What Problem Was the Contract (Rights of Third Parties) Act 1999 Intended to Solve, and Has It Succeeded?

Topics: Contract, Contractual term, Common law Pages: 9 (3213 words) Published: May 10, 2013
3. What problem was the Contract (Rights of Third Parties) Act 1999 intended to solve, and has it succeeded?

Before we can delve into the question of the Contract Right of Third Parties Act 1999 we must first discuss the ideology of Privity in contract law. This is something that has been prevalent for many years and is a highly controversial doctrine. In this essay I shall discuss the changes bought forward by the Act, define the doctrine and delve into the extent of the success of the Act taking into consideration it's many various criticisms.

The Doctrine of Privity generally details that one cannot impose obligations deriving from it on any individuals who are not the parties bought forward. It is composed of two main rules. Firstly, a third party cannot take burden if he is not a contractual member. This is logically valid and reasonable, as it would be incorrect to subject a third party to a contract he/she is unaware of. Secondly, a person may not sue regarding a contract that fails to list him/her as a party. This is the case even if the contract in question was solely made to benefit the third party. 

This second rule was a highly controversial issue and has a varying past. Prior to 1861 such cases as Dutton and Flannigan had demonstrated that despite this rule, there were instances in which a third party was entitled to sue. However, the case of Tweedle bought this progression to an end, as it concluded that third parties had no such rights in action and 50 years later this was latter reaffirmed in Dunlop.

This second rule was notable for binging out two main concerns. Firstly, when the claimant is seeking to assert a positive right under the contract (largely family arrangements) and secondly where he seeks to rely on a term in the contract as a defence to a claim bought by the claimant (complex commercial arrangements). These two issues can be demonstrated clearly in numerous cases. Firstly, in Beswick a widow was not allowed to seek grievances from the court regarding the lack of fulfilment of a contract made to benefit her, as she was not privy on it. However, she could successfully sue the plaintiff under her husband’s estate which was contrastingly not a benefiter of the contract. This decision eventually bought about justice, but only as the claimant was the “husband” and not third party. This demonstrated how the privity doctrine could give rise to great injustice. Secondly the case of Scruttons demonstrates the second issue regarding exclusion clauses. In this, stevedores hired by Midland silicone negligently dropped a drum of chemicals and were consequently sued. Upon contract with Midland Silicone a limitation clauses stated that maximum liability of claim was $500. The stevedores relied upon this limitation clause in court however it was ineffective in providing the protection sought. The court ruled that the contract was between Scrutton and Midland Silicone, therefore the limitation clause was not applicable to the third party (stevedores). This bought about many commercial issues, s it became apparent that employers could not provide their employees with the benefit of an exclusion clause.

Another important aspect of the doctrine of privity is its relationship with the doctrine of consideration. This can be explained most efficiently using case law. The two leading cases in this relation are Tweedle and Dunlop. The case of Tweedle demonstrated a very close relationship between the two doctrines and emphasised that privity and the rule that consideration must move from the promisee formed one conjoined rule. This can be seen in both cases as in both instances the claimant could not sue due to the fact he had not provide consideration for the defendants promise. Despite the obvious strength of the argument the more widely accepted view was one stated by Viscount Haldane which stated that privity is separate and distinct and that consideration is to be moved from the promisee...
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