Historically, third parties could enforce the terms of a contract, as evidenced in Provender v Wood, but the law changed in a series of cases in the 19th and early 20th centuries, the most well known of which are Tweddle v Atkinson in 1861 and Dunlop Pneumatic Tyre v Selfridge and Co Ltd in 1915.
[3] The first reversal of this was in Bourne v Mason (1669) 1 Vent., where the Court of King's Bench found that a third party had no rights to enforce a contract that benefited him.
[3] This case was quickly reversed, and decisions immediately after Bourne v Mason took the view that third parties could enforce contracts that benefited them.
[9][10] Patrick Atiyah argues that the doctrine came from a time of rising trade through middlemen, and was designed to simplify commercial transactions and encourage enterprise liability.
[10] The second rule of privity, that a third party cannot claim benefits from a contract, was widely criticised by academics, members of the judiciary and legal professionals.
[12] Lord Diplock called the doctrine "an anachronistic shortcoming that has for many years been regarded as a reproach to English private law",[15] and Stephen Guest wrote that "[I]t is said that it serves only to defeat the legitimate expectations of the third party, that it undermines the social interest of the community in the security of bargains and it is commercially inconvenient".
These were at times both complex and extremely artificial, and used the law relating to trusts and agencies, along with other areas and ideas such as collateral contracts.
In this situation the House of Lords decided (in Les Affréteurs v Walford [1919] AC 801) that the trustee's ability to sue the owner of the property is to be exercised on behalf of the beneficiary, a third party.
[11] When the uncle died the nephew refused to pay the widow the money required, arguing that as she was not party to the original agreement she could not benefit from it.
The company accepted liability, but claimed that they should not have to pay damages to the family as the doctrine of privity meant they were not allowed to sue on the contract.
Shanklin Pier had no contractual relationship with Detel Products, but the Court of Appeal found like there was a collateral contract they could use to sue.
[24] Attempts by the courts to do this have added to the perception of this as an artificial device; the decision in Charnock v Liverpool Corporation [1968] 1 WLR 1498, which used collateral contracts, has been described by Guenter Treitel as "invented" consideration, and by Patrick Atiyah as "fictitious".
This means that victims of car accidents can claim money from the insurer of the driver at fault, even though they are not part of the original contract.
[27] Under the Married Women's Property Act 1882 a husband can take out insurance in his own name, but make it enforceable by his wife and children despite the doctrine of privity.
[27] There are several ways around the original doctrine which were not loopholes created by case law but situations which by their very nature must involve three parties.
[28] It can be argued that this is not a true exception to the doctrine because once the contract is made the "agent" plays no further part, leaving it as an agreement between two parties.
[33] The doctrine of privity was significantly reformed by the Contracts (Rights of Third Parties) Act 1999, which received royal assent on 11 November 1999 and "thereby [removed] one of the most universally disliked and criticised blots on the legal landscape".
The proposed changes were supported by the legal profession and academics alike,[34] and the Bill was finally introduced to parliament in January 1999.
[38] In the same decision the court decided that simply arranging an alternative way of enforcing the terms does not indicate that the 1999 Act was not meant to be used.
[4] It is argued that this rule and the doctrine of privity are two ways of saying the same thing – that to say someone is not a party to the contract is the same as saying that they gave no consideration in the initial agreement.
[48] It is worth noting, however, that Lord Haldane maintained in his judgement in Dunlop that, independent of consideration, it was a rule in English law that "only a person who is party to a contract can sue on it".