Privity

Doctrine of privity of contract = A person who is **//not//** a party to a contract can **//neither enforce the contract nor incur any obligations under it.//** The rule is that only those who are **//PARTIES (privy)//** to a contract can **//sue or be sued under it: __Trident__; __Coulls__//**


 * (I) Identifying the contracting parties **

· The privity doctrine operates mainly to prevent non-parties from enforcing contractual promises that benefit them · A contract might benefit a third party by way of a positive or negative stipulation · The privity doctrine does **//not//** prevent a contract from **//conferring a benefit//** on a third party, but rather, prevents the third party from **//enforcing the contract//** The privity rule was applied by HC in **//__Coulls v Bagot’s__//**
 * (a) Benefits **

· The privity doctrine also prevents a contract from imposing a legal burden on a third party · The principle exception to this is a restrictive covenant affecting land, which can bind subsequent owners of land
 * (b) Burdens **

· C may be a party when the contract between A and B makes reference to C (in contract or oral statements) and **//is meant to benefit//** · Also, where the contract can be interpreted as **//designating C as a joint promisee//**
 * __Examples of where C may be a party__ **

__ · __ Where C is a stranger to the contract – he is a stranger to deal between A and B · Where C has not given any consideration (if C has done nothing, there is a reduced  chance that he is a party)
 * __Examples of where C won’t be a party__ **


 * In most cases, C is unlikely to prove he is a party. However he may be able to **
 * circumvent the privity rule (//__Trident__//__)__. **

· Ways the privity rule can be circumvented by a person seeking to take the benefit of a contract in which he/she is not named as a party
 * (II) Circumventing the privity rule **


 * (a) **** Agency **


 * // Agent //** = is a person who has power to enter into a contract on behalf of another person. If A acts as an agent for C, then C is a party to the contract. Agency can be explicit or inferred (**//__New York Star__//**)

· Thus, if a person (promised a benefit under a contract) can show that one of the contracting parties entered into the contract as his/her agent-then privy rule circumvented · Circumventing the privity rule has most commonly been relied upon in relation to limitation of liability clauses in contracts of carriage (the ‘Himalaya’ clauses)

liability to cover employees, agents and sub-contractors of the carrier
 * // Himalaya clause //** = where contract includes a clause extending the exclusion/limitation of

· the receipt for the goods · a document of title in that its holder will be entitled to the goods · a record of the contract between the consignor (usually the seller) and the carrier · Shipowner or carrier issues bill of lading to the seller (consignor) when goods consigned for carriage · the bill of lading is forwarded to the buyer (consignee). The buyer presents the bill once the goods arrive and takes them off the ship as the owner
 * // Bill of lading //**

**Himalaya Clauses** It is expressly agreed that **//no servant or agent of the Carrier//** (including every independent contractor from time to time employed by the Carrier) **//shall in any circumstances whatever be under any liability whatsoever to the Shipper, Consignee or Owner of the goods or to any holder of this Bill of Lading for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment//** ... ... and for the purpose of all of the foregoing provision of this Clause **//the Carrier is or//**
 * // shall be deemed to be acting as agent or trustee //** on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including independent contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by this Bill of Lading

· To determine whether a stevedore (persons who load and unload goods) is entitled, under agency, is covered under the exemption clause contained in a contract of carriage made between a carrier and the owner of goods, use four-stage test by Lord Reid in Scruttons Ltd v Midland Silicones Ltd//__.__//

· Bill of lading (contract) makes it clear that the stevedore **//was intended to be protected//** **// à //** look for whether C was in contract that suggested C was to be protected or benefited · Bill of lading (contract) makes it clear that the carrier was **//contracting as agent//** for the stevedore, as well as on its own behalf à look at facts – B doing things on behalf of C. Where there is substantial benefit to B with only a side benefit for C, weakens the argument of agency. · Either the **//carrier was authorised to make the contract//** on behalf of the stevedore or the stevedore **//subsequently ratified the carrier’s actions//** be express or implied, but considering this test came from a shipping test, the courts will probably be looking for something more tangible/substantial. · Stevedore provided **//consideration//** to the promisor **//constitutes giving up something//**
 * 4 stage test to see if stevedore can invoke protection as agent: **


 * (b) Trust **


 * // Trust //** = Where the promisor (A) in a contract with the promisee (B) makes a promise to confer a benefit on C, court may discern an intention on the part of B to hold on trust for C the contractual right to enforce that promise.

If a trust is made out, **C doesn’t become a party, but rather, B is under a fiduciary duty to enforce the contract** on C’s behalf. C can only sue A if C joins B in an action. If B refuses to do this, C cannot do anything – he is powerless.

· The difficult issue is **//when//** the courts will be prepared to **//imply/infer an intention to create a trust//**. · The court must discern that the **//promisee (or both parties) intended that C be able to//** · Existence of trust depends upon **//objective test//.** Look to **//circumstances of the case, the//** sale of car contract). · ** Re Schebsman ** says that courts are **//reluctant to//** //**imply**// a trust **//where only broad//**  · ** EG ** : In **//Trident//**, Deane J concluded that B.C held the benefit of Trident’s promise to indemnify McNiece on trust for McNiece. Thus, McNiece would be given leave to join B.C as a party to the action so that this trust could have been enforce
 * // insist on performance //**.
 * // language //** and **//nature of the contract//** (eg: trust is likely to be created in will, but not in a
 * // language is used //**.

· Where a beneficiary has been induced by a promisor to assume that he/she will receive a benefit under a contract with the promisee, or is a party to the contract, and the beneficiary has detrimentally relied on that assumption, then the beneficiary may be entitled to assert an estoppel against the promisor (A) preventing him from denying the representation. · It is also possible to incur a burden under a contract to which a person isn’t a party representor who is not a party to a contract may be liable when he induces a relying party to act on faith of assumption that the representor will abide by the terms of the contract.
 * (c) Estoppel **


 * (III) Remedies **

· Where A breaches a promise made to B to confer a benefit to C, B doesn’t normally suffer loss. It is C who has lost. In this instance, B (promisee) will only receive nominal damages (**//__Woodar__//**). · If however the B (promisee) has suffered **//actual//** loss from breach, substantial damages may be awarded. If the promisee holds relevant contractual rights on trust for third party, then **//promisee can recover all that the third party could have recovered if the contract was made with the third party//** (**//__Coulls__//**).
 * (a) Damages **

· SP will **//only//** be granted where damages are inadequate. · Will only be available where a **//trust//** can be implied and where the promisee is willing/obliged by a trust to sue on behalf of the third party.
 * (b) Specific Performance **