You can ask our solicitors online for advice on privity of contract using the question box on the front of our website or the following free legal advice guide may answer your questions. 

Privity in contract is a term used in contract law to describe the relationship between the people who engage in contracts. It is also used when looking at consideration. There are so many different elements to contracts and privity is just one of them and there are certain rules that you must comply with.

In particular, there are rules in privity that outline who can pursue legal action against another party in a contract. The courts have ruled that where a contract exists between two people, a third party could not commence legal action against one of the original party who entered into the contract because the third party did not have a contract with anyone.

Privity in Contract – Complicated

A contract must be in place and therefore privity must be present before you can sue someone. That being said, if a contract is created that would benefit someone else, this would be different, particularly if the third party would benefit under the contract.

The rules of privity are complicated and would always require further exploration by a qualified legal professional. Furthermore, it can often present multiple drawbacks as in the case of Jackson v. Horizons Holidays. The claimant had made a holiday booking and his wife, and two children came along. A change was made to the original holiday he booked, and he was offered an alternative which was accepted.

When the claimant arrived on holiday, it transpired that the holiday wasn’t satisfactory. The claimant brought legal proceedings against the holiday company under privity in contract, stating that they had breached the contract. The company initially denied the claims but later admitted liability. The claimant was awarded damages, but these weren’t divided equally between the family members who went on holiday with the claimant.

The court ruled that it was up to the claimant to determine how the damages were to be distributed, however the claimant was unhappy with this. He went back to court to appeal to state that he sued for breach of contract not only for himself but his family members individually. The court decided that the figure that had been awarded was correct, but the damages could be extended to cover the whole family rather than just the claimant.

Rule of Privity Exclusions

There are certain situations when exclusions may apply in privity. Typically, these would arise in the following situations:

• When an agent is involved in the contract
• When statute laws are applied, they can add exceptions to this rule and override common law
• During a collateral contract when a situation arises that allows an exception to be implemented
• When covenants are used in land transactions which are positive and restrictive

Example of Privity

Multiple cases have been brought that demonstrate how privity can be used in various situations.

A few of these include:

• Port Line v Ben Line Steamers where it was concluded that the contract was enforceable
• In the case of Re Schebsman, the court determined that the contract could not be enforced

Another example of privity in contract law was between Beswick and Beswick where a third party sought to enforce payment under the contract which was between the claimant’s husband and nephew. Property was obtained under Section 56 of the Law of Property Act 1925 by a third party, but the court determined that the claimant could not enforce payment.

Where privity is concerned there have been several changes to the law which would enable a claimant to make a claim when the contract would benefit someone else. Under the Contracts (Rights of Third Parties) Act 1999, these rights are now allowed whereby a third party may be able to enforce a term in a contract that they have not been involved with.

As with any aspect of law, there are many different sides to it, and it is always advised that you seek legal advice on any element of contracts that you don’t fully understandin contract