LAWS105 Lecture Notes - Lecture 4: Thomas Edward Scrutton, Oral Contract, Australian Consumer Law
LAWS105 – CONTRACT LAW
Wk. 4. - Privity
Only a party to the contract can enforce the contract
The doctrine of Privity states that third parties to a contract (even if beneficiaries
under contract or obligated under contract) cannot enforce the contract, or have the
contract enforces against them.
(Strangers to the contract stay out)
Problem with Privity
Often the contracting party does not suffer the damage.
Example 1: “A” promises “B” to pay “C” $100.
B can seek damages – but B’s damages are nominal (it is C that suffers
the loss if A breaks its promise to pay C $100).
Equitable remedy of specific performance may not always be available (it’s
discretionary). In Beswick v Beswick [1968] AC 58 specific performance was
available on the specific facts of the case.
Defendant received the whole benefit of the contract – “it is a matter of
conscience for the court to see that he now performs his part of it.”
Parties to the agreement were intending an annuity for a widow, and a
lump sum of damages didn’t accord with this.
Origins of Privity
The first Privity case is generally recognised as being Tweddle v Atkinson
(1861) 1 B & S 393.
Promise between the bride’s father and the groom’s father for payment by the
bride’s father to the groom upon marriage.
Bride’s father died before making payment to the groom.
Groom sued the estate of the bride’s father for the promised sum.
Groom was a third party, and not able to enforce the father’s promise.
Wrightman J stated:
“…it is now established that no stranger to the consideration can take
advantage of a contract, although made for his benefit”.
Privity in Australia
Privity was applied in:
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UK: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC
847
Viscount Haldane LC: “only a person who is a party to a contract can
sue on it”.
AUST: Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460.
In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1987-1988)
165 CLR 107 the Australian High Court allowed a third party to enforce an
insurance contract expressed in its favour:
But – decision was confined to insurance, and
s48 of the Insurance Contracts Act 1984 (Cth) had recently abolished
the Privity rule in respect of certain insurance contracts.
Ways Around Privity
Doctrine of privity has been subject to sustained criticism, because the object of some
contracts is to benefit or obligate a third party. We consider:
Common law and equitable circumventions of privity (particularly from the
judgments in Trident v McNiece); and
Statutory modification of the doctrine of privity (the doctrine of privity has
been abolished in England and in parts of Australia – Queensland, WA and
NT); and
the recent “Review of Australian Contract Law” – which attracted submissions
for the abolition of the privity doctrine and the need for statutory recognition
of third party rights.
Judicial Circumvention of Privity
Courts have used various methods, including the following, to circumvent privity (and
assist the third party beneficiary to a contract) :
Agency
Trust
Unjust enrichment
Estoppel principles
Protecting Third Parties: Exclusion Clause
Extract p229 text. Midland Silicones Ltd v Scruttons Ltd [1962] AC 446 noted the
commercial inconvenience (shipping case) of C not being able to rely for protection
on an exclusion clause in a contract between A and B. Lord Reid: the stevedores
could be covered under the contractual clause through AGENCY if certain pre-
conditions were met:
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1. Bill of lading makes it clear that the stevedore is intended to be protected by
provisions in it which limit liability;
2. Bill of lading makes it clear that the carrier, in addition to contracting for these
provisions on its own beehalf, is also contracting as agent for the stevedore (so
the provisions should apply to the stevedore);
3. The carrier has authority from the stevedore to do that, or later ratification by
the stevedore would suffice; and
4. Any difficulties about consideration moving from the stevedore were
overcome.
Legislation Against Privity
The need for statutory recognition has already been acted upon and initiated in three
Australian states.
Statutory modifications and need for harmonisation
Statutory modifications have been made to the privity rule in Australia in Western
Australia (s 11 Property Law Act 1969 (WA)), in Queensland (s 55 Property Law Act
1974 (Qld)) and in Northern Territory (s 56 Law of Property Act 2000 (NT)).
However the legislative approach is different as seen in the three important aspects:
(i) the main provision allowing a third party beneficiary to enforce a benefit in a
contract intended for him or her,
(ii) the contracting parties’ rights to vary or discharge the contract and
(iii) defences available to defendants in proceedings brought by a third party
beneficiary as would be available if the third party had been named as a party.
There are now differing statutory provisions that may allow a third party to enforce a
contract, eg. legislation regulating insurance (Insurance Contracts Act 1984 (Cth),
s48);
Queensland (Property Law Act 1974 (Qld), s55); WA Property legislation
(Property Law Act 1969 (WA), s11); and the Northern Territory (Law of
Property Act 2000 (NT) s56)- have legislated out of privity.
Summary
Privity = persons who are not party to a contract (ie. a third party) cannot enforce the
contract, or have the contract enforced against them.
Possible “commercial exceptions”:
Insurance (because of Trident v McNiece, and also s48 of the Insurance
Contracts Act (Cth));
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Document Summary
Only a party to the contract can enforce the contract. The doctrine of privity states that third parties to a contract (even if beneficiaries under contract or obligated under contract) cannot enforce the contract, or have the contract enforces against them. (strangers to the contract stay out) Often the contracting party does not suffer the damage. Example 1: a promises b to pay c . B can seek damages but b"s damages are nominal (it is c that suffers the loss if a breaks its promise to pay c ). Equitable remedy of specific performance may not always be available (it"s discretionary). In beswick v beswick [1968] ac 58 specific performance was available on the specific facts of the case. Defendant received the whole benefit of the contract it is a matter of conscience for the court to see that he now performs his part of it.
