Privity of Contract – the Benefits and the Burdens of Law Reform

DOIhttp://doi.org/10.1111/1468-2230.00077
AuthorRoger Brownsword,John N. Adams,Deryck Beyleveld
Publication Date01 March 1997
Date01 March 1997
REPORTS
Privity of Contract –
the Benefits and the Burdens of Law Reform
John N. Adams, Deryck Beyleveld and Roger Brownsword*
Five years after the publication of its provisional recommendations in favour of
reforming the privity rule in English contract law,
1
the Law Commission
2
has
confirmed its view – and, indeed, the view of a considerable body of judicial
3
and
academic
4
opinion, as well as that of the vast majority of the Commission’s
consultees
5
– that the doctrine is ripe for reform. Thus, in its central
recommendation, the Commission proposes that third parties (subject to being
expressly identified) should have the right to enforce contractual provisions where
either (i) the contracting parties expressly so provide (the so-called ‘first limb’ of
the test of enforceability) or (ii) the contracting parties intend to confer a benefit on
the third party (the so-called ‘second limb’ of the test of enforceability) – provided
that the contracting parties do not also intend that the third party beneficiary should
not have the right to enforce the contract. So, to take a couple of familiar
illustrative examples, the first limb of the test of enforceability would apply to a
case such as Tweddle vAtkinson
6
(where the contracting parties expressly provided
for the third party to have the right to enforce the contract); and the second limb
would apply to a case such as that of Mrs Beswick,
7
who famously pleaded that her
nephew should not renege on his contractual promise made for her benefit. The
Report thus signals a decisive break from the orthodoxy of the privity doctrine
which, in the earlier part of the century, was identified by Viscount Haldane LC as
one of the fundamental principles of English contract law.
8
The Modern Law Review Limited 1997 (MLR 60:2, March). Published by Blackwell Publishers,
108 Cowley Road, Oxford OX4 1JF and 350 Main Street, Malden, MA 02148, USA.238
*Faculty of Law, University of Sheffield.
We are particularly grateful to Professor Andrew Burrows (Law Commission) and Professor Hugh Collins
who supplied detailed comments on earlier drafts of this paper and to our colleague, Professor Graham
Battersby, who gave freely of his time in acting as a sounding board for many of the ideas in it. We are
grateful too to those who participated in seminar presentations of the paper given at the Institute for
Commercial Law Studies at the University of Sheffield and at the University of Staffordshire. Of course,
the standard caveats apply.
1Privity of Contract: Contracts for the Benefit of Third Parties (Law Com Consultation Paper No
121, 1991).
2Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242 Cm 3329 July
1996) (hereafter, ‘the Report’).
3 The Report opens with Steyn LJ’s critical observations on the injustice of the privity principle in
Darlington Borough Council vWiltshier Northern Ltd. [1995] 1 WLR 68, 76 — particularly to the
effect that ‘there is no doctrinal, logical, or policy reason why the law should deny effectiveness to a
contract for the benefit of a third party where that is the expressed intention of the parties.’ For
further examples of judicial calls for reform, see paras 2.64–2.69 of the Report.
4 In para 2.63 (at note 163) of the Report, the Commission cites some 16 examples, starting with
Corbin (1930) 46 LQR 12. The majority of the academic calls for reform to English law, however,
lie in the last ten years (including our own initial calls in (1990) 10 Legal Studies 12 and (1991) 54
MLR 48).
5 See para 1.6 of the Report.
6 (1861) 1 B & S 393.
7 See Beswick vBeswick [1968] AC 58.
8Dunlop Pneumatic Tyre Co vSelfridge and Co Ltd. [1915] AC 847, 853.
The task of reforming such a discredited doctrine as privity, however, is far from
straightforward. It is one thing to condemn the doctrine as unfair and inconvenient,
but how is reform best effected? Essentially, there are two models as to how to
proceed.
9
According to the first model, in a climate that is no longer rigidly
formalistic,
10
reliance may be placed on the judiciary to relax orthodox privity
restrictions where they give rise to concern (so that a simple enabling provision –
for example, of the kind proposed by the Ontario Law Reform Commission
11
explicitly authorising the courts to exercise such a discretion is all that is required).
The Commission, however, prefers a second model, recommending (as in its
Consultation Paper) that a detailed legislative scheme is required. The practical
advantage of laying down a calculable legislative scheme for third party rights is
obvious; moreover, the Commission fears that it could be accused of ducking its
responsibilities if it left major questions of principle to be settled by the courts.
12
However, even in an ideal world, free of the pressure to deliver a politically
‘sellable’ package, the challenge, as Professor Andrew Burrows has put it, is the
familiar one of striking the right balance between the interests of certainty
(calculability) and flexibility (fairness in the individual case).
13
As might already
be apparent, the centrepiece of the proposed scheme, the test of enforceability, is
an heroic attempt to compromise the needs of contractors to be able to predict and
to plan with the need to reserve some degree of flexibility (conspicuously so in the
proviso to the second limb of the test).
Even if we agree that a detailed legislative scheme is the right way ahead, there
remain controversial questions about how far, and how fast, we should proceed.
For example, should the legislation make special provision for consumer
contractors along the lines currently being debated in the European Union?
14
Or,
should the legislation tackle the vexed question of whether sub-contract exclusions
or restrictions should bind a third-party head-contractor?
15
In both instances, the
Commission prefers to keep these questions at arm’s length and generally the
Commission favours a cautious approach, putting to one side ‘more radical
possibilities . .. for fear that the central reform would otherwise be endangered’
16
advancing instead a package of what it perceives to be ‘relatively conservative and
moderate measure[s]’
17
calculated to modify the privity doctrine in a way that will
9 A third model invites incremental relaxation of the rule in specific contexts — for example, as was
done with bills of lading (see the Bills of Lading Act 1855 and, subsequently, the Carriage of Goods
by Sea Act, 1992: and see the Report, paras 2.59 and 12.7–12.11). However, if the reform of privity
is to be of a general nature, the incremental model is not appropriate.
10 See, eg Johan Steyn, ‘Does Legal Formalism Hold Sway in England?’ (The 1996 Presidential
Lecture to the Bentham Club, University College, London); Robert Stevens, ‘Judges, Politics,
Politicians and the Confusing Role of the Judiciary’ (Hardwicke Building Lecture, London, 21 May
1996); and generally, see John Adams and Roger Brownsword, Understanding Law (London:
HarperCollins, 1992; Sweet and Maxwell, 1996) chs 4 and 5.
11 For discussion, see the Report paras 5.5–5.6.
12 See ibid para 5.6.
13 Professor Andrew Burrows, ‘Reforming Privity of Contract: Law Commission Report No. 242’
SPTL Annual Conference, Cambridge, 11 September 1996, especially 1 and 9.
14 See European Commission, Green Paper on Guarantees for Consumer Goods and After-Sales
Services, COM (93) 509 final, 1993; on which, see Stephen Weatherill, ‘Consumer Guarantees’ (1994)
110 LQR 545. Most recently, see the draft Directive on the Sale of Consumer Goods and Associated
Guarantees, COM (95) 520 final, 1996; on which, see Proposal for a European Parliament and
Council Directive on the Sale of Consumer Goods and Associated Guarantees: A Consultation
Document (Department of Trade and Industry, 18 September 1996). And, for discussion of whether
there should be a special test of enforceability for consumers, see the Report paras 7.54–7.56.
15 See eg Morris vC.W. Martin and Sons Ltd [1966] 1 QB 716; The Pioneer Container [1994] 2 All
ER 250 (noted by Phang (1995) 58 MLR 422); and see discussion in text below.
16 See the Report, para 1.9.
17 ibid para 5.10.
March 1997] Privity of Contract
The Modern Law Review Limited 1997 239

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