CONTRACT (RIGHTS OF THIRD PARTIES) ACT 1999
INTRODUCTION
Whilst 1999 Act undeniably leaves unresolved issues which the court has yet to answer – it is a significant improvement from the
common law rule it ablished
WHAT IS 1999 ACT?
Common law doctrine of privity prevents third parties from benefitting from a contract they aren’t a party to
Tweddle v Atkinson: this is because a third party doesn’t provide consideration, and so is a gratuitous promiseee that cannot
enforce contract
Dunlop v Selfirige: “only a party can be a party”
Smith: promissory obligations ‘do not exist in the air: they are obligations undertaken to a particular person, extending to an only to
those persons’
Kincaid = most consistent champion of privity doctrine for two reasons
1. Contractual duties aren’t owed to the whole world like criminal/tort duties – there must be a personal link between right and duty
2. Bargain theory of consideration – something of economic value must be given in exchange for the promise
This rule was criticised and led to unjust results in practice. SO – 1999 Act gives third parties a direct right of action against a promisor if
1. The contract expressly provides that a third party can enforce the term (S. 1(1)(a))
2. The term “purports to confer a benefit” on the third party (S. 1(1)(b))
RESPECTING INTENTIONS OF PARTIES
LC report – privity doctrine failed to respect the intentions of the contracting parties. Surely if A (promisor) and B (promisee)
entered into contract for the benefit of T, T should be able to enforce it
If not – the paradoxical situation arises in which the person who actually benefits from the contract (T) is unable to sue for his loss,
yet the person who doesn’t derive benefit from the contract (B) is
Steyn LJ: principle requires that a burden shouldn’t be imposed on 3rd party w/o consent. But there is no reason why law should
deny effectiveness of contract for the benefit of 3rd party where that is the expressed intention of the parties
SO 1999 Act gives effect to intentions of contracting party. This is supported by fact that a contract has to “expressly provide” for
right of 3rd party
Stevens disagrees; suggests the intention we are concerned with is the promisee’s. Scenario: A promises B that he will pay T $100.
Here, it is not the intention of either A or T that is frustrated if A fails to pay T, it is the expectation of B
Accordingly, Stevens argues that providing T a direct right against A under the 1999 Act fails to give effect to B’s intentions. Rather –
the courts should focus on developing the common law remedies available to B, so that B can obtain damages from A on T’s behalf
Stevens argument = fundamentally flawed
LC points out that, even if the common law developed B’s remedies, the fact of the matter is that B doesn’t always have to sue A on
T’s behalf
E.g. what if B has passed away since the contract came into existence, B is in another jurisdiction or B simply doesn’t want to sue A
In all of the above – T is left without a remedy
If it was A and B’s initial intention that T benefit from the contract, they shouldn’t be able to resile from that contract so easily
without T having a say
So: 1999 Act does respect parties intentions
JUSTICE TO THIRD PARTY?
Stevens: the conflict between intentions and justice to the 3rd party has been resolved too much in favour of the 3rd party
He argues this is undesirable, and criticises the 3rd party from relying on a contract he was not a party to in the irst place
However: it is the privity doctrine that resulted in unjust results
Beswick v Beswick: a man promised his uncle that, after the uncle died, he would pay his wife a weekly sum for the remainder of
her life. Man failed to do so; Mrs B was unable to bring an action (or only able as administratrix of will.
You cannot suggest this is a fair result – why should the promisor be able to back out from his promise without consequence?
Justice for 3rd parties can only be achieved by providing them with a direct right against promisor; 1999 Act achieves this aim
Steyn LJ: 3rd parties organise affairs on faith of contract & rely on it. It is unjust not to give them remedy
Andrews: existing common law = unjust and produced needless complexity
WHAT IF INTENTIONS CHANGE?
The only circumstance in which Stevens is correct in suggesting the act leaves unresolved conflict between intentions & justice is when the
intentions of the contracting parties change
Where A and B no longer intend T to obtain a right to enforce contract, there is virtually nothing they can do
INTRODUCTION
Whilst 1999 Act undeniably leaves unresolved issues which the court has yet to answer – it is a significant improvement from the
common law rule it ablished
WHAT IS 1999 ACT?
Common law doctrine of privity prevents third parties from benefitting from a contract they aren’t a party to
Tweddle v Atkinson: this is because a third party doesn’t provide consideration, and so is a gratuitous promiseee that cannot
enforce contract
Dunlop v Selfirige: “only a party can be a party”
Smith: promissory obligations ‘do not exist in the air: they are obligations undertaken to a particular person, extending to an only to
those persons’
Kincaid = most consistent champion of privity doctrine for two reasons
1. Contractual duties aren’t owed to the whole world like criminal/tort duties – there must be a personal link between right and duty
2. Bargain theory of consideration – something of economic value must be given in exchange for the promise
This rule was criticised and led to unjust results in practice. SO – 1999 Act gives third parties a direct right of action against a promisor if
1. The contract expressly provides that a third party can enforce the term (S. 1(1)(a))
2. The term “purports to confer a benefit” on the third party (S. 1(1)(b))
RESPECTING INTENTIONS OF PARTIES
LC report – privity doctrine failed to respect the intentions of the contracting parties. Surely if A (promisor) and B (promisee)
entered into contract for the benefit of T, T should be able to enforce it
If not – the paradoxical situation arises in which the person who actually benefits from the contract (T) is unable to sue for his loss,
yet the person who doesn’t derive benefit from the contract (B) is
Steyn LJ: principle requires that a burden shouldn’t be imposed on 3rd party w/o consent. But there is no reason why law should
deny effectiveness of contract for the benefit of 3rd party where that is the expressed intention of the parties
SO 1999 Act gives effect to intentions of contracting party. This is supported by fact that a contract has to “expressly provide” for
right of 3rd party
Stevens disagrees; suggests the intention we are concerned with is the promisee’s. Scenario: A promises B that he will pay T $100.
Here, it is not the intention of either A or T that is frustrated if A fails to pay T, it is the expectation of B
Accordingly, Stevens argues that providing T a direct right against A under the 1999 Act fails to give effect to B’s intentions. Rather –
the courts should focus on developing the common law remedies available to B, so that B can obtain damages from A on T’s behalf
Stevens argument = fundamentally flawed
LC points out that, even if the common law developed B’s remedies, the fact of the matter is that B doesn’t always have to sue A on
T’s behalf
E.g. what if B has passed away since the contract came into existence, B is in another jurisdiction or B simply doesn’t want to sue A
In all of the above – T is left without a remedy
If it was A and B’s initial intention that T benefit from the contract, they shouldn’t be able to resile from that contract so easily
without T having a say
So: 1999 Act does respect parties intentions
JUSTICE TO THIRD PARTY?
Stevens: the conflict between intentions and justice to the 3rd party has been resolved too much in favour of the 3rd party
He argues this is undesirable, and criticises the 3rd party from relying on a contract he was not a party to in the irst place
However: it is the privity doctrine that resulted in unjust results
Beswick v Beswick: a man promised his uncle that, after the uncle died, he would pay his wife a weekly sum for the remainder of
her life. Man failed to do so; Mrs B was unable to bring an action (or only able as administratrix of will.
You cannot suggest this is a fair result – why should the promisor be able to back out from his promise without consequence?
Justice for 3rd parties can only be achieved by providing them with a direct right against promisor; 1999 Act achieves this aim
Steyn LJ: 3rd parties organise affairs on faith of contract & rely on it. It is unjust not to give them remedy
Andrews: existing common law = unjust and produced needless complexity
WHAT IF INTENTIONS CHANGE?
The only circumstance in which Stevens is correct in suggesting the act leaves unresolved conflict between intentions & justice is when the
intentions of the contracting parties change
Where A and B no longer intend T to obtain a right to enforce contract, there is virtually nothing they can do
