What is privity of contract?
- General rule in English law (different to civil law systems) is that a
contract can only create rights and obligations for the parties to the
contract
- Established in the 1800s in Tweddle v Atkinson – contract
between bride’s father and groom’s father to give the couple a
marriage settlement couldn’t be enforced by the groom, even
though it specifically provided that he could
- Reasserted by Dunlop v Selfridge – tyre manufacturer couldn’t
enforce an agreement between their distributor and a retailer
that they wouldn’t sell below the manufacturer’s listed prices
– also made clear that privity and consideration are related
but separate doctrines
- Judgments actually suggested that the manufacturer
could have been a party to the contract with the
distributor contracting as their agent – but this wouldn’t
have helped because there was still no consideration
- Confirmed again and applied to negative rights/exemption
clauses in Scruttons v Midland Silicone
- As regards rights for third parties the rule has been criticised a lot
for causing injustice – there are a number of common law
exceptions where the contract can create rights for third parties –
and now we have a wide statutory exception in the Contracts
(Rights of Third Parties) Act 1999
- In multi-party contractual arrangements the parties often have
their own arrangements set up to deal with the privity
doctrine – e.g. chains of liability in the construction industry
where the main contractor is liable to the employer but can
then also recover from the subcontractors – it doesn’t make
sense for the courts to interfere by recognising further rights
between non-contracting parties – recognised in Norwich CC v
Harvey
- But more liberal approach following Henderson v Merrett
Syndicates – negligence DoCs can both get round chains of
contractual liability and be concurrent with contractual liability
- As regards obligations for third parties the rule is less controversial
because imposing duties through other people’s contracts would be
seen as a big infringement of liberty – but there are still some duties
in tort law to respect other people’s contracts
Enforcement by the promisee
- Sometimes the promisee can enforce the promise for the benefit of
the third party – either getting specific performance or damages
which can be passed on to them
- But not always – specific performance isn’t always available –
and damages can normally only be recovered for loss that you
have suffered, not third party losses
- Beswick v Beswick – claimant sued to enforce a contract the
promisor had made with her dead husband to pay her an
annuity, both in her own name and on behalf of her husband’s
, estate – she couldn’t enforce it as not a party, estate couldn’t
recover damages as had suffered no loss, but on behalf of the
estate she could have an order for specific performance
- But this is an unusual case – specific performance often
isn’t available
- If the promisor breaches a promise not to sue a third party, the
promisee can sometimes enforce this by getting a stay of
proceedings – but only if they have a particular interest in the
enforcement of the promise, e.g. because they’ve indemnified the
third party for their liability (Gore v Van der Lann)
- Snelling v Snelling Ltd – directors of a company could enforce
an agreement not to sue the company because they had such
a close connection to it
- Promisee could also recover damages and hold them on trust for the
third party – this is most significant in practice due to limited
availability of specific performance
- Any breach of contract gives an automatic right to damages –
but you will normally only get nominal damages unless you
have suffered loss yourself
- E.g. Beswick – HL assumed that estate could not have
recovered more than nominal damages which was why
specific performance was necessary
- Some exceptions where the promisee can recover damages
for the third party’s loss:
- The Albazero exception – a party to a contract relating
to property can recover for a third party’s losses if it was
within the parties’ contemplation that the property
would be transferred to the third party
- CA extended this to construction contracts made
for the benefit of a third party in Darlington BC v
Wiltshier Northern
- But HL refused to apply it to a construction
contract where the third party had their own
contractual remedy in Alfred McAlpine v Panatown
- The Albazero also held that it doesn’t apply if the
third party is going to enter their own contract
with the promisor
- Jackson v Horizon Holidays – if one person makes a
contract on behalf of a group (e.g. father booking a
holiday for his family) they can recover damages for the
whole group
- But HL held in Woodar v Wimpey that it doesn’t
apply in the commercial context – and were
divided on whether they approved of the decision
at all
- Lord Wilberforce – doesn’t like it
- Lord Scarman – if the promisee contracts for
the benefit of the group they see the benefit
to the group as a benefit to themselves –
they should be compensated for non-
- General rule in English law (different to civil law systems) is that a
contract can only create rights and obligations for the parties to the
contract
- Established in the 1800s in Tweddle v Atkinson – contract
between bride’s father and groom’s father to give the couple a
marriage settlement couldn’t be enforced by the groom, even
though it specifically provided that he could
- Reasserted by Dunlop v Selfridge – tyre manufacturer couldn’t
enforce an agreement between their distributor and a retailer
that they wouldn’t sell below the manufacturer’s listed prices
– also made clear that privity and consideration are related
but separate doctrines
- Judgments actually suggested that the manufacturer
could have been a party to the contract with the
distributor contracting as their agent – but this wouldn’t
have helped because there was still no consideration
- Confirmed again and applied to negative rights/exemption
clauses in Scruttons v Midland Silicone
- As regards rights for third parties the rule has been criticised a lot
for causing injustice – there are a number of common law
exceptions where the contract can create rights for third parties –
and now we have a wide statutory exception in the Contracts
(Rights of Third Parties) Act 1999
- In multi-party contractual arrangements the parties often have
their own arrangements set up to deal with the privity
doctrine – e.g. chains of liability in the construction industry
where the main contractor is liable to the employer but can
then also recover from the subcontractors – it doesn’t make
sense for the courts to interfere by recognising further rights
between non-contracting parties – recognised in Norwich CC v
Harvey
- But more liberal approach following Henderson v Merrett
Syndicates – negligence DoCs can both get round chains of
contractual liability and be concurrent with contractual liability
- As regards obligations for third parties the rule is less controversial
because imposing duties through other people’s contracts would be
seen as a big infringement of liberty – but there are still some duties
in tort law to respect other people’s contracts
Enforcement by the promisee
- Sometimes the promisee can enforce the promise for the benefit of
the third party – either getting specific performance or damages
which can be passed on to them
- But not always – specific performance isn’t always available –
and damages can normally only be recovered for loss that you
have suffered, not third party losses
- Beswick v Beswick – claimant sued to enforce a contract the
promisor had made with her dead husband to pay her an
annuity, both in her own name and on behalf of her husband’s
, estate – she couldn’t enforce it as not a party, estate couldn’t
recover damages as had suffered no loss, but on behalf of the
estate she could have an order for specific performance
- But this is an unusual case – specific performance often
isn’t available
- If the promisor breaches a promise not to sue a third party, the
promisee can sometimes enforce this by getting a stay of
proceedings – but only if they have a particular interest in the
enforcement of the promise, e.g. because they’ve indemnified the
third party for their liability (Gore v Van der Lann)
- Snelling v Snelling Ltd – directors of a company could enforce
an agreement not to sue the company because they had such
a close connection to it
- Promisee could also recover damages and hold them on trust for the
third party – this is most significant in practice due to limited
availability of specific performance
- Any breach of contract gives an automatic right to damages –
but you will normally only get nominal damages unless you
have suffered loss yourself
- E.g. Beswick – HL assumed that estate could not have
recovered more than nominal damages which was why
specific performance was necessary
- Some exceptions where the promisee can recover damages
for the third party’s loss:
- The Albazero exception – a party to a contract relating
to property can recover for a third party’s losses if it was
within the parties’ contemplation that the property
would be transferred to the third party
- CA extended this to construction contracts made
for the benefit of a third party in Darlington BC v
Wiltshier Northern
- But HL refused to apply it to a construction
contract where the third party had their own
contractual remedy in Alfred McAlpine v Panatown
- The Albazero also held that it doesn’t apply if the
third party is going to enter their own contract
with the promisor
- Jackson v Horizon Holidays – if one person makes a
contract on behalf of a group (e.g. father booking a
holiday for his family) they can recover damages for the
whole group
- But HL held in Woodar v Wimpey that it doesn’t
apply in the commercial context – and were
divided on whether they approved of the decision
at all
- Lord Wilberforce – doesn’t like it
- Lord Scarman – if the promisee contracts for
the benefit of the group they see the benefit
to the group as a benefit to themselves –
they should be compensated for non-
