Contract Law - Privity (9)

Rationale for privity

  • Not a party to a contract, but not real argument -> why not allowed
  • No consideration by the 3rd party? But already consideration by the promisee and possibility to assign his rights to a 3rd party without that consideration
  • Neither party made a promise to the 3rd. The promisor has undertaken obligations towards the promisee and no one else
    • But ignore the intention of the contract parties where they want the 3rd to acquire rights

Cases establishing that a 3rd party cannot acquire rights under a contract

General rule in

  • Tweddle v Atkinson (1861)
    • "no stranger to the consideration can take advantage of a contract, although made for his benefit"
  • Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915)
    • Application of the rule
    • Basis of the rule distinguished from the consideration doctrine (Viscount Haldane)
  • Scruttons Ltd v Midland Silicones Ltd (1962) ✅ confirmed general rule that prevents C relying on an exclusion clause in the main contract.

Judge-made exceptions

Problems caused by the rule

  • it thwarts the intention of A and B where they both intend to give C a right to enforce the contract.
    • If intention, it ❌ C's expectations to enforce it
  • Creates a lacuna in the law, because where a contract intended to benefit C is breached by A, it is often C rather than B who suffers the loss
  • Practical difficulties sometimes
  • Uncertain scope, common law exceptions complex and artificial

Exceptions giving C rights againts a party to the contract

Exception giving B rights to enforce the contract in a manner beneficial to C

The trust a promise

  • A’s contractual promise for C’s benefit is treated as a piece of property, which becomes the subject matter of a trust.
  • Trustee, B = use his ct rights for the benefit of C (suing A if A breach for eg). B can recover for the loss suffered by C and C will be entitled to any damages recovered. C can sue A himself, joining B as a party to the action
  • Limitations
    • Appears : only ct rights to have money paid or pty transferred can be held on trust (other have failed)
    • Courts today reluctant to infer an interntion to create a trust in the absence of clear words such as "trust" (Re Schebsman (1944)). Previous approach could have swallowed the doctrine of privity

Establishing an A-C 'collateral' contract

  • Contract between A and C, which will give C contractual rights against A
    • Not really an exception
  • ex: Shanklin Pied Ltd v Detel Products Ltd (1951)
    • Application in Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd (1965)
  • Seems that the collateral contract usually be a unilateral contract: A will promise that something is the case in return for C carrying out an act, but C is under no obligation to carry out the act
  • Particular form of collateral contract for carriage of goods
    • Need to satisfy the 4 conditions of Lord Reid in Scruttons
    • Himalaya clause
      • states that all exemption clauses and other clauses reducing liability that apply to the carrier’s liability shall also protect his servants and agents
    • The Eurymedon (1976) It was held that B had authority to contract on C’s behalf and that the Himalaya clause showed that C was intended to be protected by the clause laying down the one-year time limit.
      • it was held that C had provided consideration for A’s promise by unloading the goods and delivering them

Assumption of risk by A

  • Sometimes, outisde carriage goods =, the courts may sometimes allow C to rely on a clause in the A–B contract stating that A is to bear a particular risk in order to prevent A establishing that C owes a duty of care in tort to

Tort

Agency

Assignement

Specific remedies

Damages in respect of C's loss

Statutory exceptions: Contracts (Rights of 3rd Parties) Act 1999

Is the contract of a type covered by the Act

Is the s1 test satisfied

Can C's rights be removed or have they "crystallised"

Has B already made a claim against A for breach of contract

Does A have a defence to C's claim

The fate of the judge-made exceptions after the Act