WEEK 5 Privity of Contract[ 22010 77 ] PDF

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WEEK 5: PRIVITY OF CONTRACT Introduction Privity of contract is the basic notion that a contract between parties can have no effect on a third part. That principle may be good or bad so far as the third party is concerned. The third part cannot be made subject to some liability as a result of the agreement of others, but at the same time, cannot claim any benefit intended for him/ her. Clearly this latter situation may result in injustice to the third party in certain circumstances, and the courts and legislature have developed means by which those harsh results of the privity doctrine can be avoided.

Attempts to confer benefits on third parties General rule: A third party to a contract is unable to acquire rights or benefits under the contract. Wilson v Darling Island Stevedoring Co (1955) 95 CLR 43

Statutory exemptions to the rule Property Law Act 1974 (Qld) Section 55(1): Provides that, upon acceptance, a beneficiary may enforce a promise to confer a benefit upon him. Section 55(6) defines ‘acceptance’ as assent by words or conduct given by the beneficiary or his agent to the promisor or his agent within the time and manner prescribed in the contract, or if these aren’t prescribed, a reasonable time and manner. This section does not apply to someone stepping into the shoes of the promisor. Re Davies [1989] 1 Qd R 48 A beneficiary must be expressly named of described. An ‘incidental’ beneficiary cannot claim the benefit under this section. Re Burns Philp Trustees (unreported, Qld SC, Macrossan J, 17 December 1986) Robt Jones (363 Adelaide Street) Pty Ltd v First Abbott Corporation Pty Ltd (unreported, Qld SC, White J, 28 October 1997) Acceptance must be on its face; an assent, merely acting consistently with acceptance is not sufficient. Re Davies (unreported, Qld SC Ryan J, 22 December 1986) not considered on appeal [1989] 1 Qd R 48 It may be sufficient if the promise comes to the notice of the beneficiary’s solicitor. Re Davies [1989] 1 Qd R 48 An anticipatory acceptance may suffice.

Hyatt Australia Ltd v LTCB Australia Ltd [1996] 1 Qd R 260

Insurance contracts Act 1984 (Cth) Section 48: Provides that a person who is not a party to a contract of general insurance may if they are referred to in the contract, whether by name or otherwise, as person to whom the insurance cover extends, recover the amount of their loss from the insurer in accordance with the contract of insurance.

Exemptions: The law has developed a number of exceptions to the general rule. The main exemptions are as follows:  Agency  Trust  Estoppel Trident General Insurance v McNiece Bros Pty Ltd (1988) 165 CLR 107. In addition to these main exemptions, there are a number of special rules (Himilaya clauses) which have been developed so that third parties can enjoy the benefit of an exclusion clause in certain circumstances. New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd [1981] 1 WLR 138 There rules are as follows: 1. The bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability. 2. The bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore. 3. The carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and: 4. That any difficulties about considering moving from the stevedore were overcome. Note: these rules have been applied to other forms of carriage such as road carriage. Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165

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Note: they have also been applied in other contexts not involving carriage, such as release in an arrangement exempting a race official from liability, where in terms of the rules, the bill of lading represents the contract between the promisor and promise, the carrier represents the promisee and the stevedore represents the beneficiary seeking to enforce the exclusion clause in his/ her favour.

Dyck v Manitoba Snowmobile Association (1981) 5 WWR 97

Attempts to impose liabilities on third parties: At common law, the general rule is that a contract cannot impose a liability upon a third party. An exception to this rule is where a purchaser of land is subject to a restrictive covenant (privity of estate). Tulk v Moxhay (1848) 41 ER 1143

Week 5: TUTORIAL NEGOTIATION EXERCISE At the beginning of this class you need to sit in pairs (there may be a group of three depending on class attendee numbers) in order to undertake a negotiation exercise. This exercise is NOT ASSESSED but is to aid you with your preparation for the in-class assessment which internal students undertake in their Week 6 Tutorial and external students undertake in their External Attendance School. Please note that this week 5 exercise is not the same as the Assessed Negotiation Exercise and you need to follow the separate and different instructions for each. This exercise is much shorter than the assessment. In this exercise each person in the pair will be given a different instruction sheet. You will have 5 minutes to peruse it, then 20 minutes to negotiate with your partner based upon the instructions provided. You will then have 10 minutes to write-up your head of agreement. Please bring a print out copy of the Blank Heads of Agreement pro forma located in module 4 of Air Gondwana. Given the limited timeframe for this exercise, it is suggested that you only use brief dot-points for your Heads of Agreement for this task. You will need to, of course, write in full for the assessed Negotation Exercise in Week 6 and the external attendance school. External Students – during the live zoom tutorial half of you will be asked to read one instruction sheet and the other half will be asked to read the other. You will then negotiate as two separate “teams” and we will discuss the heads of agreement together. QUESTION 5.1 In the Estoppel podcast, the approach to determining the remedy yielded by equitable estoppel is discussed. What are the two approaches identified in the podcast, and what is the High Court’s favoured approach following Giumelli v Giumelli (1995) 196 CLR 101?

QUESTION 5.2 What are the requirements of Property Law Act (Qld), s 55? The elements of Section 55 of the PLA. Are: a) Promisor, consideration, beneficiary b) Ss 6 accpetance (has th e beneficiary accepted the benefit of the promise in accordance to this section ? (time of notice, time of assent, reasonable time). If there is no time indicated on the facts, we need to make note of two exact times: 1. When the beneficiary obtained notice of the promise (different from when the promise was actually made). 2. Need to determine when the beneficiary accepted the purported benefit. (we need to determine if the time between 1 and 2 was a ‘reasonable time’).

If we cannot make out the elements to section 55, then the common law applies (s55(7)).

Trident general insurance case: This is the main case: Mason CJ, Wilson J and Toohey J: Saw the answer in abolishing privity at common law.

Brennan J, Deane J and Dawson J Went with the status quo.

Gaudron J: Went with the status quo but made a new exception:

QUESTION 5.3 In the Privity podcast the relationship between s 55 Property Law Act 1974 and the more general co-called common law exceptions is explained. What is that relationship?

PROBLEM P2 Neon Kitten is an up and coming three member all female rock band. The band was fortunate in being contracted by Chalky Cummins to be the house band at his nightclub called The Cavern in Fortitude Valley, Brisbane. The contract was for a four-year period from 1 December 2018 until 1 December 2022. However, Chalky was a compulsive gambler and heavily in debt. That and ill health from worry over his financial situation led him to decide in January 2019 to sell the nightclub and retire to Tahiti to enjoy a simpler life. On 1 February 2019, he entered into a contract with the young entrepreneur Waldo Watkins, who was making a name for himself acquiring entertainment venues. Chalky felt guilty about needing to give up his business due to his weakness for betting and didn’t want to disappoint his employees and others who contracted with him, like Neon Kitten, who relied on him and the night club for their own livelihoods. He therefore insisted on the lengthy contract including clause 20, which provided that Waldo would “honour all employment and other contracts with Chalky Cummins in effect as at 1 February 2019”. Later on 1 February, Chalky sent an email to all of his employees and other contractors announcing his retirement but advising that they should rest assured because “Waldo also recognises the important contribution you make to the success of The Cavern” and that “as part of the deal he has promised to honour all existing contracts.” Shannon, Neon Kitten’s lead singer and manager, immediately emailed Chalky back to thank him on behalf of the band for his past support and to wish him well with his retirement. She also thanked him for asking Waldo to honour existing contracts because that would give the band the certainty they needed to go ahead with “some exciting innovations” they had planned for their act. Shannon also thought she should email Waldo to welcome him to the club. She googled his name and after checking a number of the results found an email address. She sent an email to Waldo saying that the band looked forward to working with him through to 2022. The following day, 2 February, Shannon made enquiries on behalf of the band about new digital equipment that would project holographic images on the walls behind the night club’s stage. Waldo dropped by The Cavern on 8 February as part of his plan to familiarise himself with the community of employees and contractors associated with the club. He watched Neon Kitten’s rehearsal, which was interrupted when a representative of Techno, the company that sold holographic equipment, dropped by to measure the stage area so the equipment could be customised to the space, and to confirm the company’s quote. The band excitedly told Waldo about their plans, which he agreed would be a “game changer” for club acts. After Waldo left, the band placed an order for the holographic equipment with Techno, which they agreed to pay for by six monthly payments commencing on delivery. The equipment was installed on 15 May and helped to draw large crowds and new fans to the band. Shannon also saw an opportunity for the band to further promote itself and hired the video production company Limelight Crux to film their performance on 3 June in order to produce a music video. They intended to post the video on their YouTube channel and earn income through associated advertising. The Cavern was flanked on either side by shops. When these properties were placed on the market, Waldo saw the opportunity to realise a long-held desire to develop a gaming and entertainment emporium on the combined site, which together occupied a whole city block. He purchased the properties and announced that he would be closing The Cavern

on 1 June 2019 to allow for demolition of the entire block to begin. The announcement took everyone by surprise. Shannon called Waldo on 2 June to protest the closure of the club and reminded him that he had said he would honour the band’s contract. Waldo told her it was “nothing personal – just business”. Without their regular gig at The Cavern, the members of Neon Kitten were concerned about whether they could meet the outstanding amounts due to Techno for the holographic equipment, and whether that equipment, which had been customised to The Cavern, would work elsewhere. They also reluctantly cancelled the Limelight Crux film shoot, and were required to pay a cancellation fee. It transpired that the email address for Waldo that Shannon had found was at the stockbroker firm where he worked until he left two years ago to pursue entrepreneurial opportunities on his own. He therefore no longer had access to that email address. Advise the members of Neon Kitten whether they can enforce the promise by Waldo in clause 20 of his contract with Chalky or obtain any other remedy (assume that Queensland law applies) In your answer, you must explain applicable legal principles and cite relevant authorities. Past exam question...