What is Privity of Contract ?

The doctrine of Privity of Contract is applied in contract law and the general rule it creates is that only the actual parties to a contract have rights and obligations under it and thus the ability to bring a claim for a breach of contract under the terms and conditions of the contract. This doctrine

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The doctrine of Privity of Contract is applied in contract law and the general rule it creates is that only the actual parties to a contract have rights and obligations under it and thus the ability to bring a claim for a breach of contract under the terms and conditions of the contract.

This doctrine can be quite problematic as it means that that any third party that may benefit from the contract or even be named in the contract will have no rights to enforce the contract or make a claim for any breach as they are not party to the contract. This would obviously not work, for example where a trust is created, as it would mean a beneficiary could never hold a trustee to account, and so this is a specific exception to the rule.

It should also be note that privity of contract does not prevent contractual rights being transferred on an assignment, which is a typical occurrence with long leases, where the lease may be sold on.

The doctrine has been undermined in many ways and the question then asked is what remedy does a person have if they are not party to a contract but yet wish to bring a claim for damages for a breach or to enforce a provision of a contract.

There are many ways now to get around the doctrine of Privity of Contract which will allow third parties to enforce the contracts that affect them. One of the main ways is though statue passed by the Government.

The Contracts (Rights of Third Parties) Act 1999

The Contracts (Rights of Third Parties) Act 1999 provides that when a contract is made to benefit an individual who is not a party to the contract, that person may have a right to bring a claim for damages or to enforce the contract is the contract expressly provides this right to the third party. This means that the person seeking to claim damages of enforce the contract may do so unless the parties to the contract intended that he may not. The Act therefore realises the intentions of the parties and aims to give a fairer result.

The problem with this is that it heavily relies on how the contracts are drafted as the provisions in the statute allow that the Act can be expressly excluded in the Contract and thus the third party has no rights under the Act.

This is a technical area of law. If you are confused or concerned about contract rights or obligations, want more information on privity of contract or to find out if you as a third party may have a claim please do not hesitate to contact me.

commercial law • David Swede

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