The Doctrine of Privity PDF

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Contract Question: Q: "The Doctrine of Privity has become largely irrelevant as a result of the recent changes". Discuss. A: The question, through using the term "recent changes" indirectly refers to the Contracts Act 1999, also known as the Rights of Third Parties. This is to be discussed thoroughly, but first it is essential to consider what led to the creation of this Act. Leading us back to the doctrine of privity. The doctrine of privity states that only parties to a contract can sue or be sued on a contract. This doctrine further has two aspects. First of all, the parties cannot by their contract impose liabilities or burdens upon a third party and secondly third parties to a contract cannot take advantage of the contract even if it were intended to benefit them. For instance, in Tweddle v Atkinson the husband was unable to enforce a promise by his father and father in law to pay him a sum of money as he had not provided any consideration, therefore proving to be a third party under the doctrine of privity. Criticisms are nothing new to this doctrine as it has deemed to be unsuccessful while giving effect to the actual intention of the parties. Therefore leading to unjust results and not proving to be beneficial towards the parties which were intended to have been benefitted. The doctrine was also considered to be commercially inconvenient. In Dunlop Pneumatic Tyre Company Ltd v Selfridge, C sued D on the basis that the promise was enforceable between D and C’s agent. The action failed because consideration had been provided by the agent and not C. Both Tweddle and Dunlop are strict with the view that the claimants could not sue because they had not provided consideration for the defendant’s promise. As a result of this rule a third party was denied benefit in both circumstances although the third party was a beneficiary of the contract. There are exceptions to this doctrine such as, collateral contracts. In such contracts, an agreement made by one of the two contractual parties to a 3rd party is enforceable by a 3rd party. In Shanklin Pier Ltd v Detel Products, C had a contract to purchase paint from D. C was entitled to damages when the product was not of standard quality. Damages were allowed on the basis of C having provided consideration in the form of instructions to their contractors. Other exceptions include, restrictive covenants. These could be enforced against subsequent purchasers of land who were not party to the original contract : Tulk v Moxhay. Furthermore, under the law of trusts, a trust situation could give rise to obligations by parties to a contract to third parties : Les Affreteurs Reunis v Walford. Agents were also entitled to take the benefit of the exclusion clause under the law of agency. Despite not being parties to the contract but they had supplied consideration in the form of performance of the contract. Such was seen in the Privy Council case of The Eurymedon. This is however contrary to Scruttons Ltd v Midlands Silicones Ltd which held that an exclusion clause protecting one party did not have to include that parties employees or agents. Coming towards the recent changes which have reformed this doctrine. We know it as The Contracts (Rights of Third Parties) Act 1999 today. This Act shifted the entire course of the English common law doctrine of privity. By allowing third parties to enforce a benefit conferred

to them. Also allowing the development of the common law in relation to the doctrine and this has created confusion especially in situations where both common law and statute would apply. Additionally parties must bring themselves within the ambit of the Act and they can exclude its operation from their contract. One of the major changes brought about by this Act is that third parties can claim their expressly intended beneficial rights and it is irrelevant whether consideration has been provided. Benefits may be either a positive benefit or such as that of an exclusion or limitation clause. It must be realized that cases like Scruttons Ltd v Midlands Silicones Ltd and Beswick v Beswick would be decided differently if the Act was to be followed over the doctrine. Thus, emphasizing what degree of an effect the Act actually has. The Act is only applicable where the parties clearly express it to be. Two situations may arise during the application of the Act. Under S1(1)(a), if the contract expressly states that a third party is given a right to enforce a term, then it shall. However problems may arise in situations where the contracting parties clearly state not to confer a right of action on the third party. Moving towards the second circumstance, under S1(1)(b), where the parties do not express their intention and are silent over whether the contract term appears to award a benefit on a third party, the difficulty arises in determining the intention of the parties. An exception to this would be under S1(2) where it clearly has been purported within the contract that the parties did not intend the term to be enforceable by the third party. The case of Woodar Investment Development Ltd v Wimpey Construction UK Ltd criticized the decision given in Jackson v Horizon Holidays. And Section 1(1)b of the act now gives a 3rd party a right to claim in such cases. This right is followed by a limitation clause, stated in S1(3) of the Act. A third party must be identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered. Under the Act a third party does not have a right of action in cases where the third party was not identified in the contract. (Linden Gardens) Therefore the Act consolidates circumstances in which a contracting party wants to sue and recover damages over a loss incurred by a 3rd party. Such was not possible before, under the common law. In conclusion, it shall be understood that this Act or the "recent changes" may not seem to abolish the doctrine of privity. Abolishing it altogether would have made it irrelevant. Since that does not seem to be the case, its existence vouches for its relevance. In the sense of providing an overall structure, leading to the creation of the Third Parties Act. The Act in turn, is then acting as a tool and device in further enhancing this concept of third parties and their rights. By filling out the loopholes and overcoming any unfairness as a result of the doctrine of privity....