Privity of contract

Privity of contract holds that only parties to a contract can enforce it or be bound by it. The doctrine has two limbs: the enforcement limb (third parties cannot acquire rights under contracts to which they are not party) and the burdens limb (third parties cannot have obligations imposed by contracts to which they are not party). The Contracts (Rights of Third Parties) Act 1999 substantially modifies the enforcement limb, permitting third parties to enforce contracts that expressly identify them and purport to confer benefits on them, but leaves the burdens limb intact. The rationale combines the consideration doctrine (consideration must move from the promisee, which third parties have not provided) with contractual relativity (parties cannot be expected to anticipate obligations to strangers). Despite the 1999 Act, the privity doctrine retains residual force where the Act does not apply.

Tweddle v Atkinson (1861) 1 B & S 393: Son could not enforce fathers' contract to pay him money on marriage as he was not party to it and consideration had not moved from him. Foundational modern authority establishing that no stranger to the consideration can take advantage of a contract.

Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847: Dunlop could not enforce price maintenance term against sub-buyer Selfridge as no contract existed between them. Lord Haldane LC articulated the orthodox formulation that only a person who is party to a contract can sue on it.

Beswick v Beswick [1968] AC 58: Widow obtained specific performance as administratrix of husband's estate to enforce nephew's promise to pay her annuity. Shows both the limits of privity (widow could not sue in her own right) and alternative enforcement routes through personal representatives.

St Martin's Property Corp Ltd v Sir Robert McAlpine [1994] 1 AC 85: Original developer recovered damages for breach causing loss to its subsidiary under the Dunlop v Lambert exception. Extends exception to commercial property transactions where contracting party has substantial interest in third party receiving benefit.

New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154: Stevedores relied on Himalaya clause in bill of lading through agency analysis. Established that carriers can contract as agents for third parties to extend exclusion clauses, now codified in s 6 of 1999 Act.

Courts apply privity analysis in three stages. First, identify whether claimant is party to the contract—if not, orthodox privity bars the claim unless exceptions apply. Second, test the 1999 Act: does contract expressly provide for third-party enforcement (s 1(1)(a)), or does it purport to confer benefit on an expressly identified third party (s 1(1)(b))? If the latter, apply s 1(2) presumption of enforceability unless parties indicated contrary intention. Third party must be expressly identified by name, class, or description. Third, if Act inapplicable, consider common-law exceptions: agency (principal enforces agent's contracts), trust (beneficiary enforces trust of contractual rights), assignment (legal or equitable), or Dunlop v Lambert exception (recovery for third-party loss where contracting party had substantial interest). For burdens, the rule remains absolute—third parties cannot be bound by contracts to which they are not party, subject only to limited property-law exceptions like Tulk v Moxhay.

Students commonly make three critical errors. First, stating the 1999 Act abolished privity—it created an exception within the doctrine, not wholesale displacement; s 7(1) preserves the doctrine and s 6 excludes various contract types. Second, missing the s 1(2) presumption that benefit clauses are enforceable unless parties indicated otherwise—burden lies on party arguing non-enforceability. Third, treating Beswick v Beswick as a privity exception when the widow recovered as administratrix, not in her personal capacity—the case demonstrates privity's limits, not its displacement.