Privity and rights of third parties

What is privity of contract?

Privity of contract is the common-law principle that a person cannot sue or be sued on a contract unless they are a party to it.

What is the general effect of privity of contract on third parties?

A third party who is not a party to the contract generally cannot enforce its terms and cannot have its obligations enforced against them.

What did Dunlop Pneumatic Tyre Co v Selfridge & Co establish about privity of contract?

Dunlop Pneumatic Tyre Co v Selfridge & Co held that Dunlop could not enforce a resale-price agreement against Selfridge because Dunlop was not a party to the relevant contract.

Why did Dunlop fail to enforce the resale-price agreement in Dunlop Pneumatic Tyre Co v Selfridge & Co?

Dunlop was not a party to the contract containing the relevant resale-price obligation.

Is privity of contract the same doctrine as consideration?

No. Privity concerns whether a person is a party to the contract, while consideration concerns whether that person provided something in exchange for the promise.

What is the combined effect of the doctrines of privity and consideration?

A person generally cannot enforce a contractual promise unless they are a party to the contract and have provided consideration for it.

What did Tweddle v Atkinson establish about privity and consideration?

Tweddle v Atkinson held that a groom could not enforce a promise made between two fathers for his benefit because he was not a party and had provided no consideration.

Why could the groom not enforce the promise in Tweddle v Atkinson?

The groom was a third party to the agreement between the fathers and had not provided consideration for the promise.

What common-law methods may allow a person to obtain contractual rights despite the general rule of privity?

Relevant methods include agency, assignment, collateral contracts, tort claims and limited judicial approaches to recovery for third-party loss.

Is agency a true exception to privity of contract?

No. In agency, the principal is treated as the real contracting party because the authorised agent contracts on the principal’s behalf.

How can agency allow a principal to enforce a contract made by an agent?

The agent must be authorised to act for the principal and to enter the specific contract, making the principal the true party to the agreement.

From whom must consideration move in a contract formed through an agent?

Consideration must move from the principal, who is the real party to the contract.

What authority must an agent possess to bind a principal to a contract?

The agent must be authorised both to act on the principal’s behalf and to enter the particular contract.

What is assignment of contractual rights?

Assignment occurs where one contracting party transfers contractual rights against another party to a third party.

In an assignment involving A, B and C, what does B transfer to C?

B transfers to C contractual rights that B holds against A.

Can contractual rights generally be assigned?

Yes. Contractual rights can generally be assigned, subject to the contract’s terms.

Can contractual obligations generally be assigned?

No. Contractual obligations generally cannot be transferred by assignment.

How can a non-assignment clause affect contractual rights?

A valid non-assignment clause can prevent a party from transferring contractual rights to a third party.

Can a contract expressly permit only limited assignment?

Yes. The parties may agree that assignment is allowed only in specified circumstances or to specified persons.

What did Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and St Martin’s Property Corp Ltd v McAlpine establish about assignment?

These cases established that a valid contractual prohibition on assignment can prevent rights from being transferred despite an attempted assignment.

What happens where contractual rights are purportedly assigned in breach of a valid non-assignment clause?

The non-assignment clause may block the transfer, leaving the intended assignee unable to enforce the contractual rights.

What is a collateral contract used to avoid difficulties caused by privity?

A collateral contract is a separate contract between the promisor and a third party, supported by a promise, communication and consideration.

What elements are needed to establish a collateral contract?

There must be a communicated promise by one party and consideration supplied by the other, creating a separate enforceable agreement.

What did Shanklin Pier Ltd v Detel Products Ltd establish about collateral contracts?

Shanklin Pier Ltd v Detel Products Ltd held that a pier owner could enforce a paint manufacturer’s promise through a collateral contract.

What happened in Shanklin Pier Ltd v Detel Products Ltd?

A paint manufacturer promised the pier owner that its paint would last seven years, and the owner instructed contractors to purchase and use that paint, but it failed much sooner.

What consideration did the pier owner provide in Shanklin Pier Ltd v Detel Products Ltd?

The pier owner provided consideration by instructing the contractors under the main contract to purchase and use the manufacturer’s paint.

Why could the pier owner sue the paint manufacturer in Shanklin Pier Ltd v Detel Products Ltd?

The manufacturer’s assurance and the owner’s instruction to use the paint formed a separate collateral contract between them.

Does privity of contract prevent a third party from bringing a tort claim?

No. Privity limits contractual claims but does not prevent a claimant from suing in tort where an independent duty of care exists.

What did Donoghue v Stevenson establish about privity and tort claims?

Donoghue v Stevenson established that a person who was not party to the purchase contract could still sue the manufacturer in negligence.

Why was the claimant able to sue in Donoghue v Stevenson despite lacking contractual privity?

The manufacturer owed an independent duty of care to the ultimate consumer, so the claim arose in tort rather than contract.

What difficulty arises where A contracts with B for the benefit of C under the strict privity rule?

C may be unable to enforce the contract despite being the intended beneficiary, while A may have suffered no personal loss to claim substantial damages.

What did Jackson v Horizon Holidays Ltd establish about recovery for family losses?

Jackson v Horizon Holidays Ltd took a flexible and unusual approach by awarding damages reflecting the whole family’s loss even though only the father was party to the holiday contract.

Why is Jackson v Horizon Holidays Ltd regarded as an unusual approach to privity?

The court allowed the contracting party to recover damages reflecting losses suffered by other family members who were not parties to the contract.

What did Woodar Investment Development Ltd v Wimpey Construction UK Ltd establish about privity?

Woodar v Wimpey reaffirmed the strict privity rule while recognising that it could produce harsh results where a contract was intended to benefit a third party.

What problem with privity was highlighted in Woodar v Wimpey?

Privity may prevent recovery where the contracting promisee suffers no loss and the intended third-party beneficiary cannot sue.

Which statute creates a major exception to the common-law rule of privity?

The Contracts (Rights of Third Parties) Act 1999 allows certain third parties to enforce contractual terms.

What does the Contracts (Rights of Third Parties) Act 1999 generally allow?

It allows an identified third party to enforce a contractual term in specified circumstances, even though the third party provided no consideration.

Does the Contracts (Rights of Third Parties) Act 1999 allow contractual obligations to be enforced against a third party?

No. The Act allows third parties to enforce qualifying rights but does not generally permit enforcement of contractual obligations against them.

Does the Contracts (Rights of Third Parties) Act 1999 abolish existing common-law methods of avoiding privity?

No. The Act preserves existing common-law methods and exceptions.

Can contracting parties exclude the Contracts (Rights of Third Parties) Act 1999?

Yes. The parties may expressly contract out of the Act, in which case the ordinary privity rule applies.

Under section 1(1)(a) of the Contracts (Rights of Third Parties) Act 1999, when may a third party enforce a term?

A third party may enforce a term where the contract expressly provides that the third party may do so.

Under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999, when may a third party enforce a term?

A third party may enforce a term where it purports to confer a benefit on them and the contract does not show a contrary intention.

What presumption arises under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999?

Where a contractual term purports to benefit an identified third party, there is a rebuttable presumption that the third party may enforce it.

How can the presumption under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999 be rebutted?

It can be rebutted only by clear wording showing that the contracting parties did not intend the third party to have an enforceable right.

What did Secretary of State for DEFRA v PCS Union establish about section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999?

Secretary of State for DEFRA v PCS Union indicated that the presumption in favour of third-party enforcement is very difficult to rebut once a benefit has been shown.

What does section 1(2) of the Contracts (Rights of Third Parties) Act 1999 allow contracting parties to do?

Section 1(2) allows the parties to exclude third-party enforcement by showing that they did not intend the term to be enforceable by the third party.

How must a third party be identified under section 1(3) of the Contracts (Rights of Third Parties) Act 1999?

The third party must be identified by name, as a member of a class, or by a particular description.

Must a third party exist when the contract is made to acquire rights under the Contracts (Rights of Third Parties) Act 1999?

No. The third party may be identified by name, class or description even if they do not yet exist when the contract is formed.

What rights does section 1(5) of the Contracts (Rights of Third Parties) Act 1999 give an eligible third party?

The third party may enforce the relevant term as though they were a party to the contract, including obtaining contractual remedies.

Can a third party obtain damages under section 1(5) of the Contracts (Rights of Third Parties) Act 1999?

Yes. An eligible third party may obtain the remedies that would have been available had they been a contracting party.

What does section 1(6) of the Contracts (Rights of Third Parties) Act 1999 allow a third party to do?

It allows a third party to rely on an exclusion or limitation clause that the contract makes available to them.

Can a third party rely on a contractual exemption clause under the Contracts (Rights of Third Parties) Act 1999?

Yes. Section 1(6) allows a qualifying third party to rely on exemption or limitation clauses.

When do a third party’s rights crystallise under section 2 of the Contracts (Rights of Third Parties) Act 1999?

Rights crystallise where the third party assents to the term, relies on it with the promisor’s knowledge, or foreseeably relies on it.

What is the effect of third-party rights crystallising under section 2 of the Contracts (Rights of Third Parties) Act 1999?

The contracting parties generally cannot vary or rescind the contract in a way affecting those rights without the third party’s consent.

Under section 2(1)(a) of the Contracts (Rights of Third Parties) Act 1999, when is third-party consent required for variation or rescission?

Consent is required where the third party has communicated assent to the relevant contractual term.

Under section 2 of the Contracts (Rights of Third Parties) Act 1999, how does known reliance restrict variation or rescission?

The parties cannot vary or rescind the contract without consent where the promisor knows that the third party has relied on the term.

Under section 2 of the Contracts (Rights of Third Parties) Act 1999, how does foreseeable reliance restrict variation or rescission?

Consent may be required where the promisor could reasonably foresee the third party’s reliance and that reliance has occurred.

What exception under section 2(3) of the Contracts (Rights of Third Parties) Act 1999 permits variation without third-party consent?

The contract may contain an express term preserving the contracting parties’ right to vary or rescind without the third party’s consent.

What may a court do under section 2(4)(a) of the Contracts (Rights of Third Parties) Act 1999 if the third party cannot be found?

The court may permit variation or rescission without the third party’s consent.

What may a court do under section 2(4)(b) of the Contracts (Rights of Third Parties) Act 1999 if the third party lacks mental capacity?

The court may permit variation or rescission despite the absence of the third party’s consent.

What exception applies under section 2(5) of the Contracts (Rights of Third Parties) Act 1999 where reliance cannot reasonably be identified?

The court may allow variation or rescission where it is not reasonably possible to determine whether, or to what extent, the third party relied on the term.

What defences may a promisor raise against a third party under section 3(2) of the Contracts (Rights of Third Parties) Act 1999?

The promisor may raise the same contractual defences against the third party that would have been available against the promisee.

Why may the promisor use the same defences against the third party as against the promisee?

The third party enforces the contractual term subject to the same limitations and weaknesses that would affect enforcement by the original promisee.

What does section 3(6) of the Contracts (Rights of Third Parties) Act 1999 provide about the third party’s position?

The third party cannot be placed in a better position than they would have occupied as a direct party to the contract.

Can a third party obtain stronger contractual rights than a direct contracting party under the 1999 Act?

No. Section 3(6) prevents a third party from obtaining a better position than a direct party would have had.

What problem does section 5 of the Contracts (Rights of Third Parties) Act 1999 address?

Section 5 prevents double recovery where both the promisee and third party seek compensation for the same loss.

What may a court do under section 5 of the Contracts (Rights of Third Parties) Act 1999?

The court may reduce the third party’s award where the promisee has already recovered damages for the same loss.

Can both the promisee and third party recover full damages for the same contractual loss?

No. Section 5 permits the court to reduce the award to prevent double recovery.

What is the main difference between common-law privity and the Contracts (Rights of Third Parties) Act 1999?

Common-law privity generally prevents a non-party from enforcing a contract, while the 1999 Act permits an identified third party to enforce qualifying beneficial terms.

Does a third party need to provide consideration to enforce a term under the Contracts (Rights of Third Parties) Act 1999?

No. A qualifying third party may enforce the term without providing consideration.

What sequence should be followed when analysing whether a third party can enforce a contract?

Begin with the general privity rule, consider common-law routes such as agency, assignment or collateral contract, and then apply the Contracts (Rights of Third Parties) Act 1999 unless it has been excluded.