A Birthday Present for Lord Denning: The Contracts (Rights of Third Parties) Act 1999

Date01 September 2000
Publication Date01 September 2000
AuthorCatharine MacMillan
A Birthday Present for Lord Denning: The Contracts
Catharine MacMillan*
The new century brings a new approach to the privity rule in English contract law.
The Contracts (Rights of Third Parties) Act 1999 received royal assent on 11
November 1999 and came into force on 11 May 2000.1The Act, with some
modifications, implements the changes recommended in the Law Commission’s
1996 Report.2Legislative change of the privity rule has taken a long time and
follows decades of judicial and academic criticism.3When the Contracts ( Rights
of Third Parties) Bill was read for a second time in the House of Lords,4Lord
Meston offered it to Lord Denning as a hundredth birthday present. The Act befits
the late Lord Denning, for it was he who consistently questioned the existence of
the privity rule in English contract law.5According to his analysis, the common
law recognised the right of a person to sue upon a contract where the person was
not a party to the contract, provided that the contract was made expressly for the
benefit of the third person and that it was intended to be enforceable by the third
person.6The Act now allows what Lord Denning considered possible over half a
century ago. While the birthday present is not quite the right size (the Act does not
abolish the privity rule but merely reforms it in certain circumstances) it would
have suited Lord Denning’s purposes in a number of contract cases.
A few examples from past cases serve to illustrate this point. In the case of
Beswick vBeswick,7there would have been no need to resort to allowing the
ßThe Modern Law Review Limited 2000 (MLR 63:5, September). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA. 721
* Faculty of Laws, Queen Mary and Westfield College. I am grateful to my colleague, Mr Ian Yeats, for
his helpful comments on an earlier draft of this piece. All errors are my own.
1 Except where a contract entered into after the Act was passed but before 11 May 2000 expressly
provided for the application of the Act: s 10(3). Unless otherwise indicated, all section references
below are to this Act.
2Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242 Cm 3329 July 1996)
hereinafter referred to as ‘the Report’. For discussions of the Law Commission’s recommendations,
see John N. Adams, Deryck Beyleveld, and Roger Brownsword ‘Privity of Contract – the Benefits
and the Burdens of Law Reform’ (1997) 60 MLR 238; Andrew Burrows, ‘Reforming privity of
contract: Law Commission Report No 242’ [1996] LMCLQ 467; and Peter Kincaid ‘Privity and
Private Justice in Contract’ (1997) 12 JCL 47.
3 Judicial criticism of the rule can be found in paras 2.64 to 2.69 of the Report and The Mahkutai [1996]
3 WLR 1, 12. Reference to academic criticism can be found in footnote 163 to para 2.63 of the
4 HL Deb vol 596 col 20–33 11 January 1999.
5Smith and Snipes Hall Farm LD vRiver Douglas Catchment Board [1949] 2 KB 500, 514; Drive
Yourself Hire Co vStrutt [1954] 1 QB 250, 272; Scruttons Ltd vMidland Silicones Ltd [1962] AC
446, 483; Beswick vBeswick [1966] Ch 538, 557.
6Drive Yourself Hire Co vStrutt [1954] 1 QB 250, 272. For discussion of the issue of the existence or
non-existence of the privity rule at common law, see Robert Flannigan, ‘Privity – The end of an era
(error)’ (1987) 103 LQR 564.
7 n 5 above.
widow’s claim to specific performance in her capacity as adminstratrix of her
husband’s estate. The contract between the nephew and the husband included a
term which was intended to benefit Mrs Beswick. Pursuant to the new Act, she
would have had the ability to enforce the term in her own right as a third party
beneficiary.8In Morris vC.W. Martin & Sons Ltd,9Mrs Morris contracted with a
furrier, Beder, to clean her fur. Beder, with Mrs Morris’s consent, sub-contracted
with Martin to clean the fur. Martin’s employee stole the fur. Mrs Morris’s claim
against Martin was allowed in bailment: as sub-bailees for reward, Martin owed the
owner of the fur the duty to take reasonable care of the fur and not to convert it.
Under the new Act no recourse to bailment would be required. It is likely that Mrs
Morris could have sued in her own right on the contract between Beder and Martin
on the grounds that she was the intended beneficiary of a term to take care of the
fur in their contract.10 Under section 3 Martin, in turn, could have defended itself
with the relevant exclusion clause in their agreement with Beder. In Smith and
Snipes Hall Farm LD vRiver Douglas Catchment Board,11 the agreement between
the Catchment Board and the landowners was made with the intent that the terms
for the construction of the river banks would be enforced by successive owners. As
such, these successive owners would have been able to enforce the terms in their
own right, regardless of whether they were in existence when the agreement was
first made.12 More problematic is the decision in Scruttons Ltd vMidland Silicones
Ltd.13 Here, the relevant contract was the bill of lading which contained a
limitation of liability clause. The contract was initially between the shipper and the
carrier; after the sale of the goods it was between the shipper and the consignee. In
order for the new Act to have allowed the stevedores to avail themselves of the
limitation clause in this contract, the contract would have needed to contain a term
which purported to benefit them (s 1(1)(b), (2) & (6)). It is by no means clear that it
did. The Law Lords, including Lord Denning, did not believe that the bill of lading
was intended to protect the stevedores.14 However, the Law Lords were
considering a different issue: whether the carriers had acted as agents of the
stevedores and not whether the contract extended an enforceable benefit to the
stevedores. The bill of lading did seek to allow a bailee of the goods to avail
himself of the limitation of liability and on this basis it is at least arguable that the
new Act would have allowed the stevedores to raise the limitation of liability in
their defence.15 This last example serves to illustrate that difficult cases are bound
to arise even after the new Act.
8 s 1(1)(b), (3) & (5). The contract can be found in [1966] Ch 538, 549–550.
10 The decision does not record the complete terms of the agreement between Beder and Martin and the
author is thus speculating on the effect of the terms which probably appeared in the agreement.
11 n 5 above.
12 ibid 516. s 1(1)(b), (3) & (5).
13 n 5 above.
14 n 5 above Viscount Simonds 466–467, Lord Reid 474, and Lord Denning 488: ‘the bill of lading is
not expressed so as to protect the stevedores but only the ‘‘carriers’’’.
15 See clause 4 of the long form of bill of lading, n 5 above 451. The effect of this clause, which sought
to extend ‘all rights, exemptions, immunities and limitations of liability provided by law and all terms
of this bill of lading’ to any carrier or bailee, does not seem to have been argued or considered in the
House of Lords. It is also possible that this clause is out of context with the remainder of the bill of
lading. If, on a proper construction of the contract, it appeared that the contracting parties did not
intend to confer a benefit upon the stevedores they would not have acquired a benefit by operation of
the Act: s 1(2).
The Modern Law Review [Vol. 63
722 ßThe Modern Law Review Limited 2000

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