Privity Flashcards

Question

I - Passing a Benefit to a Third Party B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party 3/ Damages a/ Damages for the promisee’s own loss (YES)

Answer 1

In principle, damages are for the promisee’s own loss, which in most cases will be nominal. However, Coote argues that the court confused the loss of enjoyment of the fruits of performance (which promisee doesn’t lose) and loss of the bargained-for contractual rights (which the promisee did lose). But the loss may be substantial if: - The promisee comes under a moral or legal obligation to compensate the third party (Radford v de Froberville) or - Voluntarily incurs expenses in making good the breach, if it is reasonable to do so in order to mitigate (Banco de Portugal v Waterlow)

Answer 2

no recovery - Held (HL): all judges in the majority accepted the general rule but the dissents (Millett and Goff) analyse it most extensively - Lord Millett: the object of compensation is to make good a loss, so only the person who has suffered the loss is entitled to have it made good by compensation. Recovering for a third party’s loss is a “contradiction in terms”. There is no logical justificaiton unless the person recovering the compensation is accountable for them to the person who has suffered the loss. - Lord Goff: it would be an “extraordinary defect in our law” if there were a rule excluding a right of B to substantial damages. Contracts to confer a benefit on X are common in the family and commercial contexts, and authority for this rule is very thin. Many scholars doubt it because it would deprive parties of the fulfillment of their reasonable contractual obligations. Since the majority accepted the rule it would seem that Lord Millett’s judgment has the weight of authority, but Lord Goff’s concerns are reflected in the exceptions.

Answer 3

- Facts: B booked a holiday for himself and his family through travel agency A, setting out precise requirements that B assured would be met. Then B informed A that the hotel he had booked would not be ready so offered A alternative arrangements, assuring A that they would meet his expectations, so A agreed. The stay was disappointing and the whole family suffered distress and inconvenience. A sued B for misrepresentation and breach of contract. - Held: Trial judge awarded £1,100 in damages (against £1,200 payment for the stay), the B appealed, arguing that the damages were excessive. CoA dismissed the appeal.

Answer 4

o Though the judge didn’t divide up the damage IJO he decided that the family only had half the value of the holiday (£600 for diminution in value) and then added £500 for mental distress. The judge said that he could only consider the mental distress to A, and not the family. o In this case what was the contract? ♣ It was a case where one person makes a contract for the benefit of himself, and his family (other cases include a host contracting with the restaurant for dinner for himself and friends, or vicar booking a coach trip for himself and the choir). Whether he pays the whole price himself or asks for a contribution doesn’t matter; in any case, he made the contract. ♣ It would be wrong to say: • B was an agent (in this case it would be absurd to say the father was an agent for his three-year-old children) • There was a trust (the agreement bears no resemblance to a trust – no trust property or fund) ♣ It was simply a contract for the benefit of third persons. o What is the consequence of a breach of such a contract? ♣ The current state of the law is that only the promisee can sue, but he can recover damages for his own loss and the loss of the others [relying on the principle in Lloyd’s v Harper, cited by Lord Pearce in Beswick]. That principle must be regarded as correct, at least so long as the law forbids the third parties themselves from suing. o Thus the damages are about right – it would have been excessive had it been for B only, but it’s about right if it accounts also for the family.

Answer 5

“I agree” o B booked a family holiday. The wording of such a contract might in certain circumstances give rise to a contract where the signatory is acting as his own principal and agent for others. o In this case B booked a family holiday and didn’t get one; he “felt terrible”, didn’t get anything from the holiday and was only pleased to be back home. The measure of damages is right and proper in these circumstances.

Answer 6

1º Thus Lord Denning says that the measure of damages was for B’s and his family’s suffering, whereas James LJ suggests it is for B’s own suffering only. Orr LJ’s judgment can’t be interpreted as agreeing with any other judge or only the outcome. Thus Jackson cannot be regarded as authority for this purpose. 2º However the result is clear and has been approved in Woodar and by Goff and Millett in Panatown. 3º A concern in Panatown was that B not be entitled to recover an “uncovenanted profit”, and Lord Denning was alive to the problem by holding that B would be accountable to the third parties by means of an action for money had and received to their use (a claim in restitution).

Answer 7

- A agreed to buy land from B for £X, and promised to pay a further £Y upon completion to X. B alleged that A committed a repudiatory breach of the contract and sued for damages including the £Y. - Held (HL): A had not repudiated the contract, so unnecessary to consider the damages issue (but obiter)

Answer 8

o IJO would not dissent from the actual decision in Jackson but would confine it more narrowly as either: ♣ A broad decision on the measure of damages (James LJ’s judgment) ♣ One of the situations of daily life which do not fit neatly into conceptual analysis but which require some flexibility in the law of contract (as alluded to in The Eurymedon), so as a special type of contract (family holidays) calling for special treatment. o Would not support Lord Denning’s basis – Lloyds v Harper referred to an agent being able to sue on a contract made by him on behalf of the principal if the contract gives him such a right. o Whether B can recover more than nominal damages where (1) B was not an agent for X and (2) B hasn’t suffered any loss is “of great doubt and difficulty – no doubt open in this House – but one on which I prefer to reserve my opinion”

Answer 9

o IJO Jackson is not capable of being supported on the basis of Lloyd’s v Harper because that was based on agency o But it can be supported more narrowly as deciding that there is a certain class of cases where third parties stand to gain indirectly by virtue of a contract, and where their deprivation of that gain can properly be regarded as no more than a consequence of the loss suffered by one of the contracting parties. o In such situations, third parties cannot claim in their own right, but in assessing damages recoverable by B, it may be proper to take account of expenses incurred by B in replacing by other means benefits of which the third parties have been deprived or in mitigating the consequences of that deprivation.

Answer 10

o IJO open to the House to declare that in the absence of evidence showing that B suffered no loss: ♣ B can rely on the fact that he required the payment to be made to X as prima facie evidence that the promise was of benefit to B and the measure of B’s loss was the benefit which he intended for X. ♣ Because (whatever the reason) he must have desired the payment to X and relied on A to make it, so that if A doesn’t make it, B would have to find money from elsewhere to confer the same benefit on X. o Without expressing a final opinion on the issue, it requires consideration by HL.

Answer 11

o Nothing in the CoA’s order in Jackson suggests that the measure of damages was for the use and benefit of the family, so IJO B would only be entitled to nominal damages in respect of the £Y payable to X.

Answer 12

1º Clearly everyone disapproves of Lord Denning in Jackson, but other than that it’s unclear whether the HL thought B should be allowed to recover in this case. McAlpine v Panatown doesn’t really clarify the matter – most cited it with approval and some for authority for the trustee and agency exceptions, but only Lord Millett (dissenting) cited Lord Scarman’s judgment (apparently with approval) which may (though need not necessarily) evidence his opinion that B should have recovered in this case.

Answer 13

The parties appear not to be free to provide in the contract that B would be able to recover loss suffered by X. Otherwise, the contract in Woodar should have been interpreted this way (the alternative interpretations – that the £Y should be unenforceable or that X should be able to enforce it himself – would have been less likely), though perhaps this intention wasn’t sufficiently precise because the parties failed to make use of agency or the trust.

Answer 14

- Lord Diplock: in a commercial contract concerning goods where the parties contemplate that the proprietary interests in the goods be transferred from one owner to another after the contract has been entered into and before the breach which causes loss to the goods, an original party to the contract, if such be the intention of them both, is treated as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover damages for the loss sustained by these people.

Answer 15

- HL applied the Albazero exception to building contracts [see Cartwright’s note]

Answer 16

- At first sight Linden Gardens (HL) may seem a set-back to later owners (they already can’t exercise the Anns remedy in tort because of Murphy, and now they can’t sue in contract either) - But HL may be offering an alternative rout in expanding the assignor’s rights (thus not dependent on assignment), though assignment route still appears to be open if the original builder’s contract doesn’t contain prohibitions on assignment. o NB HL (i) confirms that there is no public policy that invalidates express prohibitions on assignment of “fruits” (rights under the contract, including claims for damages) and (ii) reverses the CoA in holding that a construction of the standard term in question did effectively prohibit such assignment - The different alternatives: o Where the defect is known and the transfer is at reduced price = vendor suffered loss, not the buyer o Where the defect is not known so transfer is at market value + contemporaneous assignment = vendor suffers no loss unless he is contractually liable to the buyer for the defects later discovered. o Where the defect is not known so transfer is at market value + no contemporaneous = ? ♣ Perhaps the seller can assign later? not addressed. ♣ Perhaps the seller can sue for the loss? addressed in St Martin’s - The key question = does transfer and assignment create a “legal black hole” into which the right to damages disappears, leaving the contract-breaker with an uncovenanted immunity? - The CoA judgments: o Majority (Nourse LJ, Sir Michael Kerr) = ♣ The contractual prohibition on assignment doesn’t prevent assignments of accrued rights to damages (Linden assignment effective) but does prevent assignments of the right to enforce future performance (St Martin’s assignment ineffective) • Thus Linden Gardens succeeded as assignees who in fact incurred the expenses of repairs, even though the assignors suffered no loss. ♣ On an implied term between the sellers and buyers in St Martin’s, the seller was contractually bound to reimburse buyers for cost of repairs as damages for the seller’s failure to obtain the builder’s consent to assignment of the building contract, so that the sellers could succeed against the builders because they suffered loss. o Minority (Staughton LJ) = ♣ The contractual prohibition was only a prohibition of vicarious performance so that the assignees could succeed in both cases. ♣ Alternatively (agreeing with majority), the seller could enforce as assignors. The objection that they suffered no loss can be met because there are many categories of cases where Cs received full damages. ♣ Then dismissed the “black hole” defence by explaining that assignees are prima facie entitled to recover what the assignor, but for the assignment, could have recovered. - The HL judgments: o The prohibition on assignment was effective in both cases (rejecting CoA’s distinction) o Rejected the circuitous route allowing St Martin’s to recover (implied term to indemnify…) o Allowed recovery on one of two possible grounds, but preferred the narrower ground: ♣ Lord Browne-Wilkinson adopted the narrow ground ♣ Lord Griffiths favoured the wide ground ♣ Lord Keith had much sympathy for the broad ground but preferred the narrow ground because the wide ground wasn’t fully explored in argument ♣ Lord Bridge was he was “much attracted” by the wide ground but was content to adopt the narrow ♣ Lord Ackner didn’t refer to either

Answer 17

- = in contracts for the supply of goods and services, like a building contract, the measure of damage for defective work was loss of value and/or cost of repair, but that it might be right, as in the case of sale of goods, to treat this measure as an objective one, not dependent on actual or continued ownership or enjoyment of the contracted services by the buyer or owner himself, but rather on the difference so measured between what had been contracted for and what was supplied. o Lord BW noted that the authorities requiring proof of ownership by C were all contracts of carriage where goods were damaged, which is different from building contracts where the breach is failure to provide the very goods undertaken by the contract. Thus there is “much to be said for drawing a distinction between cases where ownership is relevant to prove that C suffered loss, and cases where the contractual obligation itself requires the provision of said goods”, though not ready to make this distinction because not argued.

Answer 18

- applied The Albazero exception, citing the passage: “the rule extends to all forms of carriage … and there may still be occasional cases in which the rule would provide a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it ” in St Martin’s it is a case where no other remedy would be available and a national legal system ought to compensate… o This would not have assisted Linden Gardens because there was a straightforward sale of the lease by the seller as ordinary lessees, and therefore not within the contemplation of the building contracts.

Answer 19

o No assignment prohibition in the building (or in Linden Gardens removal) contract CoA said that cost of repair would have been recoverable by the assignee, and it is no answer to say that the assignor suffered no loss and assignee can’t recover more than assignor, because the assignee is entitled to what the assignor would have gotten had he not assigned. But Lord BW merely noted this holding and didn’t express approval or disapproval. o There is a prohibition but seller sues seems that narrow ground means seller wouldn’t be able to sue because only in development projects (where resale is in contemplation of the building contract) that an assignor who suffered no loss would be able to recover. o There has been no assignment hard to see why the seller in Linden Gardens (where assignment was prohibited) could be in a better position, so seller who never assigned would probably be able to recover in the same circumstances.

Answer 20

o What if seller recovers but doesn’t want to account to the purchaser? IAO remedy will be an action for money had and received. o Can the purchaser compel the seller to sue if he doesn’t want to? ♣ If there is an assignment = prohibited assignment doesn't affect the position between assignor and assignee (Lord BW), so assignee may be able to get compulsory use the assignor’s name… ♣ If there is no assignment = in the bailment cases the bailor can’t compel the bailee to sue (The Winkfield, The Albazero (obiter)), and compulsory use of the seller’s name seems like a major invasion of privity + defeat the purpose of contractual prohibitions against assignment (if there is one) If the vendor assigned but also gives a contractual warranty for defects seems like the vendor won’t be able to sue because has assigned, but the purchaser might sue and may have to account to the assignor

Answer 21

o Procedural difficulties where there is no identity of interest between seller and purchaser – the spirit of the broad principle seems to be to prevent avoidance of liability, which would suggest compulsory joinder… o Is reduced value or cost of repair the correct measure of damages?

Answer 22

- how can the purchaser of a building enforce contractual obligations between the seller and builder, in respect of defects in the building?

Answer 23

• Validity of the prohibition: yes – prohibitions of assignment of choses in action like contractual rights are valid. • Construction of the clause in this case (prohibits assignment of “this contract”): o CoA: ♣ In Linden Gardens the right had accrued before the purported assignment. In St Martins it only accrued after (so what was assigned was the contractor’s continuing obligation to perform) ♣ CoA construed the clause prohibiting assignment as not applying to assignment of accrued rights, so the assignment was effective. But in St Martins it was ineffective. o HL rejected CoA: the clause prohibits the assignment of any benefit of or under the contract, so includes the assignment in this case. Thus, none of the assignments was effective.

Answer 24

• There is a “no loss argument” because the contractual rights assigned to the purchaser are linked to the rights which the seller had, and since the seller hasn’t suffered any loss (because he obtained the full value of a non-defective building when he sold it to the purchaser), the purchaser (as the seller’s successor) can claim no more than nominal damages. o Breach before transfer and assignment of contractual rights: no problem if the right is assigned with the transfer of the property, but maybe problem if assigned later, but CoA in Linden Gardens said no problem either way because the problem results from the principle that the assignee cannot recover any more than the assignor, but that principle only applies if the contract had not been assigned, and the building never been transferred to the assignee. ♣ However, this analysis assumes that the seller retained a right to sue for substantial damages even though it had parted with the property. ♣ Should the measure of damages be cost of remedying the defect, or difference in market value? Cost of cure is surely inappropriate because it is known for certain that the seller would not spend the money on repairs… ♣ In any case the CoA at least achieves a convenient and commercially sensible result… o Breach after transfer of property and assignment of contractual rights (because the building work is still ongoing): because P is already the beneficiary of seller’s obligations, he can obviously sue (this was assumed in St Martins) o Breach after transfer of property but before assignment of contractual rights: here at the accrual of the cause of action, the property was in P’s hands but contractual rights were still in seller’s easier to argue that the “no loss” principle applies (this arose in St Martins, and was accepted by the CoA, but the court got around this by saying that the seller did suffer loss)

Answer 25

* CoA accepted in St Martin’s that the seller suffered a substantial loss because they had to indemnify the buyer as a result of the failed assignment. But this is “outrageous” because the seller assigned the benefit of a contract that was (the CoA accepted) non-assignable, and it was the seller’s own failure to comply with the arrangement that created the loss for which the builder had to pay… * This was (IAO rightly) rejected by HL, but on different facts the seller may have been able to recover for their own substantial loss

Answer 26

• Narrow ground (St Martin’s is an exception to the rule that you can only recover for your own losses – Lord Browne-Wilkinson): extending cases in carriage of goods by sea (The Albazeero exception) to this context. o The contract was for a development of property which (to the knowledge of both seller and builder) was going to be occupied and possibly purchased by third parties and not the seller himself. o Because of the express prohibition on assignment, it is proper to treat the parties as contracting on the footing that the seller would be entitled to enforce contractual rights for the benefit of those who suffered loss but couldn’t get any right to enforce under the terms of the contract. o This is a case in which the rule provides ‘a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it.’ • Wide ground (Lord Griffiths): if I contract for a service to be done, the mere fact that it is not done means that I suffer a recoverable financial loss because I have to spend money in getting someone else to do the service for which I had contracted. o If adopted, this would reverse the many cases which have indicated that privity means nobody can sue (third party nor promisee).

Answer 27

o HL didn’t say what remedies are available to P in capacity as assignee… So the best authority is the CoA decision, but (i) measure of damages and (ii) what about where seller parted with property before assignment? o As to the seller’s remedy the HL took the “radical step” of allowing seller to sometimes recover for P’s loss (but only where it was foreseeable to the builder at the time of contract that the building might come into the hands of third parties who would suffer loss without any direct recourse against C)

Answer 28

CoA held that the Albazero exception applied even in the absence of a transfer of ownership. - Facts: A construction company entered into a contract with a finance company, to build property for the Council (owner of the land). The finance company assigned to the council all its rights and causes of action against the construction company. The Council sued the construction company for breach of contract. - Held (CoA): since the building contracts were, to the knowledge of both parties, entered into for the benefit of the Council, and it was foreseeable that damage caused by breach would cause loss to the Council, the council as assignee could claim substantial damages, which should be assessed on the normal basis as if the Council had been a party to the contract. - Dillon and Waite LJJ: If the finance company had, before any assignment, sued in its own name, it would have held any damages recovered as a constructive trustee for the council and would have been accountable accordingly in equity

Answer 29

The normal rule for assessing damages is that a C suffering a loss is entitled to have it made good in money (so Ruxley is exceptional), and it is “no concern of the law what the plaintiff proposes to do with his damages”. Thus, where building work has been done badly, the notional cost of putting it right may generally be claimed from the constructor whether or not the claimant has any intention to use the money for that purpose (Steyn LJ).

Answer 30

- Held (Lord Goff and Millett dissenting): The Albazero exception cannot apply where the third party has their own right of action against the promisor - Lord Millett thought that the exception was confined to situations where a transfer of ownership in the currency of the contract was contemplated, though Lord Clyde thought that transfer of ownership was not a necessary ingredient of the exception

Answer 31

o Of the majority: ♣ Lord Clyde and Lord Jauncey rejected Lord Griffith’s “broad” ground of recovery in Linden Gardens because it would be a fiction to say that the promisee suffered loss simply because it didn’t get the contracted-for services ♣ Lord Browne-Wilkinson assumed that the broad ground was correct. ♣ But all three thought the broad ground in any event inapplicable where X had a direct contractual right. o The minority (Lord Goff, Lord Millett) thought that the broad ground was a general principle of contract damages that a promisee suffers loss where contracted-for services are not performed. Because it was a principle and not an exception, it was applicable even if X had a direct contractual right.

Answer 32

o Lord Goff’s broad principle (which Goff, Millett and Browne-Wilkinson all thought was correct) assumes that whenever a contract (at least for services) is not performed, there is automatically substantial pecuniary loss. This is untrue because in assessing expectation interest, courts have traditionally looked at position with and without performance. ♣ Thus if market value dropped so the property becomes valueless with or without the breach, does the promisee still get substantial damages? What about the duty to mitigate? ♣ Thus Lord Clyde is right to say that the minority view is a fiction. o How to reconcile with Ruxley? If a promisee suffers substantial financial loss simply because performance is not carried out (and it doesn’t matter if the promisee intends to cure), it seems that the cost of reconstructing the swimming pool should have been awarded… o Double liability (promisee is deemed to suffer loss (so doesn’t have to account to X?), but X also can claim under his direct contract rights) Lord Millett suggested subordinating the promisee’s claim to X’s, and Lord Goff suggests that the money recovered by the promisee would “no doubt be used to finance remedial work”. ♣ But does X have any remedy if the promisee doesn’t? o A better approach would have been that the promisee can recover cost of repair where the promisee has/intends to incur repair costs (relying on Radford v De Froberville)

Answer 33

- This means that majority decision is preferable (and only in exceptional circumstances should the promisee recover for X’s loss and then must account to X). But to what extent should conferral of a direct contractual right extinguish this right? IAO HL went too far in saying that it automatically disqualifies it, and the better view is that the exception is only unavailable if: o There is no possible “black hole” for X so the exception is not needed (i.e. X’s direct action would give X all that the promisee could have obtained) OR o The parties intended the conferral of the direct right to knock out the exception (not made out on the facts because the duty of care deed seems to be a replacement for the tort liability that would have existed pre-Murphy)

Answer 34

o Conferring a direct cause of action on a third party can be a potential disadvantage to that third party because it would automatically knock out the Albazero exception. o Minority cast doubt on conventional understanding of damages.

Answer 35

- Who suffered the loss? o Majority appeared to assume that X (building owner) suffered the loss, and minority argued that the loss was that of the promisee (but didn’t address the negative proposition that the third party didn’t suffer loss) o This is important because the solution was to be found in The Albazero (which talks about the third party having suffered loss) and not Lord Griffith’s wider ground (which talks about the promisee suffering loss). o IAO the assumption that X suffered loss is not axiomatic: in respect of the building contract, X was a volunteer to receive benefits akin to a gift; does X suffer loss merely because a gift is defective? ♣ In Murphy, Lord Oliver said that it would be “absurd” if a builder who defectively built a house and gave it to his son as a present were liable to his son for any money the latter may spend rectifying the defect. ♣ Indeed the fact that a gift is less valuable than hoped for doesn’t constitute loss; even money spent repairing the defect isn’t loss but merely augmentation of the benefit received. Of course if the defect were so great that the building had to be demolished, then the cost of demolition might be (substantial) loss (recoverable in tort) but this wasn’t what Panatown was talking about… - Therefore, it is ironic that the performance interest of a non-party is being recognized at the same time as the performance interest is being denied (the duty of care deed is beside the point, because it is clear that the majority thought that The Albazeero would have applied without it and the promisee would have been accountable to X)

Answer 36

Finding that X is not in fact a third party but is a party to a contract with the promisee.

Answer 37

- Facts: D, paint manufacturers, represented to Cs, owners of a pier, that the paint they manufactured would be suitable to paint C’s pier. In reliance on this representation C instructed their contractors to paint the pier and use D’s paint. The paint proved unsuitable and C brought an action against D. D argued (1) that they had not provided any warranty and (2) even if they had, this warranty did not give C a cause of action. - McNair J: (1) there was a warranty and (2) D argued that a warranty can give no cause of action except between parties to the main contract in relation to which the warranty is given, but IJO there can also be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some act for the benefit of A.

Answer 38

But in order to show a collateral contract C must prove its existence (offer, acceptance, intention to create legal relations, consideration…), and courts are slow to find a collateral contract where the parties are experienced in commerce and could have created a direct contractual relationship but chose not to (Fuji Seal v Catalytic Combustion Corporation). It’s not a real “exception” to privity because X is found to be a party but can be treated as such because sometimes courts adopt very strained analyses to find such a contract (ex. The Eurymedon).

Answer 39

An agent can recover damages for loss suffered by the principal. In cases of undisclosed principal (Siu Yin Kwan v Eastern Insurance per Lord Lloyd): - The undisclosed principal may sue and be sued on the contract made by the agent on his behalf - The agent must intend to act on the principal’s behalf in entering into the contract - The agent may also sue and be sued - Any defence that the contracting party may have against the agent is also available against the principal - The terms of the contract may exclude the principal’s right to sue and liability to be sued (expressly or by implication) - The contract or surrounding circumstances may show that the agent is the true and only principal Lord Lloyd concedes that this is “anomalous” in that in reality it allows a third party to intervene on a contract which he did not make (because the third party is unaware of the existence of the undisclosed principal) and therefore “runs counter to fundamental principles of privity of contract”, but is “justified on grounds of commercial convenience”. It seems anomalous that (1) someone not mentioned in the contract and whose existence a party to the contract is unaware can sue, whereas (2) someone expressly mentioned in the contract which purports to confer on them a benefit cannot. Therefore, unlikely that this doctrine will be extended further.

Answer 40

A contracting party can, under common law, assign (transfer) his rights under a contract to a third party. 1) Liability cannot be assigned without the consent of the party to whom the liability is owed, but rights are more freely assignable. 2) Assignment of rights is either: a. Statutory (s136 LPA 1925): i. Must be (1) absolute, (2) unconditional, (3) in writing and signed by the assignor, (4) express notice in writing to the debtor and (5) of a debt or other legal thing in action. ii. Consideration is not needed. iii. Entitles the assignee to sue the debtor without having to join the assignor as a party to the action. b. Equitable: i. May be valid even if the conditions (especially writing) in statutory assignment are not satisfied (unless statute requires it – ex. S53(1)(c) LPA 1925). ii. The assignee must usually join the assignor as a party. iii. Consideration is thought to be needed (though doubtful) 3) Extent of rights assignable: a. Assignments that breach a prohibition contained in the contract will be invalid (Linden Gardens) b. A mere right to sue for damages is not assignable unless the assignee has a genuine commercial or financial interest in taking the assignment (Trendtex v Credit Suisse) and assignment in order to enable the assignee (or a third party) to make a profit out of the litigation will usually be void (Simpson v Norfolk HNS Trust) c. Rights that are intuitu personae are not assignable (only assignable where it “can make no objective difference to the person on whom the obligation lies to which of two persons he is to discharge it” (Tolhurst v Associated Portland Cement Manufacturers). 4) Assignee takes rights “subject to equities” (i.e. subject to defences that would have prevailed against the assignor), so that the assignee cannot usually recover more than the assignor would have absence the assignment.

Answer 41

A promisee may agree to hold his contractual right to sue the promisor on trust for the third party, and, as beneficiary under a trust, the third party acquires a property right which he can assert against someone who interferes with it (including the promisor). The promisee under the contract can create a trust, at the time of formation or afterwards, of the promise, in favour of a third party, which is enforceable in equity. - The legal interest (in the contractual performance) remains with the promisee as trustee - If the third party tries to sue: o The promisee must be joined as party to the action or o Joined as a defendant - If the promisee tries to sue: because he is trustee, he can recover his own interest and beneficiary’s loss. Some cases have found it:

Answer 42

- Facts: A clause in a time charterparty provided that "a commission of three per cent. on the estimated gross amount of hire is due to Leopold Walford (London), Limited, on signing this charter". - Held: the charterers, as trustees for the brokers, could enforce the clause against the shipowners. o McKinnon KC: For fifty years past it has been the custom to insert in charterparties a clause dealing with the broker's commission. That constitutes the charterer a trustee for the broker. o Wright KC: Under long-established practice, the broker nominates the charterer to contract on his behalf, influenced probably by the circumstance that there is always a contract between charterer and owner in which this stipulation, which is to enure to the benefit of the broker, may very conveniently be inserted. In these cases the broker, on ultimate analysis, appoints the charterer to contract on his behalf. In such cases charterers can sue as trustees on behalf of the broker.

Answer 43

For a while it seemed like this device would be a viable way to get around privity, but intention to create a trust soon became a problem. - Walford suggests that intention to create a trust can be found by the simple intention to benefit the third party (so that the trust is simply a “cumbrous fiction” to get around privity – Lord Wright, extrajudicially) - But Beswick v Beswick: it was “common ground” between the parties that there was no trust. Recently the courts have been a lot stricter in requiring the intention to be affirmatively proved by substantial evidence (Vandepitte v Preferred Accident Insurance), partly because the presence of a trust renders the contract immutable (Re Schebsman). The turning point seemed to be: |Re Schebsman [1944] Ch. 83, 89-90, 100-104

Answer 44

- Facts: B, in consideration of the termination of his employment, was promised by A to pay him £X in six instalments, and if he died before payment was finished, the money was to be paid to his wife. On B’s bankruptcy, his trustee in bankruptcy subsequent to his death sought a declaration that the sums payable to his widow forms part of the estate and should be paid to creditors rather than widow. He argued that A had a right to intercept the payment and this right now resided in the trustee in bankruptcy. The defendant argued that the contract between A and B created a trust in favour of the widow. - Held (CoA): B did not have a right to intercept the payment so the declaration was denied. But there was no trust because: o Lord Greene MR: although some decided cases adopted a “liberal view” on the question, in this case there is nothing in the contract to justify the conclusion that a trust was intended. It is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention. To interpret it as a trust would disregard the dividing line between a trust and a contract for the benefit of a third party. o Parcq LJ: unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, the court ought not to be astute to discover indications of such an intention. In this case, clear that both parties intended to keep alive their common law right to vary consensually the terms of the obligation of the company, and if the circumstances changed during B’s life injustice might have been done by holding that a trust had been created.

Answer 45

The demise of the trust can be traced to (1) insistence on an intention to create a trust which will be absent whenever the parties only intended to create a contract and gave no thought to a trust and (2) trusts are irrevocable so deprives the parties of the freedom to change their mind.

Answer 46

- Held: the third party could enforce the insurance contract because: o Majority: privity doesn’t apply to insurance contracts o Gaudron J: D came under an obligation to C because otherwise it was unjustly enriched. o Deane J: an express trust was formed

Answer 47

- Privity operates only within the confines of the law of contract; outside it, other principles operate to avoid injustice: o Estoppel by conduct: if the insurer induces (by his conduct) X to act to his detriment on the assumption that he is effectively indemnified under the policy, then the insurer will be estopped from denying the enforceability of such indemnity [but won’t consider this here because hasn’t been argued] ``` EXAM POINT Extending promissory (and other kinds of) estoppel to be used as a sword would have the benefit of making the privity rule a lot more effective, and avoiding injustice done to third parties who have been induced by the promisor to detrimental reliance. There would then be no need to circumvent the rule with “technical” mechanisms. ``` o Trust of a promise: agrees with Fullagar J (Wilson v Darlington) that it is "difficult to understand the reluctance which courts have sometimes shown to infer a trust” the "reluctance" seems often to have been caused by a misunderstanding of the nature of equity's requirement of an intention to create an express trust, i.e. a failure to appreciate the innate flexibility of the law of trusts: ♣ Intention alone won’t constitute a trust, but a trust can come into effect by a promisee who doesn’t understand the difference between law and equity if he, in making a “contractual promise”, clearly intended that the third party should himself be entitled to insist on performance. ♣ A fortiori, intention will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee. It would be unnecessary to identify any independent intention.

Answer 48

- S56(1) LPA 1925 failed in HL - Several statutory exceptions relating to insurance law (Married Women’s Property Act 1982, Marine Insurance Act 1906, Road Traffic Act 1988) - And any lawful holder of a bill of lading gets all the rights of suit under the contract of carriage as if he had been a party to it from the outset (s2 Carriage of Goods Act 1992)

Answer 49

Must prove that the person sued was negligent. Where the loss is physical injury or property damage – straightforward Donoghue v Stevenson. Where the loss is PEL, it is more difficult, but some controversial cases have allowed recovery.

Answer 50

- Facts: A entered into a contract with B for the construction of a factory, and C was employed by B as sub-contractors. A alleged that the factory had been defectively built and sued the subcontractor C in tort of negligence. - Held (HL): allowed the claim. Normally, such claims can only be brought in contract against B, and B would then have to sue C down the chain, so this case is controversial in allowing A to jump down the chain of contracts and sue C directly.

Answer 51

In this case one factor that influenced the HL was that there would otherwise be a lacuna in the law because while the estate can sue the solicitor (as a contracting party), it suffered no loss. The remedy was tortious in form but had the features of a contractual claim because the solicitor is allowed to rely on any terms in the contract with the client in order to exclude or limit his liability to the beneficiaries (Lord Goff).

Answer 52

- On the one hand courts adopt a very restrictive approach to exclusion clauses (which supports the contention that they should not extend the benefit to third parties), but on the other hand sometimes the contract is very clear that a third party is intended to benefit so courts shouldn’t frustrate that intention either.

Answer 53

- Shipowners chartered their vessel to the Carrier who subchartered it to the Shippers. The master of the vessel authorized the Carrier to sign a bill of lading which provided that every servant, agent or subcontractor of the Carrier was to have the benefit of all exclusions, limitations, provisions, conditions and liberties benefiting the carrier as if such provisions were expressly made for their benefit. The contract also had an exclusive jurisdiction clause for Indonesia. The cargo owners sued the Shipowners for breach of contract or negligence, in Hong Kong. The Shipowners sought to rely on the exclusive jurisdiction clause. - Held (PC): The Shipowners were not entitled to rely on the exclusive jurisdiction clause.

Answer 54

o Elder Dempster: ♣ The contract suit failed because of the bailment on terms principle ♣ The tort claim also failed because of the principle of vicarious immunity o Midland Silicones: ♣ A test case to establish a basis upon which stevedores could claim the protection of exceptions and limitations contained in a bill of lading, relying on bailment on terms, and several contractual principles, all of which failed ♣ Viscount Simonds’ judgment is notable for: • A remarkable shift from the philosophy that informed Elder Dempster: o In Elder Dempster it was thought “obvious” that the tort claim would fail – “it would be absurd that the owner of the goods could get rid of the protective clauses of the bill of lading by suing the owner of the ship in tort” (Visount Finlay) o But by contrast it would be a “curious, and seemingly irresistible, anxiety to save grossly negligent people from the normal consequences of their negligence” (Fullagar J, Darlington Island, HCA, cited with approval by Viscount Simonds) • Restricted Elder Dempster within very strict bounds ♣ Lord Reid rejected agency on the facts but indicated that it might be successful if the bill of lading makes it clear that (1) the stevedore is intended to be protected and (2) that the carrier (in addition to contracting on his own behalf) is also contracting as agent for the stevedores, and (3) the carrier has authority from the stevedore to do that (or later ratification by the stevedores may suffice) and (4) difficulties about consideration moving from the stevedores were overcome.

Answer 55

- (because thought undesirable to allow people to undermine the purpose of exceptions by circumventing them, thereby redistributing the allocation of risk reflected in the freight rate and respective insurance arrangements): o Recently an increased readiness to: ♣ Accept something like the “vicarious immunity” argument ♣ Rehabilitate Elder Dempster o The Eurymedon: ♣ 3/2 majority allowed the stevedores to rely on the clause ♣ Lord Wilberforce referred to Lord Reid’s criteria in Midland Silicones and said the first three were satisfied but consideration was difficult but satisfied because “in commercial reality” it was not a gratuitous promise but a promise for consideration – a unilateral contract, though there might be other analyses. o The New York Star: ♣ Unanimously allowed the stevedores to rely on the clause ♣ Lord Wilberforce: • The significance of The Eurymedon is not establishment of any new legal principle, but “finding that in the normal situation involving the employment of stevedores by carriers, accepted principle enable and require the stevedore to enjoy the benefit of contractual provisions in the bill of lading” • Though there is room for evidence to show the precise relationship of the parties, The Eurymedon does not support a search for fine distinctions which would diminish the general applicability, in light of established commercial practice, of the principle. ♣ Lord Wilberforce also supported Barwick CJ (HCA)’s judgment in the court below, where he held that: • The carrier acted as the authorized agent of the stevedores in making an arrangement with the consignor for the protection of the stevedores. There was consideration: “to agree with B that, in the event B does X, B should be entitled to rely on Clause Y, only needs the performance of X to become a binding contract – the performance of the act satisfies the test for

Answer 56

o Problem of consideration is solved by the consideration subsequently provided by the stevedores doing the act o Problem of authority to contract on the stevedores’ behalf can be solved by ratification

Answer 57

o SC of Canada already did this (London Drugs v Kuehne) and HCA (Trident v McNiece). o But it would not be appropriate in this case because they haven’t heard arguments on this point and because the appeal needs to be dismissed.

Answer 58

o Can’t rely on The Eurymedon principle because the exclusive jurisdiction clause didn’t fall within “all exceptions, limitations, privision, conditions and liberties” (because exclusive jurisdiction clauses (unlike exclusion clauses) were not a term that operated only for the benefit of the shipowners, but was a term that created mutual obligations) o Can’t rely on “bailment on terms” because the bill of lading contained a clause where the shipowners (as subcontractors) were expressed to be entitled to the benefit of certain terms in the bill of lading, which did not include the exclusive jurisdiction clause. Therefore, any implication that the shipowners’ obligations as bailees were effectively subjected to the exclusive jurisdiction clause by virtue of receiving the goods would be inconsistent with the express terms of the bill of lading. NB Elder Dempster was decided either on the basis of vicarious immunity of bailment on terms (Lord Goff), but the former doctrine was rejected by HL in Midland Silicone so that it must now be regarded as an example of bailment on terms.

Answer 59

- The majority adopted a broad brush approach in finding the existence of a contract between the stevedores and shippers which entitled the former to rely on the time bar: o Lord Wilberforce: o The contract is a contract of carriage, where the carrier assumes an obligation to transport the goods and to discharge at the port of arrival. It is contemplated that the discharge may be performed by independent contractors, i.e. stevedores. By clause 1 of the bill of lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. o The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. o There is possibly more than one way of analysing this business transaction, but one analysis is that the bill of lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shipper and the appellant, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. o The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the bill of lading. o The conception of a "unilateral" contract of this kind is well established and is close to Carlill v. Carbolic Smoke Ball Co. [1893] 1 TB. 256. - But the dissentients were not prepared to paint such a broad-brush picture: o Viscount Dilhorne: o The contract was drafted by a highly qualified lawyer; the fact that it is a commercial document does not mean that to give it efficacy, one is at liberty to disregard its language and read into it something it does not say. And in this case the contract doesn’t expressly or impliedly contain an offer by the shipper to the carrier to enter into an agreement whereby if the stevedores performed services in relation to the goods the shipper would give it the benefit of every exemption clause in the bill of lading.

Answer 60

- Facts: Indistinguishable from The Eurymedon. Again, the cargo owners had omitted to commence their proceedings within the one-year time limit and sought to get round this by suing instead the stevedores whose servants' negligence had caused their loss. The stevedores relied upon the Himalaya clause. - Barwick CJ (dissenting, but approved by PC on appeal): o The arrangement made by the bill of lading is to be interpreted as providing that if, in fact, the stevedores stevedored the cargo, they should have the benefit of the clauses of the bill of lading. The bill of lading was an offer at large by the consigner. Thus, the consigner and stevedores were ad idem through the carrier’s agency upon the consigner’s acceptance as to protecting the stevedores if they stevedored the consignment. o But this consensus lacked consideration (because the stevedores made no promise to stevedore the cargo). Thus, it is not an exchange of promises but also NOT the mere making of an offer that the stevedores can accept through performance. It is an arrangement that if the stevedores act in a particular way, they shall be entitled to the protective provisions. o Whether the arrangement is capable of unilateral disavowal before the act is done needs not be discussed because the act was done. o IJO terms “unilateral”, “bilateral” etc are unhelpful because they suggest that they are mutually exclusive and together cover all possibilities – prefers the terminology of “arrangement”. But if you really want to use a term then it’s “bilateral”.

Answer 61

Both the unilateral and bilateral contract analyses have technical difficulties so despite Lord Wilberforce’s attempt to discourage parties from taking technical points (The New York Star) this is to an extent inevitable (Lord Goff, The Mahkutai).

Answer 62

- Difficulty identifying an offer of immunity (this was the difficulty for the minority in The Eurymedon and Barwick CJ in The New York Star) - The stevedores might not even be aware of the existence of the offer at the time they perform the act that purportedly constitutes acceptance (whereas acceptance performed in ignorance of an offer is not generally valid) - The stevedores only enjoy the immunity when undertaking the task set out in the main contract, not when preparing to undertake it (Raymond Burke v Mersey Docks)

Answer 63

- The stevedores only enjoy the immunity when undertaking the task set out in the main contract, not when preparing to undertake it (Raymond Burke v Mersey Docks) - Difficulty ascertaining the precise moment in time where the contract is concluded - It might lead to the stevedores being in breach of a separate contract with the cargo-owner if he has justifiably terminated his contract with the carrier on account of the carrier’s breach and consequently refused to unload the goods (Treitel) Indeed given these problems, the HL considered whether to create a fully-fledged exception but stopped short of doing so (though allowed the claimants to rely on the exemption clause in this case, confirming The Eurymedon and The New York Star):

Answer 64

o A Himalaya clause in a contract of carriage is designed to create contractual relations between the shipper and any third parties whom the carrier may employ to discharge his obligations. It does so without infringing the English doctrines of privity of contract and consideration. o The shipper makes an agreement through the agency of the carrier with the third party servant or contractor. Such third parties may have authorised the carrier in advance to contract on their behalf or they may afterwards ratify the agreement. The terms of the agreement are that if such a third party renders any services for the benefit of the cargo owner in the course of his employment by the carrier, he will be entitled to the exemptions and immunities set out in the clause. At that stage, the agreement is not a contract. The third party makes no promise to the shipper to render any services and, until he has actually rendered them, no contract has come into effect. It is the act of rendering the services which provides the consideration and brings into existence a binding contract under which the third party is entitled to the exemptions and immunities. o The efficaciousness of the clause to achieve these results has been affirmed in The Eurymedon (PC) o The theory of the agreement which becomes enforceable conditionally upon the act providing consideration was developed by Sir Garfield Barwick CJ in his dissenting judgment in the High Court of Australia in The New York Star and affirmed by the PC on appeal.

Answer 65

o The New York Star: ♣ The facts of The New York Star were held to be indistinguishable from those in The Eurymedon. In the HCA Barwick CJ (dissenting) relied on Lord Reid’s formula, but was not wholly happy with the solution given in The Eurymedon to the problem of finding mutuality and consideration and suggested his own solution (cites the bilateral contract theory). Barwick CJ also noted that time limitation clauses are obviously different from clauses that purport to displace liability, and on the enforceability of the latter I express no opinion. ♣ On appeal, Lord Wilberforce described his earlier judgment in The Eurymedon as having decided in principle that the Himalaya clause was capable of conferring on third parties "defences and immunities conferred by the bill of lading upon the carrier" as if they were parties to "the contract contained in or evidenced by the bill of lading". o This case is distinguishable because the shipowners are the carriers and are suing as carriers – thus, it is they (and not the cargo owners) who are seeking to rely on the exemption clause. In such cases, no bailment is involved, so only the bill of lading contract is relevant. Applying the “Barwick” contract theory, the contract is mutual but the mutuality arose from the performance of the services (here the carrying of the goods by the shipowners) and the agreement by the cargo owners that the shipowners should be entitled to the protective provisions. o The "Barwick" contract is not a contract with executory obligations; it is not a contract for the carriage of the goods. But it is a mutual contract of carriage which lasts as long as the shipowners remain the bailees of the goods as the actual performing carriers. The element of consideration and mutuality which the shipowners render to the shipper under the contract is their entering into this bailor/carrier relationship with the cargo owners and performing the carriage.

Answer 66

o It is well established by the authorities that the Himalaya clause has the effect of bringing into being a separate or collateral contract between the cargo owner and a third party, usually an independent contractor such as a stevedore, under which the third party enjoys exemption from liability to the cargo owner. o They also establish that the contract is a unilateral or "if" contract by which the third party undertakes no obligation to the cargo owner of any kind, but the cargo owner promises that if the third party does anything in the course of its employment which damages the cargo it will have the benefit of the protective provisions of the clause. o Such a contract is a promise for an act, not a promise for a promise. If in the course of its employment the third party performs an act in relation to the goods, which it is under no obligation to the cargo owner to perform, it will at the one and same time bring the contract with the cargo owner into existence and supply the consideration for the cargo owner's promise of exemption from liability. o The consideration provided by the owner or demise charterer of the ship is the performance of its contract with the carrier. Since this is an act and not a counterpromise, the question whether a promise which does not involve any potential liability on the part of the promisor is capable of constituting sufficient consideration to support a contract does not arise.

Answer 67

- C delivered equipment to D for storage in a warehouse. The contract had a clause providing that “the warehouseman’s liability is limited to $40”. The equipment was damaged due to the negligence of D’s employees. The issue was whether the employees could rely on the clause even though it made no mention of them. - Held (Canadian Supreme Court): the employees could rely on the clause because: o Condition #1 = The parties to the contract must have intended the provision to confer a benefit on the third party (London Drugs knew that the storage services would be provided by the employees, so that in the absence of any clear indication to the contrary, the necessary intention was implied in the terms of the agreement). The employees were therefore third party beneficiaries who could sue. o Condition #2 = The third party’s actions were within the scope of agreement between the initial parties (they were acting in the course of employment and were performing the very services specified in the contract when the loss occurred) The Court further noted that this departure from privity was (1) within its jurisdiction of incrementally developing the common law and (2) it didn’t frustrate the intentions of the parties because the test depends on this very intention This introduces a sort of “vicarious immunity” into Canadian law (rejected in English law by Midland Silicone), but some English cases have appeared to reach the same result (via a different route): Norwich CC

Answer 68

``` Here the justifications of privity do not apply because (i) the third party is seeking to rely on the contract as a defence so there is identity of interest between the contracting party and third party, and (ii) commercially undesirable to allow promisors to redistribute contractually agreed risk by suing a third party. NB the Canadian exception goes further than the 1999 Act because it doesn’t require the third party to be expressly identified by name, class or description, so there is still room for the common law to develop a “fully fledged exception” to privity in these cases. ```

Answer 69

- C employed contractors to construct an extension to a swimming pool. The contract provided that the building was at the sole risk of the employer as regards damage by fire. The employees of subcontractors, D (who were contracted upon the same terms as the main contract), were negligent and caused fire damage. C sued D in tort. - Held (CoA): D did not owe a duty of care towards C having regard to the contract structure adopted by the parties, because on the basis of what is just and reasonable the mere fact that there is no strict privity between the employer and subcontractor should prevent the latter from relying on the clear basis upon which all parties contracted. The subcontractors therefore don’t owe a duty, so that their employees don’t owe one either (May LJ). This differed from The Eurymedon because D wasn’t trying to rely on the contract structure to find a contract between the parties, but to negate a duty of care that otherwise would apply to them.

Answer 70

In Midland Silicones the stevedores sought to rely against the cargo owners on both (1) a limitation clause in the contract between the stevedores and the carriers and (2) a limitation clause between the cargo owners and the carriers. Lord Denning (dissenting) said they could rely on (1) because the cargo owners had impliedly authorized the carrier to employ the stevedores on the terms that their liability would be limited. In The Pioneer Container, the sub-bailee was attempting to rely on a clause in their contract with the bailee against the head-bailor. Lord Goff said that this question must be answered by reference to the authority given by the head-bailor to the intermediate bailor to act on his own behalf when agreeing to the terms of the sub-bailment.

Answer 71

Instruments that may be transferred by delivery and indorsement to a bona fide purchaser for value in such circumstances that he takes free from defects in the title of prior parties. - Thus the bona fide purchaser is in a better position than an assignee because he takes free from defects whereas assignees take “subject to equities” Example – if A gives X a cheque then X can take the cheque to A’s bank (B) and demand payment from B.

Answer 72

- No consideration from the third party - Unjust for someone to be able to sue but not be sued - Rights of the contracting parties to vary/terminate would otherwise be affected - Rule limits wide range of possible claimants - It is not absolute and the exceptions are sufficient to avoid any perceived injustice

Answer 73

1) Intention of original contracting parties are thwarted (which undermines the general justifying theory of contract) 2) Injustice to the third party (who has reasonable expectations to have the legal right to enforce the contract, particularly where he has relied on the contract) a. Quid variation/discharge: Law Comm believes that where the injustice to the third party is sufficiently “strong” (i.e. where there is not only expectation but also (1) reliance or (2) acceptance communicated to the promisor), this should trump the changed intentions of the contracting parties, i.e. the original parties’ right to change their minds and vary the contract should be overridden once the third party has relied on or accepted the contractual promise. 3) The person who suffered loss cannot sue, whereas the person who suffered no loss can 4) Even if promisee can get satisfactory remedy, he may not be able to or may not wish to sue (because of stress and cost of litigation, illness or outside the jurisdiction, or upon death the family members think suing is not in the interest of the estate) 5) Development of a large number of non-comprehensive exceptions (1) demonstrates the rule’s basic injustice and (2) the fact that they are still evolving and subject to litigation shows that the exceptions haven’t resolved all the problems 6) Complexity, artificiality and uncertainty are commercially inconvenient 7) Widespread criticism throughout the common law world and most EU MSs allow third parties to enforce contracts

Answer 74

1) It doesn’t necessarily thwart the intention of contracting parties a. If the promisor doesn’t perform it is only the promisee’s intentions that are thwarted, but this doesn’t require giving the third party a right to enforce, merely requires improving the promisee’s remedies b. Indeed allowing X to sue may thwart the parties’ intentions because it may deny them the ability to change their minds 2) It doesn’t cause injustice to the third party because a third party who relies on a promise made to someone else doesn't deserve any sympathy – the only person with a legitimate expectation that the promise would be kept is the promisee. 3) It’s not necessarily true that the person who hasn't suffered loss can sue – since McAlpine v Panatown it is questionable whether there is a lacuna, and even if there is it doesn’t justify giving X a remedy, only improving the promisee’s. 4) The promisee may not wish to sue, true, but it is his right anyway so he should be able to decide whether or not to sue EXAM POINT (MI) It is true, however, that the promisee may not be able to sue – if he is ill or in a different jurisdiction, or doesn’t want to spend the money, then he could assign his right or create a trust of the promise. If he is dead, however, and the estate doesn’t want to enforce, then there is a real difficulty, though perhaps the parties should have thought about that and gotten around it (again, by using a trust of the promise, though it is true that here the parties won’t be able to change their mind…). 5) Some of the “exceptions” aren’t true exceptions, and even those that are true exceptions doesn’t justify creating a further exception 6) Common law world criticism doesn’t mean everyone else is right and we are wrong, and it is simply not true that there is a “European consensus” as to third party rights because in many of these jurisdictions third party rights accomplish different things (ex. What is accomplished in English law through the law or tort) so need to be seen in their context. 7) The Act doesn’t actually address the sectors where privity actually causes difficulty in commercial life: a. It is unlikely to change anything with regards construction contracts b. The difficulty with insurance contracts is not privity but the lack of assistance to third party beneficiaries when in competition with the creditors or estate of the insured

Answer 75

- The justification for privity flows from the nature of contractual obligations as voluntary obligations, which do not exist in the air but are undertaken to particular persons, extending to and only to those persons. It can only be undertaken by a communication to, and reception by, said person. - The moral position of B and X are very different – we get more upset at promise-breakers when the promise was made to us and not to someone else (even if the practical consequences are the same). o This moral difference is not just because X didn’t provide consideration – if consideration were abolished it wouldn’t mean that just anyone would be able to sue on any promise. o It is not about reliance either because promissory obligations bind even when not relied on. o Thus the only possible explanation is that the promisee alone is the person to whom the promissory duty is owed; this is what it means to be a promisee, and it is why contracts have always been understood as personal rights. - It would be very different if both contracting parties had an intention to undertake an obligation to X (≠merely to benefit X) and communicated that to X – in such cases X is not a third party to the promissory obligations made to him (though the issue would be consideration, and he remains a third party to the contract between the two parties). The Law Commission Report responds that this takes an “unnecessarily narrow view of the morality of promise-keeping where a promise is intended to benefit a third party”.

Answer 76

- The view that X should be allowed to sue because A should not be allowed to get away with breaking his promise is inconsistent with the common law attitude to civil liability: the civil law is concerned with giving redress to the plaintiff, not punish the defendant. - Bargain is the present general theory for who should be able to enforce contracts – X doesn’t qualify under the bargain theory.

Answer 77

- Law Revision Committee recommended that s1(1)(a) should be the only way, but this would mean that the intentions of the parties, including those reflected in trade practice or implied terms principles would be thwarted (though it would be conducive to certainty). - In the US an “intention to benefit” test (instead of the ‘purport to confer a benefit’ presumption which implies a direct benefit) is used, which runs into problems of distinguishing “intended beneficiary” and “incidental beneficiary”. The 1999 Act should avoid this problem. - The Law Com said that the following people would not be able to sue under the Act: o B buys goods from A (store) as a gift for C, because the contract between A and B doesn’t purport to confer a benefit on them and they are not identified in the contract. However, C would be able to sue if B had made it clear when purchasing that it was a gift, and A agreed to deliver it to C’s home (thereby identifying C by name). o White v Jones because the benefit is indirect (the direct benefit comes from the testator not solicitor). The Law Com said that because they have a right to sue in the tort of negligence, it was content to leave these case out, though on a theoretical level it thought that the right of C more properly belonged in contract than tort (Law Com 242, para 7.27). o Junior Books v Veitchi (chain of sub-contracts) because the 1(1)(b) presumption is rebutted because the subcontract is part of a wider chain of contracts. o A purchaser of goods from a retailer will generally not be able to use 1(1)(b) to sue the manufacturer if he has a claim under the contract of sale against the retailer

Answer 78

- X must be expressly identified (S1(3)) this precludes identification of X by a process of construction or implication (Avraamides v Colwill) - S1(1)(b) has proved relatively easy to satisfy (ex. Nissin Shipping, The Laemthong Glory) – o There is no requirement that the benefit on the third party be the predominant purpose or intent behind the term o However, one of the purposes of the contract must be to confer the benefit (not enough that the third party’s situation is improved if this is not the purpose) (Dolphin Maritime) - The burden of proving s1(2) (contrary intention) is on the promisor: o If there is an express contrary term, that will suffice o Otherwise: ♣ Mere “silence” would be difficult because it does not suffice to prove the contract is “neutral” – it must be proven that the parties did not intend third party enforcement (Nishin Shipping) ♣ Not enough to prove that the parties intended to create a different (more limited) right of enforcement for the third party (Nishin Shipping) ♣ Showing that the contractual structure is inconsistent with the third party right of action argued for • Law Comm: “we do not see our second limb as cutting across the chain of sub-contracts that have traditionally been a feature of the construction industry” – under normal circumstances, an owner would not be able to sue a sub-contractor for their breach of their contract with the head-contractor. This is because even though the contract promised to confer a benefit on the expressly designated owner, the parties deliberately set up a chain of contracts which are well understood in the construction industry as ensuring that a person’s remedies lie against the other party only. • But in Laemthong Glory parties unsuccessfully attempted to rely on this passage. - Burrows implies that Jackson and Beswick would now fall under the 1999 Act and Law Comm suggest this too, but Treitel expressed some doubt – o The agreement in Beswick was drawn up by a solicitor who could easily have conferred enforceable rights on Mrs Beswick (ex. By making her a party) – he did not do so possibly because he was negligent, but also possibly because the parties didn’t want to and he was following instructions (possibly because they didn’t want their right to vary to be limited). Thus, it clearly doesn’t fall within s1(1)(a) and whether the s1(1)(b) is negative by s1(2) will depend on what happened at the solicitor’s office on that day. o Jackson would probably fall within s1(1)(b) if the members of the party are identified at the time of contract, but unlikely if B merely rented a holiday cottage without giving any information as to the number or names of parties - Burrows suggests that if the contract prohibits assignment to X then s1(2) will deny s1(1)(b), but can one go further and say that if the contract grants B the right to assign X, then that would also negative an intention to confer rights under the 1999 Act? - The section doesn’t mention consideration but “in his own right” shows that X can enforce even if he hasn’t provided consideration. - Provides that X will get same remedies as if he were a party to the contract – Andrews suggests that (if the reliance loss < expectation interest because X relies on a promise to pay him £10,000 by spending £5,000) the Law Comm clearly wished X to gain expectation interest, so this is probably what the court will generally do unless this would lead to injustice. - It refers to “contracts” and doesn’t say whether deeds also count. This was not challenged in Prudential v Ayres so can’t be said to have been resolved, but the fact that it wasn’t challenged probably suggests that it’s not thought to be seriously open to challenge.

Answer 79

- The parties lose their right to vary the contract without the consent of X when: o X communicates his assent to the term to the promisor (s2(1)(a)) or o X relies on the term and the promisor is aware of it or ought to have foreseen it (s2(1)(b), (c)) - But: o The parties can reserve to themselves the right to rescind or vary without obtaining X’s consent, provided they do so in the contract (s2(3)) o A court can dispense with consent where (i) it cannot be reasonably obtained because X’s whereabouts cannot be ascertained, (ii) where X is mentally incapable of giving consent, or (iii) where it can’t reasonably be ascertained whether X relied or not (s2(4)) - But is it “rescind” if the promisor wants to set aside the contract because of a repudiatory breach by the promisee (so would have to satisfy s2(1))? The Parliamentary history suggests that it would not (so the promisor is free to set aside the contract) o This would mean that if Lord Denning is right that Tweddle v Atkinson failed because B hadn’t fulfilled his part of the bargain, then it would seem that the groom wouldn’t be able to sue under the 1999 Act because (1) A’s promise was a conditional promise and the condition hadn’t materialized or (2) B had committed a repudiatory breach which A accepted, as he was entitled to do so. - Can parties confer on X a right that is irrevocable from the moment of its creation? o Law Comm says no because this would be an unreasonable fetter on the contracting parties’ freedom of contract (which involves the right to vary any clause, even a “no variation” clause) and there is no justification for holding the contracting parties to a contract that X neither assented to nor relied on. o Burrows says, however, that this passage is misleading and that it should give way to s2(3)(b) which (in his view) entitles the parties to make the contract irrevocable through an express term (ex. By giving X “absolute security irrespective of the third party’s reliance or communication of intent”). Preferring the Law Comm’s view might set a trap for third parties who might suppose that their right is indefeasible.

Answer 80

- A is entitled to rely on any defences or set-off that would have been available to him had the promisee sued on the contract. o However A cannot bring a counterclaim against X (arising from the contract) (a contrario s3(2)) - A can also rely on defences, counterclaims (not arising from the contract) and set-offs that would have been available to the promisor had X been a party to the contract. - Parties can contract out of this provision (s3(5))

Answer 81

- The rights of the promisee are not affected by the Act

Answer 82

- If X brings an action against A after B already brought an action and recovered a sum in respect of X’s loss, the Court will reduce any award to X to the extent that it thinks appropriate, taking into account the sums received.

Answer 83

- S6(1, 5-8) = excludes contracts covered by specific schemes (negotiable instruments, carriage of goods, bills of lading, international transport conventions) o Note s6(5) = the Act applies to contracts for the carriage of goods by sea only if the relevant term is an exclusion or limitation clause (so it suggests that an exclusive jurisdiction clause would not fall within the Act) - S6(2-4) = ensures that third parties don’t get a right in certain circumstances (companies, incorporation documents of a limited liability partnership, contracts of employment)

Answer 84

- S7(1) preserves existing exceptions to privity and the Law Comm said that “we do not wish our proposed legislation … to hamper the judicial development of third party rights” (so it is still open to the judiciary to develop these exceptions further) o Law Comm: if the House of Lords decides that in a particular sphere our reform does not go far enough and that (ex.) a measure of consumer protection is required, or that there should be a doctrine of vicarious immunity, then “we would not wish our proposed legislation to be construed as hampering that development” o Thus it would be open to the judiciary to make a “fully fledged exception to privity” (The Mahkutai, Lord Goff) though the Act reduces the need to do so… - S7(2) entitles a promisor to exclude his liability to X for a breach of his contractual duty of care without fear of challenge under s2(2) UCTA 1977 (though not personal injury or death under s2(1)) – this puts X at an inferior position to B because B can still invoke s2(2).

Answer 85

- S8(1) If X is given a right and that right is subject to a term requiring arbitration, then X is to be treated as if he were a party to the arbitration agreement (here X gets an obligation) - S8(2) If X is given the right to require that a particular dispute with A be referred to arbitration, then X is to be treated as if he were a party to the arbitration agreement (here X gets a right that he need not exercise)

Answer 86

- The Act does not have retrospective effect, and applies to: o Contracts concluded six months after the act is passed (so contracts entered into on or after 11 May 2000) or o Contracts concluded after the act is passed and which expressly provides for the application of the Act

Answer 87

If the legislator is supposed to be better at achieving the right balance between competing interests than courts, so that legislators should set up a legislative scheme to deal with privity rather than development by courts, then why is it that when the legislator has done so, the Law Commission still wants the judiciary to be able to shift this balance? It is probably because the sheer number (and evolution) of circumstances means that a stable balance simply cannot be achieved.

Answer 88

- The first test: s1(1)(a) o Section 1(6) covers “negative rights” so solves problems like that in Norwich and Himalaya clauses - The second test: s1(1)(b) o Has been criticized for uncertainty in conferring “implied” rights, but three justifications: ♣ Contractual rights include implied rights through implied terms – the normal law of contract, as well as third party rights, would both be artificially restricted if confined to express rights ♣ Conferring only express rights would not solve all the problems (ex. Family holidays, contract to pay money to X, insurance – all would fail unless the parties actually said these Xs could sue) ♣ Express conferral of rights would likely only be present in well-drafted contracts and (esp.) in the consumer sector legal advice may not be available o The rebuttable presumption allows a fair balance between certainty for contracting parties and flexibility for dealing with the large range of different situations. o The presumption can be rebutted by (1) express terms or (2) other inconsistent terms (ex. Term that B should not assign the right to enforce to C) o “Purport to confer a benefit on” means only direct benefits from the promisor (≠incidental, indirect) are covered ♣ Example 1: Term for A to cut B’s hedge that adjoins X’s land would not purport to confer a benefit on X even though X may indirectly benefit ♣ Example 2: A solicitor drafting up a will does not purport to confer a benefit on the beneficiaries of the will because the benefit derives from the testator - Thus, in order to exclude any possibility of X being able to sue, a general term like “a person not party to this agreement shall have no right under the 1999 Act to enforce any term” - Objection that applying the presumption can lead to unintended liabilities if the contract doesn’t say anything one way or the other, but in such a case on a proper construction, neither party intended to confer a benefit on a third party so the presumption won’t apply. IAO the real concern is that the promisor might conceivably find himself landed with an obligation on a third party that he subjectively did not intend – but this is a risk of any contract, given objective interpretation.

Answer 89

- Facts: a chartering broker (D) negotiated charterparties on behalf of the shipowners (C), who agreed with the charterers (X) to pay D its commission. In the charterparties there was also an arbitration clause. - Held (Colman J): D had the right under s1(1)(b) to enforce C’s promise to pay it commission, and was entitled (and bound to do so, by a “conditional benefit” analysis) to enforce it by arbitration. o On arguments that s1(1)(b) did not apply on a proper construction of the clause because it merely said that a 2% commission was to be paid in equal division to two brokers, which means the benefit is to be subsequently divided between them and not that 1% was to be paid to each of them. ♣ Rejected because the identity and amount of commission was unambiguously identified. o On arguments that s1(1)(b) was rebutted by contrary intention: ♣ Argument #1 = the arbitration clauses in the charterparties don’t make express provisions for enforcement by brokers; instead, they refer to “owners and charterers” and to arbitrators appointed by the “parties hereto”, which is inconsistent with brokers being obliged to use arbitration. • Rejected because such an intention is consistent with a common intention between the parties that X should only be able to enforce by court action. ♣ Argument #2 = contract provides no indication of an intention to allow X to sue • Rejected because s1(2) doesn't require any positive indication of such an intention, only positive indications of an intention not to allow X to sue in order to displace presumption. In this case the contract is neutral, so the presumption stands. ♣ Argument #3 = the mutual intention was to create a trust of the promise in favour of the brokers (enforceable at the suit of the charterers as trustee, who must be joined by the brokers as co-claimants). This displaces an intention that the broker should also get the 1999 Act. • Rejected because the mere fact that there was only one facility for enforcement that would have been available before 1999 did not mean that once an additional facility has been added he should not be able to use it.

Answer 90

This is potentially very destructive – if the parties mutually intended to create a trust of the promise, it doesn’t mean that the third party won’t be able to use the Act. This might (i) frustrate the legitimate expectation that trustees must be joined in a suit, and (ii) usually trusts of a promise will fulfill the criteria in the Act.

Answer 91

- Facts: Owners chartered it to Charterers, and consigned to Receivers. o Issue #1 = The contract between the Charterers and Owners had an indemnity in favour of the Owners and the contract between the Receivers and Charterers had an indemnity in favour of the Receivers. The Owners sought to rely on the indemnity clause in the contract between the Charterers and the Receivers, and the Receivers sought to rely on the chain of contracts to deny the Owners the ability to “jump” to the Receivers. ♣ Held (CoA): there was no established practice of the type the Law Comm found in the construction industry. Where contracts are linked sequentially but there is no proven understanding that the sequence of contracts prevents recourse to a third party right of action, the sequence of contracts will not by itself negate third party rights under the 1999 Act. o Issue #2 = Clause 1 of the letter of indemnity was said to be for the benefit of the charterers and their “servants and agents”, whereas Clause 3 only said “charterers”. The question was whether the Owners (X) could enforce clause 3. ♣ Held (CoA): yes – the term “agents” in clause 1 was to be construed as referring to the shipowners and as applying equally to clause 3.

Answer 92

This again shows how destructive the Act can be! The construction of the letter of indemnity was already very expansive and had a “two-step logical leap” [my terminology… not sure…] – (i) “agents” included the ship owners, and (ii) terminology applied in Clause 1 was applied equally to Clause 3 despite the explicit difference in wording! Then, (iii) even in the case of a chain of contracts, the absence of established practice meant that the presumption wasn’t rebutted, even though the parties could have thought, relying on the Law Commmission Report, that it would be. Further, (iv) because there was a direct letter of indemnity, the claimants here had a claim in contract so there was no legal black hole to be filled by the 1999 Act!!!

Answer 93

- Facts: a cargo was damaged. The cargo insurers paid the cargo-owners so took over their right to recover compensation from the ship. They then instructed C (X) as their agent to recover the compensation. D (ship) gave a letter of undertaking to the insurers promising that D would pay C in return for the non-arrest of the ship. In the end, D paid the insurers directly rather than paying C. C argued that it was entitled to be paid the money under the letter of intent by virtue of the Act, and that it could deduct commission before accounting it to the insurers. - Held: rejected the argument because: o No presumption arose under s1(1)(b) because the letter of intent did not purport to confer a benefit on C. Payment to C was merely the means by which D’s obligation to the insurers was to be discharged and the intended beneficiary was the insurers not their agent. o In any event, any presumption is rebutted under s1(2) because on a proper construction of the contract, the parties didn’t intend the term to be enforceable by C. In conclusion, the philosophy of the 1999 Act is freedom of contract, so its ultimate success will depend on the contracting parties themselves. In any case, the Act gives an incentive for contracting parties to make their intention clear, one way or the other.

Answer 94

X can claim any remedy for breach of contract that would have been available if he were a party (s1(5)) which means: - X can get damages, specific performance/injunction/action for agreed sum - X cannot get termination (because this is a self-help remedy) nor restitution of money paid/quantum meruit (because these are not remedies for breach contract) - X is subject to remoteness and mitigation rules However, the right is subject to any other relevant terms of the contract (s1(4)) in derogation from the rule that contracts cannot impose burdens on third parties, where a benefit is conferred and qualified/subject to a condition, X cannot ignore it. - But where the condition requires performance by the third party (ex. grant of an easement subject to an obligation for X to keep it in good repair), the distinction between a conditional benefit and a burden on X is difficult – thus, the Law Com said that the promisor can only use conditions as a defence or set-off to a claim by X, so as not to make X worse off overall (Law Com 242, para 10.27). And the promisor has defences (i) available against the promisee (s3(2)) and (ii) available if the third party had been a party to the contract (s3(4)).

Answer 95

Nothing is affected by the 1999 Act.

Answer 96

A bailment is where possession of goods is transferred to a bailee who holds the goods for the bailor, to whom the goods will be returned (dry cleaning firms, car hirer). The question is whether, in the case of a sub-bailment, the sub-bailee can rely on terms of the contract between the sub-bailee and immediate bailor as against the head-bailor:

Answer 97

- Facts: C (owner) sent goods to a furrier be cleaned, but the furrier didn’t clean furs himself so (with C’s consent) delivered it to D for cleaning. D then lost it. The contract between the furrier and D contained an exemption clause, on which D sought to rely as against C. - Held (Lord Denning): the exemption did not apply on the facts (on a proper construction of the clause), but in principle D could have relied on it. C would have been bound if C expressly or impliedly consented to the sub-bailment containing these conditions. In this case, since C consented to the furrier sending the goods to D, C impliedly consented to the furrier making a contract for cleaning on the terms current in the trade.

Answer 98

- Facts: C contracted for the carriage of goods; the carrier was permitted to sub-contract “on any terms”. It sub-contracted to D who took possession of the goods under bills of lading, providing that disputes would exclusively be determined in Taiwan. C then sued in Hong Kong, and D sought to enforce the jurisdiction clause. - Held (PC): D could invoke the jurisdiction clause. In principle, D can only invoke terms of the sub-bailment if the head-bailor consented to them. In this case, “on any terms” was wide enough to constitute express consent to the jurisdiction clause, so C was bound.

Answer 99

Tort to induce one party to a contract to break that contract (so duty on third parties to respect the sanctity of contract).

Answer 100

The purchaser of land or goods may be affected by a contract relating to that land or goods, entered into by the vendor prior to the sale to the purchaser. One view is that the purchaser is bound because he has notice: - De Mattos v Gibson principle: Reason and justice seem to prescribe that, at least as a general rule, where a man, by gift or purchase, acquires property from another, with knowledge of a previous contract, lawfully and for valuable consideration made by him with a third person, to use and employ the property for a particular purpose in a specified manner, the acquirer shall not . . . use and employ the property in a manner not allowable to the giver or seller (Knight Bruce LJ) But this is surely open to challenge because he has notice of a personal right in contract between the vendor and a third person.

Answer 101

- Facts: D had a charterparty of a ship. The ship-owners sold the ship to C who took with notice of the charterparty and with the understanding that it would be honored. C didn’t honor the agreement, and pleaded, at the suit of D, that they weren’t bound by the charterparty for want of privity of contract. - Held (PC): granted injunction restraining C from using the ship inconsistently with the charterparty. PC relied on dicta in De Mattos v Gibson and said that whether the subject-matter was land or chattel the remedy is the same and is governed by Tulk v Moxhay. The remedy in each case is one in equity by way of injunction against acts inconsistent with the covenant.

Answer 102

- Burrows argues that the better view is that the right to an injunction arises only if the conduct of the purchaser constitutes the tort of knowing interference with the charterer’s contractual rights (Lumley v Wagner tort). o Indeed Wilkinson J said that the principle in De Mattos represents the counterpart in equity of the tort of knowing interference with contractual rights. o However, though they might cover the same ground they are doctrinally distinct and have different requirements (Cohen-Grabelsky). - There are alternative explanations of The Strathcona: o Implied contract between the third party and charterers o Novation of the original agreement (because this is not a case of mere notice, but acceptance of the property expressly sub conditione) o Constructive trust

Answer 103

- Facts: a ship subject to a charterparty was sold to D, it being agreed that D should immediately charter the ship back to the original charterer for the remaining time. The second charterparty (between D and the charterer) contained a clause that if the ship were requisitioned by the Crown the charterparty would cease, though this clause is not in the original charterparty (between seller and charterer), and D was unaware of this disparity. The ship was requisitioned and the charterer (i) brough a claim against the seller, which was settled, and (ii) against the buyer, to recover the compensation it received from the Crown in respect of the period of requisition. - Held (Diplock J): no. o The Strathcona was wrongly decided. o Even if it was correctly decided, it didn’t apply in this case because: ♣ It only applies where there is actual knowledge by the purchaser at the time of the purchase (constructive knowledge is not enough) ♣ D was in any case not in breach because it was the Crown and not D that was using the ship inconsistently with the charterer’s rights ♣ In any case the charterer is not entitled to any remedy except injunction to restrain inconsistent use [so no specific performance or damages]

Answer 104

- Why should covenants be able to run with land but not other property? o Purchasers have a right to expect that the incumbrances should be familiar. In the land law they are strictly denned—leases, easements, restrictive covenants, etc.—but not in the law of contract. If any sort of contractual obligation could run with property the distinction between contractual and proprietary rights would virtually disappear. o The third party has an adequate remedy to sue the seller in damages. - The De Mattos principle was based on Tulk v Moxhay, but LCC v Allen rejected the idea that mere notice of a contract affecting property was enough to require a later purchaser to respect that contract undercuts the entire principle and the “judicial legislation” (Wade) in De Mattos should have been over except that it “rose from the grave” (Diplock J) in Strathcona. - Port Line was therefore a “fitting occasion” to use the doctrine that PC decisions are not binding, but the principle it re-establishes will continue to come under attack, one current successful attempt being regarding contractual licenses in Errington. 2º In any case it is unclear whether it applies to anything other than vessels subject to charterparties (ex. it may not apply to contracts for goods where the seller had agreed to use it to manufacture goods for another party): - Lord Chelmsford LC (De Mattos): a vessel engaged in a charterparty is a chattel of peculiar value to the charterer - Lord Wright MR (Clore v Theatrical Properties): Strathcona should be confined to the “very special case of a ship under charterparty”

Answer 105

o The plaintiff had chartered a ship from its Owner, who had subsequently charged the ship to Gibson, who had actual notice of the charterparty. Owner got into financial difficulties and was unable to continue the voyage. Gibson was proposing to sell the ship of which he had taken possession. In the action the plaintiff claimed an injunction against Gibson restraining him from interfering with the charterparty. The plaintiff applied for an interim injunction which was granted, on appeal. In my judgment that case is an authority binding on me that a person taking a charge on property which he knows to be subject to a contractual obligation can be restrained from exercising his rights under the charge in such a way as to interfere with the performance of that contractual obligation: in my judgment the De Mattos v. Gibson principle is merely the equitable counterpart of the tort. o But two points have to be emphasised about the decision in De Mattos v. Gibson: ♣ first, the ship was acquired with actual knowledge of the plaintiff's contractual rights ♣ secondly, that no such injunction will be granted against the third party if it is clear that the original contracting party cannot in any event perform his contract (which is why the De Mattos v. Gibson principle is not applicable to restrictive covenants: the original contracting party—even if traceable—could not carry out his contract relating to the land or the chattel once he had parted with it)

Answer 106

o A ship which was the subject matter of a charterparty to Dominion was sold to Strathcona expressly subject to the rights of Dominion under the charterparty. o The Privy Council held that an injunction could be granted restraining Strathcona from interfering with Dominion's right; the charterparty. o Certainly one ground of decision is that, in the circumstances, Strathcona was a constructive trustee. o It is not clear to me whether this was the only ground of decision since the passages in the judgment dealing with De Mattes v. Gibson — which was held to be good law -- certainly seem to proceed on the basis of knowing interference with another's contract. The Privy Council accepted that, in order to get an injunction the plaintiff had to have a continuing interest in the property but undoubtedly held that a bare contractual right, as opposed to a property interest, was a sufficient interest for this purpose. o In any case Strathcona decided that (1) De Mattes v Gibson is good law and (b) an injunction can be granted to restrain a subsequent purchaser of a chattel from using it so as to cause a breach of a contract of which ho has express notice

Answer 107

o Port had chartered a vessel from Silver. Silver then sold to Ben but subject to an immediate re-charter by Ben to Silver. Under the charter-party between Port and Silver the requisitioning of the vessel did not determine the charter: under the charterparty between Ben and Silver it did. The vessel was requisitioned and Port was claiming from Ben compensation received by Ben for the requisition. It is important to notice that Port could only succeed if it showed either that it had a positive right to possession of the vessel or that Ben was accountable for the compensation as constructive trustee. Diplock J was not concerned with the question whether Port was entitled to a negative injunction to restrain the tort.

Answer 108

- It is not necessary for me to express any view as to whether the Strathcona case was rightly decided so far as it was a decision based on constructive trusteeship, which was all that Diplock J was concerned with. However, although I of course differ from Diplock J with diffidence, in my judgment the Strathcona case was rightly decided on the basis that Dominion was entitled to an injunction against Strathcona to prevent Strathcona from interfering with the contract between Dominion and the original charterer. Diplock J explained De Mattos v. Gibson on that ground, and gave as an alternative ground for his decision that actual, as opposed to constructive, notice was necessary in such a case. To that extent his decision supports my own view - What then are the authorities which suggest that the De Mattos v. Gibson principle is not good law? In my judgment apart from the Port Line case [1958] 2 QB 146 they are all cases involving restrictive covenants affecting land and resale price maintenance conditions affecting chattels; that is to say not cases in which the plaintiff sought an injunction to restrain the defendant from committing the tort but cases where the plaintiff was seeking to make the defendant positively perform a contract to which he was not a party.

Answer 109

o (1) The principle stated by Knight Bruce LJ in De Mattos v. Gibson is good law and represents the counterpart in equity of the tort of knowing interference with contractual rights o (2) A person proposing to deal with property in such a way as to cause a breach of a cello affecting that property will be restrained by injunction from so doing if when he acquired that property he had actual knowledge of the contract o (3) A plaintiff is entitled to such an injunction even if he has no proprietary interest in the property: his right to have his contract performed is a sufficient interest o (4) There is no case in which such an injunction has been granted against a defendant who acquired the property with only constructive, as opposed to actual, notice of the contract – IJO constructive notice is not sufficient, since actual knowledge is a requisite element in the tort.

Answer 110

The cases give rise to two principal difficulties: - What principle is it that demands that the purchaser should be affected by a contract that had been concluded by the vendor with a third party? - When will the purchaser be affected by the contract and with what effect? o It would appear that the principle can only be invoked where the purchaser has actual knowledge of the existence of the contract at the time of acquisition. o The only remedy to which the third party is entitled is an injunction to restrain the purchaser from acting inconsistently with the terms of the contract between the third party and the vendor. o In particular, the third party is not entitled to a specific performance order requiring the purchaser to give effect to the contract between the vendor and the third party.

Answer 111

- Question of the extent a purchaser of personal property can be bound by covenants relating to that property of which he wasn’t a party? o Is a purchaser of shares bound by rights of pre-emption in respect of those shares held by other shareholders? o Can the seller of goods impose restrictions on the price at which remote purchasers may resell? o Can mortgagees of a ship be prevented from using it inconsistently with the rights of one who booked space? - Today, the De Mattos principle remains good law (IAO), and applies to: o Any sort of property other than land (which is subject to different rules) – even incorporeal property. o Will usually be negative covenants (because prohibitory injunction) but occasionally there might be mandatory injunction to honour a contractual obligation to use property in a certain way (ex. a shareholder who undertakes to use the vote in a certain way might be compelled to actually exercise that obligation, not merely be enjoined from voting inconsistently) ♣ [NB reversed by Hoffmann J in Law Debenture Group] o It does not apply to contracts clearly intended to be enforceable only inter partes (though no need to find a positive intention for the covenant to bind the property) o The covenant must relate to the use of the property concerned (and cannot be a collateral covenant not concerned with the use – ex. covenant to pay royalty) o Purchaser must take notice of the third party’s rights. - Other methods of enforcing: o Economic torts ♣ But De Mattos is wider than the economic torts because X need only cause the original owner to break their contract, which is not enough for Lumley tort why the difference? IAO because De Mattos is selective because it only applies to contracts that are (i) injunctively enforceable and (ii) relate to the use of property.

Answer 112

The principle in De Mattos cannot impose any positive obligation on C to perform the terms of the contract between A and B (can only impose negative injunctions). - Facts: B acquired shares from A, promising to make payments to A on the occurrence of specified events, which later happened. - Held (Hoffmann J, reversed by CoA on a different point): that promise could not be enforced against C who later acquired the shares from B with knowledge of the contract between A and B, nor against D who acquired them from C with such knowledge. An injunction on the principle of De Mattos v Gibson was not available against C or D as they were not proposing to act inconsistently with the contract between A and B: “they are merely proposing … to do nothing whatever.”

Answer 113

- The rule that consideration must move from the promisee should mean that in principle, no person can in contract enforce a promise for which they have not provided consideration. However, HCA (Coulls v Bagot) said that a joint promisee party to a contract can sue even if they didn’t themselves furnish the consideration (because the consideration is “given on behalf of them both and therefore moving from both of them” (Windeyer J)). - Though practically attractive its consequence does appear to be a negation of the requirement that consideration must move from the promisee… But this didn’t prevent it from getting lots of approval. Can the joint promisee principle stand in the face of the classical notions of consideration? o How to reconcile with Dunlop v Selfridge? ♣ Treat requirements of privity and consideration as separate, so that privity would still remain a requirement even if consideration is abolished; privity requires promisee to be party; consideration doesn’t require that a party should himself provide the consideration. ♣ But these arguments run directly counter what was actually said in Dunlop – they saw as essential that the promisee be a party and furnished consideration. o IAO the joint promisee principle is based on two fallacies: ♣ Confusion between formation of contract and performance the consideration is the promise not the performance, so where one joint promisee pays the money promised, he is merely performing the obligation on behalf of the other joint promisee; the promise (and therefore consideration) is still undertaken by both (and enforceable against both). EXAM POINT Perhaps in light of cases like Williams v Roffey and especially WM Morrison force use to reconsider what consideration really is – is it the promise of a benefit, or is it the conferral of a benefit? ♣ Confusion as to the meaning of being a “party” to the contract • The word “party” can be used in different ways: (i) someone bound by a contractual relationship, (ii) beneficiary under a deed, (iii) signatory to a contractual document, or just (iv) all those who reach “agreement” whether or not it amounts to contract. • In the joint promisee cases the joint promisee was held to be a “party” to the contract but it could have been meant in the loose senses (ii-iv), but can only be a “party” to the contract if they provided consideration, because a contract at common law is a bargain, an essential condition of which was the reciprocal exchange of consideration. To hold otherwise would be to confuse “contract” (must be a bargain) and “agreement” (need not). • Thus if the joint promisee provided consideration (i.e. an obligation to be bound by the promise) then they are a party and it is immaterial who later performed the obligation; if they didn’t, they are not parties to the contract. - Therefore, IAO the joint promisee doctrine is misconceived and the joint promisee can only enforce a joint promise if he is himself a promisor (i.e. must be prepared to undertake obligations to the promisor). o Objection = in Coulls the widow (joint promisee) had no rights over her husband’s quarry, so any consideration she might be said to provide could only have been illusory response = a promise that oneself cannot perform is not a promise to do the impossible if someone else can perform it. What the widow provided would not be the provision of the quarry, but her accountability in law if her husband defaulted. - Application to unilateral contracts (where formation cannot be separated from performance) performance should not be confused with completion; as long as the joint promisee contributed to performance in some way, it doesn’t matter if he didn’t himself fulfill the stipulated condition. - Conclusion = the requirement remains that consideration move from the promisee; the joint promisee rule is no exception.

Answer 114

Privity (insofar as it prevents a third party intended by parties to be able to enforce) is wrong. - 17C cases unambiguously allowed Xs to enforce contracts made for their benefit, and when it was reversed, it seemed like it was on the ground of consideration, and only later judges seemed to create a separate “privity” rule. - Is privity required by (or consistent with) any theory of contract? o Will theory (contracts are enforced to give effect to intentions of parties) requires that the prior convergence of the wills of the parties to be given effect to, so X should be able to enforce. The will theory starts with everyone having an indirect interest in enforcement (for the dependability of the contractual process), but these interests are trumped by the direct interests of the beneficiaries (who don’t want the benefit, if they don’t sue). But this consideration doesn’t apply to Xs who must therefore be entitled to sue. EXAM POINT Why not? X’s interest would still be contrary to the interests of the promisee (if the promisee doesn’t sue, it’s because the promisee doesn’t want the benefit), which should also logically trump X’s because it is more direct… And there is no logical reason why the wills theory should prioritize prior convergence of the wills over the later will of the parties. o Bargain theory: the function of consideration is “cautionary” because English law treats contractual obligations as strict. Consideration, or bargain, cautions the parties at the time of contract formation that they are binding themselves to strict obligations, so need not be concerned for consideration at a later date doesn’t require privity because consideration is focused on the promisor. o Relational contract law doesn’t support privity o Economic analysis (is privity efficient?) no because it cannot be contracted out of, so requires an extra transaction imposing additional costs. o Critical analysis contract law must be put into perspective in contrasting the “individual” an “community” goals; community goals in enforcing contracts should favour third party enforcement (as well as broader social reliance)

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