Privity of Contract

General rule - a contract only creates rights and duties between the parties

1) A third party cannot derive contractual rights from a contract

2) A contract cannot impose a burden on a third party

So, a third party cannot sue or be sued on a contract

Dunlop v Selfridge (1915) - Dunlop sold tires to due and set a minimum price for selling on - Dew sold the tires to Selfridge with a minimum selling price clause in the contract - Selfridge breached the clause - Dunlop tried to sue Selfridge, but had no contract with them - Court said Dew would have to sue on Dunlop's behalf

Often coincides with lack of consideration but doesn't always match up

Exceptions/circumventing privity

Law Revision Committee 1937 - "where a contract by its express terms purports to confer a benefit on a third party it shall be enforceable by the third party in his own name subject to any defences..."

Tort - Donoghue v Stevenson (1932)

Guarantor's right of subrogation

Trusts - not a real exception

Re Schebsman, per Lord Green MR - "it is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention."

Agency

Collateral contracts

Assignment

Judicial exceptions (or activism)

Statute

One party appoints another as agent - authorised to conclude contract as if they were the principle - allows large companies to sell through sales agents etc. - important for international law

Scruttons v Midland Silicones (1962) - criteria per Lord Reid - agency argument could succeed IF clause makes clear...

a) That the stevedore (principal) was intended to be protected by a clause in the contract

b) That the carrier was acting as agent for the stevedore (principal) when entering into the contract

c) That the carrier has authority to act as agent

d) That the stevedore (principal) has provided consideration

The Eurymedon (1974) - the carrier, "its servants, agents and employees" are exempted

Shanklin Pier v Detel (1951) - Shanklin directed painters to Detel's paint - couldn't then sue painters for faulty paint - needed direct right against Detel - collateral contract - Detel promised quality to Shanklin and in return Shanklin directed painters to them

Lots in the construction industry

Benefits in contracts regarded as legal "things" - can assign this benefit to someone else - however can't assign burden - assignment deed - person who has benefit assigned to them can't sue for it - can't take more than original agreement

Judicial activism around this

Can put no assignment clause into contract - also can't take more than originally promised - if defects come afterwards, then argument that full benefit already owned - principle that if it is likely the property will be transferred then original person makes contract on behalf of them and future owner #

Can be a problem if relying on original owner to sue for you

St Martin's Property v McAlpine (1994)

Easier for original owner to sue if part of same company - point of judicial activism is to try and create fairness e.g. ensure against buildings being built with defects, with no one able to claim damages

McAlpine v Panatown (2001) - courts place a limit - can only sue for the losses you have incurred directly

Jackson v Horizon Holidays (1975) - sued for own loss and disappointment after bad holiday - also sued on behalf of family members - Horizon said couldn't do this but Denning said he could - wanted to take it further and say anyone could sue as a third party

Woodar v Wimpey (1980) - retreat from Jackson - didn't allow Denning's widening - said exceptions should only apply in special circumstances e.g. family

Contracts (Rights of Third Parties) Act 1999 ("the Act")

Only modifies first part of principle aka third party cannot sue or be sued on a contract - third party can sue IF

The contract expressly provides for it - s1(1)(a)

The term purports to confer a benefit on him - 1(1)(b)

Can be excluded - s1(2)

Common law exceptions (agency etc.) still apply - s7(1)

Must be expressly identified in contract by either name, class, or descriptions - 1(3)

Need not exist at time of contracting

Has same rights as if were party to contract - s1(5)

Can also rely on certain exemption clauses in the contract - s1(6)