Doctrine of Privity: A Critical Evaluation in Contract Law

This essay critically evaluates the doctrine of privity of contract, a fundamental principle in contract law that restricts the ability of a third party to enforce a contract to which they are not a party. The essay begins by defining the doctrine and its implications, emphasizing that only parties with privity of contract can sue or be sued. It then delves into a discussion of key cases such as Tweedle v. Atkinson, Scruttons Ltd v. Midland Silicon Ltd, and Beswick v. Beswick, which illustrate the application and limitations of the doctrine. The essay explores exceptions to the privity rule, including the Contract (Rights of Third Parties) Act 1999, which allows third parties to enforce contract terms under specific conditions. It also examines the evolution of the doctrine, including the reforms and criticisms it has faced. Furthermore, the essay considers the doctrine's application in various jurisdictions, such as Australia, and the impact of statutory changes on third-party rights. The conclusion highlights the ongoing debate surrounding the doctrine and its relevance in contemporary commercial society, emphasizing the importance of balancing the interests of contracting parties with those of third parties who may be affected by the contract.

Running head: DOCTRINE OF PRIVITY
DOCTRINE OF PRIVITY
Name of the student
Name of the university
Author note

1DOCTRINE OF PRIVITY
Introduction
The contract is defined as the arrangement between the two distinct parties. The contract
that is enforceable by law is the voluntary arrangement arrived in between the contractual
parties, and the same is binding in the eyes of the law. Therefore the contract law is a set of rules
that are implemented obligation and rights of the party to the contract. It regulates the
association, interpretation, and validity of the arrangement between two companies, individuals
or institutions relating to the transaction, the sections of exchange of ownership, or interest.
Discussion
Critical evaluation of the doctrine of privity of contract
The doctrine of privity of contract in the common law envisages that the agreement that
is enforceable by law cannot assign right or inflict obligation to the individual who is not the
contractual party. This implies that the doctrine restricts the third party to initiate proceeding
against the contractual parties for enforcement of a right or claim damages (Engel and Schweizer
2016). Nevertheless, the doctrine deprives the right of the third party to sue against the
contractual parties. The term “Third party” in contract implies the individual who is not the
contractual party though he has an interest in the arrangement (Chan 2019). Thus if the third
party attains benefit under the agreement, it does not have the entitlement to move against the
contractual parties beyond its entitlement to the advantage (Grose and Shlah 2015). There is
some exception to the doctrine of privity of contract, including insurance companies, trust, agent-
principles contracts, and cases engaging negligence.
In the case of Tweedle vs. Atkinson [1861], it is held that notwithstanding the agreement
permit son for enforcement of the contract, the claim has been dismissed as he has no privity. It

2DOCTRINE OF PRIVITY
is the English law case on contract concerning the norm of privity of contract. The judges
emphasize that the principle of privity implies that only those who are contractual parties can be
sue or sued, and the doctrine of consideration must stream from the promisee. In another case of
Scruttons Ltd v. Midland Silicon Ltd [1961] is the landmark case and test case in which it was
sought to create the basis on which Stevedors could asset the safeguards of limitations and
exceptions that are enumerated in the bill of lading contract upon which they were not the party.
The court, therefore, pointed the exception to the rule of privity termed as Lord Reid Test that is
applied to employees seeking safeguards in the contract of the employer. In the case of
Beswick vs. Beswick [1861], the husband of the claimant sold the firm to a nephew in exchange
for allowance and after the death of him to his wife. The payment had been stopped by nephew
after the death of his uncle, the suit instituted by the claimant. It is held by the court that the
action was dismissed on the basis of privity of contract. The two factors of the privity rule are it
is held that the third party is not subject to an obligation under the arrangement. Another
determinant is that the third party has no right for the enforcement of benefit under the contract
unless there are express provisions in this regard. The first factor is treated as equitable and
proper; however, the second one encounters criticism as well as reformed with several
exceptions. The first reform to the privity doctrine by the Law Revision Committee in the year
1937 in the sixth provisional report permitting the third party for the enforceability of contractual
terms
The Contract (Rights of Third Parties) Act, 1999, make provisions concerning the
enforcement of terms of the contract by the third parties. It also allows then entrance to the series
of remedies in case the conditions are violated. However, the said act expands the scope and
provide an exception to the rule. The exception to the privity rule permits the third party to have

3DOCTRINE OF PRIVITY
legitimately enforced rights under special situations. Section 2(1) of the said act limits the
contractual parties’ right to rescind or vary the terms of the contract in case the third party has
the authority to execute the contractual terms (Zhao 2019). The act set forth the situation wherein
the third party have the entitlement to enforce the conditions of the contract, and the situation in
which the conditions are rescinded or varies and the defenses that are available to the promisor in
case the third party pursues to enforce the contractual terms (Waibel 2016). The said act also
guarantees remedy to the third party in case the rescission or variation of the contract held to be
invalid. The Contract (Rights of Third Parties) Act, 1999, permits the third party in two aspects.
The doctrine of privity of a contract comprising of two rules, the first rule is that the third party
does not obligation wherein he was not a party to the contract. Secondly, the individual would
not be able to sue on contract to which he was not the party receiving the performance promised
even in case the agreement was entered into with the objective of benefitting him. Furthermore,
the act permits the contract to confer the right to the individual who is not a party to the contract,
except it is not intended by the contractual parties to that effect. Section 1(1)(a) enumerates that
third party has authority for the enforcement of the contract is it is expressly mentioned in the
contract and intended by the contractual parties. The contract can confer a benefit to the third
party, and the benefit involves property transfer, service, money payment, or application of
limitation or exclusion clause. The benefit that confers should be direct and not incidental. In the
case of Nisshin Shipping vs. Cleaves [2003], there is negotiation in between the ship owners and
the brokers to loan vessel to the charterers. The contract involves a commission clause that laid
down expressly that 1% payment to the brokers. The broker though he is not a party to the
contract has the right to execute the agreement in pursuance to the Contract Rights of Third
Parties Act, 1999.

4DOCTRINE OF PRIVITY
The enforcement and operation clause of the said act entitles the third parties to seek the
same remedies as to that of the original party. The remedies that are guaranteed to the third party
involves the order of specific performance of contract and damages (Sangal 2015). The third-
party is entitled to obtain similar defenses like that of contractual parties in accordance with
Section 3 of the said act. In the case of Linden Garden Trust v Lenesta Sludge Disposals[1994],
it was held that the owner of the original site, the claimant is entitled to get damages though they
are not affected directly due to the poor building. The case apprehended considerable defective
work and as to whether the assignee who has directly effected could entitle to recuperate money
for them directly or the assignor could have recover money by prosecuting the works contractor.
Wilkinson adopted the conception of Diplock in Albazero that there is an exception that is
applicable to the carriage contract. The consignor might recover considerable damages against
ship-owner if there is privity of contract between him and carrier for goods carriage.
The doctrine of privity of contract is regarded as the primary factor in the agreement that
is enforceable by law as well as with the principle of consideration. The uncertainty in the zone
of agreement receives criticism, and there are various initiatives adopted to evade the same.
Therefore for the purpose of determining the deepness of the implementation of the principle of
privity of contract in the case of Trident General Insurance Co. Ltd v ‘Mc. Niece Bros Ltd
(1988) is required to look back to the record of implementation of the doctrine in the country of
Australia. The Privity doctrine first initiated to Australia in the case of Coulls v Bagot’s (CB
261). Thus the Privity doctrine in the particular case excludes the third party on enforcement of
the contract or considering to be bound by the contractual obligation. Furthermore, for the
purpose of enforcement of the contract, it is necessary for the third party to establish that he is
not only the party to the contract in addition to that had paid consideration in the contract.

5DOCTRINE OF PRIVITY
The privity doctrine rooted in the bargaining theory in the contract. The third party is not
entitled to enforce the contract unless his name is laid down in the contract to obtain the benefit.
Nevertheless, they did not pay consideration to the promisor who was providing the benefit.
Although it is intended by the promisee that third party obtains benefit in the contract (Njoya
2015). The privity doctrine encounters criticism in the case of Trident, where the question raised
about the legality of the doctrine of privity of contract in the contemporary commercial society.
The statutory changes guarantee that in case the name of the third party is assured in the contract
of insurance, the insurance corporation is under obligation to insure them (Poole 2016) . The
legislation enacted by several countries approves a third party, a series of rights that are
enforceable in the contract, for instance, in the country of United States as well as currently in
England in the year 1999. It is recommended by the Law Commission that privity doctrine be
flexible in granting the individuals who are not a contractual party to initiate proceeding against
him subjected to the condition that there must be an express provision in the contract to the
effect. It is thereby implied to assign benefit to the individual who is not the contractual party.
The significant criticism that is observed in the case of Trident, wherein the privity
doctrine was substantially noticeable in the intent of the parties to the contract. The privity in the
contract will not be responsible for harm that may be incurred if it is reasonable to believe by the
beneficiary that they are insured. It often happens that the offeree has the trust associated with
the individual who is not a party to the contract. In case the promisor in the contract receives the
consideration that is mutually agreed by the parties and thereby fails to carry out the
responsibility to the individual who is not the contractual party, then it is unreasonable and
unjustified. However, in that case, the privity does not view injustice. It is argued that the

6DOCTRINE OF PRIVITY
promisee can implement the arrangement; nevertheless, the determination for an individual who
is not the contractual party is rest on the decision of promisee.
In the dissenting decision of Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd,
Justice Brennan and Dawson emphasize the disagreement that placed before them. It is
contended by Mc Niece Bros. that the tribunal must determine under the specific situation which
is prevalent in the insurance contract of the third party, and thereby the privity of contract creates
an obstruction to upholding justice. Brennan J. rejects the argument by stating that as the
business practice exclusively esteems the assurance of insurer. The simple departure from the
traditional regulation would be inclined to the enforceability of the third party of the agreement.
That is subject to the conservation of the right of the contractual party to vary or rescind in the
absence of reliance by the third party to that detriment. Furthermore, to the availability of
defenses by the third party as against the contracting party. Brennan J. adopted the neutral
method to the case by upholding that Blue Circle cannot be considered as an agent of the
individual named Mc. Niece due to the fact that consideration did not shift from Mc. Neice to
Trident via Blue Circle. It is thereby simply quoted by Justice Dawson that the recognized
precedent in the comments of Vandepitte and Windeyer’s in the case of Coulls v Bagot’s
consider that the rule was regarded as incontrovertible.
The privity doctrine embodies two rules. The first rule entails that the third party is not
considered to be the subject of contractual obligation. The second rule entails that the third party
has no authority to execute the contract though it has provision to confer an advantage to him.
There is a very intimate connection between the consideration rule and the second rule of privity
doctrine that shift from the promisee. Nevertheless, it is stated by the court that consideration and
privity create two hurdles. It is implicated by the privity doctrine that as of general rule, the

7DOCTRINE OF PRIVITY
arrangement cannot deliver rights or inflict contractual obligation on the individual other than the
one who is a party to the contract. Even though it is intended by the contractual parties to assign
benefit to the third party; a however third party cannot able to execute promise as against the
offeror. The issue of privity invites discussion concerning the right of Harriet who is third party
vis-a-vis the agreement in between Jerry Builder and Ivor to enforce the condition of the contract
the method that can be implemented under the exception of common law as well as most
important the Contract (Rights of Third parties)Act 1999. The contractual term indicates that the
work is to be concluded on a particular date, and JB is entitled to pay compensation to the other
party that is Ivor for causing the delay. The contract also confers a benefit to Harriet though he is
not the contractual party. As per the doctrine of privity Harriet as the third party is not entitled to
execute the contractual term against JB.
Nevertheless, she can act through Ivor, who is a party to the contract for the enforcement of
contractual obligation. The doctrine of privity of the contract implies that the individual who is
the party to the contract can only have the authority to enforce the contractual obligation.
However, if the interest of the third party involves or the contract enumerates provision that
confers a benefit to the third party (Twigg-Flesner 2017). In that case, the third party can enforce
it through the individual who is a contractual party.
The privity doctrine in English law provides a series of exceptions to eradicate the
negative impact and for safeguarding the interest of the third party. The exceptions are shipping
or insurance contracts. In addition to that agency, the trust of a contractual right, tort, collateral
contract, restrictive covenants is outside the ambit of the doctrine of privity of contract. In the
case of Pharmed Medicare Pvt Ltd v Univar Ltd [2002], it is held that the manager has apparent
authority as that of the employee to approve arrangements for purchasing drugs even though the

8DOCTRINE OF PRIVITY
order exceeds the normal amount. The negotiable instrument comes under an exception to the
general rule, and it confers the benefits of the contract to the third party. In the case under
collateral contract, Scruttons Ltd v Midland Silicons Ltd [1962] Stevedores were failed to
implement the exclusion clause.
There are several merits and demerits of the doctrine. The merits are as follows. Firstly
the doctrine describes the enforceability and ambit of the contractual obligation. Secondly, it
guarantees that contractual obligation is not created by the courts. Thirdly it would not be
expected for the offeror to witness the action in case of infringement of arrangement from the
offeree as well as the third party if the individual who is not the party to the contract can execute
the agreement that affects the capability of contractual parties to terminate or vary the contractual
terms. The demerits of the privity doctrine are it leads to the inconvenience in a commercial
contract. It can be functioned to cause grave injustice. It defeats the parties’ intentions in the
contract. It positioned the contract under English Law in an inconsistent position, the law
regulating contract on other countries determine the right of the third party. It causes uncertainty
in the relationship of parties in the contract to provide several common law mechanisms to evade
the implementation of privity doctrine.
Conclusion
Thus it can be concluded that the doctrine of privity is beneficial for the preservation of
the sanctity of the agreement. The sanctity of the contract ensures that the party to the contract
are accountable to each other relating to the contractual obligation. Therefore it is considered
unjust and illogical to abolish privity doctrine absolutely. There are certain exceptional
circumstances where the contract did not only create distress for the contractual party but also to
the third party. As a result of this, it is logical and desirable that the individual who is not a party

9DOCTRINE OF PRIVITY
to the contract to the agreement should get contractual benefits. Similarly, the contractual
obligation should be imposed on the third party. Therefore there should be exceptions to the
privity rule in order to resolve the issue

10DOCTRINE OF PRIVITY
References
Beswick vs. Beswick [1861]
Chan, W.M., 2019. Contracts (Rights Of Third Parties) Act 1999. Journal of Malaysian and
Comparative Law, 28, pp.137-160.
Engel, C. and Schweizer, U., 2016. Beyond Privity: 33rd International Seminar on the New
Institutional Economics June 10-13, 2015, Edinburgh, United Kingdom. Journal of Institutional
and Theoretical Economics, 172(1), p.1.
Grose, M. and Shlah, R., 2015. Construction Law in Qatar and the United Arab Emirates: Key
Differences. Turk. Com. L. Rev., 1, p.189.
Linden Garden Trust v Lenesta Sludge Disposals[1994]
Nisshin Shipping vs. Cleaves [2003]
Njoya, W., 2015. Corporate governance and the employment relationship: the fissured workplace
in Canada and the United Kingdom. Comp. Lab. L. & Pol’ y J., 37, p.121.
Pharmed Medicare Pvt Ltd v Univar Ltd [2002]
Poole, J., 2016. Textbook on contract law. Oxford University Press
Sangal, P.S., 2015. Products Liability: Some Developments.
Scruttons Ltd v Midland Silicons Ltd [1962]

11DOCTRINE OF PRIVITY
Trident General Insurance Co. Ltd v ‘Mc. Niece Bros Ltd (1988)
Tweedle vs. Atkinson [1861]
Twigg-Flesner, C., 2017. Consumer sales law in the United Kingdom. In Comparative
Consumer Sales Law (pp. 128-145). Routledge.
Waibel, M., 2016. The Principle of Privity. University of Cambridge Faculty of Law Research
Paper, (44).
Zhao, L., 2019. FOB seller under Chinese law and privity of contract in carriage of goods by
sea. Asia Pacific Law Review, pp.1-20.