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Common Law Review
 
Domů arrow Články arrow Issue 1 - The British Constitution arrow 09: Pavlína Hojecká - A Revolution in Privity
09: Pavlína Hojecká - A Revolution in Privity PDF Tisk E-mail

A Revolution in Privity

The Contract (Rights of Third Parties) Act 1999

Pavlína Hojecká

 

 

On 11 November 1999, a revolution in English contract law took place. It was brought about by the UK Parliament when it passed the Contract (Rights of Third Parties) Act. This Act has dramatically changed the doctrine of privity, one of the most important elements in the law of contract.

 

What is - or better to say - what was the doctrine of privity? Put briefly, we could express the basis of this doctrine by two rules: When a contract has been made between two parties, firstly, a third party cannot be subjected to a burden created by a contract to which he is not a party and, secondly, this person who is not a party to the contract cannot claim the benefit of it, even though the contract's purpose was to benefit that third party. It is this second rule that has for such a long time been the cause of enormous controversy because it has often led to decisions which were unjust.

 

A good demonstration of this can be found by taking a quick look at the most famous case concerning privity, Tweddle v Atkinson (1861). In this case, John Tweddle and William Guy made an agreement under which both promised to pay Tweddle's son William a sum of money on the occasion of his marriage to Guy's daughter. The agreement also said that William Tweddle had, as a beneficiary, full power to sue both parties in court if they did not pay. William Guy failed to pay and consequently, the beneficiary turned to the court and sued him. However, the court decided that the beneficiary could not sue in this situation because he was not a party to the contract since he had not provided any consideration for the contracted promise.

 

During the years, the courts have introduced more and more exceptions to this strict rule and also Parliament passed acts excluding certain important legal relations from the ambit of this doctrine: for example, under the Married Women's Property Act 1882, men were allowed to insure their lives for the benefit of their wives and children. But this solved the privity problem only in some limited areas of the law. The need for a more general reform of the privity rule was frequently expressed, especially by judges faced with instances of injustice where they were powerless to help. In 1991 the Law Commission began to work on the problem and its recommendations formed the basis of the Contract (Rights of Third Parties) Act 1999.

 

The Act establishes that the third party can enforce a contractual term if the contract expressly provides that he may or if a term purports to confer a benefit on him. The third party must be expressly identified in the contract and also must be yet in existence. A benefit can be legally conferred on yet unborn persons. This third party is then entitled to any remedy that would have been available to him if he had been a party to the contract. From now on, the parties may not by agreement end the contract or vary it in a way which affects the third party's right without his consent.

 

The Act at the same time protects the promisor from double liability - when the promisee has already recovered a certain sum of money from the promisor for the third party, the court will reduce any award to the third party enforcing the term taking into account the sum already recovered. In the part entitled "Exceptions", the Act attempts to ensure that the change in the law doesn't cause confusion nor undermine the proper functioning of some specific areas which rely on the privity rule, for example the law concerning negotiable instruments, the Companies Act, employment agreements, agency workers or contracts on transport of goods. By establishing this and similar exceptions, the statute anticipates and acts to prevent the problems that had been predicted by jurists before the reform was undertaken.        

 

Pavlína Hojecká

Pavlína Hojecká is a fifth-year student at Charles University Law Faculty and at the Institute of Political Science, Faculty of Social Sciences, Charles University in Prague. She is a former member of the Common Law Society’s Executive Committee.

 
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