Contract Law: Privity of Contract (1)

Introduction: A person who is not a party to a contract (i.e. a third party) cannot acquire rights under or enforce provisions of the contract. Third parties cannot rely on protections of the contract even if contract was intended to benefit them. N.B. Consideration must move from the promisee (Tweddle v Atkinson (1861)). Third parties are not promisees. Complex common law solutions - use of agency, allowing third parties to enforce exemption clauses. Legislation: Contracts (Rights of Third Parties) Act 1999. Third party beneficiaries who satisfy the s.1 enforceability test to enforce the provisions of contracts. Where the test is satisfied, it will not matter if the third party may not have provided consideration for the promise, as long as the promise is supported by consideration supplied by another. If the third party not been given an enforceable right - promisee may be required to enforce the promise for that third party's benefit. 

Remedies available to Third Parties: Specific Performance Recovery of Substantial Damages: No recovery for nominal damages, but two general exceptions: 1) Contract made by one person for the benefit of a group of people, damages recoverable for losses suffered by members of that group (Jackson v Horizon Holidays Ltd [1975]).N.B. Woodar Investments v Wimpey [1980] Group recovery now limited to 'party convenience' contracts i.e. contracts which would call for special treatment (e.g. contracting for family holidays, ordering meals in restaurants for a party).  Reaffirmed that there was no general principle permitting substantial recovery - highly dependent on the circumstances of the case. 2) St Martins Property exception: Promisee may recover substantial damages on behalf of a third party, although the promisee has not suffered any loss.CASES:Linden Gardens [1993]

Assignment:CASE: Linden Gardens v Lenesta Sludge [1994] Owners of building (A) contracted for work to be done by B - contract prohibited assignment of owners' rights. Building transferred to new owners (C), work proved defective. Transfer had been contemplated by parties. In the absence of assignment C could not sue; since A no longer had any interests in the property, would only have nominal damages. HELD: B had to pay substantial damages for the breach - original owner would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance. Narrow and Broad Ground: Lord Browne-Wilkinson (Narrow Ground): A is able to retain the right to sue for substantial damages and recover for the loss suffered by C - contemplated that someone other than A would suffer loss in event of breach. Lord Griffiths (Broad Ground): For supply contract, irrelevant if promisee has proprietary interest - crucial factor is defective performance - result of breach is that the promisee has not received the bargain for which they contracted i.e. Expectation Damages.

Basic Concepts:1. No burdens imposed on third partyCASE: The Pioneer Container [1994] Bailment C, cargo owners, contracted for carriage of goods. Contract entitled subcontracting on any terms - carriage subcontracted to D. Was C bound by a clause between carriers and defendants which provided that any disputes were to be determined in Taiwan (Exclusive jurisdiction clause)? HELD: C bound - they had consented to the cargo being sub-bailed on D's terms. 2. No enforcement by third partyCASE: Dunlop v Selfridge [1915] Tyres sold by appellants to distributor - agreed that they would not be resold at lower price than appellants' list price; and distributor would obtain similar undertakings from any trade buyers. Distributor resold tyres to respondents, who sold tyres below list price. HELD: Action failed - One must be a party to a contract to enforce it; and consideration must be provided for promise to be enforced. 

CASE: Beswick v Beswick [1968] Uncle sold coal business to nephew - nephew due to pay sum per week, then another weekly sum to his widow thereafter. HELD: No third party could compel the promisee to bring the claim by starting proceedings and joining the promisee as co-defendant.

Avoidance of Privity:Agency: The legal device by which one person (the agent) may act on behalf of another (the principal) in forming the contract between that principal and the third party. The Eurymedon [1975]: Enabled third party to rely on exemption clause in a contract to which he was not a party and where the necessary consd'n for the promise was identified. Agents may have authority in various ways: Actual or express authority Implied authority - do what is reasonably incidental to what has been authorised expressly Client may make a representation that the agent is authorised to act in a particular way, even if in fact such authority has not been conferred.  Waugh v Clifford [1982]: Agents could have apparent authority to do things which are actually forbidden, thereby revoking any express / implied authority to do them. 

The principal may also ratify an act done by an agent without authority; the effect is as if the agent had been authorised all along.Limitations on Ratification:1. Undisclosed Principal:  Agent may make contract without disclosing they are the agent. Watteau v Fenwick [1893]: Undisclosed principal may sue or be sued on the contract. Unfair for third parties to find that the contract was with the principal when it appeared to be with the agent. In contracts of a personal nature, undisclosed principals cannot intervene at all.  2. Unidentifiable Principal: Even if the agent discloses that they are acting merely as the agent, there can be no ratification if at the time the contract was made it is not possible to identify the principal (Southern Water v Carey [1985]).

Agency to protect sub-contractors:CASE: Scruttons v Midland Silicones [1962] Bill of lading contained limitation clause. Possible for separate contract between third party and shipper of the goods. The Eurymedon [1975] Contrast - Raymond Burke v Mersey [1986]: Where a stevedore damaged goods before they were unloaded - acceptance of owner's offer only took place when stevedore began unloading, and the goods had already been damaged.  Southern Water v Carey [1985]: Contractor took clause on behalf of nominated sub-contractor, but at time of contract sub had not been selected. 

CASE: Panatown v McAlpine Construction [2000] C employed D to build office block and car park - construction site owned throughout by associate company of C (A). Distinguishing fact: D entered into 'Duty of Care Deed' with A - A was given a direct remedy against the contractor for breaches of qualified contractual terms.  C claimed damages for defective performance of construction contract. A did not seek to bring an action under the DoC deed. HELD: Existence of the DoC deed gave the site owner a direct remedy - narrow ground exception in Linden Gardens could not apply - it was unnecessary because the third party had a direct right of action against the contractor.

Introduction

Avoidance of Privity (III): Assignment

Basic Notions of Privity

Avoidance of Privity (I): Agency

Avoidance of Privity (II): Agency (cont'd)