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Law Quarterly Review

2004

The Contracts (Rights of Third Parties) Act 1999

Robert Stevens
Subject: Contracts
Keywords: Privity of contract; Third parties
Legislation: Contracts (Rights of Third Parties) Act 1999

*L.Q.R. 292 I. INTRODUCTION

IN order to acquire contractual rights against another it is necessary to fulfil two conditions.1 First it is
necessary to be a promisee. Second consideration must move from the party seeking to enforce the
promise. To state either only a party to a contract may acquire rights under it or consideration must
move from the promisee is to say the same thing. Both of these formulations are a conflation of the
two conditions into one rule.2 Each condition will generally point to the same result3 but this will not
always be so. The point may be clarified by an example.
A promises B that he will pay 100 to whoever returns his missing cat. C relying upon the promise
returns the straying feline without having been requested to do so by either A or B.
Neither B nor C has any contractual rights against A but for different reasons. B has no contractual
rights against A because he has provided A with no consideration. C has no contractual rights against
A because he has not been promised anything by A. Most third parties to a contract will not be able to
satisfy either condition but some may satisfy one but not the other.
The Contracts (Rights of Third Parties) Act 1999 (hereafter the Act) has abolished neither rule but it
has created an exception4 to each of them. The Act has received almost universal praise. It is the
central thesis of this article that the arguments in favour of reform were not as overwhelming as they
appeared and that the problems created may be as great as those solved. Answers to the problems
raised will be suggested but not all will be uncontroversial.

II. THE ARGUMENTS FOR REFORM

The Act is a result of the Law Commission's Report Privity of Contract: Contracts for the Benefits of
Third Parties (hereafter the Report). Whilst the Act differs in some respects from the Law
Commission's draft Bill it *L.Q.R. 293 is clear that the Report is the main interpretative guide for the
Act, the debate in Parliament adding little.

1. The intentions of the original contracting parties are thwarted

The first, and presumably primary, argument for reform is that failing to give the third party rights
prevents effect being given to the intentions of the contracting parties. It is submitted that this
formulation of the argument disguises the real problem. If A promises B that if B paints A's house he
will pay C 100 it is not the intentions of the parties (plural) which are frustrated if A cannot be
compelled to pay C after the work is done. Rather it is the expectations of B, the promisee, which are
frustrated.5 If A, the promisor, wishes to comply with his original promise all he needs to do is keep it.6
Can the Act be justified as ensuring that the promisee's intentions are fulfilled? If the promisee
already has adequate remedies available to him then this argument for reform loses its independent
force. Further, even if the promisee's remedies are defective, if the concern is to give effect to his
intentions the most natural focus for reform would have been to ensure that he had adequate
remedies to enforce the promise made to him. Reform of the promisee's remedies was rejected by
the Law Commission in the Consultation Paper and was not reconsidered.7
Two reasons were given. First the promisee may not be able to sue. The promisee may be dead, ill,
outside the jurisdiction or unable to finance the claim. On its own this fails to justify giving the third
party rights. It is always the case that a party owed an obligation may not be able to sue. This is not

Does it mean that

in normal
bileteral contracts
the parties do not
intend to create
legal relations?
- is it the same
intention?

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generally seen as justifying giving rights of enforcement to others. Further there is no greater
likelihood that it will be the promisee rather than the third party who is unable to sue. Choosing to
reform the rights of the third party rather than the rights of the promisee cannot therefore be justified
by arguing that the promisee might be bankrupt as it is just as likely that the third party may suffer that
fate. Second it was argued that the promisee may choose not to sue. Once however it is accepted
that the concern is with the intentions of the promisee this argument has no force. If the promisee has
chosen not to enforce his current intentions are not frustrated and he has no interest in giving effect to
his original intentions where these have changed.
Intentions have the unfortunate habit of changing. If our sole concern is to give effect to the intentions
of the contracting parties then the third party should not possess rights of enforcement where the
parties no longer *L.Q.R. 294 intends this. The parties are not, however, always given the choice as
to whether the third party retains his rights once acquired. Once a third party has acquired the right to
enforce a term under the Act, the contracting parties will lose the right to vary the third party's
entitlement if the third party has communicated his assent to the term to the promisor or the third
party has relied upon the term when the promisor is aware of or could reasonably be expected to
have foreseen such reliance.8 In some circumstances therefore the result will be that the promisee's
current intentions will be frustrated9 :
B agrees to sell his business to A in return for A paying B's wife C 100,000. B falls out with his wife
and they agree to divorce. C learns of the agreement between A and B and informs A that she
assents to the payment being made to her. B is no longer free, contrary to his current intentions, to
renegotiate the deal with A so that it is he who is paid and not his wife.
The Act entitles the promisor to invoke against the third party some of the defences that would have
been available to him against the promisee.10 It does not, however, either entitle or require him to
invoke any defence against the third party which would have been available to the promisee against
the third party. This can lead to the frustration of the promisee's intentions.11 This problem is most
serious where the third party has induced the promisee to enter into a contract for his benefit through
a misrepresentation, duress or undue influence. Once the third party's right has become irrevocable
there is no mechanism where by the promisor is either required or able to invoke against the third
party the defences which would have been available to the promisee. An assignment procured by the
misrepresentation, duress or undue influence of the assignee could be set aside by the assignor.
There is no similar redress available to the promisee under the Act.
What if the promisee never subjectively intended the third party to acquire rights of enforcement
against the promisor, although the contract objectively interpreted does confer such rights? If a term
purports to confer a benefit upon the third party he is presumed to be able to enforce the term unless
it can be shown on a proper construction of the contract that the parties did not intend the term to be
so enforceable.12 Whilst the Act does not expressly say so, it appears that the test is the objective
construction of the agreement rather than the parties' subjective intentions.13 At first sight this seems
unobjectionable. The normal rule is that promises are assessed *L.Q.R. 295 according to what a
reasonable person in the position of the promisee would have thought. It should be necessary that a
reasonable person in the position of the promisee would have concluded that the promisor intended
that the term should be enforceable by the third party. It should not, however, be sufficient. The
justification for interpreting from the perspective of a reasonable person in the position of the
promisee is to protect the promisee from the prejudice which he might suffer as a result of relying on
a false appearance of agreement.14 Where therefore the promisee does not intend the promise to be
enforceable by the third party the application of the opposite interpretation cannot be justified by
appealing to the principle of objective interpretation. This explains why in many jurisdictions in the
United States the courts look to the subjective intent of the promisee to determine whether the third
party has rights of enforcement rather than applying the more usual objective assessment.15 Again it
must be stressed that the fact that the promisor subjectively intended the promise to be enforceable
by the third party is of no relevance if the promisee did not so intend. If the promisor wishes the
promise to be fulfilled all he has to do is keep it.
It may be objected that the third party has an interest in the application of an interpretation of the
agreement from the perspective of a reasonable person in his position. A third party may act upon the
fact that the contract appears to confer an enforceable right upon him.16 Adopting an interpretation in
accordance with that of a reasonable person in the position of the third party would not, however,
accord with the normal approach to construction. If the reasonable third party would conclude that the
contract conferred rights of enforcement upon him but neither the promisor nor the promisee
subjectively so intended, it would be contrary to general principles to hold the contracting parties to a

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deal that neither of them wanted.17 Similarly if the promisor mistakenly thought that he was not
agreeing to give the third party rights of enforcement and the promisee knew of the promisor's
mistake there would be no enforceable promise regardless of the appearance of agreement to a
reasonable third party.18 Construing the contract solely from the perspective of a reasonable third
party would be to ignore those situations where the parties' subjective intent is relevant to the
agreement they have struck. Whether the interpretation of a reasonable third party is to be adopted
depends upon whether *L.Q.R. 296 removing the potential for injustice to the third party is seen as
the true basis for reform.

2. Injustice to the third party

Here the concern is with the reasonable expectations of the third party particularly where the third
party has relied on that contract to regulate his or her affairs. 19 It may be queried how deserving of
sympathy a party who relies upon a promise made to someone else is. Such a person runs the risk
that it will not be kept. The only party who has legitimate expectations generated by a promise is the
promisee. If A agrees to build a shopping arcade for B it would surely go too far to allow someone
who bought a shop near by in the hope of attracting the customers of the arcade a claim against
either A or B if the arcade is never constructed.
It may be objected that the position is different where the contract clearly contemplates that the third
party will acquire enforceable rights. It is submitted that this is not so. If it is accepted that a party who
relies upon a promise made to them does not, without more, acquire a right to sue the promisor,
either by was of contract or promissory estoppel,20 it follows a fortiori that a party who relies upon a
promise made to someone else should not acquire the right to enforce the promise.
Further, even if it were thought that the reliance of the third party upon the promise made to someone
else did justify giving them rights, it does not justify this reform. Under the Act the third party acquires
rights against the promisor as soon as the contract is entered into.21 No reliance is required.
Even the more limited claim that the expectations generated by the contract justify giving the third
party rights of enforcement does not justify the reform enacted. The third party's rights are not
contingent upon any expectations being created. The third party acquires rights under the contract
even if he does not know of the contract's existence. As will be seen, it is also possible for the
contracting parties to agree that the third party's rights are irrevocable from the outset without it being
demonstrated that he has either assented or relied upon the contract.

3. The person who has suffered the loss cannot sue, while the person who has
suffered no loss can sue
The argument that the third party rule created a lacuna where the promisee had a claim for breach
but no adequate remedy whilst the third party suffered a loss but had no cause of action does not
explain why the *L.Q.R. 297 appropriate response was to give the third party rights of enforcement
rather than reform the remedies available to the promisee. Further the argument is predicated upon
the law not providing the promisee with adequate remedies. This premise is doubtful.
Where the promisee is contractually obliged to the third party to confer the benefit upon him no lacuna
exists.22 In the United States it has become accepted in all states that a third party may in certain
circumstances enforce a contract made for his benefit. The decision of the New York Court of
Appeals in Lawrence v Fox 23 laid the foundation for this proposition. Holly owed $300 to Lawrence.
Holly lent this same sum to Fox in exchange for Fox's promise to pay it to Lawrence. Fox failed to pay
Lawrence, who successfully claimed against him, but no lacuna arose necessitating this result.
Lawrence had a claim against his debtor Holly. Holly would then have a claim against Fox for
damages for breach of contract.
Even where the third party is a donee with no right against the promisee to the benefit, the promisee
may have a specific remedy capable of ensuring that the promisor is held to his promise.24 In Tweddle
v Atkinson 25 a husband's father and father-in-law agreed to pay a sum of money to the husband,
adding that the husband should have the power to sue them in any court of law. The husband claimed
unsuccessfully against his deceased father-in-law's executor. If the same facts were to occur today
the husband's father could obtain specific performance against the wife's father's executor and
compel the payment of the money.26 No lacuna would therefore exist.
Where the third party has no rights against the promisee and the only remedy available to the

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promisee is damages is there a lacuna? An example of the problem is given by Lord Goff of
Chieveley in Alfred McAlpine Construction Ltd v Panatown Ltd 27 :
a wealthy man who lives in a village decides to carry out at his own expense major repairs to, or
renovation or even construction of, *L.Q.R. 298 the village hall, and himself enters into a contract
with a builder to carry out the work to the existing building which belongs to another, for example to
trustees, or to the parish council.
Can the philanthropist recover substantial damages against the builder if the work is defective? The
answer now turns upon the speeches in the House of Lords in Panatown.
Panatown employed McAlpine to build an office block and multi-storey car park on a site in
Cambridge. Panatown alleged that the building was seriously defective. The site was not, however,
owned by Panatown but by its holding company Unex Investment Ltd (UIPL). On the same day that
the construction contract was entered into, McAlpine signed a duty of care deed in favour of UIPL
undertaking to take reasonable care and skill in carrying out the building contract.
Panatown sought to recover damages against McAlpine on two grounds. First that they were entitled
to recover damages on behalf of the third party (the narrow ground). Secondly that they were
entitled to damages in their own right because they had not received what they were promised (the
broad ground). The narrow ground, whilst accepted in principle, was found to be inapplicable by all
five members of the House of Lords. The broad ground was accepted by Lord Goff and Lord Millett,
who dissented, but rejected by Lord Jauncey of Tullichettle and Lord Clyde. Lord Browne-Wilkinson,
who had expressed sympathy for the broad ground in Linden Gardens Trust Ltd v Lenesta Sludge
Disposals Ltd 28 and conceded that examination by academic writers had discovered no serious
difficulties with it, was not prepared to allow it to succeed where the third party had a right of
enforcement in his own right.
The narrow ground had its genesis in the context of carriage of goods by sea29 but is now of most
significance in relation to building contracts. An employer has therefore been allowed to recover
against a builder for the loss suffered by a purchaser of the building who had no contractual rights
himself against the builder.30
Traditionally the narrow ground has been confined by two limitations. First that the loss or damage
was caused to property which had been foreseeably transferred by the promisee to a third party; and
second that the third party had foreseeably not acquired any contractual rights against the promisor.31
The first limitation has been eroded by decisions of the Court of Appeal.32 In the House of Lords four
members of the House considered *L.Q.R. 299 that the narrow ground was inapplicable on the basis
of the second limitation: UIPL had its own contractual claim under the duty of care deed and this
precluded Panatown's recovering on UIPL's behalf.33 Only Lord Millett considered it inapplicable on
the basis of the first limitation.34 On one view, the foreseeable transfer of property from the promisee
to the third party is merely evidence of an intent that the promisor's performance benefits the third
party.35 If so, such intent should be capable of proof in other ways. In the example given by Lord Goff
no lacuna would therefore exist.
The Law Commission state that they would not wish to forestall further judicial development of this
area of damages. 36 To this end s.4 of the Act states that section 1 does not affect any right of the
promisee to enforce any term of the contract. It may be queried what the effect of s.4 is in relation to
claims by the promisee to claim damages on behalf of the third party. If the third party has a valid
claim in his own right under s.1 of the Act this would appear to rule out a claim based upon the narrow
ground. However, is the effect of s.4 that such rights as the third party may have under the Act are to
be ignored in determining the damages recoverable on behalf of the third party? If the existence of a
claim under the Act prevents damages being recoverable on behalf of the third party, the exclusion of
double liability in such a case enacted by s.5 appears otiose. However, on balance it is submitted that
the fact that the third party has a claim under the Act should prevent damages being recoverable on
his behalf by the promisee and this is the view of the Law Commission.37 In most cases, therefore, a
claim by the promisee based upon the narrow ground will no longer succeed. To this extent the Act
has stultified the development of this area of damages.
If the narrow ground is unavailable, can the promisee recover on the basis that he has suffered a
loss? In the example given by Lord Goff it is submitted that there would, on any view, be a loss if,
after the work had been done, the philanthropist reasonably employed a second builder to remedy the
defective work or at least was likely to do so.38 Can the promisee recover substantial damages even

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where this is not so? Lord Goff and Lord Millett would allow recovery in such circumstances where it
is reasonable to do so. In the example given by Lord Goff the third party *L.Q.R. 300 would have no
contractual right against the promisor and so Lord Browne-Wilkinson may well also have been
prepared to allow recovery.39
Support for the broad ground may be drawn from the context of the sale of goods. A purchaser of
goods is entitled to the difference in value between the goods he was promised and those he
received regardless of the use to which he puts the goods.40 If A purchases a gift from B which is to
be delivered directly to his wife C, A may recover substantial damages if the gift is not of satisfactory
quality even if C is perfectly happy with it and would never be parted from it. In Attorney General v
Blake 41 Lord Nicholls suggested, albeit obiter, that this approach should be adopted in the context of
defective services.42 This is not an identical solution to that of Lord Goff and Lord Millett as Lord
Nicholls would allow the promisee to recover the difference in market value between the service he
was promised and the service he received regardless of whether the service received was for his
purposes perfectly adequate. Lord Goff and Lord Millett, by contrast, would allow the promisee the
cost of remedial work.
The weight of authority would seem to favour allowing the promisee to recover substantial damages
for his own loss in the situation where the lacuna is said to exist. The keenest supporters of the Act
are strongly critical of this approach.43
What is the position where the third party has a claim under the Act for the loss he has suffered in
addition to a claim the promisee has to the separate loss he has sustained? Section 5 of the
Contracts (Rights of Third Parties) Act was intended to prevent the promisor's potential double liability
and provides that where the promisee has recovered a sum in respect of the third party's loss or the
expense to the promisee of making good to the third party the defective performance the award to the
third party should be reduced. This provision would be of no assistance, however, in the case of
recovery on the broad ground. If we take again the example of the husband's gift, what is the
position if the wife obtains the right of enforcement under the Act because it cannot be shown that the
parties did not intend that she should not? If the husband recovers substantial damages from the
seller, s.5 appears to offer the seller no protection from a claim by the wife. The husband's claim is for
his loss, not *L.Q.R. 301 his wife's and he does not have to use the sum recovered to make good the
gift's defects in quality.
In Panatown Lord Millett suggested that the loss recovered by the promisee reflects the loss suffered
by the third party and that payment to either will pro tanto discharge the liability to both. He suggests
that the promisee's action should be stayed until it is clear that the third party has suffered no loss.44
Lord Goff disagreed, seeing the promisee's rights as primary and the third party's rights as
subordinate45 so that if the promisee recovered the third party would suffer no loss, presumably on the
basis that the promisee would use the funds to effect cure.
Allowing the third party rather than the promisee to recover damages leads to apparently anomalous
results. Two examples may be given:
B agrees to sell his car to A for 5,000, delivery and payment to take place the following week. In
breach of contract A repudiates the deal.
If the market value of the car is 5,000 A, prima facie, has no damages to pay.46 B's loss is the
difference between the contract price and the market price: zero. What if A had agreed to pay the
price not to B but to C? If the presumption that the contract is to be enforceable by C is not rebutted
what loss may C claim under the Act? C has available any remedy that would have been available
to him in an action for breach of contract if he had been a party to the contract. 47 It is clear that C is
entitled to the normal measure of recovery (the expectation measure).48 C is entitled therefore to be
placed in the same situation with respect to damages as if the contract had been performed.49 C may
therefore claim damages of 5,000. Unlike the case where the promise is to pay B, the absence of
counter-performance from B does not appear to be taken into account in assessing the damages
payable by A.
Another example:
A agrees to build two houses and stables on B's land for 200,000, payment earned upon completion.
When the houses are finished but the stables incomplete A tells B that he has run out of money and
cannot finish.50 It will cost 20,000 to complete the work.

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Again, B will almost certainly have no claim for damages from A. It will cost him less than the contract
price to complete the work and he neither has to pay the agreed sum nor reasonable remuneration for
the work done. *L.Q.R. 302 What if the buildings were built on a third party's land rather than the
promisee's? Again, if the presumption that the contract is enforceable by the third party cannot be
rebutted the third party appears to be entitled to substantial damages, either the cost of completion or
the difference in value between the work done and the work promised. The anomaly arises from
treating someone who is not a contracting party as if they were.
Perhaps the Act may be interpreted so as to avoid these results. That the third party is to be treated
as if he had been a party to the contract could be read as meaning as if he had bargained for the
performance himself. If correct, the third party should not be treated more advantageously than the
contracting party. However, treating the third party's damages as capped by the loss suffered by the
promisee is contrary to the general approach of seeing the third party's claim as independent of that
of the promisee.

4. Even if the promisee can obtain a satisfactory remedy for the third party, the
promisee may not be able to or wish to sue
This has been discussed above.51

5. The development of non-comprehensive exceptions

The Report argues that there are a number of exceptions or circumventions of the third party rule.
There are some genuine exceptions.52 Undisclosed principals may acquire contractual rights without
being promisees. A gratuitous joint promisee possibly acquires contractual rights even if the
consideration is only provided by the other promisee.53 Assignees and beneficiaries under a trust of
the promise may sue upon a contract despite being neither promisees nor having provided
consideration to the promisor. The legislature has also created a number of exceptions to both rules.54
Some of the so-called exceptions are, however, nothing of the sort. Collateral contracts are not an
exception; the normal requirements of a promise supported by consideration must be satisfied. It is
also too late to see the tort of negligence as creating an exception to the privity doctrine. At one time it
was thought that the fact that the fact that A owed B a contractual obligation to perform meant that he
could not owe a third party a duty to take care in performing. The privity fallacy was rejected in
*L.Q.R. 303 Donoghue v Stevenson :55 the third party's claim is in the tort of negligence and is not an
attempt to sue upon the contract. Further that a promisee may be able to enforce his promise and
there by benefit the third party is not an exception to, but rather an explanation for, the third party rule.
The Law Commission argue that the existence of exceptions justifies reform for two reasons.56 First,
the existence of so many exceptions demonstrates [the third party rule's] basic injustice. As a matter
of logic this does not of course follow. There are a large number of exceptions to the rule that those
who kill with intent to kill or cause grievous bodily harm are guilty of murder. This does not mean that
we should abolish the crime of murder or that it is basically unjust. Further, the Act abolishes neither
the rule that it is necessary to be a promisee to acquire contractual rights nor that consideration must
move from the party seeking to enforce the promise. Instead the Act creates a further exception to
each rule whilst leaving the other exceptions still in place. If the objection was that there were too
many exceptions the best response was not to create a new one. It might be argued that this new
statutory exception is different as it is comprehensive, making the others largely redundant. This is
untrue. For example the Act could not be relied upon by most assignees or by an undisclosed
principal. Indeed the Law Commission themselves have recommended the creation of further rights in
third parties with their proposals to extend the Third Parties (Rights Against Insurers) Act 1930.57
The second argument is that the fact that these exceptions continue to evolve and to be the subject
of extensive litigation demonstrates that the existing exceptions have not resolved all the problems.
That an area of law gives rise to litigation does not, of course, demonstrate that it is necessarily
defective. The claim that the Act will stem the flow is one which at the date of writing is impossible to
test, if it can be tested at all.

6. Complexity, artificiality and uncertainty

Complexity

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The inevitable decision to leave the other exceptions to the third party rule in place means that
whatever else the Act has to commend it, it will scarcely simplify58 the law.

*L.Q.R. 304 Artificiality

The Report's examples of artificiality concern the techniques employed to allow third parties to take
the benefit of exclusion clauses. Certainly, in the context of carriage of goods by sea the courts have
taken a bold approach in encouraging the use of Himalaya clauses which extend the defences of
the carrier to servants, agents and independent contractors engaged in the loading and unloading
process. In The Eurymedon 59 a bill of lading contained such a clause. A cargo owner claimed in the
tort of negligence against stevedores for damage done in the unloading process. It was held that the
stevedores could take the benefit of the exclusion clause against the cargo owner (here the
consignee not the shipper). Lord Wilberforce stated that the bill of lading brought into existence a
bargain initially unilateral but capable of becoming mutual between the shipper and the [stevedores],
made through the carrier as agent. This became a full contract when the [stevedores] performed the
services by discharging the goods. 60 The difficulties with analysing the agreement as a unilateral
contract accepted by the discharge of the goods are well known.61 The Law Commission are correct
that it is difficult to detect an offer of a unilateral contract62 which could be accepted by the unloading
of the ship from the wording of the Himalaya clause. Further, it will not always be the case that the
stevedores know of the terms of the bill of lading, so that these could form part of any offer to them
which they could accept through performance.
However, a more readily defensible analysis has recently been adopted in the House of Lords.63 Lord
Goff has stated that the contract between consignee and stevedore would be regarded as nowadays
bilateral. 64 It is submitted that this is incorrect, at least according to the usual meaning of a bilateral
contract. The stevedores were at no stage under any obligation to the cargo owner to unload the
goods. However, unlike the usual unilateral contract, acceptance did not consist of performance.
Rather, the contract was agreed between the shipper and the stevedores through the agency of the
carrier when the shipper accepted the bill of lading.65 To this extent, the agreement resembled the
usual bilateral contract. Consideration was subsequently provided by the stevedores' unloading of the
ship, not by *L.Q.R. 305 any promise to unload at the time of agreement. Only at this stage did a
binding contract come into existence. This analysis avoids the artificialities set out above.
Alternatively, the result reached in The Eurymedon could possibly be achieved by the
promisee/carrier enforcing the Himalaya clause on behalf of the stevedores.66 The authority which
seems to stand in the way of this solution, the decision of the Court of Appeal in Gore v Van der Lann,
67
has been undermined by subsequent developments.68 Today, therefore, stevedores should be able
to take the benefit of a Himalaya clause by ensuring that the proceedings are halted by obtaining the
authorisation of the carrier to be joined as a co-defendant. A carrier might conceivably be reluctant to
do this as there may be cost implications from being joined as a party to the dispute and the
companies may be wholly unrelated. It would be possible, however, for the stevedores to indemnify
the carrier against this risk of expense. A carrier which still refused to be joined could not complain
that the suit against the stevedores upset the contract of carriage's allocation of risks.
In another line of cases it has been established that where a contract between an employer and a
head contractor excludes the liability of a subcontractor this may negative the existence of a duty of
care that would otherwise be owed by the sub-contractor to the employer.69 It is unclear why the Law
Commission consider this result to have been achieved by artificial means, although they state,
without supporting argument, that the result is particularly hard to justify in cases of property damage.
70
Where a claimant seeks to avoid the parties' allocation of risk evidenced by the contractual
structure they have chosen by seeking to claim in negligence against a remote party the denial of a
duty of care seems entirely justified.71 The principle would not operate, however, where the contract
between the employer and the head contractor sought to limit rather than exclude the liability of a
sub-contractor as such a clause assumes the existence of a duty owed by the sub-contractor to the
employer.72 It is submitted that a head contractor should be entitled to restrain an employer who
sought to claim a sum from a sub-contractor in breach of such a clause.

*L.Q.R. 306 (c) Uncertainty

Major statutory change to a corpus of well established rules will usually generate more uncertainty
than is removed, especially if the old rules are left in place. Some difficulties of interpretation have
already been mentioned.73 Some of the more obvious further difficulties may be highlighted and the

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preferable interpretation suggested.

(i) What does purport to confer a benefit mean?

Under s.1(1)(b) a third party is presumed to be able to enforce a term if the term purports to confer a
benefit on him. This phrase originated with the Law Revision Committee's original recommendations
to reform the third party rule in 1937.74 It was subsequently employed in the New Zealand Contracts
(Privity) Act 1982 and adopted by the English Law Commission in their Report. The test of
enforceability originally recommended in the Consultation Paper was narrower, requiring an intention
to create a legally enforceable obligation on the third party in addition to an intention to benefit him.75
Purport in this section is a verb not being used in one of its more common senses of convey to the
mind, speciously appear to mean or profess. 76 Rather it is being used in the rather old fashioned
sense of to intend or purpose. 77 If therefore A employs B to cut the hedge adjoining his land with C,
although C will inevitably benefit from the work being done that is not the purpose of performance.78 C
will not therefore be presumed to acquire rights of enforcement against B. It is possible that purport
implies an objective interpretation as it is usual to speak of the purport of documents rather than
individuals.
A father employs a builder to build a conservatory upon his daughter's house as a birthday present. If
the daughter has been expressly identified in the contract the Report states that the daughter will
acquire a right to sue the builder if the work is done carelessly.79 By contrast the Law Commission's
view is that if a father employs a solicitor to amend his will in favour of his daughters, the daughters
will acquire no rights against the solicitor under the Act. The supposed distinction between the two
cases is that it is the testator not the solicitor who is purporting to confer a benefit *L.Q.R. 307 on the
daughters. The solicitor is merely enabling the father to confer a benefit upon his daughters; he is not
conferring a benefit himself.
The distinction that the Report seeks to draw is an exceptionally difficult one.80 Why could it not be
said in the first example that the builder is merely enabling the father to confer the benefit of a
conservatory upon his daughter? The position of the legatees is not equivalent to the lucky neighbour
who gets the hedge on the border of his land trimmed. The whole purpose of the contract between
the solicitor and his client is to ensure that the legatees inherit. Andrews has sought to argue that the
distinguishing feature of the disappointed legatee case is that the solicitor is not promising to confer
upon the daughters a benefit subtracted from his own patrimony.81 This is difficult to accept. Although
no asset is transferred from the solicitor to the legatees his service in drawing up the will is intended
to benefit the daughters. Would the result in the building example be any different if the builder used
materials supplied by the father? Professor Tettenborn has argued that the distinguishing feature of
the disappointed legatee example is that it is envisaged that some act or decision of the other
contracting party is to intervene.82 Sometimes this factor would appear to be decisive. A purchaser of
a building would not appear to acquire rights against the builder who had agreed with the original
owner to take proper care in construction. The original owner's decision to sell to the purchaser has
intervened so that it cannot be said that the contract to build purported to confer a benefit on a
subsequent purchaser.83 However, in the case of the disappointed legatee there is no further decision
of the testator to benefit his children which needs to be taken after the agreement to draft the will has
been entered into.
It is submitted that the correct distinction is that whilst no further decision to benefit the legatees is
required, the father still has the power to deny them the inheritance by changing the will after it has
been drawn up. The conservatory once built could not be knocked down without the daughter's
consent.
Other examples on the borderline can be imagined. If a carrier is employed to carry a mother's
birthday present to her son is the carrier purporting to confer a benefit upon the son or merely
enabling the mother to do so? If a contract stipulates that a benefit is to be conferred upon such
person as the promisee nominates does this purport to confer a benefit upon *L.Q.R. 308 the
nominee? This situation has caused considerable controversy in New Zealand.84 The position of the
nominee appears weaker than that of the disappointed legatee, as a choice to benefit the nominee
has yet to be made at the time of contracting. It is, however, stronger in the sense that once
performance has been made, the promisee will no longer be able to change his mind.

(ii) How strong is the presumption?

Page9

The presumption of enforceability under s.1(1)(b) will be rebutted if it can be shown that on the proper
construction of the contract it appears that the parties did not intend the term to be enforceable by the
third party.85
Professor Burrows, the Law Commissioner directly responsible for the Report, has described the
presumption as a strong one86 although this is not stated in the Report. How strong the presumption
is is most difficult to judge in the context of chains of contracts: A contracts with B to perform B's
contractual obligations to C. In such cases no lacuna exist as C has a claim against B if A fails to
perform. B may then claim damages from A. However, the contract between A and B does purport to
confer a benefit upon C. An example of such a case is construction work which is subcontracted. The
Report states that due to the existence of the connected head-contract and the background practice
and understanding of the construction industry 87 the usual construction will be that it is not intended
that the employer will have rights of enforcement under the subcontract.
Why is the assumption of the construction industry that it is not intended that the employer should
acquire rights against the sub-contractor? The answer is that the law (i.e. the third party rule) tells the
industry that this is so.88 If the approach of the Law Commission was taken to its logical conclusion,
claims under the Act based upon s.1(1)(b) would only succeed where a claim would already exist as it
would only be in those circumstances that the background practice was consistent with a third party
having enforceable rights. It has been suggested, therefore, that the sub-underwriters in Henderson v
Merrett Syndicates Ltd 89 would be liable under the Act to the Lloyd's Names who were their ultimate
employer as there is no business practice that the employer may only claim against the *L.Q.R. 309
party with whom they are in a direct contractual relationship. This is because the Names are already
entitled to claim against the sub-underwriters in the tort of negligence.90 If this is correct the
presumption of enforceability is not a strong one as the Act will simply follow the pattern of
enforceability in place before it came into force.

(iii) When is the right of the third party conditional?

Under s.1(4) the third party is only entitled to enforce his rights under the Act subject to and in
accordance with any other relevant term of the contract. This provision was not included in the Law
Commission's draft Bill, but it does conform with the Report's approach to conditional benefits.91
Whether the third party's right is subject to conditions is a matter of construction of the agreement.
Section 1(4) possibly creates more confusion than clarity, as the scope of the third party's rights must
always be determined by the construction of the contract. The third party's rights of enforcement may
be narrower or wider than the promisee's. Where the right of enforcement arises due to the operation
of the presumption, the task of construction is an exceptionally difficult one as the parties will not have
addressed themselves to the issue. Perhaps where the third party's right of enforcement arises due to
the presumption, his right of enforcement should be presumed to be subject to all of the conditions to
which the promisee's right of enforcement is subject.
Section 8(1) adopts the same approach as s.1(4) for terms providing for submission to arbitration.
Section 8 was enacted because [w]ithout this section the main provisions of the Arbitration Act 1996
would not apply 92 to claims brought by the third party under the 1999 Act. Again, whether a third
party's right to enforce is subject to a term for the submission of the dispute to arbitration should be
a matter of construction.93
In the first case to consider the Act, Nisshin Shipping Co Ltd v Cleaves & Company Ltd, 94 Colman J.
adopted a different approach. Under nine time charterparties, a commission was to be paid by the
owners to third party chartering brokers. Colman J. held that the brokers acquired a right of
enforcement because of the presumption created by s.1(1)(b). The charters included arbitration
clauses reflecting the standard New York Produce Exchange terms. These provide for the referral of
disputes between Owners and Charteres and two arbitrators to be appointed by the parties hereto.
Consequently it was conceded that the brokers were *L.Q.R. 310 not parties to the arbitration
agreements as a matter of construction.95 In the Explanatory Notes the restrictions on the third party's
rights are described as analogous to that applied to assignees. 96 Colman J. interpreted this as
meaning that the third party was in effect a statutory assignee. 97 Consequently, the third party's
rights of enforcement would always be subject to any condition of arbitration applicable to the
promisee, and possibly any other restriction that the promisee's rights were subject to.
It is submitted that the analogy with assignment is useful, if not exact. 98 Like an assignee, the third
party can only enforce subject to the applicable conditions. Unlike an assignee, these conditions are
not co-extensive with those applicable to the promisee. Colman J.'s interpretation could have the

Page10

unfortunate consequence of forcing a third party to bring his claim under the Act to a specialist arbitral
tribunal regardless of its suitability to resolve the third party's claim and regardless of the contracting
parties' intentions.

(iv) Can the parties from the outset create an irrevocable set of rights for the third
party?
The Report states that a clause which purported to render the third party's rights irrevocable from the
outset would be as open to variation by the contracting parties as any other term. 99 Professor
Burrows has now expressed the opposite view.100 The basis of Professor Burrows' view is the broad
wording of s.2(3)(b). Section 2(3)(b) states that the contract may expressly provide that the third
party's consent to the variation is required in circumstances specified in the contract instead of those
specified in subsection (1). Although s.2(3)(b) is identical to the provision proposed in the draft Bill
attached to the Report, a literal reading supports Professor Burrows' view of the scope of this section.

(v) What defences are available to the promisor?

The position of a third party under the Act is superior to that of an assignee in relation to the defences
the promisor may invoke against him. A promisor may invoke against an assignee any claim by way
of set-off or defence arising out of the contract assigned that he could have relied upon against the
assignor.101 He may also invoke a claim by way of set-off which *L.Q.R. 311 is unrelated to the
contract if it arose before notice of the assignment was given to the promisor.102
Under the Act the promisor may assert against the third party by way of defence or set-off any matter
that arises in connection with the contract and is relevant to the term sought to be enforced that
could have been asserted had the proceedings been brought by the promisee103 subject to express
contrary agreement.104 This provision is modelled upon subsection 9(4) of the New Zealand Contracts
(Privity) Act 1982. The italicised words were an addition of the English Law Commission because it
was thought that if C seeks to enforce a payment obligation in, say, clause 20 of a construction
contract between A and B, C's right should not be limited by a defence or set-off that A has against B
in respect of, say, clause 5 which has nothing to do with clause 20. 105 Clearly, however, whether a
defence or set-off is relevant to the term sought to be enforced cannot be determined by the
numerical location of the term in the contract, if indeed this is relevant at all.
An example of the difficulties which this approach gives rise to may be given:
A needs three cows. He agrees to buy Daisy, Ermintrude and Flo in a single contract from B for
1,000 each. The purchase price for Flo is to be paid to C and it is intended that this should be
enforceable by C. After the sale A discovers that B has misrepresented that Daisy is a one year old
when in fact she is five years old.
Without the intervention of C's rights A could rescind the contract for misrepresentation. If this right to
rescind is characterised as a defence106 then it may be argued that as the misrepresentation was not
in relation to Flo it was not relevant to the term sought to be enforced by C. Therefore A's right to
rescind has, to this extent, been lost.
It is submitted that the interdependence of contract terms is such that it will be wholly exceptional for
a court to determine that a defence or set off is not relevant to the term sort to be enforced.
A difficult question may also arise as to what counts as a defence.107 For example, if a promisee does
not have clean hands he will not be able to claim specific performance. Does the clean hands
doctrine provide the promisor with a defence, in which case the promisee's conduct can be relied
upon if the third party seeks specific performance, or is it merely a restriction upon the promisee's
rights of enforcement, in which case it could not be relied upon against the third party?

*L.Q.R. 312 (vi) Does the third party acquire rights against the promisee?
In Scotland the promisee incurs liability alongside the promisor for the due performance of the
obligation.108 Does the third party ever acquire rights against the promisee under the Act? The
problem may be illustrated by an example already given:
B agrees to sell his business to A in return for A agreeing to pay B's wife C 100,000. B falls out with
his wife and they agree to divorce. C learns of the agreement between A and B and informs A that
she assents to the payment being made to her.

Page11

If B refused to go ahead with the sale to A what rights would C possess? C could not sue A for the
price as A's obligation is conditional upon B's continued willingness to sell. Further C could not sue A
for damages as A would not be in breach. Could C sue B? It might be said that B's obligation to
transfer the business to A did not purport to confer a benefit upon C but only upon A and so would not
be presumed to be enforceable by C. Alternatively as the transfer of the business to A would trigger
the obligation to pay 100,000 to C it might be said that it did purport to confer a benefit upon C and
would therefore be presumed to be enforceable by C. Which interpretation of the Act is correct may
be influenced by the goal it is seen as pursuing. The promisee's intentions are not frustrated by
denying C a claim but it may be thought unjust to deny the third party a claim particularly where C's
rights have become irrevocable due to detrimental reliance. Professor Burrows has stated that
s.1(1)(b) is only triggered where the third party is to receive a benefit directly from the promisor.109 If
so C would have no claim against B under the Act. This limitation on s.1(1)(b) is not present on the
face of the Act and is not stated in the Report.
It may be argued to be unacceptable in the above example to give the third party no rights against the
contracting parties as this would be to enable the contracting parties to effectively rescind or vary the
contract even after the third party's rights have crystallised, something s.2(1) is intended to prevent.
Professor Treitel has suggested that a purported rescission of a contract is wrongful so as to give [a
third party] a remedy against [a promisee], perhaps on the analogy of liability for wrongful interference
with contractual rights. 110 It may be queried how strong this analogy is. If A's obligation is conditional
upon either B's performance or readiness to perform the refusal by B to perform will not place A in
breach of his obligation to C. Rather A never becomes obliged to C. In these *L.Q.R. 313
circumstances B could not be liable for procuring a breach of contract.111 If A's obligation is not
conditional upon counter-performance from B the refusal of B to perform should not affect C's rights
against A and, again, no claim would be possible against B. On balance it is submitted that primacy
should be given to the contracting parties' intentions and that C should not possess any remedy
against the promisee.

(vii) Does the Act apply to deeds?

The New Zealand Contracts (Privity) Act 1982 expressly applies to deeds as well as contracts.112 By
contrast the Queensland legislation amending the privity rule clearly does not apply to deeds.113 The
English legislation simply refers to contracts and makes no specific mention of deeds. The Report
does not discuss the issue.114
Clearly some deeds are contractual and consequently within the scope of the Act. A legal lease for
more than three years must be made by deed for example.115 What of simple promises contained in a
deed? Chitty terms these Contracts Contained in Deeds.116 By contrast Professor Treitel refers to
Promises in Deeds and states that the binding force of [a promise in a deed] does not depend on
contract at all. 117 It is submitted that the latter is the better view. A promise in a deed is binding
without any requirement of agreement, i.e. offer and acceptance is unnecessary. The promise is
binding even though the person in whose favour it was made knows nothing of it.118 It has been
argued that the application by s.7(3) of the limitation period for actions founded upon a specialty to
claims brought under s.1 demonstrates that the Act applies to simple promises made by way of deed.
119
However, this is not so as specialties include contracts made by deed.120
As the Act only applies to contracts it does not apply to non-contractual deeds. This appears to be an
unobjectionable result. If the party executing the deed wishes to make it enforceable by a particular
party all that is necessary is that this is stipulated for in the wording of the document. Virtually all
parties executing deeds will have received legal advice. No legislative intervention was necessary to
enable the fulfilment of the executing party's intentions.

*L.Q.R. 314 (viii) Can a gratuitous joint promisee rely on the Act?
Where a promise is made by A to B and C jointly can it be enforced by C even though the whole
consideration was provided by B? Following the 1999 Act it would be absurd 121 if C, a promisee,
could not sue when a third party who has been promised nothing could. Is this absurd result now
English law?
There is no clear authority for the proposition that a gratuitous joint promisee may enforce. In Coulls v
Bagot's Executor and Trustee Co Ltd 122 four members of the High Court of Australia favoured
allowing the joint promisee to enforce, although this did not form part of the ratio of the case.123

Page12

Whether the rule that consideration must move from the party seeking to enforce the promise may be
ignored partly depends upon the view taken as to the purpose of consideration.124 Professor Treitel
has argued that if the joint promisee could not enforce, the promise could not be enforced at all as all
promisees must be party to the action.125 However, as Professor Coote has argued,126 in the cases
cited for this proposition each of the allegedly gratuitous promisees had promised that the
consideration to be provided by another would in fact be provided.127 Such a promise should suffice
as consideration. The rationale for requiring the joinder of a joint promisee would seem to be to
ensure that all those with an interest in the action are before the court. If a party has no enforceable
right this rationale does not apply. It seems circular, therefore, to seek to show that a joint promisee
may enforce a promise where no consideration was provided by him, on the basis that he must be a
party to the action in order to protect his interest in his enforceable promise.
The Report originally recommended that a joint promisee who has not provided consideration should
not be regarded as a third party for the purposes of the reform.128 This provision was not included in
the Bill presented to Parliament and did not find its way into the Act. Presumably, therefore, such joint
promisees may be third parties for the purposes of the Act.129

7. Widespread criticism throughout the common law world

The Law Commission claims that the fact that the rule has been abrogated throughout much of the
common law world, including the United States, *L.Q.R. 315 New Zealand, and parts of Australia
demonstrates its injustice. Being inconsistent with other legal systems does not of course necessarily
demonstrate that English law is wrong and other systems are right. However, being out of step with a
large number of other systems should give pause for thought. In fact no system of law anywhere has
abrogated the third party rule, although all have exceptions some of which are wider and some of
which are narrower than others. It is completely unclear what the ratio of the leading Australian
decision actually is130 or what the scope of the Canadian London Drugs 131 case might finally be. The
question is whether the English exceptions are too wide or too narrow. If it were thought useful that
English law be the same as another system of law the Act might have been modelled upon one. In
fact English law continues to be different from all other systems in the scope of the rights conferred
upon third parties.132

8. The legal systems of most Member States of the European Union allow third parties
to enforce contracts
Roman Law did not recognise third party rights arising from contracts.133 Before the Act English law
was the closest European legal system to Roman Law. It may be argued however that English law
was out of step in not recognising a broad exception to the third party rule. Again, it may be objected
that being different does not necessarily show that English law is wrong. More importantly, however,
direct comparison of narrow rules, such as the third party rule, can be misleading unless done in
context. There may be structural differences which explain the different scope of the exceptions to the
third party rule.
In Germany, liability in delict for purely economic harm negligently caused is not allowed134 unless the
defendant was in breach of a relevant protective statute or the right to an established or operative
business was infringed.135 This being so it is hardly surprising that German law allows a wider
exception to the third party rule and that in a case such as White v Jones the disappointed legatees
could sue upon the contract with the *L.Q.R. 316 lawyer.136 Similarly the narrow scope of vicarious
liability in German law137 makes it unsurprising that contractual rights have been discovered where
none are required in English law.138 In France and Germany contractual liability for injury caused to
third parties by defective products has been imposed139 in situations where English law has imposed
liability in tort.140 Similarly in France141 and Germany142 claims for losses to third parties caused by
negligent statements have been brought in contract which would in England have been seen as
tortious.143 Whether it is better for solutions to be sought in the law of contract or tort is a difficult
question. If contractual obligations are seen as based upon the enforcement of actual or apparent
promises, a legal system which states that a claim based upon the defendant's carelessness must be
tortious where the claimant was promised nothing and the obligation is imposed by operation of law is
a coherent one.144
Similarly, an exclusion clause to which the claimant is a party but the defendant is not cannot be said
to negative the existence of a duty of care145 and thereby prevent liability, in those jurisdictions which
do not possess the concept of the duty of care. Consequently the third party is allowed to rely directly

Page13

upon the exclusion of liability.146

Civilian jurisdictions do not allow an undisclosed principal to acquire rights under a contract and do
not, in general, possess the institution of the trust. This being so it is again unsurprising that other
systems of law have other exceptions to the third party rule which allow much the same sort of results
to be reached as are reached in England.147 However attempts to harmonise systems of law in a
piecemeal fashion by, for example, focusing upon one aspect of the law of contract and attempting to
make it uniform across the European Union, will inevitably lead to incoherence within individual legal
systems.
*L.Q.R. 317 English law still has a different set of exceptions to the third party rule when compared
with German law. The disappointed legatees in White v Jones would probably have no claim under
the Act. It may be doubted whether this is a matter for great concern. There is no European
consensus with which English law is out of line. The French exceptions are different from the
German, for example.148 The portrayal of English law as backward when compared to Civilian
systems seems to be an example of the common lawyer's penchant for self-flagellation.149

9. The third party rule causes difficulties in commercial life

The Report provides examples of two areas where practical difficulties will be alleviated by reform:
construction and insurance. Although these examples are unpersuasive, there may be areas where
the Act proves useful.

Construction
Again, the Report states that there is a lacuna in the law where A employs B to do building work for C.
150
As discussed above, it is submitted that this assumption is incorrect.151
In more complex construction contracts the Report suggests that the structure of collateral warranties
given by architect, engineer or main contractor could be avoided by laying down third party rights in
the main contract. However it may be doubted whether there really is any great inconvenience in
drafting and entering into separate contracts. Further collateral warranties can be drafted so as to
take account of the concerns of each sub-contractor. These concerns cannot be determined in
advance as many parties become involved after the drawing up of the principal documentation.
Construction contracts are highly standardised. The industry unsuccessfully lobbied to be excluded
from the operation of the Act.152 The vast majority of building work is done under a number of
standard forms produced by the Association of Consulting Engineers and the Joint Contracts
Tribunal. In their standard form contracts both have excluded the operation of the Act.153 This being
so, it is unlikely that the Act will have significant impact in the construction industry, at least in the
short-term.

*L.Q.R. 318 Insurance

It is in the context of insurance both in England154 and abroad155 that the greatest inroads have been
made into the third party rule. Where a contract of insurance is taken out for the benefit of a third
party (e.g. a company taking out liability insurance on behalf of a subsidiary, an employer taking out
private health insurance for an employee) the third party will now acquire a direct right of
enforcement.156 It is submitted, however, that this fails to address the real source of difficulty. It is rare
for an insurer to refuse to pay on the basis of the third party rule.157 An insurer, like a bookmaker,158
would not stay long in business admitting that a sum is due but refusing to pay on the basis that it
cannot be compelled to do so by the payee. Even if an insurer did refuse to pay, the promisee would
be able to compel performance.159 Far more common is a dispute between the intended third party
beneficiary and the creditors or estate of the insured as to who is entitled to the proceeds once they
are paid.160 If the payee is the third party he will be entitled to them.161 If the payee is the promisee the
third party will not be entitled to the proceeds unless it is intended that they be held on trust. The third
party's right of enforcement under the Act is of no assistance as this will not effect the identity of the
payee which is a matter of construction. Under the Married Women's Property Act 1982, s.11 the third
party is the beneficiary of a statutory trust, whilst under the Third Parties (Rights Against Insurers) Act
1930 the rights under the insurance contract are transferred to him giving him an interest in the
proceeds. The Contracts (Rights of Third Parties) Act 1999 adopts neither of these techniques and
will consequently be of little assistance to third party beneficiaries under insurance contracts when in
competition with the creditors or estate of the insured.

Page14

*L.Q.R. 319 Agreements to waive rights to be subrogated to claims against third parties162 and
agreements between re-insurers and insurers that the insured is to acquire rights directly against the
re-insurer163 should now be enforceable by the third party. But in these cases, it is submitted that the
promisee already possessed an adequate remedy on his behalf. Further the traditional approach of
addressing problems caused by the application of general contract law by targeted reform of
insurance law would seem to be a better approach to reforming the entirety of the law of contract.
Problems specific to insurance law could then have been addressed.
This may be further illustrated by the difficulties which the Act gives rise to in the context of the
requirement that the assured has an insurable interest. If B insures C's life with payment to be made
to C, C but not B has an insurable interest.164 Is it enough that the third party has an insurable interest
or must the promisee also have an insurable interest? It is suggested that it ought to be sufficient that
the third party has an insurable interest. Such a contract is not a gaming contract, neither B nor C has
a perverse incentive to bring about the insured event and the same result could have been achieved
through B acting as C's agent. Conversely, can B insure his own life with payment to be made to C?
Is it enough that the promisee has an insurable interest or must the third party have an insurable
interest in order to be able to sue? Again it is suggested that the answer is yes: the contract is not a
gaming contract and the same result could have been achieved through assignment.165

Other examples?
Where the Act is used by well-advised commercial parties it will probably give rise to few difficulties.
For example, it may be speculated that the Act may be used to evade difficulties arising in the law of
assignment. Some contractual rights are clearly not assignable, for example the benefit of an
exclusion clause.166 Similarly, it is unresolved whether some rights are assignable, for example a
builder's promise to build.167 There does not appear to be any reason why the identity of the
designated third party under the Act should not change over time. For example:
A agrees to sell his barber shop to B. A agrees not to open another barber shop in the same town. It
is agreed that this promise is enforceable by any subsequent purchaser of the shop. B sells the shop
to C who sells to D.
*L.Q.R. 320 It is doubtful whether the promise not to open the shop could have been assigned but
there seems to be no reason why it cannot be enforced by D. If the identity of the third party can
change the original contracting parties should be free to employ any rule for identifying the third party
that they choose. The third party could be such person who, from time to time, I designate or such
person who, from time to time, is in possession of this contractual document. The rights of a third
party under the Act may be more secure than those of an assignee. Domestically, the English rules
on the priority of competing assignments are not clear. Internationally, the law applicable to the
priority of competing assignments is unclear.168 The priority of competing third party claimants under
the Act can be determined by such rules as the contract stipulates and will be determined by English
law if that is the law chosen by the original contracting parties.

III. ARGUMENTS FOR THE THIRD PARTY RULE169

The Report does not attempt to address the arguments for the third party rule. Rather it is considered
that any possible arguments were refuted in the Consultation Paper.170 If, as is claimed, there was
nothing to be said in favour of the third party rule one would have expected its abolition. However, it
should be obvious that this makes no sense. If there was no third party rule everyone could enforce
every contract. No legal system or commentator subscribes to such a rule.
The rationale for the rule comes from the reasons why contracts give rise to obligations.171 A promise
may be made to oneself but it is only legally relevant if made to someone else. A promise may be
made to an individual, a class of people or the whole world.172 If it is accepted that contractual
obligations are founded upon either actual or apparent promises then it follows that only the person to
whom the promise is made can enforce the promise. The Law Commission assert that this as an
unnecessarily narrow view of the morality of promise-keeping where a promise is intended to benefit
a third party.173
Further English law does not currently view a promise alone as a sufficiently important reason for
creating a contractual obligation, although it is a necessary one.
*L.Q.R. 321 A orally promises B that he will pay B 100 tomorrow. B replies thank you, I accept. I

Page15

am unaware of any system of law which would, without more, allow such a gratuitous promise, even if
admitted by A to have been intended to be legally binding, to be enforced.174 Some systems, such as
England, will enforce promises if made in a particular form. A requirement of form can be justified as
providing good evidence of the existence of the promise, demonstrating seriousness of intent and
helping to prevent the enforcement of rash or foolish promises.175
In England a promise will also be enforced if the party seeking to enforce the promise has provided
consideration. Some have suggested that consideration fulfils the same function as a requirement of
form in identifying which promises should be enforced.176 If this were so it would not appear to matter
whether the consideration comes from the party seeking to enforce the promise or not.177 It is
submitted, however, that whatever its merits consideration does not fulfil this role.178 An oral exchange
of promises whilst enforceable is no more easy to prove than a gratuitous promise. Consideration
provides little or no evidence of an intention to be legally bound. Every day most of us enter into
informal agreements which are not intended to be enforceable but where we have promised
something capable of being good consideration (I'll wash the car if you mow the lawn). Most
agreements are of this kind. If consideration merely provides evidence of seriousness of intent why
are gratuitous promises not enforceable where the promisor concedes that at the time of making the
promise he intended to be bound or where such intent is proven by other means?179 A requirement of
intent to be legally bound may assist in preventing the enforcement of rash promises but
consideration certainly does not (I'll pay you half my lottery winnings if you do the washing up.)
That the doctrine of consideration does not fulfil the same function as a requirement of form does not
however, mean that it is without merit. If B lends A 100 to be repaid on January 1 it is clear that one
reason why A is morally obliged to pay B 100 on that date is that he promised to do so. In addition,
however, we can say that if A does not do so, A will be 100 better off at B's expense. The presence
of a benefit to the promisor or *L.Q.R. 322 detriment to the promisee in exchange for the promise
provides an additional reason for enforcing the promise without the need for further justification.180
This explains the rule that consideration must move from the party seeking to enforce the promise.
That a party who has provided consideration is more deserving than one who has not is reflected in a
number of rules of English law unrelated to contract formation. The force behind consideration is
found in the equitable maxim that equity will not assist a volunteer. Bare promises made by way of
deed are therefore not susceptible to the equitable remedy of specific performance. It seems odd to
allow this remedy to a third party who is not even a promisee. A promise in a deed which has been
mistakenly entered into is also much easier to set aside than a contract which has been made for
good consideration.181 Similarly the protection afforded to a bona fide purchaser for value without
notice of a prior proprietary interest both at law182 and in equity183 is not extended to a party who is
merely a donee. Further whether consideration has been provided is relevant in deciding whether a
transaction can be set aside upon one party's insolvency.184 In none of these areas is consideration
fulfilling the role played by a requirement of form.
Third parties have not been promised anything and have provided no consideration. No further
justification as to why third parties do not acquire rights under a contract needs to be given.

IV. CONCLUSION
The central thesis of this article is a conservative one, some might say reactionary. The illness
diagnosed was not as serious as it was thought and the operation may have caused more problems
than it solved. Developments in the remedies available to the promisee meant that by the time of the
passing of the Act the need for surgery had largely disappeared. If the third party has no right to
compel the promisee to seek a remedy on his behalf, for example under a contract or trust, the robust
response is tough luck.185
In addition to the uncertainty generated by the Act the fear is that the unwary will be caught out by
conferring enforceable rights upon third parties when they do not intend to do so. This appears to be
behind the widespread exclusion of the operation of the Act.
*L.Q.R. 323 At a doctrinal level the Act has left English law in an incoherent state. If we return to the
example given at the start of the paper it is submitted that both B (the promisee) and C (the cat
rescuer) are more deserving of being given enforceable rights than many who acquire them under the
Act. B has been promised something, which is not necessary under the Act. C who has relied upon
A's promise to B and conferred a benefit upon him fails in his claim upon the promise because B has
not provided consideration.186 It is unclear why on any view as to the function of consideration this

Page16

should make any difference so far as C is concerned.

ROBERT STEVENS.187
L.Q.R. 2004, 120(Apr), 292-323

1.

Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] A.C. 847, per Viscount Haldane L.C. at p.853; Atiyah,
Consideration: a Restatement in Essays on Contract (1988) 179 at p.220; Beatson, Anson's Law of Contract (28th ed.
2002) at p.96; Kepong Prospecting Ltd v Schmidt [1968] A.C. 810.

2.

Treitel, Law of Contract (11th ed., 2003) (Treitel ) at p.587; cf. Furmston, Return to Dunlop v Selfridge (1960) 23
M.L.R. 373 at pp.382-384.

3.

e.g. Tweddle v Atkinson (1861) 1 B. & S. 393.

4.

Privity of Contract: Contracts for the Benefits of Third Parties (Law Com. No. 242, 1996) at paras 5.16 and 6.17; Heaton
v Axa Equity & Law Life Assurance plc [2002] UKHL 15; [2002] 2 A.C. 329 at [9]; Alfred McAlpine Construction Ltd v
Panatown Ltd [2001] 1 AC 518 at p.535; cf. Johnson v Gore Wood & Co [2002] 2 AC 1 at p.40.

5.

Corbin on Contracts (1950), vol.4, at p.16.

6.

Sometimes, of course, each party will have promised the other that a benefit will be conferred upon the third party, e.g.
Tweddle v Atkinson (1861) 1 B. & S. 393.

7.

Law Commission C.P. No. 121, Privity of Contract: Contracts for the Benefit of Third Parties (1991) (Consultation
Paper) at para.5.3.

8.

s.2(1).

9.

Report at para.3.2.

10.

s.3(2) and 3(3).

11.

Eisenberg, Third Party Beneficiaries (1992) 92 Col. L.R. 1358 at pp.1421-1428.

12.

s.1(1)(b) and 1(2).

13.

cf. Consultation Paper at para.5.12; Treitel at p.653.

14.

Treitel at p.1; The Hannah Blumenthal [1983] 1 A.C. 854 per Lord Diplock at p.914; Vorster, A Comment on the
Meaning of Objectivity in Contract (1987) 103 L.Q.R. 274.

15.

Restatement of the Law of Contract (2d) s.302(1)(b); Corbin on Contracts (1950), vol 4, at p.16; Prince, Perfecting the
Third Party Beneficiary Standing under Section 302 of the Restatement (Second) of Contracts (1984) 25 Boston
College L. R. 919 at p.931.

16.

Roe, Contractual Intention under Section 1(1)(b) and 1(2) of the Contracts (Rights of Third Parties) Act 1999 (2000)
65 M.L.R. 887 at p.888.

17.

Vorster, A Comment on the Meaning of Objectivity in Contract, n.14 above, at p.281.

18.

Smith v Hughes (1871) L.R. 6 Q.B. 597.

19.

Report at para.3.2.

20.

Combe v Combe [1951] 2 K.B. 215.

21.

s.1(1).

22.

English law has never permitted enforcement by the third party where he was a creditor of the promisee: Jordan v
Jordan (1595) Cro. Eliz. 369; Bourne v Mason (1669) 1 Vent. 6, (1669) 2 Keb. 527 at p.528; Crow v Rogers (1724) 1
Str. 592; Price v Easton (1833) 4 B. & Ad. 433; Corbin, Contracts for the Benefit of Third Persons (1930) 46 L.Q.R. 12
at p.17.

23.

20 N.Y. 268 (1859); Waters, The Property in the Promise: a Study of the Third Party Beneficiary Rule (1985) 98 Harv.
L Rev. 1109 at pp.1116-1148. The action was for money had and received cf. Baker, The History of Quasi-Contract in
English Law in Cornish, Nolan, O'Sullivan, Virgo, eds Restitution Past, Present and Future (1998) 37 at pp.48-49.

24.

Prior to the nineteenth century the common law permitted enforcement by a third party where he was a donee: Thomas
v %Y(4)6D (1655) Sty. 461; Sprat v Agar (1658) Cremer MS 380; Hornsey v Dimock (1672) 1 Vent. 119; Bell v Chaplin
(1675) Hardres 321; Dutton v Poole (1677) 2 Lev. 210; Martyn v Hind (1779) 2 Cowp. 437, per Lord Mansfield at p.443;

Page17
Carnegie v Waugh (1823) 1 L.J. (O.S.) K.B. 89. In an era when no adequate remedy was available to the promisee this
seems a justifiable result cf. Pigott v Thompson (1802) 3 B. & P. 14.
25.

ibid.

26.

Beswick v Beswick [1968] A.C. 58; Snelling v John G Snelling Ltd [1973] 1 Q.B. 87 at p.96. This would be dependent
upon the father paying the sum he had promised, which was not proved: (1861) 1 B. & S. 393 at p.397.

27.

[2001] 1 A.C. 518 at p.547; cf. Report at para.3.11.

28.

[1994] 1 A.C. 85 at p.112.

29.

Dunlop v Lambert (1839) 6 Cl. & F. 600; The Albazero [1977] A.C. 774.

30.

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85.

31.

Treitel, at p.595.

32.

Darlington BC v Wiltshier Northern Ltd [1995] 1 W.L.R. 68; Alfred McAlpine Construction Ltd v Panatown Ltd (1998) 58
Con. L.R. 47; See also John Harris Partnership v Groveworld [1999] P.N.L.R. 697 (H.H. Judge Thornton Q.C.).

33.

[2001] 1 A.C. 518, per Lord Clyde at p.530, Lord Goff at p.545, Lord Jauncey at p.566, Lord Browne-Wilkinson at p.577.
Criticised by Burrows, No Damages for a Third Party's Loss (2001) O.U.C.L.J. 107 at p.112.

34.

ibid. at p.583; cf. White v Jones [1995] 2 A.C. 207, per Lord Goff at p.267.

35.

Burrows, supra n.33 at p.112; cf. And So To Bed Ltd v Dixon, November 21, 2000, unrep.

36.

Report at para.5.15.

37.

Report at para.11.17; Treitel, p.603; contra Unberath, Transferred Loss: Claiming Third Party Loss in Contract Law
(2003) at pp.215-216.

38.

[2001] 1 A.C. 518, per Lord Clyde at p.533, Lord Jauncey at p.574; Radford v De Froberville [1977] 1 W.L.R. 1262.

39.

cf. Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 W.L.R. 277 at p.300 per Lord
Scarman; Bovis Lend Lease Ltd v R.D.re Protection Ltd, unrep., February 6, 2003 H.H. Judge Thornton Q.C.

40.

Rodocanachi Sons & Co v Milburn Bros (1886) 18 Q.B.D. 67; William Bros v Ed T Agius Ltd [1914] A.C. 510 Slater v
Hoyle & Smith Ltd [1920] 2 K.B. 11; cf. Wertheim v Chicoutimi Pulp Co [1911] A.C. 301; Re R and H Hall Ltd and W. H.
Pimm (Junior) & Co's Arbitration (1928) 33 Com Cas 324; Bence Graphics International Ltd v Fasson U.K. Ltd [1998]
Q.B. 87; Treitel (1997) 113 L.Q.R. 188.

41.

[2001] 1 A.C. 268.

42.

ibid. at p.286; cf. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85, per Lord Griffiths at p.94,
Lord Browne-Wilkinson at p.112.

43.

Andrews, Strangers to Justice No Longer: The Reversal of the Privity Rule under the Contracts (Rights of Third
Parties) Act 1999 [2001] C.L.J. 353 at p.377; Burrows, above, n.33.

44.

[2001] 1 A.C. 518 at p.595.

45.

ibid. at p.560-561.

46.

Sale of Goods Act 1979, s.50(3).

47.

s.1(5).

48.

Report at para.9.33.

49.

Robinson v Harman (1848) 1 Exch 850 at p.855 (Parke B.).

50.

cf. Sumpter v Hedges [1898] 1 Q.B. 673.

51.

See above, text at n.7.

52.

Contra, Trident General Insurance Co. Ltd v McNiece Bros Pty. Ltd (1988) 165 C.L.R. 107 per Brennan J. at p.135; cf.
Midland Silicones Ltd v Scruttons Ltd [1962] A.C. 447 per Lord Reid at p.473.

53.

Coulls v Bagot's Executor and Trustee Co. Ltd (1967) 119 C.L.R. 460; contra, Coote, Consideration and the Joint
Promisee [1978] C.L.J. 301; below, text at n.121.

54.

Married Women's Property Act 1982, s.11; Road Traffic Act 1988, s.148(7); Fires Prevention (Metropolis) Act 1774;

Page18
Third Parties (Rights Against Insurers) Act 1930; Road Traffic Act 1988, ss.151-153 as amended by Road Traffic Act
1991, s.48; Bills of Exchange Act 1882, s.38(1); Carriage of Goods by Sea Act 1992, s.2; Law of Property Act 1925,
s.56(1); Companies Act 1985, s.14.
55.

[1932] A.C. 562.

56.

Report at para.3.5.

57.

Third Parties--Rights Against Insurers (Law Com. No. 272, 2001).

58.

Treitel, at p.581.

59.

New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd [1975] A.C. 154.

60.

ibid. at pp.167-168.

61.

Chitty on Contracts, ed. Beale (28th ed., 1999) Vol.1 at para.14-045; Reynolds (1974) 90 L.Q.R. 301.

62.

Report at para.2.27.

63.

Homburg Houtimport B.V. v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2003] 2 W.L.R. 711 per Lord Hoffmann
at [93], Lord Hobhouse at [149]-[153], Lord Millett at [196], adopting Salmond & Spraggon (Australia) Pty Ltd v Port
Jackson Stevedoring Pty Ltd (The New York Star) [1979] 1 Lloyd's Rep. 298 per Barwick C.J. at pp.304-305.

64.

The Mahkutai [1996] A.C. 650 at p.664; The Starsin, above, per Lord Bingham at [34]; cf. Lord Millett at [196].

65.

As to how the consignee became bound by the contract see Treitel and Reynolds, Carver on Bills of Lading (2001) at
para.7-086.

66.

By being joined as a party and seeking a stay of the proceedings under Supreme Court of Judicature (Consolidation)
Act 1925, s.41; see now Supreme Court Act 1983, s.49(3).

67.

[1967] 2 Q.B. 31.

68.

Snelling v John G. Snelling Ltd [1973] Q.B. 87; Nippon Yusen Kaisha v International Import & Export Co Ltd (The Elbe
Maru) [1978] 1 Lloyd's Rep. 206; cf. the approach to specific performance taken in Beswick v Beswick [1968] A.C. 58.

69.

Junior Books Ltd v Veitchi Co Ltd [1983] 1 A.C. 520 at p.546; Southern Water Authority v Carey [1985] 2 All E.R. 1077;
Norwich City Council v Harvey [1989] 1 W.L.R. 828; Pacific Associates Inc v Baxter [1990] 1 Q.B. 993; cf. Marc Rich &
Co A.G. v Bishop Rock Marine Co Ltd [1996] 1 A.C. 211.

70.

Report at para.2.29.

71.

cf. Stapleton, Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence (1995) 111 L.Q.R. 300 at
pp.328-331.

72.

Treitel at p.638; contra London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 S.C.R. 299, per McLauchlin J. at
pp.459-460.

73.

e.g. the relevance of the parties' subjective intentions, above, text at n.12; the interpretation of s.4, above, text at n.36;
the interpretation of s.5, above, text at n.43; the calculation of damages, above, text at n.46; see also the correct
approach to insurable interests, below, text at n.164.

74.

Law Revision Committee Sixth Interim Report (1937) Cmnd 5449, para.48; cf. para.47.

75.

Consultation Paper at para.5.10; H.L. Deb. Vol.596 at col. 1425.

76.

Simpson and Weiner, The Oxford English Dictionary (2nd ed., 1989) Vol.XII at p.878.

77.

Report at para.7.18 (ii) and (iii).

78.

Treitel at p.653; Burrows, The Contracts (Rights of Third Parties) Act 1999 and its Implications for Commercial
Contracts [2000] L.M.C.L.Q. 540 at p.547.

79.

Report at para.7.39.

80.

cf. Macmillan, A Birthday Present for Lord Denning: the Contracts (Rights of Third Parties) Act 1999 (2000) 63 M.L.R.
721 at p.725; Tettenborn Third Party Contracts--Pragmatism from the Law Commission [1996] J.B.L. 602 at p.604;
Barker Are We up to Expectations? Solicitors, Beneficiaries and the Tort/Contract Divide (1994) 14 O.J.L.S. 137 at
p.142; Gartside v Sheffield Young & Ellis [1983] N.Z.L.R. 37.

81.

Above, n.43 at p.359.

Page19
82.

Tettenborn in Merkin and Barlow (eds.), Privity of Contract: the Impact of the Contracts (Rights of Third Parties) Act
1999 (2000) at p.174.

83.

Report at para.7.37.

84.

Coldicott v Webb Keeys, New Zealand HC, unrep., May 17, 1985, A50/84; Field v Fitton [1988] 1 N.Z.L.R. 482;
McElwee v Beer New Zealand H.C., unrep., February 19, 1987, A445/85; Karangahape Road International Village Ltd v
Holloway [1989] 1 N.Z.L.R. 83; Rattrays Wholesale Ltd v Meredyth-Young & A'Court Ltd [1997] 2 N.Z.L.R. 363.

85.

s.1(2).

86.

Burrows, Reforming Privity of Contract: Law Commission Report No. 242 [1996] L.M.C.L.Q. 467 at p.473.

87.

Report at para.7.18(iii).

88.

Tettenborn, above, n.80 at p.605; Macmillan, above, n.80 at p.725.

89.

[1995] 2 A.C. 145.

90.

Tettenborn, above, n.82 at p.175.

91.

Report at pp.124-127.

92.

Explanatory Notes to Contracts (Rights of Third Parties) Act 1999 at para.33.

93.

Burrows, above, n.78 at p.552; Ambrose, When Can a Third Party Enforce an Arbitration Clause? [2001] J.B.L. 415 at
p.423; Diamond, The Third Man: the 1999 Act Sets Back Separability? [2001] Arbitration International 211 at p.214; cf.
Merkin in Merkin and Barlow, above, 82 at para.5.117. On jurisdiction clauses see Briggs and Rees, Civil Jurisdiction
and Judgments (3rd ed., 2002) at para.2.89.

94.

[2003] EWHC 2602 (Comm), [2004] 1 Lloyd's Rep. 38.

95.

At [21].

96.

Explanatory Notes at [34].

97.

[2003] EWHC 2602 at [42].

98.

Report at para.10.29; H.L. Deb. Vol.601 at para.1050.

99.

Report at para.9.45-9.47.

100.

Burrows, above, n.78 at p.547.

101.

Treitel at p.689.

102.

Treitel at p.690.

103.

s.3(2).

104.

s.3(6).

105.

Report at para.10.11.

106.

Burrows, above, n.86 at p.477.

107.

Report at para.10.2.

108.

The Laws of Scotland: Stair Memorial Encyclopaedia, Vol.15 Obligations (1996) at para.827; Constitution and Proof of
Voluntary Obligations--Stipulations in Favour of Third Parties (Scot Law Com. C.M. No.38, 1977) at p.15, n.1.

109.

Burrows, above, n.78 at p.544.

110.

Treitel at p.658.

111.

Lumley v Gye (1853) 2 E. & B. 216.

112.

Contracts (Privity) Act 1982, s.4.

113.

Property Law Act 1974.

114.

There is a hint at para.3.33 (iii) of the Report that it might have been intended to apply to deeds.

Page20
115.

Law of Property Act 1925, s.52(2)(d).

116.

Chitty on Contracts, ed. Beale (28th ed., 1999), Vol.1 at p.24 cf. p.3.

117.

Treitel at p.158; cf, The Execution of Deeds or Documents by on behalf of Bodies Corporate (Law Com. No. 253, 1998),
pp.6-19.

118.

Hall v Palmer (1844) 3 Hare 532; Macedo v Stroud [1922] 2 A.C. 330.

119.

Pettit, Equity and the Law of Trusts (9th ed., 2001) at p.105.

120.

Aiken v Stewart Wrightson Members Agency Ltd [1955] 1 W.L.R. 1281 at p.1291.

121.

Report at para.6.10.

122.

(1967) 119 C.L.R. 460.

123.

Barwick C.J., Windeyer, Taylor and Owen JJ. McTiernan J. did not consider the point.

124.

below, text at n.174.

125.

Treitel at p.578.

126.

Coote, Consideration and the Joint Promisee [1978] C.L.J. 301 at p.307.

127.

Jell v Douglas (1821) 4 B. & Ald. 374; Sorsbie v Park (1843) 12 M. & W. 146; Thompson v Hakewill (1865) 19 C.B.
(N.S.) 713.

128.

Report at para.6.12; draft Bill, cl.8.

129.

cf. Treitel at p.578; Andrews, above, n.43 at p.379.

130.

Trident General Insurance Co Ltd v McNiece Bros. Pty. Ltd (1988) 165 C.L.R. 107; Reynolds (1989) 105 L.Q.R. 1.

131.

London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 S.C.R. 299; Edgeworth Construction Ltd v N.D. Lea &
Associates Ltd [1993] 3 S.C.R. 206; Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd [1999] 3 S.C.R. 108.

132.

The Singapore Contracts (Rights of Third Parties) Act 2001 follows the English reform.

133.

Alteri stipulari nemo potest : D. 45. 1. 38. 17 (Ulpian); Zimmermann, The Law of Obligations: Roman Foundations of
the Civilian Tradition (1990) at pp.34-45.

134.

Burgerliches Gesetzbuch (BGB), s.823 para.1.

135.

Markesenis and Unberath, The German Law of Torts: Comparative Treatise (4th ed., 2002) at pp.52-56, 71-73.

136.

BGH January 11, 1977, NJW 1977, 2073; Lorenz, Contracts and Third Party Rights in German and English Law, in
Markesinis (ed.) The Gradual Convergence (1994) at pp.69-70.

137.

BGB, s.831.

138.

Markesinis, Lorenz and Dannemann, The German Law of Obligations (3rd ed., 1997), Vol.1 at p.276; Ktz, European
Contract Law (1997) at p.252.

139.

Ktz, op.cit. above, at p.255.

140.

Donoghue v Stevenson [1932] A.C. 562; cf. Handte v Traitements Mcano-Chimiques des Surfaces, C-26/91 [1992]
E.C.R. I-3967 where the E.C.J. rejected the French characterisation of such claims as contractual for the purposes of
the Brussels Convention.

141.

J.C.P. 1957.II.101;34 (2d Case).

142.

BGH November 26, 1986 NJW 1987, 1758; Lorenz, above, n.136 at pp.71-72.

143.

Smith v Eric S. Bush [1990] 1 A.C. 831.

144.

cf. Whittaker, Privity of Contract and the Tort of Negligence: Future Directions (1996) 16 O.J.L.S. 191; Lorenz, Some
Thoughts about Contract and Tort, in Wallington and Merkin (eds) Essays in Memory of F.H. Lawson (1986) at p.86;
Markesinis, An Expanding Tort law--the Price of a Rigid Contract Law (1987) 103 L.Q.R. 354; Ktz, The Doctrine of
Privity of Contract (1990) 10 Tel Aviv University Studies in Law 195.

145.

above, text at n.69.

Page21
146.

Ktz, European Contract Law (1997) at pp.257-259.

147.

Ktz, ibid. at p.251; Lorenz, above, n.136 at p.73.

148.

Zweigert and Ktz, Introduction to Comparative Law (3rd ed., 1998) at pp.459-465; Ktz, op.cit. above, n.146, at
p.255-256.

149.

Reynolds Privity of Contract (1997) 113 L.Q.R. 53.

150.

Report at para.3.11.

151.

above, text at n.69.

152.

Report at para.1.7; H.L. Deb Vol.596 at cols 1423-1426 and 1428-1431.

153.

Cornes and Winward, Winward Fearon on Collateral Warranties (2nd ed., 2002) at p.58-59.

154.

Married Women's Property Act 1982, s.11; Road Traffic Act 1988, s.148(7); Fires Prevention (Metropolis) Act 1774;
Third Parties (Rights Against Insurers) Act 1930; Road Traffic Act 1988, ss.151-153 as amended by Road Traffic Act
1991, s.48.

155.

e.g. Germany: Markesinis, Lorenz and Dannemann above, n.138 at p.259.

156.

Either under s.1(1)(a) or (b).

157.

Trident General Insurance Co Ltd v McNiece Bros Pty. Ltd (1988) 165 C.L.R. 107 is exceptional cf. Boston Fruit Co. v
British & Foreign Marine Insurance Co [1906] A.C. 336; Yangtsze Insurance Association Ltd v Lukmanjee [1918] A.C.
585.

158.

Gambling contracts are void under Gaming Act 1845, s.18. Bookmakers pay winnings because they wish to continue to
trade rather than because they can be compelled to do so.

159.

Trident General Insurance Co Ltd v McNiece Bros Pty. Ltd (1988) 165 C.L.R. 107 per Brennan J. at pp.138-139;
Beswick v Beswick [1968] A.C. 58.

160.

Cleaver v Mutual Reserve Fund Life Association [1892] 1 Q.B. 147; Re a Policy of the Scottish Equitable Life
Assurance Society [1902] 1 Ch. 282; Re Burgess's Policy (1915) 113 L.T. 443; Re Engelbach's Estate [1924] 2 Ch.
348; Re Harrington Motor Co. Ltd [1928] Ch. 105; Hood's Trustees v Southern Union General of Australia [1928] Ch.
793; Re Stapleton-Bretheren [1941] 1 Ch. 482; Re Sinclair's Life Policy [1938] 1 Ch. 799; Re Gordon [1940] Ch. 851;
Re Webb [1941] 1 Ch. 25; Re Schebsman [1944] Ch. 83; Green v Russell [1959] 2 Q.B. 226; Re Foster [1966] 1 All
E.R. 432.

161.

Re Schebsman [1944] Ch. 366; Beswick v Beswick [1968] A.C. 58, per Lord Reid at p.71, Lord Pearce at p.94, Lord
Upjohn at p.96.

162.

Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd [1999] 3 S.C.R. 108.

163.

Cut-through clauses.

164.

Legh-Jones, Longmore, Birds, Owen, Macgillivray on Insurance Law (9th ed., 1997) at para.1-90.

165.

Contra Henley in Merkin and Barlow, above, n.82 at p.226.

166.

Treitel at p.693.

167.

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85 at p.105.

168.

Raiffeisen Zentralbank Oesterreich AG v Five Star Trading LLC [2001] Q.B. 825; Commission of the European
Communities, Green Paper on the Conversion of the Rome Convention of 1980 on the Law Applicable to Contractual
Obligations into a Community Instrument and its Modernisation, Com (2002) 654.

169.

Trident General Insurance Co. Ltd v McNiece Bros Pty. Ltd (1988) 165 C.L.R. 107 per Brennan J. at pp.132, 138-139
and per Deane J. at pp.141-145; Kincaid, Third Parties: Rationalising a Right to Sue [1989] C.L.J. 243; Kincaid, The
UK Law Commission's Privity Proposals and Contract Theory (1994) 8 J.C.L. 51; Smith, Contracts for the Benefits of
Third Parties: In Defence of the Third Party Rule (1997) 17 O.J.L.S. 643.

170.

Report at para.3.1 n.1.

171.

Anson, Principles of the English Law of Contract (1st ed., 1879) at p.195.

172.

Carlill v Carbolic Smokeball Co [1893] 1 Q.B. 256.

173.

Report at para.3.1 n.2.

Page22
174.

cf. s.518(2) BGB; Code Civil Art.931; Requirement of Writing (Scotland) Act 1995, s.1(2)(a)(ii); Zweigert and Ktz,
Introduction to Comparative Law (3rd ed., 1998) at pp.392, 395 and 397; Lando and Beale, Principles of European
Contract Law (2000) at pp.140-143, 158.

175.

Fuller, Consideration and Form (1941) 41 Col.L.R. 799.

176.

Vantage Navigation Corporation v Suhail & Saud Bahwan Building Materials Plc (The Alev) [1989] 1 Lloyd's Rep 138
per Hobhouse J. at p.147; Flannigan, Privity-The End of an Era (Error) (1987) 103 L.Q.R. 564 at pp.586-587;
Consultation Paper at para.2.9; Phang, On Justification and Method in Law Reform--the Contracts (Rights of Third
Parties) Act 1999 (2002) 18 J.C.L. 32.

177.

Flannigan, op.cit. above, Markesenis, Lorenz, Danneman, above, n.138 at pp.258-259; Consultation Paper at para.2.9;
cf. Report at para.6.17.

178.

Exceptionally nominal consideration is sometimes used in this way (e.g. a peppercorn rent).

179.

cf. Rann v Hughes (1778) 7 T.R. 350.

180.

Atiyah, above, n.1 at p.20.

181.

Compare Lady Hood of Avalon v Mackinnon [1909] 1 Ch. 476 with Bell v Lever Bros. [1932] A.C. 161.

182.

e.g. money; Miller v Race (1758) 1 Burr. 452; Fox, Bona Fide Purchase and the Currency of Money [1996] C.L.J. 547.

183.

Pilcher v Rawlins (1872) 7 Ch. App. 259.

184.

Insolvency Act 1986, s.238(4)(a).

185.

cf. Trident General Insurance Co. Ltd v McNiece Bros Pty. Ltd (1988) 165 C.L.R. 107 per Brennan J. at p.140.

186.

There may be a claim based upon unjust enrichment.

187.

Barrister, Fellow and Tutor in Law, Lady Margaret Hall, Oxford. I am grateful to Professor Andrew Burrows, Professor
Eric Dirix, Professor Ewan McKendrick, Mr Ben McFarlane and Professor Francis Reynolds for their comments. All
errors and opinions are mine.
2012 Sweet & Maxwell and its Contributors