Privity of Contract … bite size

Only the actual parties to a contract can be sued or sue under the terms of the contract. Even where the contract is for the benefit of a third party, that third party can’t enforce the terms of the contract unless they were actually a party to the contract.

There are a lot of exceptions to the privity of contract rule including:

• Contracts (Rights of Third Parties) Act 1999 which can provide third parties with the ability to sue on the contract
• Agency situations where the agent is entering into the contract on behalf of the principal. The principal is the true party to the contract and can sue or be sued under the terms of the contract
• A third party can sue under a contract where the benefit of that contract has been assigned to them. This can be done without the permission of the other party to the contract.
• This is where the benefit and the burden of a contract can be assigned. Where a contract has been novated the third party can sue or be sued under the terms of the contract.
• Collateral contracts. This is when one party enters into a contract with another but based on the representation made by a third party. The courts can ‘find’ a collateral contract exists between the ‘buyer’ and the party making the representation.
• Constructive trusts. This is where the contracting party states that the benefit of the contract is held by them on trust for a third party. That third party will have the ability to sue under the terms of the contract.
• Restrictive covenants. This is where a promise between two neighbouring land owners can bind and be enforced by the successors in title to both properties.

Key cases:

Tweddle v Atkinson (1861)

Shanklin Pier Ltd v Detel Products (1951)

Tulk v Moxhay (1848)