LLB 120 Lecture Notes - Lecture 12: Himalaya Clause, Relying Party, Rescission
Week 12: 263
Privity
The dotie of Piity states that a peso ho is’t a paty to a otat at efoe the
contract or incur any obligations under it
In order to sue on a promise, the plaintiff must not only have given consideration in return
for the promise, but must also be a promisee
The plaintiff must be a party to the contract
Benefits
The Privity doctrine operates to prevent non-parties from enforcing contractual promises
that benefit them
A contract may benefit a third party by positive or negative stipulation:
1. One of the parties might undertake a positive obligation to confer a benefit on the
third party. E.g. a party might enter into a contract with B under which A agrees to
pay oey to C i etu fo the poisio of B’s seies to A
2. A contract between A and B might confer a benefit on C in the form of negative
stipulation. E.g. the owner of land might engage a builder to perform building work
for A on the understanding that B will subcontract some carpentry work to C
The doctrine of Priity does’t peet a otat fo ofeig a eefit o a thid paty,
but prevents the third party from enforcing the contract
Coulls v Bagot’s
Trident v McNiece
Burdens
The Privity doctrine prevents a contract from imposing a legal burden on a third party
A contract between A and B cannot restrict the terms on which goods may be sold by C who
purchases the goods from B. I.e. the contract between A and B cannot impose obligations
on C
Exception – restrictive covenant affecting land, which can bind later owners of the land. The
late oes ae oud y Piity of estate athe tha Piity of otat
This principle applies only to restrictive covenants and not to positive covenants e.g. a
promise to keep an adjoining house in good repair
• See Tulk v Moxhay – pg 268 – plaintiff owned land in Leicester Square and several
houses. He sold the land in the square to Elms, who covenanted it for himself and his
heirs and assigns not to build on the land. The defendant purchased the land with
knowledge of the oeat. He as theefoe oud y the plaitiff’s euity ad the
plaintiff was able to stop the defendant from building on the land
Non-application of the Privity Rule
Two circumstances to show a party not directly involved in the contract formation is a party
to the contract:
1. Where one of the parties who is involved acts as agent for the non-involved party
2. Where one of the involved parties transfers contractual benefits to the non-involved
party by way of assignment or novation of the contract
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Agency
The Piity ule does’t apply if a peso poised a eefit ude a otat a sho that
one of the parties involved in the contractual negotiations entered into the contract as his
or her agent
An agent is a person who has power to enter into a contract on behalf of another person.
E.g. if A, acting as an agent of C, makes a contract with B, then C is a party to that contract
To establish the existence of an agency relationship, it is necessary to show that the
principal expressly or impliedly consented to the agent acting on his or her behalf so as to
effet the piipal’s elatios ith thid paties
No formality is necessary for the appointment of an agent
Necessary to show that an agent is acting on behalf of the principal and not solely on his or
her own behalf, unless the contract is later ratified
Ratification refers to the adoption or confirmation of a contract by a person who was not
originally bound by it
Contracts for the carriage of goods commonly contain a clause exempting or limiting liability
for loss or damage to the goods. Sometimes called Himalaya clause. They have the effect of
saig gossly egliget people fo the oal oseuees of thei egligee
See Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd – pg
270
Stevedore – a person employed at a dock to load and unload ships
In order to determine whether a stevedore is entitled, on the basis of agency, to take
advantage of an exemption clause contained in a contract of carriage made between a
carrier and the owner of goods, courts applied the four stage test established by Lord Reid
in Scruttons Ltd v Midland Silicones Ltd.
1. The bill of lading (which sets out the terms of a contract of carriage) makes it clear
that the stevedore was intended to be protected
2. The bill of lading makes it clear that the carrier was contracting as an agent for the
steedoe as ell as it’s o ehalf
3. Either the carrier was authorised to make the contract on behalf of the stevedore or
the steedoe late atified the aie’s atios
4. The stevedore provided consideration to the promisor
See Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Aust) Pty Ltd (The New York
Star) – pg 271 – the requirements were met
Assignment and novation
In certain circumstances contractual parties may transfer their contractual rights and/or
obligations to a third party
An assignment involves the transfer of some or all of the contractual rights owed to one
contractual party (the assignor) to a third party (the assignee)
The dotie of Piity does’t peet the assigee fo efoig the otatual ights
that have been assigned because ownership of the rights has been transferred
Only non-personal rights may be assigned
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Document Summary
The do(cid:272)t(cid:396)i(cid:374)e of p(cid:396)i(cid:448)ity states that a pe(cid:396)so(cid:374) (cid:449)ho is(cid:374)"t a pa(cid:396)ty to a (cid:272)o(cid:374)t(cid:396)a(cid:272)t (cid:272)a(cid:374)t e(cid:374)fo(cid:396)(cid:272)e the contract or incur any obligations under it. In order to sue on a promise, the plaintiff must not only have given consideration in return for the promise, but must also be a promisee. The plaintiff must be a party to the contract. The privity doctrine operates to prevent non-parties from enforcing contractual promises that benefit them. A contract may benefit a third party by positive or negative stipulation: one of the parties might undertake a positive obligation to confer a benefit on the third party. E. g. the owner of land might engage a builder to perform building work for a on the understanding that b will subcontract some carpentry work to c. The doctrine of pri(cid:448)ity does(cid:374)"t p(cid:396)e(cid:448)e(cid:374)t a (cid:272)o(cid:374)t(cid:396)a(cid:272)t f(cid:396)o(cid:373) (cid:272)o(cid:374)fe(cid:396)(cid:396)i(cid:374)g a (cid:271)e(cid:374)efit o(cid:374) a thi(cid:396)d pa(cid:396)ty, but prevents the third party from enforcing the contract.
