Chapter 4 Guidance on answering the questions in the book

Privity

1. 'The Contracts (Rights of Third Parties) Act 1999 was necessary to counter the legal 'black hole' created by the privity doctrine.' Discuss.

See 4.1.6 Enforcement by the promisee and 4.1.7 Getting around the privity rule: third party enforcement aside from the 1999 Act.

This question invites you to critically analyse one of the key justifications put forward by the Law Commission for the 1999 Act and, in doing so, survey and comment on the pre-existing common law 'exceptions' to the privity rule.  The sub-issues you should address include:

  • What actions could a promisee take to enforce a promise for the benefit of a third party?  Are the restrictions on particular actions justifiable?  Should substantive awards to promisees be more widely available?
  • What actions are potentially open to the third party beneficiary to claim directly against the promisor?  Are the restrictions on particular actions justifiable?  Should third party actions be more widely available?
  • A related question is 'whose loss is it?' Is it the promisee’s or the third party’s (raised by question 2). The answer to this will determine the appropriate response to any 'black hole' problem, and so allow you to assess whether the 1999 Act was necessary to counter the legal 'black hole'.  Might strengthening promisee actions along the lines of the broad ground in the Panatown case be a preferable alternative?
  • Another related issue is the problem of double liability (question 2) which shows that the 'black hole' is not only filled in, but 'overflows out', as a result of the 1999 Act.  To what extent is the promisor protected from double liability?
  • Your conclusion on the statement.

2. 'The Contracts (Rights of Third Parties) Act 1999 has brought as many problems as it has solved.' Discuss.

See 4.1.4 Assessment of the 1999 Act.

This question invites you to assess the 1999 Act.  You must identify its achievements and its difficulties.  The issues you should address include:

  • Identify the main achievements of the 1999 Act (primarily in favour of third parties, eg they can straightforwardly benefit from exemption clauses in the main contract).
  • What interpretational difficulties are contained in the 1999 Act (eg scope of sections 1(1) (b), 1 (2) and section 2)?
  • To what extent does the 1999 Act respond to the reasons for reform set out by the Law Commission (eg upholding the parties’ intentions, injustice to third parties, difficulty in commercial life, legal ‘black hole’, complexity of common laws 'exceptions')?
  • What is the impact of the 1999 Act on orthodox principles (eg requirement of consideration, recoverable loss must be that of the promisee, promissory estoppel)?

3. What is the effect of the Contracts (Rights of Third Parties) Act 1999 on the requirement of consideration?

See 4.1.5 Consideration, privity and the 1999 Act.

The focus is on the impact of the 1999 Act on the traditional requirement of consideration and whether the impact is desirable.  The sub-issues you may address include:

  • In what way does the 1999 Act contradict the consideration requirement?  What, if anything, does this indicate about the future role of the consideration doctrine (you may be able to bring in developments from other areas, e.g. Williams v. Roffey, MWB v Rock)?  Would any such development be desirable?
  • Approaching the question from the other end, should the consideration doctrine be reformed? If so, is the 1999 Act a positive step, even if it is irreconcilable with the consideration requirement?
  • Is there any way of reconciling the 1999 Act with the consideration requirement?  Is the view of consideration necessary for any reconciliation a desirable one? 

4. Pat and Quentin agree that they would each pay half the cost of a round the world holiday for Rose when she passes her law degree. Subsequently, Pat and Quentin refuse to pay because they disapprove of Rose's new lifestyle. Rose is angry and disappointed. Can she sue?

See 4.1.3.2 Variation and rescission by the contract parties.

How can Rose get what she wants? 

  • Does Rose have any non-statutory claims?
  • Does Rose qualify as a claimant under section 1 of the 1999 Act?
  • Does Rose's right crystallize before Pat and Quentin changed their mind?
  • Is Rose's claim reduced or negated (eg by the promisor's defences, set-offs or counterclaims or by the promisee's claim)?

5. Sam pays £5,000 for Toby to make some alterations to his daughter Una's business premises to make it suitable for a major marketing event. Toby excludes liability for consequential damages for breach. Toby botches the job and parts of the roofing and lighting fall down during Una's presentation. Una claims that she suffered £20,000 of loss comprising of: (a) damage to her existing premises; (b) loss of profits she would have generated had her presentation not degenerated into a complete farce; and (c) mental distress. Advise Sam and Una.

  1. Does Sam have any action on behalf of Una or on his own behalf?  Does Una have any common law actions against Toby?  Can Una claim under the 1999 Act (go through the requirements methodically)?  How should the claims be co-ordinated to avoid double recovery (and to what extent can there be double recovery against Toby)? 
  2. Would Una's claim under the 1999 Act be barred by the exemption clause (explain, citing section number)? The presence of the exemption clause is likely to negate any duty of care owed by Toby to Una.  What is the status of the exemption clause if Sam claims?  
  3. Can Una claim for this?  Can this be incorporated into Sam's claim, say under the broad ground in Panatown (is the action available)?