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Privity and Consideration: (Coulls V Bagot's Executor & Trustee Co)

The document discusses the privity rule in contracts, which states that only the parties to a contract can enforce rights or incur liabilities under that contract. A third party who benefits from a contract but is not a party cannot sue to enforce any promises within it due to lack of consideration and privity. However, there are some exceptions where a third party may have rights against a contracting party, such as in cases of agency, trusts, or where statutes like insurance contracts provide for third party rights. Equitable doctrines like estoppel and unjust enrichment may also allow third parties to claim remedies in some situations.

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76 views

Privity and Consideration: (Coulls V Bagot's Executor & Trustee Co)

The document discusses the privity rule in contracts, which states that only the parties to a contract can enforce rights or incur liabilities under that contract. A third party who benefits from a contract but is not a party cannot sue to enforce any promises within it due to lack of consideration and privity. However, there are some exceptions where a third party may have rights against a contracting party, such as in cases of agency, trusts, or where statutes like insurance contracts provide for third party rights. Equitable doctrines like estoppel and unjust enrichment may also allow third parties to claim remedies in some situations.

Uploaded by

keira
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PRIVITY

 Privity Rule (Tweddle v Atkinson): Only the parties to the contract may
enforce or be bound to the contract. Only they can acquire rights and
liabilities under the contract
 A 3rd party who benefits from the contract but is not a party to the contract
has no rights or liabilities under the contract
 E.g. A promises B for consideration moving from B to pay C $100. A and B
are the parties to the contract (Privity to the contract). C is not a party to the
contract and can not sue A if A fails to pay C the sum of $100

Privity and Consideration 


 Consideration must move from the promisee, only person who has
provided consideration can enforce a promise
 In above example C did not provide consideration for A’s promise,
therefore can not sue A

Remedies 

 These are remedies that can be claimed by a promisor who has breached
his obligations to a 3rd party
 2 questions that need to be answer (in relation to above e.g.):
o Who can sue A? C as 3rd party has no right of action against A due to
lack of consideration. B as the promisee can sue A
o What remedies are available to B?
 Damages at common law
 Specific performance in equity

Damages at common law

 Damages at common law will ALWAYS be granted due to breach of


contract
 Measure of damages: B can only recover damages for the loss they have
suffered. If no loss is suffered  nominal damages, if loss is suffered 
substantial damages (Coulls v Bagot’s Executor & Trustee Co)
 For the above example B would recover nominal damages because they
suffered no loss as a result of A’s breach (B in same position whether A
pays C or not)
 Claims for the 3rd party: B can recover damages for loss suffered by C
BUT ONLY if C has no claim against A (Alfred McAlpine Construction v
Panatown)

Specific Performance in Equity (Beswick v Beswick)

 Special performance will not always be granted


 Courts will not grant specific performance if common law damages are an
adequate remedy
 If B revers damages at a substantial level that includes compensation for
C’s loss, it is considered as adequate remedy and specific performance is
not granted (Alfred McAlpine Construction v Panatown)

Trident General Insurance v McNiece Bros 


 Privity may no longer exist (building insurance covered contractors, sub-
contractors sued):
o Mason CJ, Wilson J: Privity may not apply to insurance, and insurance
should cover relevant third parties.
o Toohey J: Privity did not apply to insurance.
o Gaudron J: D was unjustly enriched; therefore third party should be
able to claim.
o Deane J: Via equitable trust.
o Brennan, Dawson JJ (dissenting): Privity should still exist, use available
equitable concepts.
 Has had limited pick up (Jones v Bartlett) but is good law regarding
insurance (Winterton v Hambros).
Exceptions to Privity 
Situations in which a non-contracting 3rd party has a legal remedy against a
party who has promised to confer a benefit:
 Agency: If is B is C’s agent, B (agent) OR C (principle) can enforce the
contract against A [for the example]- either agent or principle can sue, not
both (Teheran Europe Co Ltd v S T Belton (Tractors) Ltd))
 Exclusion clauses and 3rd parties: A party prevented by an exclusion clause
from claiming against the contracting party can seek remedy against the
party’s agent, employer subcontractor
o An exclusion clause may be designed to protect the servants and
agents of a benefiting party
 Covenants on land: Law of real property allows for the attachment of
restrictive covenants to land  If A conveys land to B and B agrees to not
build a house of fibro on it, subsequent owners of the land will also be
bound to the covenant (Smith and Snipes Hall Farm Ltd v River Douglas
Catchment Board)
 Trust: Law of trusts allows a 3rd party beneficiary to initiate action that will
enforce the promisor’s obligations. In the e.g. if B contracted with A in
capacity of trustee for C, C as a beneficiary under the trust has enforceable
rights against A
 Equitable Estoppel: A third party may be able to seek relief against a
promisor on the basis of equitable estoppel if they establish the equitable
estoppel elements (Trident General Insurance)
 Unjust enrichment: Where a person entered into a contract, and received
consideration to complete a promise to benefit a third party, the third party
might be able to claim (Trident General Insurance)- is not based on the
contract but is independent
 Statutory Exceptions:
o Bill of Exchange: An order by one person (drawer) is directed to
another person (drawee) to pay a sum of money to a third person
(payee). Negotiable instruments are enforceable by whoever has them
(i.e. cheques, etc.) unless stipulated otherwise: Bills of Exchange Act
1909 (Cth); Cheques Act 1986 (Cth)
o Insurance contracts: A person not a party to a contract for insurance,
but specified in it, may recover loss or benefit from the insurer – s 48
Insurance Contract Acts 1984 (Cth); s 10(7) Motor Vehicles (Third
Party Insurance) Act 1942 (NSW)
 There may be an action available in torts (negligent performance) (Bryan v
Maloney; Hill v Van Erp).
 Where there is statutory misleading or deceptive conduct (s 18 ACL), a
third party may claim for damages under that (Accounting Systems 2000 v
CCH Australia)

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