Lloyd's Maritime and Commercial Law Quarterly
The Contracts (Rights of Third Parties) Act 1999 and its implications for commercial contracts
Andrew Burrows *
The Contracts (Rights of Third Parties) Act 1999 creates a very wide-ranging exception to the benefit side of the privity of contract doctrine. In this article the Law Commissioner primarily responsible for the recommendations that led to the Act examines the background to the Act and its main provisions (especially the test of enforceability) and considers some possible uses that may be made of the Act by those drafting commercial contracts.
1. Background to the Act
The Act reforms that part of the privity doctrine that prevents a person who is not a party to a contract from enforcing it. In other words, as its title indicates, the Act reforms the rights or benefit, but not the duties or burden, part of the privity doctrine.
To any student of contract law, it is well-known that there are two distinctive features of English contract law that are not found (in the same form) in civil law jurisdictions such as France, Germany or Scotland, namely consideration and privity. It is also well-known that, at least, privity has been subject to attacks from judges, legislators and academics for much of the 20th century. In 1937 the Law Revision Committee, chaired by Lord Wright, recommended the legislative reform of privity; and it appears that that failed only because of the outbreak of the Second World War.1
Lord Denning in various cases tried unsuccessfully to bring about reform judicially.2
And Lords Reid, Scarman, Diplock and, more recently, Lord Goff and Lord Steyn have all in their judgments criticized the privity doctrine and called for its reform. As Professor Beatson has stated, no other doctrine of English contract law has been subjected to as much criticism by the senior judiciary as has the privity doctrine.3
Add to that numerous academic critiques of the doctrine and one can understand why in 1990 the Law Commission considered that it was appropriate to prepare a Consultation Paper on the reform of privity. That was published in 1991 and the
* Norton Rose Professor of Commercial Law, St Hugh’s College, Oxford; Fountain Court Chambers, London. Versions of this paper were presented as lectures to the Society for Construction Law in Worcester College, Oxford on 23 May 2000; to Fountain Court Chambers and their guests in Gray’s Inn on 25 May 2000; and as a Blundell Lecture at the Law Society on 19 June 2000.
1. For the precise story, see Jack Beatson, “Reforming the Law of Contracts for the Benefit of Third Parties: A Second Bite at the Cherry” (1992) 45 CLP 1, 10–15.
2. Smith & Snipes Hall Farm
v. River Douglas Catchment Bd
[1949] 2 K.B. 500; Drive Yourself Hire Co.
v. Strutt
[1954] 1 Q.B. 250; Scruttons
v. Midland Silicones Ltd
[1962] A.C. 446; Beswick
v. Beswick
[1966] Ch. 538 (C.A.) (aff’d
in part [1968] A.C. 58, H.L.).
3. (1992) 45 CLP 1, 2.
540