Chapter 13 Guidance for end of chapter questions

Privity and the interests of third parties

Question

Tom is a painter and decorator. His daughter is about to get married and her house needs rewiring and Tom has agreed to have this done as a wedding present for her. He agrees to decorate the outside of Dennis's house in return for Dennis (an electrician) doing the rewiring on his daughter's house. He also agrees to redecorate the inside of Paul's house in return for Paul paying Tom's mother £500. Tom performs his side of both these agreements but Dennis refuses to do the rewiring and Paul refuses to pay Tom's mother the £500. Discuss.

Answer

The first step with any problem is to break it down into smaller sections and sketch out a plan of all the issues that can be discussed in relation to each section. An obvious division in this problem is between the two contracts, one involving Dennis, the other Paul, and within these contracts the division between the rights of the third party and the rights of Tom. Thus a plan for this question might look something like the following:

Tom, Dennis, and the daughter:

  1. Can the daughter sue? Not at common law since no consideration and not a promisee. Impact of 1999 Act? S1(1) - intentions of parties - "purports to confer a benefit"
  2. Alternatively can Tom as contracting party obtain an effective remedy?
    1. Specific performance? - but personal service contract
    2. Damages
    3. On behalf of daughter - Jackson v Horizon special category?
    4. As representing his own loss/disappointment?
    5. As representing his own loss since he will now have to pay for another present?

Probably none of these in context of new rights conferred by 1999 Act.

Tom, Paul and the mother:

  1. Can the mother sue? - as for the daughter in a) above
  2. Can Tom obtain an effective remedy?

Specific performance? Mutuality? Damages inadequate? Compare Beswick v Beswick.

As to the first issue of whether the daughter can sue, it is pretty clear that she is neither a promisee nor does she provide any form of consideration so she would not be able to sue at common law whether it is put on the basis of the doctrine of privity as in Dunlop v Selfridge or on the basis of the rule that consideration must move from the promisee as in Tweddle v Atkinson. It is also clear that Tom is not contracting as agent for his daughter and this would not provide a way around the privity rule in any event given that she does not provide consideration (as was also the case in Dunlop v Selfridge). Neither is there any evidence to support Tom being regarded as trustee of the benefit of the promise for his daughter and this sort of device for getting round the privity rule has now gone out of fashion both because it removes the parties' ability to vary the contract (e.g. if Tom gets into financial difficulties he may want to allow Dennis to pay cash rather than do the rewiring) and also because it is really not now needed in the light of the 1999 Act (which does allow for variation subject to exceptions).

Although the contract does not seem to expressly provide for the daughter to enforce the term providing for Dennis to rewire her house ,within section 1(1)(a), it does seem that "the term purports to confer a benefit" on her within s.1(1)(b). It should be noted that section 1(2) makes this subject to contrary intention but on the facts of this case there is no evidence that the parties did not intend the term to be enforceable by the daughter and in accordance with Nishin Shipping v Cleaves, the onus is on the contracting parties to make this clear and in the absence of them having done so, the daughter will be able to enforce the term of the contract. Note however that "enforce the term of the contract" in this context will almost certainly mean claim damages (the cost of hiring someone else to do the rewiring) since specific performance of Dennis's obligation will not be ordered, it being a personal service contract.

This latter factor means that the most obvious remedy which Tom himself might want to obtain, if he was to try to enforce the contract rather than leaving it to his daughter under the Act, would not be available to him. That is he would not be able to obtain specific performance to force Dennis to carry out his promise of rewiring the daughter's house and the solution that happened to be available in Beswick v Beswick would not be available here. He could, of course, claim damages and prior to the coming into force of the 1999 Act, he may have been able to persuade the court on one basis or other that such damages should be substantial. This would probably not have been on the basis of recovering for the loss of the third-party as the facts of this case do not seem to be within the special category based on Jackson v Horizon as approved by the House of Lords in Woodar v Wimpey. It perhaps could be based on the idea that he has suffered a personal loss or disappointment which would have been in the contemplation of Dennis (although this would assume that Dennis knew that the re-wiring was being done as a wedding present) or that he has suffered a loss in that he is now going to have to find the money for a different wedding present (see the comments of Lord Scarman in Woodar v Wimpey about why a contracting party may provide for a benefit to be given to a third-party). However, the necessity for devising complex arguments to show that the contracting party has suffered a personal loss or should be able to recover the third party's loss on their behalf has now largely disappeared with the coming into force of the Act, especially on facts such as these were it appears that the third party will be able to sue directly on the Act. An analogy might be drawn with the Panatown case where the House of Lords was not prepared to manipulate the rules concerning damages recoverable by the contracting party since the third-party had a direct cause of action under the duty of care deed. Similarly, you might suggest, the courts will probably tend not to be too creative in relation to damages awarded to the contracting party when the third-party now has a direct cause of action under the 1999 Act.

The analysis of whether the mother can sue Paul for the £500 that he promised to her would be very similar to the above discussion of whether the daughter can sue Dennis and the result would be, again, that the third-party the mother, could enforce the term as a result of section 1(1)(b)of the Act.

As to whether Tom can gain an effective remedy against Paul, the major difference relates to the remedy of specific performance. Such an order would simply be to pay a sum of money rather than to perform a personal service contract so there will be no problem in that respect. The fact that Tom's part of the contract embodies a personal service obligation does not matter in the light of Price v Strange since mutuality is now judged at the time of enforcement rather than at the time of creation of the contract – given that Tom has already performed his part there is no danger of Paul being ordered to pay the mother and then not being able to obtain performance of Tom's personal service obligation in return. Tom can therefore probably sue and obtain specific performance to benefit his mother, the third-party, just as Mrs Beswick as administratrix was able to do in order to benefit herself personally in Beswick v Beswick. This assumes that the courts would still regard an award of damages to Tom as an inadequate remedy which they probably would do on the basis of the arguments above that he would not be able to obtain substantial damages especially given the ability of his mother to sue directly in her own right. It should be noted however that one of the arguments in favour of specific performance in Beswick (see Lord Pearce), that damages were inadequate because the obligation was to pay an annuity and thus separate claims would very inconveniently have to be brought each time payments failed to be made, would not be applicable here since the obligation is simply to pay a lump sum. Nevertheless overall there seems no good reason why the court should deny specific performance to Tom should he choose to claim it just because his mother is also given a separate right to sue under the 1999 Act.