#16753 - Privity Pq Notes - Contract Law

Two alternative ways T has a direct contractual claim:

1. s.1(1)(a) + s.1(3), or

2. s.1(1)(b) + s.1(2) + s.1(3)

If (ii), apply the statute as understood in Nisshin Shipping v Cleaves:

1. Stage 1 of analysis: if A and B purports to confer on T a benefit, T has prima facie a direct right of action against A;

2. Stage 2 of analysis: to rebut this presumption,

   1. A and B must show that on the proper construction of the contract they did not intend terms to be enforceable by T, or

   2. if it was inconsistent with the contract, or

   3. if there is a chain of contracts under which T has the right to sue someone else for the breach of the promisor’s obligation

Section 1(1)(b) does not apply to incidental beneficiaries – only direct beneficiaries: Dolphin Maritime v Sveriges Angfartygs Assurans Forening (2009). Facts: A was obligated to pay money to B through T, who was acting as B’s agent. T sought to enforce payment from A so that it could pass the money to B after deducting its commission. Verdict: Unsuccessful. T was solely acting as a conduit through which money would be transferred from A to B. There was no intent that T should be directly benefitted under the contract. Further, at stage 2 of the limb 2 test, it was not shown that A and B had truly intended that T should have a direct right of action against A.

This is to be applied strictly, T has to fit at least one of the three categories: Avraamides v Colwill (2006)

There is no requirement in the 1999 Act that a third party who is entitled to the benefit of a contract is aware of the contract at the time it is made or at any particular time after that. This was confirmed in Chudley v Clydesdale Bank Plc (2019), where the third party, who succeeded under the 1999 Act, did not know about the contract when it was made.

1. Specific performance

The Act creates an exception to the general maxim of Equity that specific performance can only be awarded in favour of someone who has provided consideration. The Act states that T can obtain specific performance. However, B must have furnished consideration and debts and damages must be insufficient to protect T.

2. Damages

T can claim not just for “reliance-loss” but also “expectation interest” (financial or material gain that would have been achieved if the promisor had not breached his contract)

A and B jointly own the contract as they are the contracting parties. It is therefore in their interests to identify the point at which they last enjoyed freedom of contract to extinguish or enforce it. It is T’s interests to rapidly obtain an irrevocable right. The question here is when T would be held to obtain such a right.

Therefore, there are two ‘cut-off’ points at which the parties will have lost the capacity to vary or extinguish T’s rights (ie. T’s right has become irrevocable).

1. T has communicated assent to the term to A.

Elaborated on in s. 2(2): By words/conduct, or if it is sent to A by post or other means, it is not regarded as communicated to A until received by him

2. T has relied on A’s promise and A either knew that it had occurred or it was reasonably foreseeable by A.

However, T will not have the benefit of either cut-off point if

1. A decides to terminate the contract following B’s breach

2. A rescinds the contract following B’s misrepresentation, undue influence, non-disclosure

3. The contract is terminated by a frustrating event

4. The contract or a part of it, ceases to operate, or is suspended, in accordance with the force majeure clause

If A is sued by T, A can raise against T any ‘defence or set-off’ or ‘counter-claim’ pertaining as between A and T directly. For example, if the contract provides that A should pay T 1m, but in a separate transaction T had incurred a debt to A of 100,000, satisfaction of T’s claim against A under the Act will be reduced to take this into account (by way of set-off). This right connects A and T.

T’s right of action is subject to the same rights of defence or set-off that A would enjoy if A had instead been sued by B under the same contract (unless the contract provides otherwise). This right connects A and B.

PQ Scenarios:

• If B makes a misrepresentation which entitles A to rescind the contract, and T sues A under the Act, A can raise against T the defence of rescission – Section 3(2)

• If A promised to pay 1000 to T if B first pays 5000 to T, B has defaulted, and T then sues A under the Act, A can raise the defence that B’s performance is a condition precedent to A’s duty to pay – Section 3(2)

• If A promised B to pay 2m to T, but B had incurred a debt to A under the same contract, A can set-off the 1m owed by B to A when T asks A to pay T the 2m – Section 3(2)

Note: Per s. 3(3), A and B can expressly stipulate that A can enjoy any defence against T’s action, that A would have vis-à-vis B, meaning that the scope of set-off available to A is expanded so as to cover all sums owed by B to A, even if the relevant liability arose outside and independently of the A/B/T transaction.

S.5 prevents A from being at risk of ‘double jeopardy’ for the same loss – liability to B at common law and liability to T in a claim brought under the 1999...