Privity

Question 1

What is the general rule?

Answer 1

As in Gandy v Gandy per Bowen J - “at law the rule in general is, no doubt, that a contract between two parties that one should do something for the benefit of a stranger, cannot be enforced by the stranger, except in certain exceptional cases.”

Question 1

What did the HOL say in Dunlop’s case?

Answer 1

In this case, the HOL rejected a claim because the claimant was not a party and because no consideration had moved from that party.

In Coulls v Bagots, Windea J said both of these requirements are needed. If one fails, the claim fails.

Question 2

What are ways around the Privity rule?

Answer 2

Dean J in Trident General say there are reasons why the third party can bring an action or rely on the limitation clause. The basis of liability in these cases is some other ground than the contract between the parties.
So where the exclusion or limitation liability clause includes the third party.

Question 3

Other ways around privity?

1.

Answer 3

Collateral contracts where there is a warranty outside the main contract i.e. whether the representation exists outside the main contract.
Shanklin Pier v Detel

Question 4

Shanklin Pier v Detel

Answer 4

P employed contractors to paint a pier and instructed them to buy and use paint made by D.
They did this specifically because they were told that the pier wouldn’t have to be repainted for another 7 years. Unfortunately, wasn’t good paint.
Paint lasted a total of 3 months.
The contract to buy the paint was from the contractors and the paint manufacturers.
P was wishing to sue because the representation had been made to them about the paint would last 7 years.
They were not a party to the contract. Could they bring a claim?

Held: Yes they could because it was a collateral contract between P and D’s relating to the paint.

Question 5

Other ways around privity?

2.

Answer 5

Negotiable instruments where the nature of the contract is such that the privity rule doesn’t apply. e.g. BIll of exchange, a device that can be charged from hand to hand from a purchaser of good faith.
E.g. of a cheque: Anna writes a cheque in favour of Bill. A cheque is an audit to her bank to pay Bill. Bill has no contract with the bank, but he can demand payment from the bank due to the type of contract.

Question 6

Other ways around privity?

3.

Answer 6

Agency - Anna employs BIll to negotiate with Clive on her behalf. Anna is known as the principle and Bill, the agent.
Bill negotiates with Clive. Is the contract between Anna and Clive or Billy and clive?Providing Bill is acting with her authority, contract is between Anna and Clive.

Question 7

Other ways around privity?

4.

Answer 7

One way around the privity rule is by the device of a trust or a promise.

This works like the following:
A promises B that A will confer a benefit on C. (So contract is between A and B, and C is a third party). The promise to confer a benefit has been treated as trust property - the so called trust of a promise.

B holds that trust property on trust for C as trustee. C is the beneficiary. In practice this means that where B brings a claim for damages against Anna for non-performance for A’s failure to confer a benefit to C, then the damages B recovers are not his own (having suffered no loss) but C’s. He holds these on trust for C. He can recover damages on behalf of C. - Les Affreteurs v Leopold.

Question 8

Other ways around privity?

4. Trust : Does it apply in a commercial context?

Answer 8

This may be the case - Wilson v Darling.

One of the requirements of a trust is there must be an intention to create a trust.

Question 9

Other ways around privity?

5.

Answer 9

Assignment where a party to a contract can assign their contractual rights to a third party.

Question 10

Other ways around Privity?

6.

Answer 10

Tort Law.

Question 11

What is a Himalaya Clause?

Answer 11

Himalaya clause was a way of drafting a contract to ensure that the third party could rely on a limitation or a defence in the main contract.

How does it work?
A enters into a contract with B for the benefit of C. But the clause states A enters into a contract with B for the benefit of C and B is the agent for C with C as principle. In other words that B is contract not just on C’s behalf, but as C’s agent. As C’s agent, B stands in the shoes of C.

Question 12

Where did the idea of a himalaya clause come from?

Answer 12

Scruttons v Midland Silicones.

Question 13

Example of a Himalaya Clause?

1.

Answer 13

The Eurymedon.
The third party here was Stevedores. Stevedores unload ships, who were also notorious for dropping things and damaging them.
There was a contract between shipper of goods and carrier.
There was a limitation clause in the contract essentially meaning that there was an exclusion clause in the main contract but the carrier contracted on behalf of others including independent contractors and he contracted on their behalf as agent or trustee.

Held: In this situation, the party to the main contract must have the authority of the third party to act as their agent. In this case, Stevedores had given the carrier authority to contract on their behalf simply because they were part of the same company.

Question 14

The New York Star (Himalaya Clause)

Answer 14

Where the parties are commercial parties and where the court could, they would construe the himalaya clause as effective.

Question 15

Statutory exceptions to the rule of Privity?

Answer 15

Property law Act 1974 (Qld) s55.
Key points:
1. Where act doesn’t apply, common law applies s55(7). So if you can’t bring yourself within the statute, go to common law.

2. For statute to apply, must be a promise by the promisor to act or refrain from acting for the benefit of a third party beneficiary.
   Promise is defined in s55(6)(c).

Question 16

What is a promise under s55(6)(c)?

Answer 16

(c) ‘promise’ means a promise -
(i) which is or appears to be intended to be legally binding; and
(ii) the promise must be intended to create a duty enforceable by a beneficiary.

E.g. A promises B that they will pay $1,000 to C. It has to be intended that C will have a right that is enforceable. There has to be equally, an intention to enter into legal relations (general requirement to enter into contracts).
Sorbello v Sorbello

Question 17

Sorbello v Sorbello

Answer 17

Concerned a life insurance policy.
A husband was a beneficiary under a wife’s will.
When wife knew she was dying, she had discussions with her husband about where life insurance money would go. They discussed children as possible recipients of money. No contract with children.
Any discussion had solely been between husband and wife.
Children tried to bring a claim under legislation.
Qld Supreme Court said there was no intention to enter legal relations between husband and wife in relation to the destination of the money.

Held: Claim knocked out on s55(6)(c)(i).

Question 18

How do you identify a third party?

Answer 18

The third party is known as the beneficiary. Beneficiary defined under s55(6)(b).
They must:
1. Accept promise (as defined in s55(6)(a))made for their benefit
2. No need for consideration
3. Accept within reasonable time after notice of promise being made for their benefit (Re Davies - C accepted the promise over a year later, was said to be too long).

Question 19

What are the consequences of accepting a promise?

Answer 19

You can sue in your own name and recover damages and specific performance. It’s just as if you were a party s55(3)(a)

Question 20

After the promise has been accepted, can C rely on any defences in the contract?

Answer 20

They are a benefit, so yes any defences/limitations in the main contract are preserved too.

Question 21

IF say A promises B that they will pay C $1,000 and all the other requirements are presented, yet B has extracted the promise from A under duress, C hasn’t done anything wrong. Are the defences preserved against the third party?

Answer 21

Yes they are, s55(4).

Question 22

Can you impose burden’s on a third party?

Answer 22

General rule is that burdens cannot be imposed on a third party to a contract.
Obvious exception is the way in which in property law, the burden as well as the benefit of a covenant can pass: Tulk v Moxhay.
A covenant = imposed to restrict use.

Question 23

Assuming the statute or other exceptions don’t apply, can C claim damages for a breach of contract?

Answer 23

General rule is that you can’t because one can only recover for one’s own loss.
Two exceptions:
1. Where one party contracts for a benefit of a group for reasons of convenience Jackson v Horizon Holidays
2. Rules of passage of the property and hence the risk of damage mean that the risk is passed to a third party - Dunlop v Lambert.

Question 24

The Albazero Principle : for Exception to general rule to claim for one’s own loss

Answer 24

Situation where A is the owner of some goods.
A enters into contract with B for transport of goods.
Property in goods has passed to C.
Before goods reach C, they are damaged.
A the original owner has contract with carrier, but because they have no property in the goods, they suffered no loss.
C on the other hand, has a property in the goods, but no contract.
A can recover damages even though property in goods is passed to C. This apply to commercial parties. - The Albazero

In Darlington v Wiltshier - Exception could be used even if there was no transfer of property.