Privity AO3

Question 1

privity - intro

Answer 1

Privity of contract means that only those who are parties to a contract are bound by it and can benefit from it - Dunlop v Selfridge

• Unfair for third parties – lack rights to be able to sue – links to consideration (third parties did not offer consideration - Tweddle v Atkinson (1861)
• Most of Privity is common law – goes against separation of powers (Montesquieu) and Parliamentary supremacy – judge-made law, judges unelected and therefore unaccountable BUT Contracts (Rights of Third Parties) Act (1999) – some statutory law – was this a missed opportunity to consolidate the law into a single statute?

Question 2

privity - para 1 ao1

Answer 2

Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd (1915) - The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances

BUT - the rule has been modified by the Contracts (Rights of Third Parties) Act (1999)
The Act allows that someone who is not party to a contract (a ‘third party’) may enforce the contract against either or both of the actual parties to the contract if:
- The third party is expressly identified by name, or as a member of a class of as answering
a particular description, and
- The contract expressly provides the third party may enforce the contract, or
- The contract term is an attempt to confer the benefit of the term on the third party

Question 3

privity - para 1 ao3

positives of the Contracts (Rights of Third Parties) Act 1999

Answer 3

• Positive – gives third parties rights to sue in some circumstances – maintains freedom of contract based on rules as contract has to basically say they can – giving the main parties the right to decide if third parties can benefit or not.
• The general rights given under the Act are well structured and easier to understand than a series of common law exceptions
• Allows a way around cases like Beswick v Beswick (1967) and makes sure the wishes of the original parties are respected.

Question 4

privity - para 1 ao3

negatives of the Contracts (Rights of Third Parties) Act 1999

Answer 4

• BUT - The parties to the contract have the right to exclude the Act from benefitting a third party. Most commercial contracts now include such a term so the Act is not as useful as might be hoped – has never been challenged in the courts effectively – suggesting courts accept this as allowed.
• Seems odd that an Act of Parliament can be excluded – but again maintains freedom of contract – if parties want a third party to be able to sue then they can include this, and they can also make sure they cannot sue if they want to by excluding the Act – thus maintains true freedom of contract for the contracting parties.

Question 5

privity - para 2 ao1

Answer 5

Other ways around the strict rule of privity
* Increasing damages to avoid the rule/suing on behalf of others - Jackson v Horizon Holidays Ltd (1975)

• Agency - An agency arises when one person, the agent, is authorised to make a contract on behalf of another person
• Collateral contracts - Shanklin Pier Ltd v Detel Products Ltd (1951)
• Restrictive covenants - Tulk v Moxhay (1848)

Question 6

privity - para 2 ao3

Answer 6

Other ways around the strict rule of privity
* courts have developed a range of common law methods to avoid the rule of privity where they think it is equitable to do so – however this has arguably led to inconsistency and complicated the law

Collateral contracts - Shanklin Pier Ltd v Detel Products Ltd (1951)
* very inconsistent with other areas of contract law such as offer & acceptance and consideration as these were arguably not present in this ‘collateral contract’. Court acted out of equitable reasons only but didn’t follow the law.

Question 7

privity - conclusion ao3

Answer 7

• Reform proposal – consolidate the law into an Act of Parliament – unlikely after centuries – common law retains flexibility to change. Law unlikely to be changed – no public appetite for change – lack political will to change this
• Current law allows freedom of contract - The Act provides a sensible balance between protecting the interests of the third parties but still ultimately allowing the original parties to be clear about exactly what, if any, rights the third party can have