Privity of Contract Flashcards
Privity: Explain it
Rules:
- a relationship between 2 parties that is enforceable by law, if you are not privity of contract you cannot sue to enforce it.
- An independent prerequisite to enforce a contract – not denying the existence of a contract but an issue of parties having standing to sue and enforce rights.
Has its own rules that does not depend on consideration - Dunlop Tires in 1851 clearly recognizes it, prior to that was mixed in with consideration.
Twiddle v. Atkinson (1861), 1 B. & S. 393, 121 E.R. 762 (Q.B.)
(3rd Parties Who Benefit From a Contract Can’t Sue. Interpret This Case as Privity of Contract, Not Consideration)
Issues:
- Can the son sue the father in-law without being privity of contract? No
Rules:
- From a privity standpoint the kid cannot sue the dad since he is not in privity of contract with the dad’s. The dad’s are in a contract with each other in benefit to the kids, but the kids are not in privity of contract.
- When A and B make a contract, even when the entire purpose is for the benefit of C. C cannot enforce the contract even though the purpose is for him.
- The whole purpose of the contract may be for the benefit of the kids, but this does not matter.
- When the entire purpose of the contract is to confer a benefit on a third party, that 3rd party can’t sue if they are not privity of contract.
Dunlop Pneumatic Tyre Co. Ltd. V. Selfridge & Co. LTD, [1915] A.C. 847 (H.L.)
(Similar to Twiddle v. Atkinson)
Issues:
- Can Dunlop sue Selfridge without being in a contract with Selfridge?
Rules:
- You can’t sue a 3rd party for breach of contract when you aren’t in contract with them.
- Privity is not a question of consideration, it is completely separate.
- If A and B make a contract, B cannot enforce a contract made between A and B even when the whole purpose of the contract is for the purpose of C’s benefit.
Beswick v. Beswick, [1968] A.C. 58, [1967] 2 All E.R. 1197 (H.L.)
(Exception to Privity of Contract as an Administrator)
Issues:
- Can the widow sue the nephew without being in privity of contract? Yes, as administratrix
Rules:
- Third parties cannot sue for breach of contract when they were not a party to the contract, even if they were named as a beneficiary of the contract.
- However, the widows is not suing as herself, rather as an administrator of her husband’s estate who would be in privity of contract with those who contracted with the deceased and can enforce a contractual right that is owed to the estate even when the benefits flow to a 3rd party.
-The administrator essentially brings the deceased back alive from the dead.
Exceptions to Privity of Contract
You can use privity of contract as a shield but not a sword.
London Drugs Ltd. V. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299, 97 D.L.R. (4th) 261
(Limitation Clause to 3rd Party/Exception to Privity of Contract)
Issues:
- Can the employees take advantage of the liability clause that exists between London drugs and KN even though the employees don’t have privity of contract with London Drugs? Yes
Rules:
· Principled exception to privity of contract that allows employees to take defence in a contract they were privity to (can’t sue the other parties for breach of contract they can rely on a provision as a defence)
· Can a 3rd party apply this test to positively sue the other 2 parties? No, a limited liability clause can only serve as a defence.
· Need to satisfy 2 requisites:
(1) the limitation clause must expressly or impliedly extend the benefit to the employee
(a) express that’s easy it would just say it, but if it expressly goes against this benefit to the employees then this test dies right away.
(b) impliedly starting point: it’s about the intention of the parties, would a reasonable objective person say in this context (business efficacy, commercial reality, language etc.)
Additional factors when considering implied intent:
(c) identity of interest – the employees and the employer are closely connected; the employer must act through the employees to perform their side of the contract
(i) close identity of interest would militate in favour of them extending the benefit to the employees. The employees are integral to the company.
(d) the suer has a high subjective knowledge that the employees would be carrying out the other party’s side of the contract.
-The people transporting, storing, and subsequently breaking the transformer are not the company themselves, but the employees of the company that handle the transformer.
(e) commercial reality – the third parties have low autonomy, low ability to protect themselves with insurance, low ability to sit at the bargaining table to negotiate extension of the protection clause, low autonomy on how to do their job.
(i) low autonomy militates in favour that the 2 parties intended to extend their protective clause to the employees
(2) employees seeking to invoke the clause must have been in course of employment services that the clause is in relation to – aka doing their job as instructed as opposed to doing something unrelated
(a) doesn’t matter if they were doing their job badly or negligently, the question is only about if they were doing something work related.
Fraser River Pile & Dredge Ltd. V. Can-Dive Services Ltd., [1999] 3 S.C.R. 108, 176 D.L.R. (4th) 257
(Re-Framed London Drugs to Extend to Any 3rd Party)
Issues:
- Can CD who is a 3rd party and not an employee, take benefit from the waiver to subrogation clause in the contract between FR and the insurance company that says you can’t sue charterers?
- Can the 3rd party prevent the 2 parties from changing their contract such that they delete their benefit to a third party (CD)? Yes, BUT it’s a timing issue.
Rules:
· Reframed the London Drugs Test to Extend to all 3rd Parties Not Just Employees:
· (1) The limitation clause that is in the contract between the other 2 parties that the 3rd party is not privity to must expressly or impliedly extend the benefit to the third party.
· (2) If yes, the third party must be doing the very thing mentioned in the clause.
· 2 parties can change their contract to delete their benefit to the third party that is not privy to the contract BUT once the benefit has crystallized (no longer “inchoate” then the benefit can no longer be taken away
· A right crystalizes once it’s of practical value, meaning once it can be used as a defence, in fact, in light of the circumstances
Edgeworth Construction Ltd. V N.D. Lea & Associates Ltd., [1993] SCC
(Application of London Drugs, Failed to Show That Benefit Should Be Extended to 3rd Parties)
Issues:
- Can the third-party engineers (ND) avail themselves to the benefit under the clause for a contract they are not privity to? No, it was not intended for ND to be covered under the non reliance clause obtained by the govt.
Rules:
- A limited liability clause does not exempt parties from liability unless the clause indicates the intention to include other parties.
- This is an application of London Drugs, but when a 3rd party cannot avail themselves to the benefit clause of a contract, they were not privy to.
Test from London Drugs does not extent to independent contractors.
Analysis:
- Starting point is no, ND can’t extend the benefit to themselves because they are not privity of contract but need to apply the London Drugs test.
(1) No express extension of the benefit to another party so need to consider if they impliedly intended.
- Identity of interest: no the engineers were independent contractors, not employees of the province as in the case of London Drugs in their contract with KN that utilized their own warehouse workers.
(2) High subjective knowledge they would be the ones to carry it out: no
(3) Commercial reality: the engineers had high ability to negotiate with gov to protect themselves, also could get their own independent insurance as contractors, make their own contract – independent contractors generally have high level of autonomy compared to employees, they don’t have to do the job since they work for themselves and can contract for themselves, contract case by case. They are not employees that are subject to doing work for an employer who made a contract with a non-reliance/limited liability clause.
(4) Part about doing the job they were contracted to do doesn’t really matter because its obvious the gov wouldn’t have extended the benefit to them since they were an independent contractor.
Because of the highly independent and autonomous nature of ND – it was obviously not the intention of the govt to extend the liability clause.
