party to the contract.

BUT

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If the agent is acting for an undisclosed principle.

i.e. the other party is not even aware of the existence of the principal. Then...

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generally the agent AND the principal can be sued.

Also, if agent contracts without the principal's authority on their behalf - principal may ratify the contract and make it binding and then enforce the contract too.

case:

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Scruttons Ltd v Midland Silicones Ltd

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Chemicals being shipped US to UK. Contract between shipper and carrier had clause limiting liability of damage to 500$/package. Drum damaged by Scruttons, the unloaders. Tried to rely on the limitation clause.

House of Lords said they couldn't because they weren't party and rejected argument that the carriers were acting as Scrutton's agents.

BUT (said a judge):

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if a clause (in the contract they are not a party to) in future is included and suitably drafted this would be possible. Lord Reid

Prerequisites for this arguments success:

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1. Contract of carriage is clear that stevedore is protected.

2. Contract is clear carrier isn't only contracting for self but also as an agent of the stevedore.

3. Carrier has the stevedore's authority to contract.

4. Consideration moves from the stevedore.

also:

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New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon)

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Similar to Scruttons but drafted to fulfil Reid's requirements. First three were completed and consideration = unloading.

= 3 contracts: 1. Carriers & Shippers. 2. Carrier & Stevedores. & 3. Unilateral offer from shippers to Stevedores via agent of carrier = accepted by unloading. (i.e. could argue privity still exists).

Approving Scotson v Pegg.

Also, that the liability = consideration

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Networks?

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.... epilogue

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Assignment

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A contracts B. B ASSIGNS contractual right to C.

Then it MAY be possible for C to sue A on his promise to B. But C's rights can never exceed B's.

cases:

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Linden Garden Trust v Lenestata Sludge Disposals

And

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St Martins Property Corporation Ltd & Another v Sir Robert McAlpine & Sons Ltd

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Together known as st martins property appeal

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Guarantor's Right of Subrogation

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G paid principal creditor. Takes the place of the creditor against the debtor. 'stands in the principal creditor's shoes' and has the same rights against the debtor.

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Trusts

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A passes property to B to hold for C. That requirement to hold can be enforced by C (hold/use the property to C's benefit).

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Collateral Contract

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Shanklin Pier v Detel Products Ltd:

paint supposed to last 7 years. on strength of this Shanklin told contractors to buy Detel's paint. Paint didn't last. Pier sued, but the contract was between their contractors and Detel, not them and Detel.

Justice McNair: Collateral contract existed between S&D. Promise = warranty that paint lasts 7 years, Consideration = instructing contractor to buy paint.

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Actions in Tort

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One party owes a duty of care to another then breach of contract may also be a breach of duty of care under tort. Can choose whether to sue under Tort or Contract. (Tort may be for less normally?????)

(Henderson v Merrett Syndicates Ltd, mcalpine v panatown??)

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Can a 3rd party be owed a duty (under tort)...

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Donoghue v Stevenson says yes. i.e. privity doesn't restrict claims in court.

also:

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Junior Books Ltd v Veitchi

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Could use tort to recover purely financial losses - wouldn't have been able to under contract.

Current Law:

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both work (contract and tort) sometimes:

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Privity is relaxed so 3rd parties can sometimes claim under contract and, conversely, tort has become more difficult to claim under because of the pure economic loss rule (Weller v Foot and Mouth Disease Research Institute).

c.f. White v Jones (1995) - 3rd party did succeed under tort.

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Judicial Attempts to Avoid the Doctrine

(holiday)

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Jackson v Horizon Holidays

Holiday, wife and kids etc. Holiday didn't = description. Sued for breach of contract.

Could only get damages for himself, not the family (for mental distress). Won damages.

Appeal - 'damages excessive'.

Court of Appeal - Plaintiff contracted for himself AND family and therefore could recover for all which meant the damages weren't excessive. Followed:

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Lloyds v Harper

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A contracts for benefit of B, then A can sue for their benefit too.

BUT (against Jackson):

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Woodar v Wimpey

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Didn't overturn Jackson (specific for 'pure enjoyment') but said the Lloyds logic didn't work. Only where A had specific rights to contract so (by contract?????). Therefore be wary of Jackson & Lloyds.

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Judges will try damndest to avoid privity (where is unfair?):

contract to remove asbestos:

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Linden Garden Trusts v Lenesta Sludge Disposals Ltd

employer contracted contractor to remove asbestos. Both parties knew it was to be leased to 3rd party.

Contract contained a clause preventing employer assigning rights to 3rd person w/o contractor's written consent.

Guess what? ASBESTOS!!! Employer assigned rights to tenants. They sued. Fail:No right to sue because of the clause.

c.f.

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St Martins Property Corp Ltd v McAlpine

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Similar facts. BUT the 'employer' was part of the action. On appeal, following The Albazero:

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Shipping case where -

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A and B contracted and both knew there's be a C then the party breaching could be sued by A or B on behalf of C.

exception

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McAlpine v Panatown

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If 3rd party has their own route to sue by then can't use The Albazero principle.

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Statutory Exceptions

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Road Traffic Act 1988:

driver of a motor vehicle is obliged to take out insurance. Injured party can claim DIRECTLY against the insurance company despite not being a party to the contract.

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Married Women's Property Act

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husband can take out policy on life for kids and wife and they can enforce it when he kicks the bucket.

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Companies Act 2006

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Shareholder can sue shareholder by he company's binding constitution.

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Carriage of Goods by Sea Act 1992

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Bill of lading (??) holder can enforce rights of carriage.

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Low of Property Act 1925?

Case:

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Beswick v Beswick:

said would sell business to nephew if a) nephew paid an allowance for life. b) if his wife outlived him a lesser allowance would go to her.

Died, nephew was a dick.

She could enforce specific performance BUT this was only as the executor of the will, not in her own right.

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Contracts (Rights of 3rd Parties) Act 1999

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Allows 3rd party (in limited circumstances) to enforce a term of a contract to which they aren't a party. EVEN if they haven't provided consideration.

Just an exception.

WHEN can 3rd party enforce a term?:

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s1(1)(a) - When the contract expressly provides that they may.

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s1(1)(b) - Subject to subsection (2), the term purports to confer a benefit on him.

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1(1)(b) - Doesn't have to specifically say 3rd party has the right to enforce. But, must establish that...

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The agreement a) purported to confer a benefit and b) that contractors did not not intend the term to be enforceable by 3rd party. i.e. doesn't just give a benefit, but was intended to... (? that right?). And was intended to be enforceable.

case:

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Dolphin & Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening, The Swedish Club:

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A employs B (Dolphin) to pursue a claim against C. To be paid 10% commission. But C agreed to pay up directly with A. B says a) Unlawfully interfered with their contract because can't claim commission. ( b) irrelevant here...) (check this, is it that the other contract breaks theirs??? and they are a contract to it because they would benefit by the ten percent???)

1(1)(b) doesn't cover this. Judge said:

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"A contract doesn't purport to offer a benefit to 3rd party just because they will benefit if the contract is performed. Must be 1 of the purposes of the contract."

how must the 3rd party be identified?:

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s1(3)

expressly, by name, as a member of a class or answering a particular description. But, they need not be in existence when contract is entered into (e.g. unborn child).

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Contractor refurbishing A's bog.

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Avraamides and another v Colwill & another:

Contractor transferred rights AND liabilities to C. Refurbishment was terrible. A couldn't sue C because they weren't expressly named in contractors transfer to C. (Presumably they could still sue the first guy???)

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s1(2)

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s1(1)(b): Does not apply if it appears in the contract that the parties didn't intend term to be enforceable by 3rd party.

BUT:

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If a benefit is purported to be conferred then the presumption is that ability of enforcement was conferred too. Case:

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Nisshin Shipping Co v Cleaves & CO/ The Laemthong Glory.

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s1(6)

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3rd party can also rely on exemption/limitation clauses (see Scruttons v Midland Silicones. Follows the same structure as 1(1)(a) & (b) do for rights.

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Remedies

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s1(5):

any remedy that would've been available as a party is available to 3rd party (in the previously mentioned circumstances above).

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s2(1)

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Parties to contract can't rescind or vary contract to extinguish 3rd party's rights without his consent if - a) 3rd party has communicated his assent (2(1)(a) by words or conduct and if posted only affective once received) to the promisor.

b) promisor is aware 3rd party has relied on the term.

c) promisor can reasonably be expected to have foreseen 3rd party would rely on it and they have actually relied on it.

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2(4)(a)

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Unless 3rd party can't be found or is mentally incapable. Or where reliance can't be reasonably assertained (2(5)).

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Application of the Act

is:

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wide. Applies to almost every type of contract.- Identify relevant contract.- Identify potential 3rd parties- Consider whether 3rd party should be given enforceable rights:- if so, are there any restrictions (e.g. jurisdiction).- Should the Act be excluded (does the contract exclude it)