PRIVITY

 Privity Rule (Tweddle v Atkinson): Only the parties to the contract may
enforce or be bound to the contract. Only they can acquire rights and
liabilities under the contract
 A 3rd party who benefits from the contract but is not a party to the contract
has no rights or liabilities under the contract
 E.g. A promises B for consideration moving from B to pay C $100. A and B
are the parties to the contract (Privity to the contract). C is not a party to the
contract and can not sue A if A fails to pay C the sum of $100

Privity and Consideration 

 Consideration must move from the promisee, only person who has
provided consideration can enforce a promise
 In above example C did not provide consideration for A’s promise,
therefore can not sue A

Remedies 

 These are remedies that can be claimed by a promisor who has breached
his obligations to a 3rd party
 2 questions that need to be answer (in relation to above e.g.):
o Who can sue A? C as 3rd party has no right of action against A due to
lack of consideration. B as the promisee can sue A
o What remedies are available to B?
 Damages at common law
 Specific performance in equity

Damages at common law

 Damages at common law will ALWAYS be granted due to breach of

contract
 Measure of damages: B can only recover damages for the loss they have
suffered. If no loss is suffered  nominal damages, if loss is suffered 
substantial damages (Coulls v Bagot’s Executor & Trustee Co)
 For the above example B would recover nominal damages because they
suffered no loss as a result of A’s breach (B in same position whether A
pays C or not)
 Claims for the 3rd party: B can recover damages for loss suffered by C
BUT ONLY if C has no claim against A (Alfred McAlpine Construction v
Panatown)

Specific Performance in Equity (Beswick v Beswick)

 Special performance will not always be granted

 Courts will not grant specific performance if common law damages are an
adequate remedy
 If B revers damages at a substantial level that includes compensation for
C’s loss, it is considered as adequate remedy and specific performance is
not granted (Alfred McAlpine Construction v Panatown)

Trident General Insurance v McNiece Bros 

 Privity may no longer exist (building insurance covered contractors, sub-
contractors sued):
o Mason CJ, Wilson J: Privity may not apply to insurance, and insurance
should cover relevant third parties.
o Toohey J: Privity did not apply to insurance.
o Gaudron J: D was unjustly enriched; therefore third party should be
able to claim.
o Deane J: Via equitable trust.
o Brennan, Dawson JJ (dissenting): Privity should still exist, use available
equitable concepts.
 Has had limited pick up (Jones v Bartlett) but is good law regarding
insurance (Winterton v Hambros).
Exceptions to Privity 
Situations in which a non-contracting 3rd party has a legal remedy against a
party who has promised to confer a benefit:
 Agency: If is B is C’s agent, B (agent) OR C (principle) can enforce the
contract against A [for the example]- either agent or principle can sue, not
both (Teheran Europe Co Ltd v S T Belton (Tractors) Ltd))
 Exclusion clauses and 3rd parties: A party prevented by an exclusion clause
from claiming against the contracting party can seek remedy against the
party’s agent, employer subcontractor
o An exclusion clause may be designed to protect the servants and
agents of a benefiting party
 Covenants on land: Law of real property allows for the attachment of
restrictive covenants to land  If A conveys land to B and B agrees to not
build a house of fibro on it, subsequent owners of the land will also be
bound to the covenant (Smith and Snipes Hall Farm Ltd v River Douglas
Catchment Board)
 Trust: Law of trusts allows a 3rd party beneficiary to initiate action that will
enforce the promisor’s obligations. In the e.g. if B contracted with A in
capacity of trustee for C, C as a beneficiary under the trust has enforceable
rights against A
 Equitable Estoppel: A third party may be able to seek relief against a
promisor on the basis of equitable estoppel if they establish the equitable
estoppel elements (Trident General Insurance)
 Unjust enrichment: Where a person entered into a contract, and received
consideration to complete a promise to benefit a third party, the third party
might be able to claim (Trident General Insurance)- is not based on the
contract but is independent
 Statutory Exceptions:
o Bill of Exchange: An order by one person (drawer) is directed to
another person (drawee) to pay a sum of money to a third person
(payee). Negotiable instruments are enforceable by whoever has them
(i.e. cheques, etc.) unless stipulated otherwise: Bills of Exchange Act
1909 (Cth); Cheques Act 1986 (Cth)
o Insurance contracts: A person not a party to a contract for insurance,
but specified in it, may recover loss or benefit from the insurer – s 48
Insurance Contract Acts 1984 (Cth); s 10(7) Motor Vehicles (Third
Party Insurance) Act 1942 (NSW)
 There may be an action available in torts (negligent performance) (Bryan v
Maloney; Hill v Van Erp).
 Where there is statutory misleading or deceptive conduct (s 18 ACL), a
third party may claim for damages under that (Accounting Systems 2000 v
CCH Australia)