Question 8 2017 Zone A

„The Contracts (Rights of Third Parties) Act 1999 made a fundamental change to
English Contract Law.‟ (E McKendrick)

Discuss to what extent the above statement is true and whether any change made has
improved the law.

Answer Guideline

 The doctrine of privity of contract has been a long established and controversial
principle of English law.
 In common law Doctrine of Privity means that a contract can not as a general
rule, confer rights or impose obligations arising under it on any person except the
parties to it.
 The doctrine was a compound of two general rules:
(1) The first one was that the third party does not take burden where he was not
a contracted party.
(2) Secondly, a person would not be able to sue on the contract to which he was
not a party obtaining the performance promised even in the case where the
contract was entered into with the very object of benefiting him.
 Before the arrival of Contracts Rights of Third Party Act 1999, the Court used to
follow a very strict approach as to third parties in contract.

Problematic Cases Prior to Contract (Rights of Third Party) Act 1999

 Prior to the 1999 Act, many unjust outcomes were given by the Courts where
third parties could not sue under a contract even where it had been created for
their benefit
 Beswick v Beswick (1968)
Peter Beswick (PB) was in poor health and agreed with the defendant, his
nephew, that he would transfer the trade and good will of his coal
business to him on the basis that the nephew employed him as a
consultant for the rest of his life and paid him for this.
The nephew also agreed to pay PBs wife after PB died for the rest of her
life. She was not a party to the agreement.
Upon the death of PB, the nephew paid PB‟s wife once but then not again.
PBs widow brought an action as administrator of PB‟s estate and also in
her personal capacity claiming for specific performance.
Issues to be addressed:
(1) Whether the widow, as an administrator to PB‟s estate, could claim for
an order of specific performance for PB‟s nephew to honour his
agreement.
 (2) It was also important to see how the court weighed this claim alongside
her claim on a personal level, which that she could claim as a party to
the contract between her late husband and nephew.
The court granted the widow an order of specific performance for the
payment owed by PB‟s nephew as an administrator to her husband‟s
estate
However, the court found that PB‟s widow could not claim under her
personal capacity as she was a third party to the contract and was not a
party to the original agreement.
Lord Denning in Court of Appeal:
Where a contract is made for the benefit of a third person who has a legitimate interest to
enforce it, it can be enforced by the third person in the name of the contracting party or
jointly with him or, if he refuses to join, by adding him as a defendant. In that sense and it
is a very real sense, the third person has a right arising by way of contract.
The House of Lords disagreed with Lord Denning in the Court of Appeal,
that the law allowed third parties to sue to enforce benefits under a
contract. However, they held that Mrs Beswick in her capacity as Mr
Beswick's administratrix could enforce the nephew's promise to pay Mrs
Beswick an annuity
Lord Reid in House of Lords:
For clarity I think it best to begin by considering a simple case where, in consideration of
a sale by A to B, B agrees to pay the price of £1,000 to a third party X. Then the first
question appears to me to be whether the parties intended that X should receive the
money simply as A's nominee so that he would hold the money for behoof of A and be
accountable to him for it, or whether the parties intended that X should receive the money
for his own behoof and be entitled to keep it. …… Where the intention was that X should
keep the £1,000 as his own, what is the nature of B's obligation and who is entitled to
enforce it? It was not argued that the law of England regards B's obligation as a nullity,
and I have not observed in any of the authorities any suggestion that it would be a nullity.
There may have been a time when the existence of a right depended on whether there
was any means of enforcing it, but today the law would be sadly deficient if one found
that, although there is a right, the law provides no means for enforcing it. So this
obligation of B must be enforceable either by X or by A.
 Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board (1949)
Denning LJ had already tried to dispose of the English doctrine of privity in
this case.
He had said:
A man who makes a deliberate promise which is intended to be binding, that is to say,
under seal, or for good consideration, must keep his promise; and the court will hold him
to it, not only at the suit of the party who gave the consideration but also at the suit of one
who was not a party to the contract, provided that it was made for his benefit and that he
has a sufficient interest to entitle him to enforce it, subject always, of course, to any
defences that may be open on the merits.
 Lord Denning‟s attempt to destroy privity of contract arises from Law of Property
Act 1925

Analysis of Lord Denning’s attempt

Section 5 of the Real Property Act, 1845
"That, under an indenture, executed after October 1, 1845, an immediate estate or
interest, in any tenements or hereditaments, and the benefit of a condition or covenant,
respecting any tenements or hereditaments, may be taken, although the taker thereof be
not named a party to the same indenture. ..."
Section 56 of Law of Property Act 1925 (repealed the above act)
"A person may take an immediate or other interest in land or other property, or the benefit
of any condition, right of entry covenant or agreement over or respecting land or other
property, although he may not be named as a party to the conveyance or other
instrument: ..."
If the matter stopped there it would not be difficult to hold that section 56
does not substantially extend or alter the provisions of section 5 of the Act
of 1845. But more difficulty is introduced by the definition section of the
Act of 1925
Section 205 of Law of Property Act 1925:
In this Act unless the context otherwise requires, the following expressions have the
meanings hereby assigned to them respectively, that is to say:- ... (xx) 'Property' includes
any thing in action, and any interest in real or personal property."
LJ Denning stated his view that a third person can sue on a contract to which he is
not a party, referring to section 56 as a clear statutory recognition of this principle
Lord Reid in House of Lords:
I can now return to consider the meaning and scope of section 56. It refers to any
"agreement over or respecting land or other property." If "land or other property" means
the same thing as "tenements or hereditaments" in the Act of 1845 then this section
simply continues the law as it was before the Act of 1925 was passed, for I do not think
that the other differences in phraseology can be regarded as making any substantial
change.

 Tweedle v Atkinson (1861)

The son and daughter of the parties involved in this dispute were getting
married.
As such, the father of the groom and father of the bride entered into an
agreement that they would both pay sums of money to the couple.
Unfortunately, the father of the bride died before he paid the money to the
couple and the father of the son died before he could sue on the
agreement between the parties.
As a result of this, the groom brought a claim against the executor of the
will for the payment that was previously agreed between the fathers.
 The primary issue for the court was whether or not the son could, as a
third party to the agreement, enforce the contract between the fathers,
which was ultimately for the benefit of him and his wife.
The groom‟s claim was rejected by the court. It was held that the groom
was not a part of the agreement between the fathers and he did not
provide any consideration for the promise made by the father of the bride.
Also, as a stranger to the contract, the son could not enforce it. On this
basis, the court found in favour for the executor of the will.
 Dunlop v Selfridge (1915)
Dunlop was a tire manufacturer who agreed with their dealer to not sell the
tires below a recommended retail price (RRP).
As part of the agreement, Dunlop also required their dealers to gain the
same agreement with their retailers, who in this instance was Selfridge.
The agreement held that if tires were sold below the RRP, they would be
required to pay £5 per tire in damages to Dunlop.
This was agreed between the dealer and Selfridges, which effectively
made Dunlop a third-party to that agreement.
Sometime after this, Selfridge sold the tires below the agreed price and
Dunlop sued for damages and an injunction to prevent them from
continuing this activity.
The court held in a unanimous decision that Dunlop could not claim for
damages in the circumstances.
The court found that firstly, only a party to a contract can claim upon it.
Secondly, Dunlop had not given any consideration to Selfridge and
therefore there could be no binding contract between the parties.
 Tweddle and Dunlop both demonstrate that there is close relationship between
the doctrines of privity and that the consideration must move from the promisee.
 On one view there is no difference between them since both are pointed at the
same direction
 On another view privity and consideration are two separate rules. They are not
linked with each other. Lord Dunedin expressed in Dunlop v Selfridge:
“……..my Lords, I confess that this case is to my mind apt to nip any budding affection which one
might have had for the doctrine of consideration .for the effect of the doctrine in the present case
is to make it possible for a person to snap his fingers at a bargain deliberately made, a bargain
not in itself unfair, and which the person seeking to enforce it has a legitimate interest to
enforce……”.
 The more widely accepted view was expressed by Viscount Haleden in Dunlop
namely that the doctrine of privity is separate and distinct from the rule that
consideration must move from the promisee.
 Beside the consideration problem the doctrine consisted with the following
problems for which the doctrine seemed unjust and inconvenience:
(1) The foremost problem of privity doctrine is the failure to honor the
intention of the parties.
 For instance in Tweddle v Atkinson the doctrine of privity impeded
the contracting parties‟ intention.
The agreement was frustrated by the doctrine of privity.
(2) The ways by which the court tried to divert the doctrine of privity were
found complex, artificial and also they raised the doubt as to whether a
third party is in particular case could circumvent the doctrine.
The privy council‟s view on the case of New Zealand Shipping
company ltd v A.M. Satterthwait & Co. Ltd. (the Eurymedon)
demonstrated that the unnecessary complexities which could
came out in case of diversion of the doctrine and giving effect to
the parties‟ intension.
(3) The person who has suffered loss cannot sue but the person having no
loss can sue.
In Beswick v Beswick the widow had suffered actual loss. She
could not sue in her personal capacity but the estate had the right
to sue without having suffered any loss.
The same position can be observed in Dunlop v selfridge. Dunlop
suffered loss but could not sue selfridge while dew had not
suffered loss but have had the right to sue selfridge.
(4) The law commission pointed out the injustice that could be suffered by
the third party when he regulated his affairs with exceptions that he
would be beneficial from the promise of the promisor on which he was
relying.
 It should be noted that in the 17th century, a third party was allowed to enforce
terms of a contract that benefited him, as shown in Provender v Wood (1627) ,
 Provender v Wood (1627)
The judgement stated:
that "the party to whom the benefit of a promise accrews, may bring his action".
 The first reversal of this law in Bourne v Mason (1669) where the Court of King's
Bench found that a third party had no rights to enforce a contract that benefited
him.
 This ruling was quickly reversed, and decisions immediately after used the
original rule.
 Over the next 200 years, different judges provided different decisions as to
whether or not a third party could enforce a contract that benefited them.
 The dispute ended in 1861 with Tweddle v Atkinson (1861) which confirmed that
a third party could not enforce a contract that benefited him.
 This decision was affirmed by the House of Lords in Dunlop Pneumatic Tyre v
Selfridge and Co Ltd (1915) in 1915, where Lord Haldane stated that only a
person who was party to a contract could sue on it.
 This version of the doctrine is commonly known as the original or basic doctrine

Contracts (Rights of Third Party) Act 1999

 Law revision committee in 1937 recommended that:

“Where a contract by express terms purports to confer a benefit on a third party it shall be
enforceable by the third party in his own name subject to any defences……”
  The judges were very fed up and Lord Wilberforce in Wooder v Wimpey said that
if the parliament does not act soon the court will be forced to.
 The bill was introduced to the House of Lords in December 1998, and moved to
the House of Commons on 14 June 1999. It received the Royal Assent on 11
November 1999, coming into force immediately as the Contracts (Rights of Third
Parties) Act 1999.
 Section 1 of the act stated that:
—(1) Subject to the provisions of this Act, a person who is not a party Right of third to a contract (a
“third party”) may in his own right enforce a term of the party to enforce contractual term.
contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that
the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a
class or as answering a particular description but need not be in existence when the
contract is entered into.
 Section 1 of the act overrides the old common law rule that a third party could not
enforce the terms of a contract
 It allows a third party to enforce terms of a contract in one of two situations:
firstly if the third party is specifically mentioned in the contract as someone
authorised to do so, and secondly if the contract "purports to confer a benefit" on
him

Section 1(1)(b)

 The second situation, that a third party can enforce terms that "purport to confer
a benefit on him", has been described by Meryll Dean as too broad, and one view
put forward in the parliamentary debates was that it was "un-workable" in
situations such as complex construction contracts involving dozens of sub-
contractors with chains of contracts among them (Dean, 2000)
 The phrase "purport to confer a benefit" was originally found in the 1937 Law
Commission paper, and was used in the New Zealand Contracts (Privity) Act
1982 before it was adopted for the English act.
 In case of section 1(b) if the problem occurs when the contracting parties do not
make their intention express and the contract term purports to give a benefit on
the third party then the third party may be given the right to enforce the term but
that right is subject to limitation imposed by section 1(2) which provides that the
right of action is not triggered where it appears that on an actual construction of
the contract the parties‟ intension was not to made the contract enforceable by
third party.
 Regarding the onus of the promisor to prove the wrong application of the second
rule under Section1(1)(b) ,Guenter Treitel argued that in a situation where the
promisor felt that the second rule had been wrongly applied by a statement in the
contract, the onus would be on him to prove i
 Nisshin Shipping Co v Cleaves (2003)
Cleaves negotiated nine time charters on behalf of Nisshin. The contract
between Cleaves and Nisshin stated that Cleaves was to receive a
 commission as a broker and contained an arbitration clause which was
wide enough to entitle a claim by the charterers against the owners for
failing to pay the promised commission.
After Nisshan refused to pay the commission to Cleaves, the matter went
to arbitration.
Nisshin claimed that Cleaves had repudiated the contract by having an
interest with one of Nisshan‟s competitors, taking this as a termination of
contract and cancellation of any entitled commission.
The issue was whether the commission clauses conferred a benefit on the
part of the brokers and whether the parties intended the commission
clause to be enforceable by the brokers under s 1 of the Contracts
(Rights of Third Parties) Act 1999 (the Act).
Nisshin's application was dismissed.
The commission clauses were for the purposes of conferring a benefit on
Cleaves, namely an entitlement to a commission as a broker. It was held
that s 1(2) of the Act did not provide that s 1(b) did not also apply if s
1(2) applied to the wording of the contract, unless under the construction
of the contract it was clear that the parties intended for the benefit of a
commission to be enforceable by a third party.
This was said to only be determined by having regard for all the relevant
circumstances at the time. The charter parties were neutral in that they did
not express any intention not to allow the brokers to claim a commission.
Thus, Cleaves were entitled to claim a commission in its own right under s
1 of the Act.

 Prudential Assurance Co Ltd v Ayres (2007)

The High Court was concerned with the application of the Contracts
(Rights of Third Parties) Act 1999.
The case is important as it provides a means to determine whether or not
s.1(1)(b) of the 1999 Act can be applied to a particular contract.
If on a true construction of the term, if the contract purports to confer a
benefit upon a third party, the third party can enforce that term in their own
right.
The 1999 Act does not require that the sole purpose of the term be to
confer a benefit upon the third party; in addition it is possible for a term to
confer an enforceable benefit upon a third party and some other party.
 Avraamides v Colwill (2006)
Avraamides contracted Bathroom Trading Company (BTC) to complete
two bathroom refurbishments.
BTC was later sold to Colwill. Under the contract for sale, there was a
term that stipulated that any prior or outstanding bathroom orders would
completed by BTC.
The bathrooms were not completed to a satisfactory standard, so
Avraamides brought action against Colwill (as the transfer had occurred
by this stage).
 Colwill relied on the transfer agreement between themselves and BTC,
claiming that all liability passed to BTC.
The appeal was allowed for Colwill under s 1(3) of the Contracts (Rights
of Third Parties) Act 1999.
The contract did not mention the third party by name or class and that it
was a requirement for a third party to be expressly identified in the
contract by name.
It was not sufficient to rely on an inference as the use of the term
“express” within the section clearly meant that there must be a name
referred to within the contract.
The original agreement between Avraamides and BTC did not identify a
third party, even though both parties fought the appeal on the basis that
there was a clear inference of a third party, given the fact that there was a
transfer agreement between BTC and Colwill. The wording of the statute
was upheld.
Therefore, Avraamides claim did not succeed.
 Cavanagh and others v Secretary of State for Work and Pensions (2016)
The first and second claimant employees were, it was assumed for
present purposes, employed by the defendant employer under civil service
terms and conditions and various collective agreements.
Under “check-off arrangements” in the employer‟s deductions from pay
policy, the employees had opted for their subscriptions to the third
claimant trade union to be paid by deduction from their salary and paid by
the employer to the union. Latterly the check-off arrangements had been
included in the employer‟s salary policy published on the staff intranet.
When the employer ended the check-off arrangements, the claimants
brought a claim against it, contending that the employees had a
contractual right to insist that the employer continue with the arrangement
enforceable by the trade union under the Contracts (Rights of Third
Parties) Act 1999.
The Queen's Bench Division held that the first and second claimant
employees, having opted to have their subscriptions to the third claimant
union deducted from their salary and paid by the defendant Secretary of
State to the union, had a contractual right to insist that he continued with
that arrangement. Further, the union could enforce that right under the
Contracts (Rights of Third Party) Act 1999
2019 Zone B Question 3

„In deciding whether an agreement is said to evidence an intention to create legal

relations the court often refers to so-called presumptions. However this approach can
be difficult to apply in borderline cases.‟

Answer Guideline

 Contract is an agreement between two or more parties intended to have legal

consequences and supported by consideration
 The requirement of intention to create legal relations in contract law is aimed at sifting
out cases which are not really appropriate for court action.
 Not every agreement leads to a binding contract which can be enforced through the
courts.
 Lord Stowell in Dalrymple v Dalrymple (1811) stated that:
“(Contracts) must not be the sports of an idle hour,mere matters of pleasantry and badinage, never
intended by the parties to haveany serious effect whatever”
 The requirement of ITCLR is one of the most unique requirement in Contract Law
since the rules here are presumed prime facie before the actual analysis of the
facts.
 The presumption works in 2 ways:
(1) Domestic Agreement: There is no ITCLR + subject to rebuttal
(2) Commercial Agreement: There is ITCLR + Subject to rebuttal
 The rule works fine is most of the cases; however, certain borderline cases have
shown difficulty in applying this rule.

Domestic/Social Agreement

 Balfour v Balfour (1919)

Mr Balfour was a civil engineer, and worked in Ceylon (now Sri Lanka).
Mrs Balfour was living with him.
In 1915, they both came back to England during Mr Balfour's leave. But
Mrs Balfour had developed rheumatic arthritis.
Her doctor advised her to stay in England, because the Ceylon climate
would be detrimental to her health. Mr Balfour's boat was about to set sail,
and he orally promised her £30 a month until she came back to Ceylon.
They drifted apart, and Mr Balfour wrote saying it was better that they
remain apart. In March 1918, Mrs Balfour sued him to keep up with the
monthly £30 payments.
 Held:
 Warrington LJ:
All I can say is that there is no such contract here. These two people never
intended to make a bargain which could be enforced in law. The husband
expressed his intention to make this payment, and he promised to make it, and
was bound in honour to continue it so long as he was in a position to do so. The
wife on the other hand, so far as I can see, made no bargain at all.
 Duke LJ
The parties were husband and wife, and subject to all the conditions, in point of
law, involved in that relationship. It is impossible to say that where the
relationship of husband and wife exists, and promises are exchanged, they must
be deemed to be promises of a contractual nature. In order to establish a
contract there ought to be something more than mere mutual promises having
regard to the domestic relations of the parties
 Duke LJ has also stated that the promise here will not be
enforceable due to absence of consideration

 Merritt v Merrit
Mr Merritt and his wife jointly owned a house. Mr Merritt left to live with
another woman.
They made an agreement (signed) that Mr Merritt would pay Mrs Merritt a
£40 monthly sum, and eventually transfer the house to her, if Mrs Merritt
kept up the monthly mortgage payments.
When the mortgage was paid Mr Merritt refused to transfer the house.
Lord Denning MR:
Counsel for the husband sought to say that this agreement was uncertain because of the
arrangement for £40 a month maintenance. That is obviously untenable. Next he said
that there was no consideration for the agreement. That point is no good. The wife paid
the outstanding amount to the building society. That was ample consideration. It is true
that the husband paid her £40 a month which she may have used to pay the building
society. But still her act in paying was good consideration

 Clear principles have been established in both the cases above.

(1) Domestic Contracts – Presumption of no ITCLR
(2) Rebuttal:
(i) Parties must have intended the agreement to be contractual than
personal
(ii) Parties should have given consideration
 Jones v Padavatton
A mother, Mrs Violet Lalgee Jones, agreed with her daughter, Mrs Ruby Padavatton,
that if she would give up her secretary job and study for the bar in England, the
mother would pay maintenance. Then they had a quarrel while Mrs Padavatton was
still completing her bar exams at Lincoln's Inn. The mother brought an action for
 possession of the house. The daughter argued there was a binding contract that she
could stay.
Held
 The Court held that there was no binding contract.
 There was insufficient evidence to rebut the presumption against domestic
arrangements.
 The Court of Appeal stated that the agreement would last until the daughter
had passed her Bar finals; yet 5 years had elapsed and she had still not
passed them, therefore the contract had elapsed.

 Granatino v Radmacher (2010)

A French investment banker married a very wealthy German national.
Prior to the marriage, at the request of the wife‟s family, a prenuptial
agreement was signed by both parties.
The agreement stated that neither party would benefit from the property of
the other on divorce.
The decision to get a prenup was instigated by Ms Radmacher after her
father insisted that her inheritance be formally protected. Ms Radmacher
was adamant that this prenup was proof that the pair was marrying for
love, not money
They had two children but divorced after nine years and the husband
claimed ancillary relief against the wife‟s assets.
The husband contended he should not be bound by the terms of the
agreement because he was nowhere near as wealthy as the wife, and he
had not sought independent legal advice.
He argued anti-nuptial agreements are contrary to public policy
under because the financially weaker party is inevitably under pressure to
sign, they exclude the jurisdiction of the court which is unfair, and if they
are to be accorded validity, it should be a matter for parliament to legislate
to provide for their validity.
The wife argued there was no legislation prohibiting such agreements, and
parties should be free to agree between themselves how their assets are
to be held. The husband entered the agreement of his own free will and
should be bound by its terms.
Held:
 The Pre-nuptial agreement was valid.
 If freely entered into, with all information available to both parties
and in the absence of pressure, such agreements should be
upheld, unless it would be unfair to do so.