Privity of contract: the potential impact of the law reform commission recommendations on irish contract law

AuthorKevin T. O'Sullivan
PositionB.C.L., LL.M (First Class Honours)
Judicial Studies Institute Journal [2010: 2
The doctrine of privity, described as both a “fundamental
principle of English law”1 and an “anachronistic shortcoming”,2
is a controversial rule of the law of contract. The doctrine
prevents a person who is not a party to the contract from having
any legal right to enforce the contract, or to have contractual
liabilities imposed as a result of the contract, and that contractual
remedies are for the contracting parties alone.3 The underlying
rationale for the doctrine is to protect the contracting parties from
any interference in their agreement by a third party. Thus, it
operates so as to deny a third party any right of enforcement
under the contract. Indeed, the traditional approach taken by the
courts went so far as to deny any right of enforcement even where
the contract provided for such third party rights.4 Such a position
is clearly untenable, thus the modern approach is to give effect to
the intentions of the parties as they appear under the contract.
Thus, permitting enforcement by third party beneficiaries is seen
as giving effect to the intentions of the parties under a contract
which creates a benefit for such parties.
* B.C.L., LL.M (First Class Honours).This article, in its original form, formed
part of a Master’s thesis undertaken in University College Cork, under the
supervision of Mr. Frank Martin.
1 Per Haldane L.J., Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge and Co. Ltd.
[1915] A.C. 847, at 853.
2 Per Diplock L.J., Swain v. Law Society [1983] A.C. 593, at 611.
3 Clarke, Contract Law in Ireland (5th ed., Thomson Round Hall, 2004), p. 473.
4 Tweddle v. Atkinson (1861) 121 E.R. 762.
2010] Privity of Contract 111
However, a key rationale underpinning the doctrine 5 is the
provision of clarity for the contracting parties viz. the scope of
their contractual obligations and liabilities and establishing the
enforcement rights under the contract itself. Indeed, when it is
considered that the raison d’être of contract law theory and
practice is synonymous with providing certainty and stability for
the contracting parties, the doctrine is, prima facie, a legitimate
manifestation of the wider role of contract law in this sense.6
However, the operation of the doctrine gives rise to an
unacceptable dichotomy between certainty and uncertainty in
relation to those affected by the formation of the contract. While
the creation of certainty is an integral part of common law
systems, the central role for the law has always been the provision
of justice. Thus, the creation of certainty for the contracting
parties by virtue of the doctrine is not reconcilable with the
provision of justice for third parties, particularly where an express
term of enforcement exists in the contract.
As a result, the law has grappled with protecting the
contracting parties on the basis of their bargain while also
creating justice for third party beneficiaries. As Tisdale aptly
notes, “[t]he life of the law lies in its ability to solve specific
problems … [W]ithout some degree of flexibility law could not
grow … to meet the needs of people”.7 The Irish law of contract
is faced with such a “specific problem” with regard to privity of
contract. The operation of the doctrine has the effect of
marginalising those third parties wishing to enforce a contract
made for their benefit. However, any attempts to reform the rule
is considered to be at odds with the fundamentals of contract law
theory. Critics of the doctrine have focused on the harshness of
the rule on third parties, thus existing reforms of the doctrine have
placed an emphasis on creating substantial rights for such third
5 Anson’s Law of Contract (28th ed. by J. Beatson, Oxford University Press,
2002), p. 4.
6 As Wilson notes, Kessler and Gilmore make the argument that privity is an
essential element in the role of contract law: “To lack privity is to have failed
to achieve the requisite state of contractual grace”: Wilson, “Contract and
Benefits for Third Parties” (1986-1988) 11 Sydney Law Review 230, 230.
7 Tisdale, “The Place of Certainty in the Law” (1959) 35 North Dakota Law
Journal 99, 118.
Judicial Studies Institute Journal [2010: 2
parties. Such substantial rights may be seen in both the English
and the proposed Irish reforms, where a presumption of
enforcement for third party beneficiaries has been included.
However, such reforms may tilt the law in favour of the
third party to the detriment of the contracting parties. Indeed, the
recent recommendations by the Irish Law Reform Commission8
(hereinafter “the LRC”) arguably tilt the law unnecessarily in
favour of the third party to the detriment of the contracting
parties, particularly where the third party is the beneficiary of an
express benefit under the contract. However, upon evaluating the
recommendations of the LRC it becomes apparent that there is an
incongruity between the rationale for reform and the
recommendations which were ultimately proposed. Thus, an
imbalance subsists such that the recommendations do not address
all third party beneficiaries and place restraints on the contracting
parties, notwithstanding their intentions under the contract. While
the justificatory rationale of the LRC’s reform agenda is to give
effect to the intentions of the contracting parties, the effect of
their recommendations shall frustrate such intentions in relation
to beneficiaries of an implied or an unambiguous benefit. In this
context, the LRC creates an arbitrary distinction between third
parties that are expressly conferred with a benefit and those that
are conferred with a benefit which is ambiguous or implied.
Thus, whereas an expressly-conferred beneficiary would have a
presumption of enforcement, the non-expressly conferred
beneficiary seemingly has no redress in law, under the LRC
recommendations. The result is that notwithstanding a clear
intention (on behalf of the contracting parties) to confer a benefit,
the LRC deny such third parties any redress for want of clarity
viz. the benefit conferred.
As noted, where the contracting parties have expressly
conferred a benefit under the contract, the LRC propose a
presumption in favour of such third parties. However, the LRC
recommend that the contracting parties, in rebutting this
presumption, should be denied recourse to the entire surrounding
circumstances relating to the formation of the contract. In this
8 Law Reform Commission, Report on Privity of Contract and Third Party
Rights (LRC 88 – 2008), hereinafter “LRC Report”.

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