PRIVITY
Generally speaking, a person will be regarded as being ‘privy’ to a contract if:
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that person entered into the agreement (e.g. that person made a promise in
exchange for another party’s promise); and
 that person provided consideration in support of the agreement
Two Implications:
 A contract cannot impose an obligation (burden) on a third party without
that party’s consent.
 Where a contract confers a benefit (right) on a third party, that party cannot
enforce the contract
The issue of privity of contract becomes important where two persons have entered into a
contract and by the terms of that contract, a benefit has been conferred on a third person.
***Privity does not prevent a contract from conferring a benefit on a third person. It simply
prevents the third person from enforcing the contract.
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Central to the rules of privity of contract therefore is identifying the contracting
parties
Denies 3rd party to enforce right-Hc restated it in Cooles case-next slide.
Best to argue that the 3rd party is party to agreement-what tried to argue in next
case.
Coulls v Bagot’s Executor & Trustee Co Ltd (1967; HC of A)
Facts: A written agreement was entered into by Arthur Coulls and O’Neil Construction Pty
Ltd (“the Agreement”) headed “Agreement between Arthur Leopold Coulls and O’Neil
Construction Proprietary Limited” and included written terms:
• Mr Coulls gives to O’Neil Construction the sole right to quarry 50 acres
of his land.
• O’Neil Construction agrees to pay 3d per ton for all stone quarried and
sold, and a fixed minimum royalty of £12 per week for a period of 10
years with an option of another 10 years at the above basis.
(consideration)
• O’Neil Construction to pay all money connected with the Agreement to
Mr Coulls and his wife, Doris Coulls as joint tenants-(wanted to make it
clear if i die my wife should inherit interest not children).
Agreement was signed by Mr and Mrs Coulls and O’Neil Construction. (clearly endorsed
agreement and was there at time agreement was made). After Mr Coulls died, his 2 children
from a previous marriage stood to benefit if the royalties were payable to Mr Coulls’ estate.
Held: Majority of the HC held that the company owed no contractual obligation to Mrs
Coulls as she wasn’t a party to the agreement. Contract expressly purported to be made
between Arthur Coulls and the company. Moreover, the company made no express promise
to pay royalties to Mrs Coulls. Dissent argued that Mrs Coulls signature of the agreement
was explicable only on the basis that she was intended to be a party to the agreement,
Agency
An agent is a person who has power to enter into a contact on behalf of another person (the
‘principal’). If A, acting as agent of P, enters into a contract with B, then the parties to the
contract are P and B. In this case, a party not involved in the acts of contract formation (the
‘principal’) is nevertheless a party to the contract. (exception to Privity).
Requirements:
– an agency relationship exists; and
– with respect to the particular transaction under consideration, the agent was
purporting to act on behalf of the principal and not solely on his or her own
behalf, unless the contract is subsequently ratified.
Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (1978; HC of A)
Facts: The carrier of a consignment of razor blades shipped from Canada to Australia issued
a bill of lading to the consignor of the goods, the terms of which were expressly accepted by
the consignee, The bill of lading imposed a one year time bar on proceedings in respect of
loss or damage to the goods. Clause 2 extended the benefit of that limitation to servants,
agents and independent contractors employed by the carrier. The appellant stevedore was
49% owned by the carrier, commonly acted as its stevedore and was aware of the terms of
the bill of lading. The goods were unloaded by the stevedore and placed in its storage shed,
from which 33 of the 37 cartons were stolen. The consignee sued Stevedore for damages
outside the stipulated time period.
Held: A stevedore (PJS) is entitled to the benefit of an exemption clause in a bill of lading if:
1. the bill of lading makes it clear that the stevedore was intended to be
protected; Yes – clause 2
2. the carrier was contracting as agent for the stevedore as well as on its
own behalf; Yes – clause 2
3. the carrier was authorised to make the contract on behalf of the
stevedore or the stevedore subsequently ratified the carrier’s actions;
Yes – the carrier acted as PJS’s agent and made an arrangement with
the consignor for the protection of PJS as an independent contractor
participating in the handling of the cargo; by later accepting the bill of
lading, the consignee became party to the arrangement with the
consignor.
4. the stevedore provided consideration to the promisor. Yes - the
performance by PJS of unloading the cargo satisfied the need for
consideration moving from PJS.
(but held that the actions weren’t covered by the clause).
1. A contract makes it clear that a benefit is to be conferred on a beneficiary
2. The contract makes it clear that the promise is acting as agent of the beneficiary
3. The promise was authorised to enter into the contract on the beneficiary’s behalf (or
the contract was subsequently ratified).
4. The beneficiary provided consideration for the promise
The beneficiary is a party to the contract and is entitled to enforce it.
Circumventing the Privity rule
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Analyse relationship b/w parties to see one party is actually a party-one party acting
on behalf of the party c-new york star case. Port Jackson.
Assignment – transfer of some or all of the contractual (non-personal) rights owed to
one contractual party to a third party
Novation – termination of the original contract and the formation of a new contract
between one of the original contracting parties and a substituted (third) party
Estoppel
– If a party has relied to his/her detriment on an expected benefit or
entitlement arising from a contract to which he/she is not a party
Misleading and deceptive conduct
– E.g., statutory rights of action under s 18 of the Australian Consumer Law.
Tort (e.g. a claim of negligence)
– Hill v Van Erp (1997)
– Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1998)
– Special exceptions
– Unjust enrichment
– Trust
A non party to contract can also have contractual rights assigned or have contract novated.
An assignment involves the transfer of some or all of the contractual rights owed to one
contractual party to a third party. The doctrine of Privity doesn’t prevent the assignee from
enforcing the contractual rights that have been assigned as they have been assigned
ownership of the rights. Novation is where a third party may be substituted for one of the
original contracting parties. Novation involves the termination of the original contract and
the formation of a new contract. However, the original contract may authorise a party to
substitute another party in its place without the need for a further agreement. The
contractual relationship between the original parties ends and Privity of contract is then
established between the remaining original party and the substituted party.
Hill v Van Erp (1997; HC of A)
Facts: Mrs Currey retained Mrs Hill (a solicitor) to prepare her will which included a
disposition in favour of Mrs Van Erp. Mrs Hill failed to ensure the will was properly
witnessed with the result that the disposition in favour of Mrs Van Erp failed. Mrs Hill owed
Mrs Currey a contractual duty of care, but not Mrs van Erp because Mrs van Erp was not a
party to the contract between Mrs Curry and Mrs Hill. Mrs Van Erp sued Mrs Hill in tort for
negligently preparing the will.
Held: Mrs Hill owed Ms Van Erp a duty of care and Mrs Van Erp was entitled to damages for
breach of that duty.