privity of contract and rights of third parties

Question 1

what is the general rule in the doctrine of privity of contract?

Answer 1

a person who is not a party to a contract cannot acquire any rights under that contract or be subject to any of its obligations

Question 2

Under what circumstances does the Contracts (Rights of Third Parties) Act 1999 enable a third party to directly enforce a term of a contract to which they are not a party?

Answer 2

Where the contract expressly provides that the third party may in their own right enforce the term or the term purports to confer a benefit upon the third party.

Question 3

How do the remedies available to third parties under the Contracts (Rights of Third Parties) Act 1999 compare to the remedies available to parties to a contract?

Answer 3

A third party has available to them the same remedies as the parties to the contract

Question 4

what are the common law exceptions to privity of contract?

Answer 4

• agency
• assignment
• actions in tort

Question 5

what is agency?

Answer 5

agency relationship occurs where one party (agent) is authorised either expressly or by implication by the principal, to contract on behalf of the principal

Question 6

what are the basic requirements necessary to establish an agency relationship?

Answer 6

a) principal should be named (usually by the agent) and it should be clear that agent is contracting on the principal’s behalf
b) agent should be authorised to act as agent
c) consideration has moved from the principal

Question 7

what is assignment?

Answer 7

a party can pass its rights in the contract to someone else but cannot pass its obligation

Question 8

what is the effect if a contract prohibits assignment and there is assignment?

Answer 8

then it is likely any attempt would be unsuccessful (can be done in a non-assignment clause)

Question 9

can 3rd parties claim for actions in tort?

Answer 9

yes they can (privity of contract is not restricted to claims in tort) eg, Donoghue v Stevenson

Question 10

what does the contract (rights of third parties) act 1999 allow?

Answer 10

allows third parties (in limited circumstances) to enforce term of contract to which they are not party

Question 11

what are the elements to allow a 3rd party to enforce a contract to which they are not party (contract(rights of third parties) act 1999)?

Answer 11

contract must specifically provide that 3rd parties can enforce a term of the contract; or
agreement purports to ponder benefit on the 3rd party, and it is not the case that the contracting parties ‘didn’t intend the term to be enforceable by the 3rd party’

Question 12

if collateral contract is found - how does this effect privity of contract?

Answer 12

if a separate collateral contract between a promisor and 3rd party is established then it can avoid the difficulties of privity (providing an exception to the privity of contract doctrine)

Question 13

is a third party subject to limitation and exception clauses in a contract (under contracts(remedies of third parties) act 1999?

Answer 13

yes, third party is limited to the limitation and exception clauses in the contract