Bill advocates changes in contract law

Press, 21 April 1982, Page 13

Bill advocates changes in contract law

Parliamentary reporter A person who is not a party to a deed or contract will nevertheless be able to sue to enforce a promise made in it for his benefit, under a bill introduced in Parliament. The Contracts (Privity) Bill implements the report of the Contracts and Commercial Law Reform Committee last year. It seeks to modify the existing Jegal doctrine that only parties to a contract can sue or be sued on that contract. The bill, if passed into law, will make it clear that, in certain limited situations, third parties will be able to inforce promises in contracts intended to benefit them, even though they themselves may not have provided the consideration for those promises. Introducing the bill, the Minister of Justice (Mr McLay) said that the privity of contract rule, which originated in England last century, was now widely admitted to be unsatisfactory. “Its application has generally been limited to some of the countries with legel systems based on the English common law. The rule has never been in existence in civil law countries and nor does it appear to have been greatly missed/’ he said. “More importantly, it was never widely accepted in the United States and it has now been repudiated there either by legislation or by judicial decisions in all states. “The rule has also been abolished in two Australian states — Western Australia in 1969 and Queensland in 1974 — without apparent criticism or ill effect,” Mr McLay said. Under existing law, unless the courts are able to bring a case within one of the exceptions to the general principle of privity of contract, or unless an order can be made for specific performance under a contract, there can

. be no effective sanction to compel a promisor to fulfi his obligation under a contract to benefit third parties. The third party himself or. herself cannot sue the promisor and because of the rules relating to the recovery of damages for breach of contract, jt may not be worth while or possible for the other contracting party to sue. Mr McLay said that one commentator had described the doctrine of privity of contract as a conflict between the logic of the law and the requirements of everyday life, and had condemned it as an admission that the law could not adjust itself to the altered requirements of modern conditions. Those comments arose from a case involving an insurance company which refused to pay damages arising out of a car accident when a young woman was driving and the policy which normally covered such damage was held by her father. Recovery was refused on the ground that there was no privity of contract between the daughter and the insurance company. Mr McLay said that in a recent House of Lords decision, Lord Scarman criticised the doctrine as an unjust rule which needed review now and not 40 years on. “His comments echo many that have been made by various groups and individuals for more than 60 years,” Mr Mclay said. The bill was another instalment in the continuing review of the law of contract and would stand alongside other recent enactments on contractual remedies, contratual mistakes, and illegal contracts, he said. . “It sets out to cure defects and artificialities that are readily apparent in the light of commonsense,” he said. The bill's proposals are several. First, it gives third parties

limited = rights to enforce promises which, on their proper, construction, are intended to be enforceable by them, whether or not the third person was identified or even in existence at the time when the deed or contract was made. . /■ Second, it ■ prevents contracting parties from varying or cancelling promises that benefit third parties without that third party’s consent, or the consent of the court, once the third party has obtained a judgment against the promisor, dr has altered his or her position in reliance of the promise. This second feature of the bill can be over-ruled by a court, which may also order

some form of compensation to the third party.

The bill intends that the Court to have jurisdiction under the measure shall be the High Court, except where the parties agree to a matter being dealt with by a District Court, or where civil proceedings would properly go before a District Court, or where the value of the consideration is not more than $12,000, in which instance the District Court shall be used. The Small Claims Tribunal shall have jurisdiction if the value at' issue is’ not more than $5OO.

The bill was referred to the Statutes Revision Select Committee for consideration.