Privity

• Generally, the principle of privity of contract is that a contract is only enforceable by the parties to that contract, ie only those who are parties to the contract are bound by it and can benefit from it and sue on it. This is seen in Dunlop v Selfridge. This is based on the rule that consideration must move from the promisee as in Tweddle v Atkinson.
• Parliament has, however, stepped in to help third parties claim benefits that are intended for them under a contract. Under the Contracts (Rights of Third Parties) Act 1999, third parties who have a benefit under a contract but who are not a party to that contract are given certain rights to enforce it against either or both of the actual parties to the contract.
• • s.1(1)(a): where the contract expressly states that the third party shall have such a right to enforce the contract.
  • s.1(1)(b): where the contract purports to confer a benefit on them, (Nisshin Shipping o LTD v Cleaves & Co Ltd & Ors), or
  • s.1(3): the third party must be expressly identified in the contract by name, or as a member of a class or as answering a particular description

  However, s.1(2) states that if a term is included in the contract which says the Act is excluded from the agreement then the Contracts (Rights of Third Parties) Act 1999 will not apply.
• Additionally, the changing of a contract to removed a third party's rights via variation or rescission is outlined in s.2. Where a third party has a right under s.1 to enforce a term of the contract, the parties to the contract may not, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if -
• (a) the third party has communicated his assent (approval) to the terms to the promisor;

  (b) the promisor is aware that the third party has relied on the term, or

  (c) the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it
• S.7 indicates that the common law exceptions to privity of contract has not been repealed and include collateral contracts. A collateral contract is a second contract that runs alongside the main agreement and the court may be able to avoid the strict rule of privity if this is found. This is illustrated in Shanklin Pier v Detel Products Ltd, where they found a second contract (that the paint would last 7-10 years) running alongside the main contract.
• An agency relationship is also an exception to the privity rule as the principle is bound by the acts of their agent as they have authorised them to contract on their behalf. If there is a disagreement, the principal and the agent are seen as one person, even though the principal didn't make the contract as in The Eurymedon.
• Another exception is restrictive covenants which relate to land law only, ie property. A covenant is a legal promise, so a restrictive covenant is a promise which restricts the use of the land in some way. They 'run with the land' which means that people who buy the land many years after the original contract containing the restrictive covenant are still bound by it, as in Tulk v Moxhay. It is only the original buyer though who agreed to this term so all subsequent buyers are not 'strictly' parties to that initial contract, however they are bound.
• Finally, as the rule of privity can be harsh and can be seen to cause injustice, the courts have created special cases. Originally seen in Jackson v Horizon holidays where Mr Jackson was the only party to contract but he was able to recover loss for his family members. This was them developed further in Linden Garden v Lenesta Sludge to extend beyond families.