Privity

1. Introduction

Generally, a third party cannot enforce nor be liable on a contract to which they are not a party.

 

STATUTORY EXCEPTIONS

Intro

The Contracts (Rights of ___ _____) Act 1999 outlines two situations in which a third party to a contract can enforce it (but it does not impose any liability on the third party).

For any of the two exceptions to apply, the TP MUST be expressly identified in the contract.

The third party does not need to ____ at the time of the contract formation, as long as they can be identified when the contract is to be enforced.

If a TP can enforce a contract, they are entitled to the ____ remedies as the original contracting parties.

 

1. Exception 1: The Contract Expressly Provides for Third-Party Rights

TPs can enforce a contract if the contract itself ______ states that a third party may do so. The contract must explicitly specify that the third party has the right to enforce the term.

 

2. Exception 2: The Contract Purports to Confer a Benefit on the Third Party

If it appears that the contract was intended to benefit the TP, there will be a rebuttable presumption that the contracting parties intended the TP to have the right to enforce.

 

JUDICIAL EXCEPTIONS

1. Agency

When one party (the agent) enters into a contract on behalf of another party (the principal), allowing the principal to sue or be sued under the contract even though they were not directly involved in its formation.

However, the principal cannot claim the benefits of a contract if the agent explicitly represents themselves as the principal. In other words, if an agent clearly states they are acting on their own behalf (rather than on behalf of a principal), the actual principal cannot later step in and enforce the contract.

 

2. Tortious Liability

A third party who suffers ______ as a result of negligent actions taken during the performance of a contract may bring a claim in tort, even though they are not a party to the contract. This allows them to claim damages under tort law.

 

3. Recovery of Third-Party Loss by Contracting Party

A contracting party can recover damages for losses suffered by a third party due to a breach of contract, even though the third party was not a party to the contract.

 

4. Collateral contracts

A collateral contract is an independent agreement that promises something in addition to the main contract, often providing assurances or guarantees. If a third party is involved in or benefits from this collateral contract, they may be able to enforce it.