General Rule

 Tweddle v Atkinson (1861)

William Guy (WG) and John Tweddle (JT) entered into an agreement
where each promised to pay a sum of money to William Tweddle (WT),
the son of JT. WT was about to marry WG’s daughter. WG died and
therefore did not pay. WT sued his executors.
It was held that WT’s action must fail because he was a stranger to the
consideration. Wrightman J was of the opinion that no stranger to the
consideration can sue on the contract even if it was made for his benefit.
 Dunlop Pneumatic Tyres v Selfridge (1915)
This case marks the House of Lords’ recognition on the doctrine of
privity. The plaintiff company sold some tyres to Dew & Co. and it was
agreed that the tyres would not be resold below an agreed price. It was
further provided that if Dew & Co. were to resell the tyres, they would
extract a similar undertaking from their purchaser. Dew & Co. sold the
tyros to Selfridges who agreed to observe the restrictions and to pay
Dunlop, the plaintiff, and £5 for each try in breach of the agreement.
Subsequently, Selfridges sold some tyros below the agreed price.
Dunlop sued them. The defense raised by Selfridges was that Dunlop
was not a party to the agreement between Selfridges and Dew & Co.
The House of Lords found in favor of the defendants, Selfridges. Lord
Hamden cited two principles:
(i) A stranger to the contract cannot sue on it nor can he be sued on
it. His lordship is of the opinion that that ‘our law knows nothing of
jus quietism tertio (third party rights) arising by way of contract.
This stands for the doctrine of privity.
(ii) A stranger to consideration cannot sue on the contract.
 Beswick v Beswick (1965)
The House of Lords rejected the notion that an administratrix of
an estate could sue in her personal capacity under the contract.

Exemption and Limitations to the doctrine of Privity (Common Law)

Collateral Contract
 Shanklin Pier v Detel Products Ltd (1951)
The plaintiffs hired contractors to paint a pier. The contractors were
instructed to buy and use paint manufactured by the defendants. The
instruction was given in reliance on the representation made by the
defendants to the plaintiffs that the paint would last for seven years. In fact,
it only lasted for three months.
It was held that although the main contract for the sale of paint was
between the contractors and the defendants, the defendants were liable
under a collateral contract that the paint would last for seven years.
 The device of collateral contract is often used to give rise to a contract so
as to enable a customer to sue the manufacturer for a guarantee made
even though the main contract is between the dealer and the customer.
Collateral contracts also give rise to contractual liability against the sub-
contractor although, technically speaking, the sub-contractor is not privy to
the main contract.
Collateral contracts are also a common feature in hire-purchase
agreements. It may seem that the customer is buying on hire purchase
from the dealer. In fact, the main contract is between the customer and the
finance company because the property in the goods transfers to the
finance company which them hires them out to the customer with an
“option to purchase.” Under the device of collateral contracts, it is now
possible for the customer to enforce a representation by the dealer as to
the quality of the goods
 Andrews v Hopkinson (1957)
The claimant wanted to acquire a car on hire purchase. The dealer
said, ‘It’s a good little bus. I would stake my life on it’. The claimant
entered into a hire purchase contract with a finance company for the
car, arranged through the dealer.
When the car turned out to be defective, it was held that the claimant,
although at first sight having contractual remedy against the dealer,
could in fact sue him on the basis of a collateral contract. At the time,
the dealer was held not to be the agents of the finance company, but
that has now been changed by statute

Agency
 An agency relationship arises when one party (the agent) is authorised 1 by
another (the principal) to negotiate and enter into contracts on behalf of the
principal. The agency binds the principal to contractual relationships with third
parties.
 Scruttons v Midland Silicones (1962)
The House of Lords reaffirmed the doctrine of privity in the
context of exclusion clauses. Therefore, a stranger to the
contract cannot rely on an exclusion clause in the contract.
Here the 3rd party stevedore failed to argue that it is covered
under the exclusion clauses in a bill of lading.
Arguably the significance of the case was how the courts said
the stevedores might have succeeded.
In order for this to succeed, four factors must be made out:
(1) The bill of lading must clearly intend to benefit the third party.
(2) It is clear that when the carrier contracts with the consignor,
it also contracts as an agent of the stevedore.
 (3) The carrier must have had authority by the stevedores to act
on its behalf, or the stevedores must later endorse the
actions of the carrier.
(4) Any difficulties with consideration moving from the
stevedores must be made out.
 New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd or The
Eurymedon (1975)
This is a leading case on contract law by the Judicial Committee
of the Privy Council. The council gave conditions of when a third
party may seek protection of an exclusion clause in a contract
between two parties.
A drilling machine was to be shipped from Liverpool to
Wellington. The bill of lading stipulated that limited liability of the
carrier. It further stated that the clause would extend to servants,
agents, and any independent contractors.
The carrier company was a subsidiary of the company that also
owned the stevedore operation that unloaded the drill. Due to
negligence the stevedores damaged the drill while unloading it.
The stevedores claimed protection of the immunity clause in the
contract between the carrier and Satterthwaite.
The council held that the services provided by the shipper in
unloading the drill was consideration for a unilateral contract
agreeing to protect those are doing the unloading. Typically an
agreement to do something that a third party is already obligated
to you is not valid consideration unless the promisee obtains
some benefit from an enforceable agreement.
Reversing the New Zealand Court of Appeal and restoring the
judgment of Beattie J, the Privy Council, by a majority held that,
applying the unilateral contract reasoning to bypass the privity
objection, the stevedores were so entitled.
 Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon Pty
(Australia) Ltd, The New York Star (1981)
The Eurymedon was subsequently affirmed by the Privy in
holding that the stevedores continued to be protected even when
the loss had occurred after the unloading of the goods (they had
been negligently delivered by the stevedores to thieves). Support
was expressed for the reasoning of Barwick CJ in his (dissenting)
judgment in the High Court of Australia in this case.
 The Mahkutai (1996)
The Eurymedon was further approved by the Privy Council in
The Mahkutai (1996) (although Lord Goff, giving the opinion of
the Privy Council, indicated that, in line with Barwick CJ’s
analysis, the contract could be described as ‘bilateral’. Even
more importantly, The Eurymedon principle was approved by the
house of Lords in Homburg Houtimport BV v Agrosin Private Ltd,
The Starsin. Although Lord Bingham, (at 34), again confusingly
 talks of bilateral contract, there is a clear analysis by Lord
Hoffman [at 93], by Lord Hobhouse [at 196 – 197]. However the
principle was held inapplicable on the facts because the third
party was the actual performing carrier and to allow it to take the
benefit of an exemption clause in the contract of carriage would
undermine the policy of the Hague-Visby Rules (given legislative
force by the Carriage of Goods Act 1971) which invalidated the
exemption clause in question.
 Homburg Houtimport BV v Agrosin Private Ltd, The Starsin (2003)
The Eurymedon principle was approved by the house of Lords in
Homburg Houtimport BV v Agrosin Private Ltd, The Starsin
Although Lord Bingham, [at 34], again confusingly talks of
bilateral contract, there is a clear analysis by Lord Hoffman [at
93], by Lord Hobhouse [at 196 – 197].
Trust
 This occurs when a person (the settlor) transfers property to another (the
trustee) under a covenant in order for the latter to deal with for the benefit
of a stranger (the beneficiary) to the covenant. The beneficiary can directly
enforce his right although he is not a party to the covenant (the contract to
create a trust.)
 In order to establish a trust, there must be three certainties. Knight v Knight
(1840), per Lord Langdale MR
(1) certainty of intention
(2) certainty of subject matter
(3) certainty of object matter
 However Intention to create trust differs from intention to create legal
relationship in 2 ways:
(1) The intention to create a trust is often a fiction i.e. imputed where there
may be none
(2) If a trust has been created, it is irrevocable and the contracting parties
cannot alter the contract.

Promisee to bring an action on behalf of third party

 Beswick v Beswick (1968)
Peter Beswick was a coal merchant. He contracted to sell the business to
his nephew, John. The consideration was a promise by John to pay
Peter £6 10s a week for as long as he lived and if Peter’s wife survived
him, to pay her £5 a week for as long as she lived. Peter died and John
paid Peter’s widow a sum of £5 and then refused to pay her anymore.
The widow sued John for the arrears and for specific performance of the
contract. She sued in two capacities, (1) as administrator of Peter’s
estate, and (2) in her personal capacity.
The Court of Appeal unanimously held that the widow was entitled to an
order of specific performance (and did not allow a claim for damages) as
 administratix. By a 2:1 majority it was held that she could succeed in her
personal capacity under S.56(1) Law of Property Act 1925. Lord Denning
MR was of the opinion that S.56(1) had effectively destroyed the doctrine
of privity.
The House of Lords argued that as administratix, the widow could obtain
specific performance. This would not be an exception to privity.
However, the widow could not succeed in her personal capacity. The
majority of the House said that S.56(1) was merely a consolidating
provision and therefore, lacks the power to abolish such a long
established principle of privity of contract. The House also feels that
S.56(1) was confined to covenants relating to land and does not diminish
the doctrine of privity in the field of general contract law.
 Jackson v Horizon Holidays (1975)
The plaintiff entered into a contract with the defendant under which
the defendant promised the plaintiff and his family a holiday of a
certain standard. The defendant admitted that they were in breach
of contract.
The plaintiff was awarded damages of £1,100, which included £500
for ‘mental distress’. The defendant appealed alleging that the
damages awarded were excessive.
The majority of the Court of Appeal upheld the award on orthodox
grounds by holding that the plaintiff had simply been compensated
for his own loss. His loss had been increased because he
witnessed the distress suffered by his family.
Lord Denning MR took a different view in that the £500 was
excessive if it was awarded on the basis of the plaintiff’s own
“increased” loss. However, his lordship upheld the award on the
grounds that the plaintiff could recover damages on behalf of his
family and not just on behalf of himself.
The view of Lord Denning MR was disapproved by the House of
Lords in Woodar Investment Development v Wimpey
Construction
 Woodar Investment Development v Wimpey Construction (1980)
Their lordships took the opportunity to voice their disapproval of the
Lord Denning’s judgment in Jackson but applauded the result of
the case. The House justified it on the grounds that damages
awarded did, in fact, reflect the loss in which the plaintiff in Jackson
had suffered.
Lord Wilberforce did not shut the door completely on Lord
Denning’s proposition but left it ajar. It would be applicable in
situations where the contract is of such a nature i.e. family holidays,
ordering meals in restaurants and other calls for “special
treatment.”
The circumstances where the promisee can sue for damages are
in the following:
(1) Multiple Bookings
This is as discussed in Jackson above and also Woodar v
Wimpey
(2) Seller contracts with carrier to take buyer’s goods for delivery
The Albazero (1977), the House of Lords recognized that
when a seller and carrier contract in contemplation of a
second contract with the buyer, the seller can recover
substantial damages on behalf of the buyer where the goods
were lost or damaged.
(3) Contracts where the subject matter will be acquired by a third
party
The principle above was extended to cover this situation in
the case of Linden Garden Trusts v Lenesta Sludge
(1993). In this House of Lords decision, the court held that,
provided certain conditions were met, the original employer
under a building contract could claim substantial damages
from the contractor for defects, even if he had sold the
building at full value and is under no liability for repairs. It
was not open to the contractor to argue that, because the
employer had suffered no actual loss, the employer's
entitlement was limited to nominal damages.
Alfred McAlpine Construction Limited v Panatown
Limited (2000)
β Panatown engaged McAlpine to design and build an
office block and multi storey car park. On completion,
Panatown alleged defective performance of the
building contract and served notice of termination on
the contractor. The actual site owner and effective
developer was an associated company of Panatown,
Unex, which had the benefit of a duty of care
warranty. Unex had used Panatown as developer to
maximise tax benefits which were available. It was
never intended that Panatown have any lasting
interest in the development. McAlpine argued
Panatown could only recover nominal losses, not
being the site owner
β The House of Lords decided there was a presumption
that a party to a contract could not sue without
showing loss. However, an employer could claim
and recover substantial damages from a builder for
defects in a building occupied by a third party only if
the third party, which had suffered the loss, had no
direct remedy against the contractor.
β If there was a collateral warranty or, for instance,
rights under the Contracts (Rights of Third Parties)
Act 1999, the claim would be nominal. As Unex had
 the benefit of a warranty, unlike the third party in
Linden, the earlier case was distinguishable. On the
issue of Panatown suffered its own loss, the House of
Lords was divided. Lords Goff and Millett held for
Panatown, while the majority did not.
β Although they divided three to two on the means, their
Lordships all agreed that, in one way or another, a
solution to this "black hole" could in principle be
found. It was only on the particular facts that, in the
view of the majority, the promisee in the case before
them was left, effectively, with no substantial rights of
recourse!
β Thus it would appear that in general, where a
contractor gives a warranty to a building owner that
building contract work will be carried out with due skill
and care, for the purpose of giving the owner a direct
right to sue the contractor in the event of loss, the
employer will have no right against the contractor in
relation to the same loss.