Privity Rule & Contracts (Rights of Third Parties) Act 2001 PDF

PRIVITY The Privity Rule The privity rule states that a third party cannot enforce a contract. This is regardless of whether a contract is made for the benefit of the third party or not (first raised in Tweddle v Atkinson, official rule laid out in Dunlop). The rationale for the privity rule is thr...

PRIVITY The Privity Rule The privity rule states that a third party cannot enforce a contract. This is regardless of whether a contract is made for the benefit of the third party or not (first raised in Tweddle v Atkinson, official rule laid out in Dunlop). The rationale for the privity rule is threefold - (1) lack of consideration (the 3P usually does not give consideration); (2) mutuality (3P cannot be sued and hence, they should not be allowed to sue); (3) directionality of promises (the contractual promises are made between contracting parties and not to 3P). Ways to Counter the Privity Rule Rely on promisee to enforce on behalf of third party 1. Damages a. There is a legal black hole issue in the privity because: i. The own loss rule states that one can only claim damages for their own loss (so by extension, they cannot claim damages for a 3P) ii. However, based on the privity rule, the 3P cannot enforce the contract. Hence, the promisor’s obligations to the 3P fall into a black hole and are unenforceable. b. Special cases (“group contract cases) i. Makes an exception to the own-loss rule in “group contract” cases which allow the promisee to claim damages for losses 1. The contract must be made for the benefit of a group (Jackson) a. On behalf of family (Jackson) b. A host makes a contract with a restaurant for dinner for himself and his friends (Jackson - example) c. The vicar makes a contract for a coach trip for the choir (Jackson - example) d. Not merely a 3P who benefits from the contract (Woodar) c. Narrow Ground i. The narrow ground makes an exception to the own-loss rule in “property transfer” cases, by allowing the promisee to claim damages for 3P losses. ii. To bring a claim under the narrow ground 2 elements must be fulfilled (Family Food Court ) 1. It must be a commercial contract involving goods/buildings (Linden Gardens) 2. There must be the contemplated transfer of goods/buildings after the contract (however, it has been extended to cover cases where there was no contemplated transfer Darlington Borough, though this extension may not be followed in SG Family Food Court) 3. The third party must not have his own contractual right of action a. The narrow ground is excluded even if the 3P’s direct right of action is not identical to the promisee’s right of  action (Alfred McAlpine) b. The 3P can have a tortious right of action (Chia Kok Leong) 4. The promisee must account to a 3P for the damages awarded (Chia Kok Leong) d. Broad Ground (endorsed in Singapore by Chia Kok Leng as obiter) i. Under the broad ground, the court views the 3P’s loss as the promisee’s loss, and allows the promisee to claim substantial damages for it. This is also known as a broad application of the own-loss rule. ii. It does not matter that the promisee might have been reimbursed/suffered no net loss (Linden Gardens) iii. The promisee does not need to use the damages to cure defective performance (Darlington Borough Council) 1. However, the performance interest claimed must be genuine and the court will apply the Ruxley test of reasonableness (proportionality, intention to cure, degree of failure) to prevent windfall to the promisee (Family Food Court). iv. If both the 3P and the promisee make claims, the court should subordinate the promisee’s claim to the third party's claim to prevent double liability (Chia Kok Leng). 2. Specific Performance a. The promisee can sue for specific performance, which is useful in benefiting the 3P (Beswick) b. The court should consider (Beswick) i. Mutuality ii. Whether damages was adequate iii. Whether damages was appropriate (specific performance may not always be a desirable remedy because the damage might already be done or the promisor may no longer be trusted to complete the task) iv. Injustice (whether the promisor receives benefits of contract) v. Convenience (constant supervision by the court) vi. Other bars to rescission 3. Stay of Proceedings a. In the context where the promisor has promised not to sue the 3P, the promisee can obtain a stay of proceedings to stop the promisor’s actions against the 3P. b. Requirements for obtaining a stay of proceedings (Gore v Van der Lann, Snelling) i. Promisor must have a clear and unambiguous promise not to sue 1. Cannot be implied from merely signing a document with the exemption clause (Gore) 2. Was implied from a promise signed (Snelling) ii. Promisee must have an interest in obtaining stay of proceedings Use other common law mechanisms to circumvent the privity rule 1. Collateral Contract a. The court may artificially construct a collateral contract between a 3P and a  contracting party, which allows the 3P to sue on the collateral contract (Shanklin Pier LD, Wells, New York Laser Clinic) b. The court will also construe consideration for the collateral contract usually this would come in the form of one party providing warranties about a product and the 3P instructing someone to purchase the product on their behalf). 2. Himalaya Clause a. A himalaya clause is only used in the carriage of goods context (shipping, land carriage, air freight). b. The typical issue: i. Consignor contracts with carrier to ship cargo to consignee - create bill of lading ii. Bill of lading contains exception clause, covering the carrier and the servants (including stevedores) from liability iii. The carrier ships the cargo but the stevedore unloads the cargo at the dock. Usually the stevedore negligently damages the cargo. iv. The stevedore seeks to reply on the exception clause in the bill of lading to exclude liability, but they are a third party to the contract, so they technically cannot rely on it c. The solution under the himalaya clause i. This is a clause that says the carrier acts as an agent for the stevedore ii. It creates a collateral contract between the consignor and the stevedore which allows the stevedore to rely on the exception clause in the bill of lading d. 4 conditions have been laid out for a stevedore to rely on an exception clause in the bill of lading (Scruttons): i. Bill of lading makes it clear that stevedore is intended to be protected by exception clause ii. Bill of lading makes it clear that the carrier, in addition to contracting on its own behalf, is aso contracting as an agent for the stevedore in relation to the exception clause (or the stevedore later ratifies) iii. Carrier has authority from the stevedore to act as agent (or stevedore later ratifies) This can be inferred if one company is the subsidiary of another (NZ Shipping) iv. Any difficulties regarding consideration are overcome e. Singapore adopts a more liberal approach to himalaya clauses, and does not require that the stevedore wholly owns the carrier in order for condition 3 to be satisfied. The court implied the authorisation from commercial practice (Port Jackson, affirmed in Yusen Air). Rely on the statutory exception to the privity rule (Contracts (Rights of Third Parties) Act 2001 → if you can use the act, use the act first because it offers a more direct path to dealing with privity) S.2 → a 3P can enforce a contract if ○ (a) the contract expressly provides that the 3P may, or ○ (b) the term purports to confer a benefit on the 3P Further requirements (s.2(2) and s.2(3)) → the parties intend for the term to be enforceable by the 3P, the 3P is identified in the contract by name, as a member of a class or as answering to a particular description  A contract can “purport to confer a benefit” on a 3P even if benefitting the 3P is not the contract’s predominant purpose (CLAAS Medical). However, the 3P must be an intended beneficiary of the contract, not just an incidental beneficiary (Dolphin Maritime) The burden of proof for s.2(2) falls on the party resisting the use of s.2(2) to show that the parties did not intend to allow the third party to enforce (CLAAS Medical). s.2(2) does not prevent a 3P from enforcing the contract just because there was no positive proof that the parties intended to allow him to enforce → s.2(2) only disapplies s.2(1)(b) if parties expressed a mutual intention not to allow 3P enforcement. There need not be a positive indication that the parties intended to allow the 3P to enforce, a neutral stance would suffice (Nisshin Shipping) ○ s.2(5) the 3P has available to him any remedy which would have been available to him if he was a party in the contract S.3 prevents parties from rescinding or varying the contract to extinguish or alter the 3P’s entitlement to enforce the contract under s.2 S.4 states that when the 3P uses s.2 to enforce the contract against the promisor, the promisor can rely on defences that he would have had to the contract (e.g. the promisor can rely on exception clauses limiting their liability subject to the UCTA) S.5 maintains that the promisee can continue to enforce the contract even if a 3P is seeking to enforce it S.6 protects the promisor from double liability by ensuring that if the promisee has already recovered damages (on behalf of the 3P), the 3P’s damages will be correspondingly reduced. S.8(2) states that the UCTA s.2(2) does not apply when the negligence consists of a breach of an obligation arising from a term of the contract and the person seeking to enforce it is a 3P acting in reliance on s.2. Introduction Contracts are usually bilateral (between 2 contracting parties). However, sometimes a contract contains a clause that can confer a benefit on a third party, or the whole contract is intended to benefit a third party. In such a scenario, there is an issue with how the contract will be enforced, when it cannot be enforced by a third party himself. The Privity Rule The privity rule is that a third party cannot enforce a contract. ○ This is regardless of whether the contract is made for the benefit of the 3P or not. ○ For example, there is a contract between a parent and a tutor stating that the tutor will give tuition lessons to the child → if the tutor breaks this promise → child cannot enforce the contract and make the tutor give tuition lessons to him ○ Sometimes used to by the main contractor to protect the sub contractors from liability  History of the privity rule ○ Tweddle v Atkinson → privity rule was just an application of the consideration rule Facts Tweddle Jr (plaintiff) married Guy Sr’s daughter Tweddle Sr and Guy Sr entered into agreement to give money to Tweddle Jr Tweddle Sr promised to give (and did give) £100 Guy Sr promised to give £200, did not give, died Tweddle Jr sued executor of Guy Sr’s estate for breach of contract Holding Tweddle Jr was not entitled to sue Reasoning Tweddle Jr provided no consideration for Guy Sr’s promise No “stranger to the consideration” can sue on a contract ○ Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd Facts Dunlop manufactured tyres, sold tyres to Dew (a distributor) Dunlop made contractual arrangements with Dew to maintain list prices Dew resold tyres to Selfridge (a retailer) Dew-Selfridge contract: Selfridge undertook not to sell tyres below Dunlop list price (note: Dunlop was third party to this contract) Selfridge sold tyres below list price Dunlop sued Selfridge for breach (of the Dew-Selfridge contract) Holding Dunlop not entitled to sue Reasoning Viscount Haldane LC: “Our law knows nothing of a jus quaesitum tertio [third party rights] arising by way of contract” Note: this is the standalone privity rule (not based on consideration) ○ Critique of the privity rule Reasons for the privity rule: Consideration - 3rd party usually does not give consideration (though there are situations where they might, such as in the Dunlop case where the 3rd party withholds from selling the products at a lower price) Mutuality - third party cannot be sued and therefore should not be allowed to sue ○ However, this is not really a valid reason because non-mutuality is already allowed in unilateral contracts Directionality of promises - contractual promises not made to third party  ○ The promise is directed to another party (not 3P), which creates an obligation to you and confers a right onto the other party to sue you to enforce it Critiques of the privity rule: Reliance - third parties may reasonably rely on contracts and it would be unfair if they had no way to enforce the contract Intention - contracting parties may intend to allow the third party to sue and the privity rule hence gets in the way of the parties’ contractual intentions Complexity - methods used to get around privity rule are complex (and the courts often artificially modify the rule to get around it) → legal black hole Ways to counter the privity rule in practice 1. Rely on promisee to enforce on behalf of third party 2. Use other common law mechanisms to circumvent the privity rule 3. Rely on the statutory exception to the privity rule Rely on promisee to enforce on behalf of third party Promisee is always entitled to enforce the contract on behalf of a third party. Possible obtainable remedies: 1. Damages a. Legal Black Hole issue i. The own loss rule states that the promisee can only claim damages for his own loss, so by extension, he cannot claim damages for losses suffered by a third party ii. This leads to a problem in contracts for benefit of a third party because the third party cannot enforce the contract → promisee can enforce contract but cannot get substantial damages because of own-loss rule → promisor’s obligations seem to disappear into a “black hole” b. To counter this problem, the courts developed 3 ways to let the promisee claim substantial damages, notwithstanding the own-loss rule: i. Special cases 1. Makes an exception to the own-loss rule in “group contract” cases, allowing the promisee to claim damages for third party losses 2. For certain “group contracts” the promisee can claim damages for losses suffered by third parties in a group Jackson v Horizon Holidays Ltd The plaintiff booked a holiday through the defendant, a travel  agency. The plaintiff was promised a high standard of accommodation but this promise was not delivered and he sued the travel agency for breach of contract, claiming damages for himself, his wife and his 2 children. The court held that he could recover damages for his family because the father had made the contract on behalf of the family for the benefit of them. Facts Plaintiff booked a holiday in Ceylon through the defendant (travel agency) for the family. P paid £1,200, agreed on high standards for accommodation. However, the hotel was very subpar (no bathroom, stinking mildew, dirty sheets, no menu, etc) and the family suffered discomfort and distress. Plaintiff sued the travel agency for breach of contract, and he claimed damages for the loss suffered by himself, wife and two small children. Defendant admitted liability for breach of contract, contested quantum of damages. The court had to deal with the issue of whether P could claim damages for the loss suffered by his wife and children. Holding P could recover damages for himself, and wife and children. Reasoning When one person makes a contract for benefit of a group, the person can recover his own damages and for the others Examples: host contracting with restaurant for dinner with friends; vicar contracting with coach for trip with choir 3. However, this principle does not extend to all contracts made for the benefit of third parties Woodar Investment Development Ltd v Wimpey Construction UK Ltd Wimpey had contracted to buy land from Woodar, and they had a payment arrangement such that Wimpey would pay £850k to Woodar, and £150k to Transworld upon completion. However, Wimpey had terminated the contract and Woodar tried to claim damages on behalf of Transworld as well. UKCA likened the contract to Jackson and allowed Woodar to claim damages for Transworld’s loss. This decision was reversed by the UKHL.  In this case, the court found that there was no wrongful termination in the first place, so there was no damages to be claimed. However, as obiter, the court suggested that the Jackson exception only applied in “special cases” which are “situations of daily life which do not fit neatly into conceptual analysis, but which require some flexibility in the law of contract”. Facts Wimpey contracted to buy land from Woodar. The payment arrangement was such that Wimpey would pay £850k to Woodar, and £150k to Transworld upon completion. However, Wimpey terminated the contract because the government had commenced compulsory acquisition. Woodar alleged that the termination was wrongful and sued for breach. They claimed damages including the £150k payable to Transworld. CA found wrongful termination, and held that Woodar was entitled to claim damages for Transworld’s loss (following Jackson ). Case appealed to HL. Holding There was no wrongful termination. Reasoning Hence, there was no need to decide the issue of damages for Transworld’s loss. Obiter dicta (Lord Wilberforce, Lord Russell of Killowen, Lord Keith of Kinkel): decided that Jackson was correctly decided on its facts. They agreed that certain classes of contracts called for “special treatment”, but this treatment should not extend to all contracts made for the benefit of third parties. In the present case, Woodar and Transworld are 2 separate entities, so the Jackson rule should not be extended to them. HL held that Jackson not analogous to the present case, and hence was not applicable. ii. Narrow ground General Principles: Element 1: commercial contract involving goods/buildings Element 2: contemplated transfer of goods/buildings after contract + actual transfer of ownership (the property must have been transferred if not you will not even have a privity problem) (everyone must know that the property would be transferred) Third party must not have own contractual right of action (but can have a tortious right of action) Promisee must account to third party for damages awarded 1. Makes an exception to the own-loss rule in “property transfer” cases, allowing the promisee to claim damages for third party losses (property is transferred to a third party, and the third party suffers the loss) The Albazero This case concerned a charterer who chartered a ship from the shipowner to carry crude oil. During the voyage, the charterer sold oil to a buyer and the sale was completed by signing the bill of lading (which was between the charterer and the buyer). However, the ship later sank and the oil was lost. The buyers brought an action against the shipowners. The court formulated the narrow ground in this case stating that in contracts which contemplate the transfer of proprietary interests of goods from one party to another, the promisee is entitled to recover losses on behalf of the 3P. However, in the current case, the narrow ground was not available to the buyers because they had a direct right of action to sue under the bill of lading as if it were the charterer. Facts A charterer chartered a ship from the shipowner to carry crude oil from Venezuela to Antwerp. During the voyage, the charterer sold oil to a buyer. The sale was done by “endorsing” (signing) the “bill of lading” (the shipping document) to the buyer. However, the ship later sank, and the oil was lost. (note: buyer suffered loss) Buyers sued the shipowner for breach of contract. Holding The charterers were not entitled to claim substantial damages. Reasoning Classic formulation of the narrow ground: “… in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an  interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into” Rationale for narrow ground: “… there may … be occasional cases in which the rule would provide a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it” However, the narrow ground is not applicable if the third party has a direct right of action (because there will be no legal blackhole in this case). In this case, the buyer had the right of action because he could have sued under the bill of lading as if it were the charterer. 2. The narrow found has been extended to cover building cases. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd A corporation wished to develop land and they contracted the defendants (McAlpine) for building works. The corporation then transferred their property interest to Investments, which was a sister company of the corporation. After the transfer, the corporation discovered that the defendant’s work was defective and they paid ~£800k to fix the defects. They were subsequently reimbursed by Investments, but they sued the defendants for damages. Note: the corporation did not suffer any loss. The court held that the corporation was entitled to recover damages under the narrow ground, and extended application of the narrow ground to the building context. In this case, Investments had suffered a loss and they should be compensated because they have no right of access against the defendants. Facts Corporation wished to develop land at St Martins site and they contracted with McAlpine for building works. Corporation transferred property interest in St Martins site to Investments (sister company). After the transfer, the Corporation discovered that McAlpine’s work was defective, and the  building suffered from leaks. Corporation paid ~£800k to fix defects and was reimbursed by Investments (note: eventually, loss was suffered by Investments). Corporation sued McAlpine for damages. Holding Corporation entitled to claim substantial damages under narrow ground Reasoning Court extended narrow ground to building context – rationale for narrow ground equally applicable regardless of what kind of property you are looking at, the 3P had no right of access against the promisor. (Investments suffered loss in this case and should be compensated because they have no remedy) 3. The narrow ground has been extended to cover cases without any contemplated transfer of property Darlington Borough Council v Wiltshier Northern Ltd DBC owned a plot of land and wanted to develop it. Hence, they approached MG (a finance company) as their intermediary. MG then contracted with Wiltshier, the contractors, to develop the land into a recreation centre. The construction works carried out by Wiltshier were defective, and it would cost DBC ~£2m to repair. The court held that MG was entitled to claim damages under the narrow ground on behalf of DBC, even though there was no contemplated transfer of property and DBC owned the plot of land the entire time. The court justified the extension on the basis that there was a legal black hole issue in this case, since DBC did not have a right of action or remedy for its loss. Facts DBC owned a plot of land and wanted to build a recreation centre. DBC approached MG (a finance company) to be the intermediary. MG contracted with Wiltshier (contractors) to build a recreation centre for DBC. Construction works alleged to be defective and would cost DBC ~£2m to repair (note: loss suffered by DBC). There was no transfer of property the entire time  because DBC owned the recreation centre at all times. Holding MG entitled to claim substantial damages under narrow ground Reasoning The court extended the narrow ground to the present situation involving no contemplated transfer of property – rationale for narrow ground was equally applicable (DBC suffered loss, should be compensated, has no remedy). The rationale cited by the court remained the same - “need to avoid a demonstrable unfairness which no rational legal system should tolerate” (legal black hole) 4. However, the Darlington extension may not be followed in Singapore (though this is mere obiter) Family Food Court v Seah Boon Lock However, the courts in Singapore have suggested that this extension of the narrow ground in Darlington Borough Council may not always be followed. In Family Food Court, the court insisted that the promisee suing must have knowledge of the existence of 3P before he can claim for their losses. This implies that the court in Singapore may insist on the requirement of contemplated transfer of property for the narrow ground. The court at highlighted that “A is accountable to C for any damages recovered by A from B as compensation for C’s loss”, and “the exceptional principle does not apply where C has a direct remedy against B”. Facts FFC operated food courts around Singapore and agreed to licence a Yew Tee Stall to SBL. FFC later repudiated and took back the Yew Tee Stall. SBL sued FFC and claimed damages. Below, the High Court thought that SBL had contracted on behalf of a third party (the actual operator of the Yew Tee Stall) but did not disclose this to FFC. Holding SBL contracted on his own behalf Reasoning Obiter: hypothetically, if SBL were suing for loss suffered by third party, SBL would not be entitled to claim substantial damages under narrow ground  FFC was totally unaware of existence of third party – impossible for parties to have contemplated transfer of proprietary interest Implication: court will insist on contemplated transfer for narrow ground 5. The narrow ground is excluded by the third party’s direct right of action, even if it is not identical with the promisee’s right of action. Alfred McAlpine Construction Ltd v Panatown Ltd The 3P owned a site in Cambridge and wished to develop it. Panatown (promisor), the 3P’s sister company contracted with McAlpine to develop the site. McAlpine later entered into a duty of care deed with the 3P for the development of the site. The building was later found to be seriously defective, and the promisor sued McAlpine for the breach of contract. The court held that Panatown (the promisor) was not entitled to claim substantial damages under the narrow ground because the 3P had a right of action under the duty of care deed. It did not matter that the right of action under the duty of care deed was “weaker” than Panarown’s right to action because 3P can only sue when there is a breach in the duty of care, while Panatown can sue if there is a breach in contract. Facts Unex Investment Properties Ltd (UIPL) owned a site in Cambridge and wished to develop it. Panatown was UIPL’s sister company that served as the direct employer of contractors working on building at UIPL’s site. Panatown contracted with McAlpine (contractors) to build an office block and carpark. Separately, McAlpine entered into a separate contract with UIPL (duty of care deed). The duty of care deed placed duty of care on McAlpine directly owed to UIPL. Building alleged to be seriously defective (note: loss suffered by UIPL who owned the building at all times). Panatown sued McAlpine for breach of contract. Holding Panatown is not entitled to claim substantial damages under narrow ground.  Reasoning An exclusion for narrow ground present – here UIPL had right of action under the duty of care deed. This is even though UIPL’s right of action was “weaker” than Panatown’s right of action (because UIPL only can sue if McAlpine breached duty of care; Panatown can sue for any breach of contract). 6. The narrow ground applies in Singapore, and the narrow ground is not excluded if the third party’s direct right of action is merely tortious. Chia Kok Leong v Prosperland Pte Ltd Prosperland, a condominium developer, contracted with architects. The condo was completed and was transferred to MCST (3P). However, works on the condo turned out to be defective, and Prosperland sued the architects for the breach of contract. Note: Prosperland had suffered no loss because they did not repair the defective condo and MCST did not sue them. The court held that Prosperland was entitled to claim substantial damages under the narrow ground because (1) it was a commercial contract involving buildings; and (2) there was the transfer of ownership of the building. Furthermore, Prosperland must demonstrate that they had the intention to rectify the damages for MCST. Though MCST did have a direct right of action in tort under negligence, the court held that Prosperland was still eligible to claim damages under the narrow ground. The claim in tort was not a perfect substitute for the claim in contract, because it was subject to limitations in tort. Furthermore, the claim in tort did not eliminate the legal black hole issue in contract law. Facts Prosperland was a condo developer that contracted with architects. The condo was completed in 1993, MCST constituted 1998 and became the condo proprietor (note: means condo transferred to MCST). Works on condo turned out to be defective Prosperland spent no money on rectification, also not sued by MCST (so suffered no loss). Prosperland sued architects for breach of contract. Holding Prosperland entitled to claim substantial  damages under narrow ground Reasoning Facts fit into narrow ground formulation: commercial context involving building and the parties contemplated the transfer of property to MCST after the contract. The promisee must account to the third party for the damages obtained → they have to demonstrate that they have the intention to use the damages to rectify the building damages for MCST (cost of cure). This supports the overall rationale for allowing the narrow ground in the first place, which is to give the third party compensation where no other remedy is available. Is the narrow ground excluded if the 3P has a non-contractual right of action? - Architects argued that narrow ground excluded because MCST had direct right of action in tort (i.e. negligence) - Court rejected argument because they felt that the third party’s claim in tort is not perfect substitute for a claim in contract (need to prove negligence, subject to tort law defences, etc) - However, it is unclear/untested whether a weaker claim in contract can displace a claim under the narrow ground. - Third party’s claim in tort cannot fully - eliminate the legal black hole problem - Narrow ground is only excluded if third party has contractual right of action iii. Broad ground 1. Views the loss as really the promisee’s loss, and allows the promisee to claim substantial damages for it 2. This is not an exception to the own-loss rule, but merely a broad application of it Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd A corporation wished to develop land and they contracted the defendants (McAlpine) for building works. The corporation then transferred their property interest to Investments, which was a sister company of the corporation.  After the transfer, the corporation discovered that the defendant’s work was defective and they paid ~£800k to fix the defects. They were subsequently reimbursed by Investments, but they sued the defendants for damages. Note: the corporation did not suffer any loss. While the court held that the corporation could claim damages under the narrow ground, it also suggested application of the broad ground under obiter. It suggested that the corporation had also suffered loss for the defendant’s defective performance of their promise and incurred cost to rectify the defective performance. It was irrelevant that they were reimbursed subsequently by Investments. Facts Corporation wished to develop land at St Martins site and they contracted with McAlpine for building works. Corporation transferred property interest in St Martins site to Investments (sister company). After the transfer, the Corporation discovered that McAlpine’s work was defective, and the building suffered from leaks. Corporation paid ~£800k to fix defects and was reimbursed by Investments (note: eventually, loss was suffered by Investments). Corporation sued McAlpine for damages. Holding Applied the narrow ground (see above), but the broad ground was also suggested Reasoning Obiter: Corporation should be able to claim substantial damages for itself Corporation suffered loss by spending money on rectification It was irrelevant that Corporation was reimbursed (promisor cannot avoid paying compensation by pointing to someone else’s reimbursement) Rationale for broad ground: promisee did not receive performance, and must now incur cost to cure non-performance 3. Promisee does not need to actually use the damages to cure the defective performance Darlington Borough Council v Wiltshier Northern Ltd DBC owned a plot of land and wanted to develop it. Hence, they approached MG (a finance company) as their intermediary. MG then contracted with Wiltshier, the contractors, to develop the land into a recreation centre. The construction works carried out by Wiltshier were defective, and it would cost DBC ~£2m to repair. The court allowed MG to claim damages under the narrow ground but also considered the application of the broad ground. In this case, the biggest issue was that MG did not intend to use the damages to cure the defective performance. The court held that this was not a requirement for the broad ground, and MG still suffers a loss of bargain or expectation interest. The court then suggested that it does not matter what the plaintiff proposes to do with his damages and whether he would undertake the necessary repairs. However, this reasoning should not be followed because this would allow the plaintiff to gain a windfall while the 3P still suffers a loss. The whole point of the broad ground is to allow the 3P to be compensated for their losses through the plaintiff because they have no right of action themselves. It would make no sense for the plaintiff to gain an advantage for a superficial loss they suffered (expectation loss) and leave the 3P with the defective performance but no remedy. Facts DBC owned a plot of land and wanted to build a recreation centre. DBC approached MG (a finance company) to be the intermediary. MG contracted with Wiltshier (contractors) to build a recreation centre for DBC. Construction works alleged to be defective and would cost DBC ~£2m to repair (note: loss suffered by DBC). There was no transfer of property the entire time because DBC owned the recreation centre at all times. Holding MG entitled to claim substantial damages under narrow ground Reasoning Obiter: for claims under broad ground, promisee need not prove that he will actually use the damages obtained to cure the defective performance Damages belong to the promisee, not the third party 4. The broad ground has been endorsed in Singapore but the court must prevent double liability Chia Kok Leong v Prosperland Pte Ltd Prosperland, a condominium developer, contracted with architects. The condo was completed and was transferred to MCST (3P). However, works on the condo turned out to be defective, and Prosperland sued the architects for the breach of contract. Note: Prosperland had suffered no loss because they did not repair the defective condo and MCST did not sue them. The court held that Prosperland was eligible to claim substantial damages under the narrow ground, but also suggested that Prosperland is eligible to claim substantial damages under the broad ground as obiter. The court suggested that the building employer need not show that it intends to carry out the repairs before he is entitled to claim for substantial damages. It is possible that the 3P wants to abandon the project, so it would not make sense for the employer to proceed with repairs. However, the court held at that they must take into consideration “the entire circumstances of the case must be considered to determine whether the claim made was reasonable or was made with a view to obtaining an uncovenanted benefit”. In the present case, Prosperland intended to rectify those defects using the damages recovered, and they had suffered some loss in that they were facing a potential claim for loss suffered by MCST for the defects in the condo. Furthermore, the court cautioned against the employee’s double liability if the employer is able to bring a claim for substantial damages, and the 3P is too. The court found this to be a non-issue, and simply suggested that the court could always join a third party to the proceedings or to subordinate the employer’s claim to the 3P’s. Facts Prosperland was a condo developer that contracted with architects. The condo was completed in 1993, MCST constituted 1998 and became the condo proprietor (note: means condo transferred to MCST). Works on condo turned out to be defective Prosperland spent no money on rectification, also not sued by MCST (so suffered no loss). Prosperland sued architects for breach of contract.  Holding Prosperland entitled to claim substantial damages under narrow ground Reasoning Obiter: in principle, Prosperland entitled to claim substantial damages under broad ground The court suggested that the building employer need not show that it intends to carry out the repairs before he is entitled to claim for substantial damages. It is possible that the 3P wants to abandon the project, so it would not make sense for the employer to proceed with repairs. However, the court held at that they must take into consideration “the entire circumstances of the case must be considered to determine whether the claim made was reasonable or was made with a view to obtaining an uncovenanted benefit”. If a broad ground claim is made, the court must guard against double liability and ensure that the promisor does not pay twice for the same breach. Double liability could occur if both promisee and third party make claims but the solution is to subordinate the promisee’s claim to the third party’s claim. “The court will need to be satisfied that the building owner is not proposing to make his own claim and is content to allow his claim to be discharged by payment to the building employer before allowing the building employer’s action to proceed”. 5. The performance interest claimed must be genuine Family Food Court v Seah Boon Lock As obiter, the court discussed the difference between the narrow and broad ground (though it did not apply in this case because there was no 3P involved). As for the broad ground, the court suggested that the performance interest (for the contract to be performed) of the plaintiff must be genuine and subject to the Ruxley test for reasonableness. This is to prevent the plaintiff from gaining a windfall. Furthermore, the court suggested that it might be more just to allow the 3P to join as a party to the proceedings, and then award the full measure of damages it is entitled to directly to the 3P instead.  Facts FFC operated food courts around Singapore and agreed to licence a Yew Tee Stall to SBL. FFC later repudiated and took back the Yew Tee Stall. SBL sued FFC and claimed damages. Below, the High Court thought that SBL had contracted on behalf of a third party (the actual operator of the Yew Tee Stall) but did not disclose this to FFC. Holding SBL contracted on his own behalf Reasoning The court suggested that the performance interest claimed must be genuine. The court will apply a test of reasonableness to the performance interest to prevent a windfall to the promisee. While the promisee was not required to use those funds to rectify the defective performance, “a just and fair result between the parties” must be achieved. The court will apply the test in Ruxley to determine whether the performance interest is reasonable. Apart from this, the traditional legal control mechanisms relating to contractual claims would also apply (including principles of causation, remoteness of damage, mitigation of loss and requirement of certainty of loss). The court highlighted that it might allow the 3P (principal) to become a party to the proceedings, and then the undisclosed principal will be awarded the full measure of damages it is entitled to. This is because the broad ground is allowing the plaintiff to obtain substantial damages for their own loss, not for the loss of the 3P. Can the narrow ground and the broad ground coexist? - Family Food Court they recognised that the 2 exceptions are conceptually inconsistent, and if the broad ground is unavailable, the narrow ground will be removed. - The 2 concepts cannot be applied simultaneously. Gave example of the undisclosed principal to demonstrate that the narrow ground may sometimes be inapplicable but the broad ground still is. - In Prosperland, the court suggested that the narrow ground and broad ground can coexist → but they failed to see that the fact that we recognise the narrow ground in only certain situations, then we are precluded from recognising the broad ground. - In a narrow ground, the promisee is recovering on behalf of the third party and they must show intention to apply the damages to remedy the breach but either way the remedy must go to a third party. - In a broad ground, the damages are for the promisee himself but there must be genuine performance interest. - Furthermore, the court in Family Food Court at suggested that the broad ground is not concerned with filling the legal black hole, but instead compensate the promisee for genuine loss recovered. This would include the “loss of bargain or of expectation interest”. - Therefore, the plaintiff can choose to do anything they want with their damages (need not rectify defective performance). - The damages are subject to the Ruxley test of reasonableness to ensure that the plaintiff does not gain a windfall. 2. Specific Performance a. Promisee can sue for specific performance, which is particularly useful in contracts for benefit of a third party b. Beswick v Beswick AC 58 An uncle entered into a contract with his nephew such that he would transfer his coal business to the nephew and in return, the nephew would pay £5 per week after uncle’s death to the aunt. After the uncle died, the nephew refused to pay the aunt. The aunt then brought a claim against the nephew in (1) her personal capacity; and (2) in her capacity as administratrix of the uncle’s estate. The court held that the aunt could not enforce the contract in her personal capacity, but could enforce it as an administratrix. Furthermore, the courts also decided that specific performance was the appropriate remedy in this case, because damages were inadequate (since she had not suffered any loss), damages were inappropriate (because he was to pay her weekly, not as a lump sum). The court gave a total of 5 reasons on why specific performance was an appropriate remedy, but the focus was on the requirement of mutuality – - if the deceased had died before the business had been transferred, the defendant would have been entitled to specific performance of the contract for the sale of the business to him. Therefore, the wife should be entitled to specific performance of the allowance obligation. Facts Uncle transferred coal business to nephew Nephew promised to pay aunt £5 per week after uncle’s death Uncle died, nephew refused to pay aunt Aunt sued nephew in two different capacities (1) in her personal capacity (as third party) (2) in her capacity as administratrix of uncle’s estate (as if she were uncle)  Holding The court held that the aunt could not enforce the contract in her own personal capacity (because she had not suffered substantial loss), but she could enforce the contract as an administratrix. Reasoning Courts decided that specific performance was the appropriate remedy: - Damages were inadequate remedy – only nominal damages since breach caused no loss to uncle’s estate - Damages were inappropriate remedy – obligation was to pay weekly, but damages can only be paid in lump sum - Injustice – nephew had received full benefits from contract, would otherwise avoid paying the full price - Convenience – better to order specific performance once than repeatedly award damages - Mutuality – nephew could have obtained specific performance from uncle as well The court held that mutuality is the essence of specific performance - if the deceased had died before the business had been transferred, the defendant would have been entitled to specific performance of the contract for the sale of the business to him. c. However, specific performance is not always a good solution: i. The court may not award specific performance because it is a discretionary remedy subject to certain bars (constant supervision, personal service, etc.) ii. Specific performance may not be the desirable remedy (damage might already have been done, or the promisor may no longer be trusted to perform the task) 3. Stay of Proceedings a. Promisee can sue for a stay of proceedings (usually used in the context where the promisor has promised not to sue the third party) i. If the promisor sues anyway, the promisee can obtain a stay of proceedings to stop proceedings against the third party ii. The promisor’s claim may also be dismissed entirely b. Requirements for a stay of proceedings Gore v Van der Lann A corporation provided bus passes to pensioners. The pensioners had to fill up an application form to get on the bus, which included an exemption clause exempting the corporation and their employees from liability for any injury. The  plaintiff fell when attempting to board the bus and sued the bus conductor for negligence.The corporation brought a stay of proceedings against the employee, relying on the exemption clause. The court held that the exemption clause was void under the Road Traffic Act. However, even if it was not void, stay of proceedings would not be granted because (1) the plaintiff did not make a clear and ambiguous promise not to sue (promise cannot simply be implied from the exemption clause) and (2) the corporation had no interest in obtaining a stay of proceedings because the corporation had no obligation to indemnify the employee. Facts Liverpool Corporation provided bus passes to pensioners. Pensioners had to fill in an application form to get a pass – form contained exemption clause exempting LC and employees from liability for any injury. Plaintiff fell when attempting to board LC bus. Plaintiff sued bus conductor (employee) for negligence. LC sought stay of proceedings against plaintiff, relying on an exemption clause. Holding The exemption clause was void under the Road Traffic Act Reasoning Obiter: even if the exemption clause was not void, stay of proceedings would still not be granted Requirements for obtaining stay of proceedings: 1. Promisor must have made a clear and unambiguous promise not to sue a. Here the promisor did not make such a promise and the promise cannot merely be implied from the exemption clause 2. Promisee must have an interest in obtaining a stay of proceedings a. Here, promisee had no interest in obtaining stay of proceedings because LC had no obligation to indemnify the bus conductor, so they would actually suffer no loss by allowing the plaintiff to sue conductor However, we can see how both these requirements are problematic: 1. A promise not to sue can easily be implied from the exemption clause 2. Employers usually have an interest in protecting employees (might have VL as well) c. An example of a more liberal approach taken to grant a stay of proceedings Snelling v John G Snelling Ltd There was an agreement between 3 directors of a company that if one of them  resigned, he would forfeit debt owed to him by the company. A director resigned and then sued the company for £15,268 owed to him The other 2 directors sought dismissal of his claim. The court granted a stay of proceedings. The director had made a clear and unambiguous promise promise not to sue (this promise was implied through the promise to forfeit debt) and the other 2 directors had an interest in obtaining a stay of proceedings, because they had an interest to protect the company. Facts Brian, Peter, and Barrie were directors of Company Each one agreed that if he resigned, he would forfeit debt owed to him by Company Brian resigned, sued Company for £15,268 owed to him Peter and Barrie sought dismissal of Brian’s claim Holding Brian’s claim was dismissed. Reasoning Both elements for obtaining stay of proceedings were satisfied (1) Brian made a clear and unambiguous promise not to sue Company Promise can be implied (cf Gore ) and promise to forfeit debt implied promise not to sue for money (2) Promisees had interest in obtaining a stay Peter and Barrie were directors of Company, had practical interest in protecting Company – even though they were not obliged to indemnify (cf Gore ) Use other common law mechanisms to circumvent the privity rule Suggestions (not in syllabus): 1. Tort → a third party who cannot sue in contract may be able to sue in tort 2. Agency → an agent can make a contract on behalf of a third party (the “principal”). The principal becomes a party to the contract, and the agent then “falls out” a. The agent must be authorised by the principal b. With authority, the agent is empowered to act on behalf of principal c. If the agent contracts without authority, the principal may subsequently ratify (ratification can also be done after the contract has been formed) 3. Trust of promise → under a trust, a trustee holds property “on trust” for a beneficiary. The beneficiary is entitled to the benefit of the property. 4. Novation → parties can “novate” their contract to replace parties. For instance, X1 may hire Y to paint her house for $1000. X1 wants to pass the job on to X2. The parties then novate the contract and X1 and Y cease to be bound by the old contract. Y and X2 are now bound by the new contract. 5. Assignment → parties can “assign” their benefits under a contract to a third party which makes the third party entitled to sue someone for the collection of the benefit. 6. Negotiation → some obligations which are embodied in negotiable instruments (e.g. cheques, promissory notes) can be transferred to third parties, who can enforce the obligation 7. Collateral Contract a. Rare, but courts can artificially construct a collateral contract between a third party and a contracting party, which allows the third party to sue on the collateral contract b. Shanklin Pier Ld v Detel Products Ld Shanklin Pier (SP) owned a pier and entered into a repair contract which included repeating the pier with bitumen paint. Detel Products (DP), manufacturer of this paint, wanted SP to instruct their contractors to use the paint so they told SP that the paint was suitable and would last 7-10 years. SP instructed their contractors to use the paint, and the contractors entered into a contract with DP. However, the paint only lasted 3 months and SP incurred additional expenses to repair the pier. SP sued DP for damages, though SP was a third party to the contract between the contractors and DP. The court held that SP was entitled to sue DP and constructed a collateral contract between SP and DP. The court construed consideration between the 2 parties in that SP promised to instruct their contractors to buy paint from DP on the condition that their paint lasted 7-10 years and was suitable. Facts SP owned a pier and entered into a repair contract. Part of the repair included repainting the pier with bitumen paint. DP manufactured paint and wanted SP to instruct their contractors to use its paint. Hence, DP warranted to SP that the paint was suitable and would last 7-10 years. SP instructed contractors to use DP paint and the contractors purchased paint from DP. The paint only lasted 3 months and SP incurred £4,127 in additional expenses. SP sued DP for damages Note: SP is third party to paint-purchasing contract Holding SP entitled to sue DP Reasoning DP’s warranty (about the qualities of the paint) created a collateral contract with SP which was enforceable. Where is SP’s consideration for that collateral contract? SP gave consideration by ordering contractors to buy DP paint (committing to the purchase) and DP’s consideration came in the form of their warranty that the paint would last 7-10 years. Per McNair J: “I see no reason why there may not be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a contract with A or that B should do some other act for the benefit of A” c. Wells (Merstham) Ltd v Buckland Sand and Silica Co Ltd Wells was a chrysanthemum grower who needed sand with low iron oxide. Buckland said its “BW” sand was suitable and they produced an analysis showing that the soil contained low iron oxide content.Wells bought two loads of BW sand via an intermediary called Hall. Hall obtained sand from Buckland without saying it was for Wells. The sand had high iron oxide, and the flowers died. Wells lost £2,500, and sued Buckland for damages. The court held that Wells was entitled to sue Buckland because of the collateral contract between them. The court held that Buckland’s warranty about the qualities of the soil was consideration for Wells instructing Hall to buy the sand. It was not relevant that Buckland did not know that Halls was buying sand on behalf of Wells. Facts Wells was a chrysanthemum grower who needed sand with low iron oxide. Buckland said its “BW” sand was suitable and they produced analysis showing low iron oxide content, which warranted that all BW sand would conform Wells bought two loads of BW sand via an intermediary called Hall. Hall obtained sand from Buckland without saying it was for Wells. The sand had high iron oxide, and the flowers died. Wells lost £2,500, sued for damages Holding Wells entitled to sue Buckland Reasoning Buckland’s warranty gave rise to collateral contract Wells gave consideration by buying BW sand (via Hall) Irrelevant that Buckland did not know of arrangement between Wells and Hall (cf Shanklin Pier ) d. New York Laser Clinic Ltd v Naturastudios Ltd Naturastudios pushed NYLC, a laser clinic, to purchase its “Magma Lasers”. Naturastudios warranted several things, including that Magma Lasers could work on skin with active tan. NYLC bought 6 Magma Lasers via finance companies (finance companies bought lasers from Naturastudios, NYLC took lasers from finance companies through hire purchase). However, the warranties were false and some clients suffered burns. NYLC sued Naturastudios for breach of collateral contract based on warranties. The court held that NYLC was entitled to sue Naturastudios for the breach of collateral contract. The court held that both parties had given consideration – NYLC in instructing the finance companies to purchase the lasers and Naturastudios in making warranties that had contractual force. NYLC had suffered losses in compensating unhappy customers and loss of potential profits. Furthermore, there was no exclusion clause in the main contract between the finance companies and Naturastudios to prevent NYLC from suing Naturastudios directly.  Facts NYLC ran clinics for laser hair removal and Naturastudios sold lasers to the aesthetic clinics. Naturastudios pushed NYLC to purchase its “Magma Lasers”. Naturastudios warranted several things, including that Magma Lasers could work on skin with active tan. NYLC bought 6 Magma Lasers via finance companies (finance companies bought lasers from Naturastudios, NYLC took lasers from finance companies through hire purchase). Warranties were false (some clients suffered burns). NYLC sued Naturastudios for breach of collateral contract based on warranties. Holding NYLC entitled to sue for breach of collateral contract Reasoning (1) Naturastudios gave several warranties to NYLC (2) Most warranties were intended to have contractual force (“clear and unequivocal”, Naturastudios was better placed to know the facts) (cf Terms topic) (3) NYLC provided consideration by getting finance companies to buy lasers, and paying deposit directly to Naturastudios (4) NYLC caused finance companies to contract with Naturastudios (5) Warranties were inaccurate (6) NYLC suffered financial loss (paid for useless lasers, compensated unhappy clients, lost potential profits that could have been made if warranties were true) (7) No exclusion clauses in main contract (between Naturastudios and finance companies) 8. Himalaya Clause a. Introduction i. Is only used in the carriage of goods context (shipping, land carriage, air freight) ii. Definitions 1. Carrier - the shipping company owning the ship 2. Consignor - the person who wants to ship the cargo (the shipper) 3. Consignee - the recipient of the cargo 4. Stevedore - the dockworker handling the cargo (helping with the loading and unloading of the cargo) 5. Bill of lading - shipping contract Note: because of statute, the consignee can also sue on the bill of lading iii. The typical problem 1. Consignor contracts with carrier to ship cargo to consignee - create bill of lading  2. Bill of lading contains exception clause, covering the carrier and the servants (including stevedores) from liability 3. The carrier ships the cargo but the stevedore unloads the cargo at the dock. Usually the stevedore negligently damages the cargo. 4. The stevedore seeks to reply on the exception clause in the bill of lading to exclude liability, but they are a third party to the contract, so they technically cannot rely on it iv. The solution (inclusion of the Himalaya clause) 1. This is a clause that says the carrier acts as an agent for the stevedore 2. It creates a collateral contract between the consignor and the stevedore which allows the stevedore to rely on the exception clause in the bill of lading b. Scruttons Ltd v Midland Silicones Ltd There was a bill of lading between the consignor (Dow Corning) and the carrier (US Lines ship), to ship a drum to the consignee (Midland). The bill of lading contained an exception clause limiting liability of US Lines to $500. US Lines employed Scruttons as stevedores and when the drum arrived in London, Scruttons negligently dropped the drum, damaging it. Midlands sued Scruttons for negligence and Scruttons tried to rely on the exemption clause in the bill of lading. The court held that Scruttons could not rely on the exemption clause because US Lines was not acting as an agent for Scruttons. Facts Dow Corning shipped a drum of diffusion pump fluid via a US Lines ship. The bill of lading contained an exception clause limiting liability of US Lines (and not anyone else) to $500. Consignee of the drum was Midland, who received the bill of lading. US Lines employed Scruttons as stevedores. When the drum arrived in London, Scruttons negligently dropped the drum when lowering onto the lorry. Midland sued Scruttons for negligence but Scruttons sought to rely on an exception clause in the bill of lading. Holding Scruttons could not rely on exception clause Reasoning The clause did not cover Scruttons because US Lines was not acting as an agent for Scruttons. Significance 4 conditions for stevedore to rely on an exception clause in the bill of lading: 1. Bill of lading makes it clear that stevedore is intended to be protected by exception clause 2. Bill of lading makes it clear that the carrier, in addition to contracting on its own behalf, is also contracting as an agent for the stevedore in relation to the exception  clause 3. Carrier has authority from the stevedore to act as agent (or stevedore later ratifies) 4. Any difficulties regarding consideration are overcome c. New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) There was a bill of lading between Ajax (consignor) and the carrier (FSN ship) to deliver a drilling machine to Satterthwaite (consignee). The bill of lading contained an exception clause excluding all liability unless the suit was brought within 1 year. NZ Shipping (the parent company of FSN) had carried out the stevedoring work but negligently damaged the machine when unloading it. Satterthwaite sued NZ shipping (after the one year time limit) and NZ shipping sought to rely on the exception clause in the bill of lading. The court held that NZ shipping could rely on the exception clause because all 4 conditions laid out in Scruttons was fulfilled: 1. The bill of lading made is clear that the stevedore was to be protected by the exception clause 2. The bill of lading also made it clear that FSN shipping was contracting as an agent for NZ shipping in relation to the exception clause 3. FSN had authority from NZ Shipping to contract on their behalf (this was inferred from FSN being owned by NZ Shipping – the subsidiary has authority to contract for parent) 4. NZ Shipping had provided consideration by unloading the machine (when entering into bill of lading, Ajax simultaneously made “offer” for unilateral collateral contract to NZ Shipping via FSN as agent, NZ Shipping accepted offer and provided consideration by performing the unloading) Facts Ajax made a drilling machine and shipped it via the Federal Steam Navigation (FSN) ship. The bill of lading contained an exception clause excluding all liability unless suit was brought within one year (drafted as Himalaya clause for benefit of servants). Consignee of the machine was Satterthwaite NZ Shipping was the parent company of FSN, carried out stevedoring work but NZ Shipping was negligent when unloading the machine and they damaged it. Satterthwaite sued NZ Shipping (after the one-year time limit) NZ Shipping sought to rely on exception clause in bill of lading Holding NZ Shipping could rely on exception clause Reasoning Exception clause satisfied first two conditions in Scruttons : “It is hereby expressly agreed that no servant or agent of the carrier … shall in any circumstances whatsoever be under any liability whatsoever to the shipper, consignee or owner of the  goods or to any holder of this bill of lading … … and for the purpose of all the foregoing provisions of this clause the carrier is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents …” Condition 1 met: Bill of lading makes it clear that clause covers stevedores Condition 2 met: Bill of lading makes it clear that carrier is contracting as agent for stevedores Condition 3 met: FSN had authority from NZ Shipping to contract on their behalf (inferred from FSN being owned by NZ Shipping – subsidiary has authority to contract for parent) Condition 4 met: NZ Shipping provided consideration by unloading machine (full analysis: when entering into bill of lading, Ajax simultaneously made “offer” for unilateral collateral contract to NZ Shipping via FSN as agent, NZ Shipping accepted offer and provided consideration by performing the unloading) d. Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Australia) Pty Ltd (The New York Star) Courts have sometimes adopted a liberal approach to Himalaya clauses There was a bill of lading between Schick (consignor) and Blue Star Line’s ship (carrier) to ship razor blades to Salmond (consignee). The bill of lading contained an exception clause excluding all liability unless suit was brought within one year. Blue Star Line used Port Jackson as their stevedores. Port Jackson was a related company to the Blue Star Line, but Port Jackson did not own the Blue Star Line). Port Jackson delivered the razor blades to the wrong person who stole them. Salmond then sued Port Jackson for negligence after the 1 year time limit. The court held that Port Jackson could rely on the exception clause. (The analysis is similar to NZ Shipping) The court held that even though Blue Star Line was not owned by Port Jackson, these minor technical difficulties were not an impediment to the fulfilment of condition 3 and prevent stevedores from relying on Himalaya clauses. Facts Schick shipped razor blades via Blue Star Line’s ship. The bill of lading contained an exception clause excluding all liability unless suit was brought within one year (drafted as Himalaya clause for benefit of servants). The consignee of the razor blades was Salmond. The razor blades arrived in Sydney and were handled by Port Jackson (stevedores). Port Jackson was a related company to Blue Star Line (but unlike The Eurymedon , Port Jackson did not own Blue Star Line).  Port Jackson delivered the razor blades to unauthorised person, who stole them. Salmond sued Port Jackson for negligence (after the one-year time limit). Holding Port Jackson could rely on exception clause Reasoning Obiter: court will not encourage “a search for fine distinctions which would diminish the general applicability … of the principle” Minor technical differences (e.g. whether or not stevedores wholly own the carrier) should not prevent stevedores from relying on Himalaya clauses e. Singapore has adopted the same liberal approach to Himalaya clauses Yusen Air & Sea Service (S) Pte Ltd v Changi International Airport Services Pte Ltd The liberal approach adopted in Port Jackson has been affirmed in Singapore by Yusen Air & Sea Service. There was a master airway bill between Yusen SG (consignee) and KLM (carrier) to deliver integrated circuits to Yusen Air (consignee). KLM used CIAS as their ground handlers (equivalent of stevedores), and CIAS misplaced the cargo causing it to never arrive at its destination. Yusen SG then sued CIAS for the loss of cargo and CIAS sought to rely on the exception clause in the master air waybill. The court held that CIAS could rely on the exception clause. The courts took a liberal approach to finding condition 3 fulfilled – they found that it could be implied that CIAS had authorised KLM to act as their agent through commercial practice. Facts Yusen SG shipped integrated circuits via KLM (air freight). Master airwaybill contained an exception clause (drafted as Himalaya clause for benefit of servants). The consignee of the integrated circuits was Yusen USA. KLM used CIAS as their ground handlers (similar function to stevedores). CIAS misplaced cargo, which never arrived at the destination (Boston). Yusen SG sued CIAS for loss of the cargo. CIAS sought to rely on the exception clause in the master air waybill. Holding CIAS could rely on exception clause Reasoning Yusen SG argued that the third condition was not satisfied (CIAS never authorised KLM to act as its agent). This argument was rejected - the court held that the third condition satisfied because authorisation could be implied from commercial practice (that carriers will regularly immunise  stevedores from liability). If the facts suggest agency, it is sufficient. Note: implicit authorisation makes it very easy to establish authorisation under third condition Rely on the statutory exception to the privity rule Always rely on the statute first, and then mention there are common law routes to avoiding the privity problem. Right of third party to enforce contractual term 2.— (1) Subject to the provisions of this Act, a person who is not a party to a contract (called in this Act a third party) may, in the third party’s own right, enforce a term of the contract if — (a) the contract expressly provides that the third party may; or (b) subject to subsection (2), the term purports to confer a benefit on the third party. (2) Subsection (1)(b) does not apply if, on a proper construction of the contract, it appears that the parties did not intend the term to be enforceable by the third party. (3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description, but need not be in existence when the contract is entered into. (4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract. (5) For the purpose of exercising a third party’s right to enforce a term of the contract, there is to be available to the third party any remedy that would have been available to the third party in an action for breach of contract if the third party had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other remedy apply accordingly) and such remedy must not be refused on the ground that, as against the promisor, the third party is a volunteer. (6) Where a term of a contract excludes or limits liability in relation to any matter, references in this Act to the third party enforcing the term are to be construed as references to the third party availing himself, herself or itself of the exclusion or limitation. A contract can “purport to confer a benefit” on a third party even if benefitting the third party was not the predominant purpose ○ CLAAS Medical Centre Pte Ltd v Ng Boon Ching A few doctors (known as the CLAAS doctors) signed an agreement with NBC for a joint venture. This agreement included a restraint of trade clause that prohibited competition with CLAAS. NBC later left CLAAS and set up a competing practice in breach of the clause. CLAAS sought to enforce the  clause against NBC (but the earlier agreement was between CLAAS doctors and NBC). The court held that CLAAS was entitled to enforce the contract under s.2(1)(b) of the CRTPA because it was clear that the parties had intended for clause to benefit CLAAS. The court held that it was not a requirement that the predominant purpose of the contract is benefitting the 3P, as long as the parties intended for the contract to confer a benefit on the 3P, it would be sufficient to invoke s.2(1)(b). Facts Six doctors wanted to enter into a joint venture with NBC and incorporated CLAAS (a company) for this purpose. The CLAAS doctors signed an agreement with NBC for a joint venture. The agreement included a restraint of trade clause (prohibiting competition with CLAAS). ROT clause included liquidated damages payable for breach. NBC later left CLAAS and set up a competing practice, in breach of the ROT clause. CLAAS sought to enforce the clause against NBC. Note: CLAAS was a separate legal entity from the CLAAS doctors Holding CLAAS was entitled to enforce the contract Reasoning Section 2(1)(b) was applicable – it was clear that parties had intended for the ROT clause to benefit CLAAS. Liquidated damages for the breach of the ROT clause were payable to CLAAS itself, and not the CLAAS doctors. “There is no requirement that benefiting the third party must be the predominant purpose or intent behind the term. However, it must be a purpose of the parties.” For s.2(1)(b) to apply, the third party must be the intended beneficiary of the contract, not merely an incidental beneficiary. ○ Dolphin Maritime & Aviation Services Ltd v Sveriges Angartygs Assurans Forening  Cargo insurers instructed Dolphin (a recovery agent) to help recover compensation for the lost cargo when a ship sank and the cargo was insured. Dolphin helped to negotiate the agreement between the insurers and the ship, and in the process Dolphin transferred the insured sum to the cargo insurers and incidentally benefitted by taking their commission. Later, both parties settled their claim without Dolphin and Dolphin sought to enforce the agreements against the ship. The court held that the dolphin was not entitled to enforce the agreements under the CRTPA. In this case, the agreements did not “purport to confer a benefit” on Dolphin, Dolphin was merely an incidental beneficiary of the contract. The court held that “a contract does not purport to confer a benefit on a third party simply because the position of that third party will be improved if the contract is performed”. Facts A ship containing cargo sank and the cargo was insured. The cargo insurers instructed Dolphin to help to recover compensation for the lost cargo (Dolphin was a recovery agent, paid by commission for recovering money for lost cargo). Dolphin helped to negotiate agreements between the insurers and the Swedish Club (basically the ship insurers). Agreements included undertaking to pay Dolphin the insured sum (Dolphin would transfer the insured sum to cargo insurers, and incidentally benefit by taking their commission from it). Swedish Club and the cargo insurers later settled the claim behind Dolphin’s back – Swedish Club paid $8.5m directly to insurers (effectively cutting out Dolphin). Dolphin sought to enforce the agreements against the Swedish Club. Holding Dolphin not entitled to enforce agreements under CRTPA Reasoning Dolphin could not rely on s 2(1)(b) because agreements did not “purport to confer a benefit” on Dolphin. The provisions providing for payment to Dolphin was not intended to benefit Dolphin, but rather to set out how the Swedish Club should discharge its obligations. Dolphin was merely an incidental beneficiary of the contract. “A contract does not purport to confer a benefit on a third party simply because the position of that third party will be improved if the contract is performed” Significance This rule about the intended beneficiary vs the incidental beneficiary was confirmed in Columbia Asia Healthcare Sdn Bhd v Hong Hin Kit Edward. For section 2(2), the burden of proof falls on the party resisting the use of s.2(2) (promisor) to show that the parties did not intend to allow the third party to enforce.  ○ Laemthong International Lines Co Ltd v Artis (The Laemthong Glory) (No 2) ○ CLAAS Medical Centre Pte Ltd v Ng Boon Ching Section 2(2) does not prevent a third party from enforcing just because there was no proof that parties intended to allow him to enforce ○ Nisshin Shipping Co Ltd v Cleaves & Co Ltd Cleaves was a shipbroker that helped Nisshin negotiate nine charterparties (contracts to charter ships from Nisshin). The charterparties contained commission clauses, providing for payment of commission to Cleaves. Nisshin refused to pay commission to Cleaves. The court held that Cleaves was entitled to enforce the commission under s.2(1)(b) of the CRTPA. While the contracts did not expressly allow Cleaves to enforce the contract (under s.2(1)(a)), the contracts did purport to confer a benefit on Cleaves (to pay commission). The court held that it was not necessary for there to be a positive indication that the courts intended to allow Cleaves to enforce the contract, the courts found that if the contractual language was neutral, s.2(2) does not disapply s.2(1)(b). Furthermore, the burden of proof to show that they did not intend to allow Cleaves to enforce falls on Nisshin Shipping. Facts Cleaves was a shipbroker that helped Nisshin to negotiate nine charterparties (contracts to charter ships from Nisshin). The charterparties contained commission clauses, providing for payment of commission to Cleaves. Nisshin refused to pay commission to Cleaves. The question was whether Cleaves could enforce commission clauses under CRTPA. Holding Cleaves entitled to enforce the commission clauses under CRTPA under s.2(1)(b). Reasoning Contracts di