Privity of Contract
On 25 October 2005, the Law Reform Commission released a report on proposals to reform the doctrine of privity of contract. The privity doctrine has two aspects. As a general rule, a person cannot acquire and enforce rights under a contract to which he is not a party; and a person who is not party to a contract cannot be made liable under it.
While the second aspect is generally regarded as just and sensible, the first aspect has been subject to widespread criticism by judges, academics and law reform bodies in a number of common law jurisdictions. The main concern of the report is therefore with this first aspect of the doctrine. The sub-committee, chaired by Mr Benjamin Yu, SC, believes that the doctrine frustrates contracting parties intention to benefit third parties, and could lead to unfairness.
The report recommends that the doctrine should be reformed (but not completely abolished), by means of a detailed legislative scheme which would provide a comprehensive, systematic and coherent solution. It also recommends that all the major issues arising from their proposed statutory exception should be dealt with in the new legislation. In a nutshell, the proposed reform should be regarded as a general and wide-ranging statutory exception to the privity doctrine.
The underlying principle of the reform is to respect contracting parties' freedom of contract and, where appropriate, to give effect to their intention to benefit a third party. If the parties prefer, they will be able to make it clear in their contract that the proposed legislation is not to apply to their contract.
|Press Release (PDF) (MS Word)|
|Executive Summary (PDF) (MS Word)|
|Report (PDF) (MS Word)|