O&A - Privity

Question 1

What is the basic principle of privity?

Answer 1

The doctrine provides that, generally, only the parties to a contract may enjoy the benefits of that contract: only the parties can enforce the contractual obligations or rely on its protections.

Question 2

How did the requirement that consideration must move from promisee to promisor impact upon third parties seeking to enforce contracts?

Answer 2

The general rule is that consideration must move from the promisee to the promisor in regards to the promise the promisee is seeking to enforce. This interpretation of this rule regarding consideration inevitably excluded the vast majority of third parties, even where the contract was made for their benefit, since they rarely provide any obvious consideration.
Authority - Tweddle v Atkinson and Dunlop Pneumatic Tyres Co Ltd v Selfridge & Co Ltd.

Question 3

What arguments question why third party intended beneficiaries of contracts are unable to enforce said contracts?

Answer 3

1. Intentions of the original contracting parties are arguably thwarted – in some instances the intention will clearly be that a certain good or service is provided to a third party (unenforceability serves to undermine this)
2. Injustice to the third party – the third party may have relied upon the promise to receive a certain good or service but is now prevented from enforcing said promise
3. The person who has suffered loss cannot sue but the person who has suffered no loss can sue (the ‘black hole’ problem)

Question 4

What developed as a result of the issues raised above?

Answer 4

1. Case Law based devices to avoid the privity doctrine were developed
2. Recommendations were made for statutory reform of the third party rule in order to allow a third party beneficiary, in certain circumstances, to enforce a contractual provision – this reform is contained in the Contract (Rights of Third Parties) Act 1999.