Privity

General Rule of Privity

Definition (AO1)

• A third paty cannot enforce a contract to which they are not a party to. (Cannot sue)

  And

• A third party cannot be liable on a contract to which they are not a party. (Cannot be sued)

General Rule of Privity

Source (AO3)

Common law

General Rule of Privity

Case (AO3)

(Beswick v Beswick)

Unlce sold business to nephew on agreement that he’d recieve monthly payments and then his wife would receive monthly payments to wife after his death.

Wife could not enforce payments under privity.

Exceptions to the Privity Rule - Common law

1. Agency - Where Agent for Principal (P) contracts with X - P may enforce or be liable to contract (i.e. estate agent, travel agent, ticket companies etc.)

2. Liability in tort - Contracting party may owe DOC to third party (Donoghue v Stevenson)

3. Recovery of Third Party loss by contracting party as special cases - i.e. group bookings (Jackson v Horizon holidays)

4. Collateral contracts - a second contract (such as a gauruntee) that runs alongside the purpose of the main contract. (Shanklin Pier v Detel Products) - Contract with painters to get paint from Detal Products as they thought it would last 7 years. Paint did not last 7 years and even though, C did not have a direct contract with D, they could still sue. - C’s consideration was the instrunction to painters to use D’s paint.

Attempts to avoid privity

Rules (AO1)

• Covenants run with land andbind subsequent thid party purchaser (Tulk)

• The idea of covenants that run with land, does not applyu to chattles (moveable items) (Port Line)

• A third party can benefit from an exclusion clause IF the original parties intend it (The Eurymedon)

• Actions on behalf of a 3P are not permitted except in commercial cases where A contracts with B so A’s property which is then sold to C (Linden Gardens) - Does not apply where 3P can have an alternative remedy.

Trust Device

Definition (AO1)

A legal device, enforceable in the law of equity, in which a person, known as the trustee, holds property on behalf of another, known as the beneficiary.

Creates a property right on which the beneficiary can sue, even if they are not party to the original contract.

B may sue A on trust for C

Exceptions to the Privity Rule - Statute

Contracts (Rights of Third Parties) Act 1999:

• Allows contracting parties to avoid privity rule; by providing that a third party can enforce a contract to which he is not a party.

• Does not allow a 3rd party to be liable on a contract to which they are not a party

• CPs do have the right to exclude the CRTPA from benefitting the 3rd party.

CRPTA 1999

Definition (AO1)

s.1 CRTPA:

An identified third party may enforce a contract (term) where either s.1(3):

• The contract expressly gives the 3rd party the right to enforce s.1(1)(a)

  OR

• The contract impliedly gives the 3rd party the right to enforce s.1(1)(b)

Indentified third party

Definition (AO1)

Under s.1(3) The 3P must be expressly identified in the contract:

• By name or

• As a member of a class or

• As meeting a particular description

  BUT

• 3P need not be in existence at the date of the contract (i.e. children yet to born or adopted, applying for pensions etc)

Contract ‘expressly’ gives the 3P the right to enforce

Definition (AO1)

States what the benefit for 3P is.

Parties include express term:

• 3P shall have the right to enforce the contract

i.e Someone is entitled to 10% of profits to business.

Contract ‘impliedly’ gives teh 3P right to enforce

Where contract (term) purports to confer benefit on 3P:

• Presumtion is that CPs intend 3P to have right to enforce

  BUT

• Presumption may be rebutted:

  • By express term in contract

Contract (Rights to Third Party) Act 1999

Case (AO3)

(Nisshin Shipping Co v Cleaves)

• Broker negotiated contract between ship owners and charteres

• Contract contained term that commission was payable to broker (3rd party)

• Broker could enforce the contract.

Remedies available to third party

Rule (AO1)

Where 3P has right to enforce contract (term):

• May claim all remedies as if they were a CP:

  • Damages

  • Specific performance