Privity Introduction The rule of "privity of contract"- provides that a person who is not privy to a contract, that is,

a third party, can neither sue nor be sued on the contract. Thus if A enters into a contract with B stipulating that a third party C will swim across the Channel on ew !ear"s #ay , C cannot be compelled to do so against his wishes But the rule of privity is less easy to $ustify where a contract between A and B confers a benefit on a third party C. Under the traditional doctrine, C has no rights under the contract, even if it was intended to benefit him. %egislative reform to allow the third party to sue. It is important to note that C&'(TP)A does not do away with the fundamental rule of privity regarding the enforcement of the benefit of a contract by a third party, but it does create a substantial e*ception to the rule. Common law +eneral 'ule t common law the parties to a contract cannot impose a burden on a third party, nor can they confer a benefit on a third party. It is now established that no stranger to the consideration can ta,e advantage of a contract, although made for his Contracts &'ights of benefit." -Tweddle v Third Parties) Act /000 At,inson !"#$"% It reforms the doctrine of privity& it does not abolish the doctrine. # pay to C.s husband The common law devices under contractual duty which circumvented the and pay to C after C.s effects of privity are still husband pass away- # effective. refuse to pay after the The primary reason for death- C not entitled to sue to enforce the reform of the doctrine of privity was to give effect obligation to ma,e the payments to her. to the intention of the contracting parties. #octrine of privity is affirmed- Beswic, v To give positive benefit Beswic, and negative benefit Under the ct, a third party to a contract can enforce a term of the contract in his own right in two circumstances. 1here the contract e*pressly provides that he may &s./&/)&a)) and the terms of the contract purport to confer a benefit upon him and nothing else in the contract denies the purported benefit &s./&/) &b), s./&2)).

3./4-time of contract to be applied- does not apply in relation to a contract entered into before 5ay //, 2444 !s.l'!(% of the ct% and ct also applies to contracts made during the si* months on or after ovember //, /000, if the contract e*pressly provides that the Act will apply !s.l'!)%%. s./&6)- meaning of promisor and promisee"promisor" means the party to the contract against whom the contract is enforceable by the third party& and the "promisee" means the party to the contract by whom the term is enforceable by the third party &s. "!*%%.

s./&/)-third party.s right to enforce the term or he can enforce to gain benefit unless contract stated otherwise third party can enforce the term if contract e*pressly provide &/)&/) &a) or the term provide benefit to him &/)&/)&b)

Act does not re<uire that the sole purpose of the term be to confer a benefit upon the third party= possible benefit upon a third party and /&/)&b) above will "not some other party.apply if on a proper Prudential Assurance Co Ltd construction of the s./&9) Identity of 9rd v Ayres !(''*% contract it appears that party the parties did not third party must be intend the term to be Promise to e*ercise e5pressly identified in the enforceable by the third reasonable care in contract by name, as a party 7/&2)8. preparing will was not a member of a class or as promise to confer a answering a particular benefit within s/-/-Bdescription but need not ccording to s. /&b) and 0hite v 1ones be in e*istence when the /&2), if there is no contract is entered into. e*pressly stated, then it is presumerd contract in Act confer a benefit favour of 9 party.s upon a party but not one A agreed to "pay any right. which simply improves liabilities properly the position of a third :ven parties did not rd incurred" by B while B party intend the right of 9 has liability to C- 6eld7 no party, it is still such identification in the enforceable unless the case before them, need (n construction of ctt contract clearly stated e*pressly identify the rd must benefit to 9 party they did not intend third party by name or but not only incidental effect- if the 9rd party do class- vraamides v Colwill not have the benefit If the contract was such as he under the neutral on the +uestion, It can confer rights on s.l!(% did not disapply s.l contract only received children yet to be born, the insurance payment &l) &b)- it follows that spouses yet to marry or so that can transfer to parties who do not wish incorporated bodies not the third party to have an insurer, then he cannot yet formed- vraamides v enforce since it is not enforceable right can Colwill the ;benefit. term- so, specifically say so in their under s /&2), on a proper contract, the fact that construction of the 'ight conferred by the they should do so in contract, the parties to contract enforceable but clear and unambiguous the ctt did not intend not by the will- as in terms- Nisshin Shipping such term to be 0hite v 1ones v Cleaves rd enforceable by the 9 party- 2olphin 3aritime v Contrast: Cannot enforce .veriges !(''4% a ;term. which s./ &>) limitation of right contractual defence is rd Benefit included in chain to 9 party nature which needed to rights which are conferred contract-The lin,ed be sub$ected by on the third party "are nature of a chain of arbitration clause 7such sub$ect to and in accordance as e*clusion clause8 as it contracts will not any other relevant terms preclude the application with did not confer positive of the contract- so, rights of the /000 Act-The right to 9rd party 7not conferred on the third party Laemthon !lory precisely is a term,might be limited by other -ortress v Blue ./ye !('"(%. e5press terms of the In Nisshin, 3rd party can contract-eg. stipulate that enforce the term subject to the third party could arbitration clause which is receive a benefit under the not contractual defence in contract only if he applied for nature it within a certain time period.

/ &?) and &@) remedy for B(C and e*clusionAlimitation clause Available in an action for breach of contract, e.g. damages, in$unction or specific performance &s.l&?))= they may ta,e the benefit of an e*clusion or limitation clause &s.l&@))

eed Consideration from 9rd party- The common law rule that "consideration must move from the promisee" has not been abolished by the Act but it does not apply where a third party has an enforceable right under s.l

s.2- Bariation and rescission of the rd contract without 9 party.s consent imC 3ection 2 preserves the freedom of the parties to the contract to rescind the term benefit to 9rd s.2&9)- parties may include an e*press term to rescinded or varied without the third party"s
consent If parties do not include such e*press clause, the provisions of s.2&l)&a)-&c) come into play

fraud, misrepresentation or duress. #ispense the consentC The court &or arbitral tribunal) has the power to dispense with third party consent if the third party"s whereabouts cannot reasonably be ascertained or if they are mentally incapable of giving consent &s.2&>))= or if it cannot reasonably be ascertained whether or not the third party has in fact relied on the term &s.2&?)).

s.9 - #efence for promisor 3ection 9&2) provides that the promisor may raise against the third party, any defence or set-off that could have been raised against promisee in the proceeding !unless the contract show e5press term stated otherwise!s.)!8%%% ) party same as promisee 3o, third party is in the same position as the promisee would have been. The :*planatory otes to the Act state that "a third party can no more enforce a void, discharged or unenforceable contract than the promisee could" : C +ive the following e*ample of the operation of s.9&2)C P/ and P2 are the parties to the contract. 1hen P2 unsatisfied the contract, P/ has the right to e*tinguish the right in ctt to P9 The above e5ample concerns breach of contract but no doubt the remedies available to the third party against the promisor would be similarly diminished or e*tinguished where the promisee has induced a contract by some vitiating factor such as
rd

#ispense but may impose condition to Parties may not rescind or 7 The court !or vary the beneficial term to the compensate detriment of the third party ifC arbitral tribunal%, where it dispenses with third party consent, may impose such conditions third party has as it thin,s fit, including a communicated to the condition re<uiring promisor, by words or compensation to be paid conduct, his assent to to the third party the relevant term &s.2&@)). 7beneficial term8 &s.2 &l) &a))- "postal rule" of acceptance does not apply in this situation &s.2&2)) promisor is aware that the third party has relied on the relevant term &s.2&l) &b)) promisor can reasonably be e*pected to have foreseen that the third party would rely on the relevant term and the third party has in fact relied on it &s.2&l)&c). 'elied- no need cause detriment but the reliance could be beneficial to the third party. All that is re<uired is that the promisor is aware of the relianceAreasonably aware the reliance

2efences can be raised against )rd party from unrelated transaction Dnder s.9&9)- defences or set-offs arising from a wholly unrelated transaction between the promisor and the promisee, may be raised by the promisor against the third party where there is an e*press term in the contract to that effect. : C If under ctt P/ should pay to third party but due to P2 owe to P/, P/ can refused to pay provided this defence can be raised e*pressly stated in ctt 2efence can be raised from previous transaction )rd party cannot relied on invalid term btw promisor and promisee Dnder s 9&@), where an action is brought against the third party and they see, to rely on a term of the contract under s. /!including, in particular, a term purporting to e*clude or limit liability%, they may not do so if they could not have done, had they been a party to the contract. This will be particularly relevant to an e*clusion or limitation clause thus if such a clause is invalid as between the promisor and promisee, it cannot be relied upon by the third party.

s 9&>) provides that the promisor, 7unless the parties have agreed otherwise (s.3(5))], may This will studied under rely on any defences, set-offs or counterclaims e"clusion chapter against the third party which do not arise from the contract itself but from previous dealings. Thus, for e*ampleC If P9 already owes PI E@44. PI has a set-off to P9"s claim so that PI is only bound to pay P9 E>44."

s.&>) and s.&?):nforcement of contract by promisee and promisor protected from double liability The right of the promisee to enforce the contract against the promisor is preserved by s.> The fact that s.9 !above% e5pressly preserves the promisee"s rights could open up the possibility that the promisor is e*posed to double liability in that they might have to compensate both the promisee and the third party in respect of the same loss.

The rules relating to that remedy apply accordingly, be it damages, in:unctions, specific performance or other relief !s."!8%%. s.@ :*empted contracts There are some categories of contract which are e*empted from the operation of the Act. Thus no rights are conferred on a third party in the case of contracts on a bill of e*change, promissory note or other negotiable instrument !s.$!l%%.

loss or damage caused by negligence, other than for death or personal in:ury, must satisfy a re<uirement of reasonableness Thus the promisor may rely on the clause even where the clause would otherwise be regarded as invalid under UCT , if it does not satisfy the test of reasonableness under s."" UCT . clause restricting liability for death or personal in:ury would, of course, be void in any event under s.2&l) of DCTA, so 9rd party can challenge this type of validity Application pointC Act only applies if the contracting parties intend it to provide the third party with the right to enforce a term of the contract by e*press term or giving benefit to 9rd party Benefit will not applied if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party". &/)&/)&b) In addition, if the contracting parties intend the Act to apply, they may vary the e*tent of its application &and thus the e*tent of the benefit provided to the third party) by a number of means. Firstly, they could provide that the contract could be later varied or rescinded by the contracting parties &s.2&9)).

This means that a third party may rely on an e*clusion or limitation clause in a contract of carriage without having to rely on the agency device in ;ew @ealand .hipping Co <td v 3 .atterthwaite A Co <td B"4*8, 3.6- further provisions s.*!l% states that the Act "does not affect any right or remedy of a third party that e*ists or is available apart from this Act" :stablished $udicial e*ceptions to privity will, therefore, continue to e*ist 3o, various devices developed by common law prevent privity still e*ist This allow common law to develop the new device as well. Term can be enforced even failed the reasonableness test under s.(!(%UCT Dnder s.6&2), a third party may not rely on s.2&2) of the Dnfair Contract Terms ct "4** in order to challenge the validity of an e*clusion or limitation clause which restricts the promisorCs liability for loss or damage caused by negligence.

;o rights are conferred on a third party in the case of any contract binding on a company and its This undesirable members under s. "9 of prospect is addressed by the Companies ct "4#8 s.?. !s.$!(%%& 0here the promisee has recovered substantial damages in respect of the third party"s loss, and the third party has an enforceable right under s.l, this will be ta,en into account in any proceedings brought by the third party. Thus any award to the third party may be reduced by the court !or arbitral tribunal% to the e5tent considered appropriate The Act does not provide for the converse situation but presumably any substantial damages awarded to the third party will be ta,en into account in awarding damages to the promisee, although in most cases the promisee"s loss may only be nominal or in the case of the incorporation document of a limited liability partnership or any limited liability partnership agreement as defined in the <imited <iability =artnership >egulations (''" !s.$!( %. ?nforcement of the terms of an employment contract, as against the employee by a third party, are e5cluded !s.$!)%!a%%. a contract for the carriage of goods by sea= a contract for the carriage of goods by rail or road or for the carriage of cargo by air which is sub:ect to the rules of the appropriate international transport convention !s.$!8%%.

6owever, there is an e*ception in that a third party may in reliance on The third party enforces the s.l C&'(TP)A avail contract by receiving any themselves of an remedy that would have e*clusion or limitation been available to him as a clause in such contracts. party to the contract. 3.@&?)

It may be recalled that DCTA s.2&2) re<uires that clauses e*cluding or 3econdly, the contract restricting liability for could provide that the

promisor could avail himself of any and all defences and set-offs available in any action

brought by the third party &s.9&9)). Thirdly, the promisor can limit or e*clude any

liability for negligence &other than death or personal in$ury) in the performance of his

obligation to the third party &s.6&2)).