Under the doctrine of privacy, which became entrenched in English law in the latter half of the 19th century , contractual rights and liabilities are limited to the parties to the contract. The mounting criticisms and arguments for reform have led to the Contracts (Rights of Third Parties) Act 1999 , an important statute which modernises the law of contract and diminishes the relevance of complex case law dealing with the rule of privacy and its exceptions. However, while the Act has introduced a substantial exception to the privacy rule, it has left the rule intact for cases not covered by the Act . Therefore, for a number of cases, third party claims will still have to be based on pre-existing statutory and common law exceptions. This essay shall examine the problems caused by the privacy rule and the impetus for reform; it shall set out the circumstances in which third parties may or may not rely on the Act; finally, it shall analyse the incomplete nature of the Act in the context of the reform of the rule of privacy.
[...] Stone, The Modern Law of Contract, 6th edition (London: Cavendish Publishing, 2005), p.128; Law Commission Report No For example, s Married Women's Property Act 1882 on life insurance; s. 148(7) Road Traffic Act 1988 on motor insurance; s Third Parties (Rights Against Insurers) Act 1930 on third parties' rights against insurers; Bills of Exchange Act 1882 on bills of exchange and negotiable instruments generally; s. 56(1) Law of Property Act 1925 on land interests; s Companies Act 1985. See Law Commission Report No 2.52 - Whereby a promise is made in a separate contract with the promisor. [...]
[...] Furmston, Cheshire, Fifoot & Furmston's Law of Contract, p and R. Stone, The Modern Law of Contract, p M. Furmston, Cheshire, Fifoot & Furmston's Law of Contract, p If the act applies the third party is allowed under s1 to enforce a term of the contract in just the same way as a party to the contract. J. Beatson, Ansons' Law of Contract, 28th edition (Oxford: Oxford University Press, 2002), p G.H. Treitel, The Law of Contract, 11th edition (London: Sweet & Maxwell, 2003), p J. [...]
[...] Beatson, Ansons' Law of Contract, p. 421; G.H. Treitel, The Law of Contract, p. 258; R. Upex and G. Bennett, Davies on Contract, 9th edition (London: Sweet & Maxwell, 2004), pp. 188-189. A. Chandler and I. Brown, Law of Contract, 6th edition (Oxford: Oxford University Press, 2006), p.250. Law Commission Report No 5.10 - Ibid, Jackson v Horizon Holidays  1 W.L.R Darlington Borough Council v Wiltshier Northern Ltd and another  1 W.L.R Alfred Mc Alpine Construction [...]
[...] As the Law Commission noted, contracts can have far-reaching effects beyond the realm of the contracting parties. The various objections can be summarised in the following way: the privacy rule thwarts the intentions of the parties; it leads to injustice to third parties in defeating their reasonable expectation of having a legal right to enforce the contract, and their reliance interests. The privacy rule also creates a ‘black hole' in the law, due to the fact that where a contract intended to benefit a third party is breached by the promisor, the third party who suffers the loss has no cause of action, while the promisee has the right to sue on the contract but has suffered no loss. Finally the privacy rule has been criticised as incompatible with commercial transactions which can involve ‘multiple-linked contracts'. [...]
[...] The rights of a third party under the Act thus appear to be supplementary to rights the third party has under the common law or other statutes. This makes it possible for a third party to invoke both the Act and a pre-existing statutory or common law exception: Treitel gives the example of a situation where the same facts not only satisfy the requirements of s but also give rise to a trust in favour of a third party. As noted by several academics, invoking and enforcing third party rights apart from the Act could be more advantageous to third parties. The fact that third parties will still stand to benefit under other statutory or common law exceptions to the privacy rule surely diminishes the overall importance of the Act in its reform of the privacy rule. [...]
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