Privity of contract - The benefits of reform

AuthorCliona Kelly
PositionB.C.L., PhD (NUI), Lecturer, Faculty of Law, NUI Galway
2008] Privity of Contract- The Benefits of Reform 145
The rule of privity of contract means that only the parties to
a contract have enforceable rights and obligations under the
contract. A third party to the contract cannot enforce any of its
terms nor have any burdens from that contract enforced on them.
The latter aspect of the doctrine is relatively uncontroversial,1 but
the former has throughout its development provoked much
criticism and debate.2
In Ireland, specific difficulties caused by the privity rule
have been dealt with up until now by piecemeal legislative and
judicial reforms. However, in 2008 the Law Reform Commission
recommended a general reform of the doctrine of privity of
contract, to allow third parties to enforce contracts which were
made for their benefit.3 In its Report on Privity of Contract and
Third Party Rights, the Commission outlined a detailed legislative
scheme of third party rights, and a draft Contract Law (Privity of
* B.C.L., PhD (NUI), Lecturer, Faculty of Law, NUI Galway. The author was
the principal legal researcher for the Law Reform Commission Report on
Privity of Contract and Third Party Rights (LRC 88 – 2008). However, the
views expressed here do not represent those of the Law Reform Commission.
1 Exceptions to this rule do exist, however. For example, the rule in Tulk v.
Moxhay (1848) 2 Ph. 774 provides that a negative covenant relating to land can
in certain circumstances be enforced against subsequent owners of the land.
Section 47 of the Land and Conveyancing Law Reform Bill, 2006, which is
currently before the Oireachtas, proposes to make freehold covenants (positive
and negative) fully enforceable by and against successors in title.
2 For the history and development of the doctrine of privity of contract, see
Flannigan, “Privity of contract – the end of an era (error)”, (1987) 103 L.Q.R.
3 Law Reform Commission, Report on Privity of Contract and Third Party
Rights (L.R.C. 88 – 2008), hereafter “Report” or “Commission Report”. The
Report forms part of the Commission’s Second Programme of Law Reform
2000 – 2007, and follows the publication in 2006 of a Consultation Paper
Privity of Contract: Third Party Rights (L.R.C. CP 40 – 2006). The Report and
Consultation Paper are both available at:
Judicial Studies Institute Journal [2008:1
Contract and Third Party Rights) Bill was included in an
Appendix to the Report. Similar reforms have occurred in other
common law jurisdictions, either by means of legislation, such as
the Contracts (Rights of Third Parties) Act, 1999 in England and
Wales, or as a result of judicial reform, as in Canada. This article
will outline and analyse the arguments in favour of reform and the
legislative scheme proposed by the Commission.
In Ireland, it is a general principle of contract law that a
third party to a contract cannot enforce the contract, or a term of
the contract, even if it was intended to benefit them. For example,
A might promise his father, B, that in return for the family farm,
A will pay a sum of money to his sister, C. If A fails to pay the
money, the privity rule prevents C from suing A to enforce this
There are many exceptions to the privity rule, both at
common law and in the statute book.5 They developed in an ad
hoc fashion as a response to specific situations where the courts
or the legislature ascertained a need to grant third parties the right
to enforce a contract made for their benefit. One of the most
important of these exceptions is agency, which allows a principal
to sue and be sued on a contract entered into by their agent on
their behalf. The law of trusts provides another potential means of
enforcement: a third party can enforce a contract if a completely
constituted trust was created in their favour by the contract.
In some earlier cases the courts were willing to imply the
existence of a trust to give rights to third parties,6 but this has
been criticised as a “cumbrous fiction”,7 and today courts are
reluctant to find that there is a trust unless it is clear that this was
4 See Report, para. 1.07, Example 2. See also McCoubray v. Thompson (1868)
2 I.R.C.L. 226; Cadbury (Ireland) Ltd v. Kerry Co-Operative Creameries Ltd
5 See Report, paras. 1.10 – 1.61.
6 See for example Drimmie v. Davies (1899) 1 I.R. 176; Kelly v. Larkin [1910]
2 I.R. 550.
7 Lord Wright (1939) 55 L.Q.R. 189, 208.

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