Contract Law Revision Notes - Privity of contract

Contract Law Revision Notes - Privity of contract

In these contract law revision notes, we go over the doctrine of privity of contract. Use our notes for exam revision or general reference.

Privity of contract

The basic notions:

(a) A contract cannot impose burdens on a third party

Context 1: carriage of goods by sea

The Pioneer Container [1994] 2 AC 324 (noted BBF 1200)

Goods owners contracted with a freight forwarder for their carriage from Taiwan to Hong Kong. The forwarders sub-contracted the actual carriage to the defendants, who issued bills of lading. These provided that they were to be governed by Chinese law and any dispute was to be determined in Taiwan. The vessel sank after a collision and all the cargo was lost. P issued proceedings in Hong Kong; the defendants applied to have the action stayed on the ground that it should be heard in Taiwan.

(b) No enforcement by third party

Beswick v Beswick [1968] AC 58 (BBF 1139)

(Uncle sold coal business to nephew, who was to pay uncle £6.10s a week for life and thereafter £5 a week to his widow)

Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847 (BBF 1136)

(Tyres sold on terms prohibiting retail sale at less than list prices; buyers undertook that if re-sold in trade would extract same clause from sub-buyers.  Dunlop sold to Dews who re-sold to Selfridge.  S re-sold retail at less than list price, D claimed liquidated damages of £5 per tyre from S)

Statutory exceptions (see BBF 1152):

Married Women’s Property Act 1882, s 11

Marine Insurance Act 1906, s 14(2)

Road Traffic Act 1988, s 148(7)

Defective Premises Act 1972, s 1(1)

Law of Property Act 1925, s 56

“Evasions” of privity:

  • agency
  • assignment (see BBF 1195-1199)

A party to a contract can assign its rights to an assignee. If the assignment complies with Law of Property Act 1925, s 136 (among other things, the assignment must be in writing signed by the assignor, and the debtor must have been notified in writing), the assignee can sue in its own name; if it does not comply, it will only be an equitable assignment but the assignee can sue if it joins the assignor as co-claimant or co-defendant.

However, if the contract provides that the right may not be assigned, the debtor can insist on dealing only with the assignor: Linden Gardens v Lenesta Sludge [1994] 1 AC 85. This does not affect the transfer of the right to the debt or its proceeds as between the assignor and the assignee (so the assignee can claim the money even if the assignor has gone bankrupt.)

(ii) the trust

Green v Russell [1959] 2 QB 226 (noted BBF 1151)

(Architect took out insurance covering death of employees at work; question whether widow of employee killed in fire had a right to the insurance money she had been paid).

(b) Enforcement by promisee

(1) Damages on behalf of another

Jackson v Horizon Holidays Ltd [1975] 3 All ER 92 (McK 1196; noted, BBF 1143) (family holiday)

Woodar Investment Ltd v Wimpey Ltd [1980] 1 WLR 277 (McK 1199; noted, BBF 1143)

(Sale of land; part of price payable to seller’s subsidiary)

Linden Gardens v Lenesta Sludge [1993] 3 All ER 417 (BBF 1144)

(Owners of building contracted for work to be done on it; work contract prohibited assignment of owners’ rights. Building transferred to new owners, work proved defective. Transfer had been contemplated by parties)

Browne-Wilkinson:  extension of old exception that if owner of goods ships them and re-sells then while afloat, can still recover damages from carrier for damage to goods on behalf of buyers.

Griffiths: Where P contracts for work and this is not done properly, P can recover cost of having it re-done even though it was to be done on a third person’s property.

Panatown v McAlpine Construction Ltd [2000] 4 All ER 97 (BBF 1149)

P had entered into a contract as employer with D as main contractor to build an office building and a car park in Cambridge on the 1981 JCT design & build contract. P was a member of a group of companies. The site belonged to another member of the group, UIPL. D had entered into a duty of care deed with UIPL under which that company acquired a direct remedy against D in respect of any failure by D to exercise reasonable skill, care and attention in respect of any matter within the scope of D responsibilities under the building contract. It was alleged that there had been major flaws in the building work done by D and P brought an action for damages.

(2) Specific performance

Contract (Rights of Third Parties) Act 1999


Privity and manufacturers and subcontractors

Context 2: Manufacturer – Retailer – Consumer

Context 3: Employer – Main Contractor – Sub-contractors and Suppliers (“Domestic” or “Nominated”)

(a) Defective work

Gloucestershire CC v Richardson [1969] 1 AC 480 (noted BBF 442)

(b) Failure to meet quality or performance stated by manufacturer

Shanklin Pier v Detel Products Ltd [1951] 2 KB 854 (noted, BBF 38-39)

(Pier company wanted pier re-painted; told by D their paint would last 7 years; order contractor to use this paint but not fit for particular purpose)

Lexmead Ltd v Lewis [1982] AC 225, 262-263 (noted BBF 19)

IBA v EMI and BICC (1980) 14 BLR 1 (noted BBF 186)

[NB SGA 1979, s 14(2D)-(2E) (seller may be liable to consumer buyer)]