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Privity of Contract: Third Party Rights

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Privity of Contract: Third Party Rights CONSULTATION PAPER PRIVITY OF CONTRACT: THIRD PARTY RIGHTS (LRC CP 40-2006) IRELAND The Law Reform Commission 35-39 Shelbourne Road, Ballsbridge, Dublin 4 © Copyright The Law Reform Commission 2006 First Published November 2006 ISSN 1393 - 3140 ii THE LAW REFORM COMMISSION Background The Law Reform Commission is an independent statutory body whose main aim is to keep the law under review and to make practical proposals for its reform. It was established on 20 October 1975, pursuant to section 3 of the Law Reform Commission Act 1975. The Commission’s Second Programme for Law Reform, prepared in consultation with the Attorney General, was approved by the Government and copies were laid before both Houses of the Oireachtas in December 2000. The Commission also works on matters which are referred to it on occasion by the Attorney General under the terms of the Act. To date the Commission has published 79 Reports containing proposals for reform of the law; 11 Working Papers; 39 Consultation Papers; a number of specialised Papers for limited circulation; An Examination of the Law of Bail; and 26 Annual Reports in accordance with section 6 of the 1975 Act. A full list of its publications is contained on the Commission’s website at www.lawreform.ie. Membership The Law Reform Commission consists of a President, one full-time Commissioner and three part-time Commissioners. The Commissioners at present are: President: The Hon Mrs Justice Catherine McGuinness, Supreme Court Full-time Commissioner: Patricia T. Rickard -Clarke, Solicitor Part-time Commissioner: Professor Finbarr McAuley Part-time Commissioner: Marian Shanley, Solicitor Part-time Commissioner: Donal O’Donnell, Senior Counsel Secretary/Head of John Quirke Administration: iii Research Staff Director of Research: Raymond Byrne BCL, LLM, Barrister-at-Law Legal Researchers: John P. Byrne BCL, LLM (NUI), Barrister-at-Law Áine Clancy BCL Philip Flaherty BCL Caren Geoghegan BCL, LLM (Cantab), Barrister-at-Law Cliona Kelly BCL Joanne Lynch BCL, LLM (NUI) Margaret Maguire LLB Richard McNamara BCL, LLM (NUI) Jane Mulcahy BCL, LLM (NUI) Tara Murphy BCL, LLM (Essex) Catherine-Ellen O’Keeffe LLB, LLM (NUI) Charles O’Mahony BA, LLB (NUI), LLM (Lond) David Prendergast LLB, Barrister-at-Law Sinéad Ring BCL, LLM (NUI) Keith Spencer BCL, LLM (Dub), BCL (Oxon), Barrister-at-Law Nicola White LLB, Attorney-at-Law (NY) Administration Staff Project Manager: Pearse Rayel Executive Officer: Denis McKenna Legal Information Manager: Conor Kennedy BA, H Dip LIS Cataloguer: Eithne Boland BA (Hons), HDip Ed, HDip LIS Information Technology Liam Dargan Officer: Private Secretary to the Debbie Murray President: Clerical Officer: Ann Browne Principal Legal Researcher on this Consultation Paper Claire McAvinchey BCL, LLM (Glasgow) iv Contact Details Further information can be obtained from: The Secretary/Head of Administration The Law Reform Commission 35-39 Shelbourne Road Ballsbridge Dublin 4 T: +353 1 637 7600 F: +353 1 637 7601 E: [email protected] W: www.lawreform.ie v ACKNOWLEDGEMENTS The Commission would like to thank the following people for their advice and assistance in the preparation of this Consultation Paper: Timothy Bird, Office of the Director of Consumer Affairs Tim Bouchier-Hayes, McCann FitzGerald Solicitors David Clarke, McCann FitzGerald Solicitors Professor Robert Clark, School of Law, University College Dublin Bill Cox, Office of the Director of Consumer Affairs Anthony Hussey, Hussey Fraser Solicitors Cliona Kelly, School of Law, University College Dublin Lonan McDowell, McCann FitzGerald Solicitors Peter Osborne, McCann FitzGerald Solicitors Don O’Sullivan, Director of Main Contracting, Construction Industry Federation Professor Colin Scott, School of Law, University College Dublin Full responsibility for the content of this publication, however, lies with the Commission. vi TABLE OF CONTENTS Table of Legislation ix Table of Cases xi INTRODUCTION 1 CHAPTER 1 DEVELOPMENT OF PRIVITY OF CONTRACT AND THE NEED FOR REFORM 3 A Introduction 3 B Privity: an overview 3 C The history of privity of contract 7 D The current law in Ireland 9 E Exceptions to the rule of privity 11 (1) Common Law exceptions 11 (2) Statutory exceptions to the privity of contract rule 16 (3) Discussion 20 F The problems encountered in practice as a result of the rule of privity 20 (1) Construction contracts 21 (2) Exemption clauses 28 (3) Insurance law 31 (4) Shipping contracts 33 (5) Professional negligence 35 (6) Consumer law issues 37 G The relationship of privity with existing fundamental principles of contract law 38 (1) Consideration and the Privity Rule 39 (2) Freedom of Contract and the Privity Rule 41 H Comparative analysis 42 I The need for reform of the rule of privity of contract: provisional recommendations 45 CHAPTER 2 OPTIONS FOR REFORM 47 A Introduction 47 B Judicial development of the rule of privity 47 (1) Introduction 47 (2) Comparative analysis 47 (3) Discussion 52 C Reform of the promisee’s remedies in order to give more protection to a third party 53 (1) Introduction 53 (2) Discussion 55 D General Legislation entitling third parties to enforce contracts for their benefit 55 (1) Introduction 55 (2) Comparative analysis 56 vii (3) Discussion 57 E Legislative reform of the rule of privity to include further exceptions to the rule in specific instances 58 (1) Introduction 58 (2) Comparative analysis 58 (3) Discussion 59 F Detailed legislation creating comprehensive third party contractual rights 60 (1) Introduction 60 (2) Comparative analysis 61 (3) Discussion 69 G Existing exceptions to the rule of privity 69 (1) Introduction 69 (2) Comparative analysis 69 (3) Discussion 71 CHAPTER 3 SPECIFIC ISSUES 77 A Introduction 77 B When can the third party enforce their rights under a contract? 77 (1) Introduction 77 (2) Comparative Analysis 78 (3) Discussion 85 C Identification of a third party beneficiary 87 (1) Introduction 87 (2) Comparative Analysis 88 (3) Discussion 91 D The rights of the parties to vary or cancel the contract 92 (1) Introduction 92 (2) Comparative Analysis 93 (3) Discussion 98 E General Defences, Set-off and Counterclaims 101 (1) Introduction 101 (2) Comparative Analysis 102 (3) Discussion 106 F Overlapping claims 107 (1) Introduction 107 (2) Comparative Analysis 108 (3) Discussion 109 G Exceptions 110 (1) Introduction 110 (2) Comparative Analysis 110 (3) Discussion 112 CHAPTER 4 SUMMARY OF PROVISIONAL RECOMMENDATIONS 115 viii TABLE OF LEGISLATION Bills of Exchange Act 1882 45 & 46 Vic c 61 Irl Bills of Lading Act 1855 18 & 19 Vict c Eng 111 Carriage of Goods by Sea Act 1992 c 50 Eng Central Bank and Financial Authority of Ireland Act 2004 No 21/2004 Irl Civil Liability Act 1961 No 41/1961 Irl Companies Act Cap 50, 1994 Sing Companies Act 1963 No 33/1963 Irl Companies Act 1985 c 6 Eng Companies Ordinance Cap 32 HK Consumer Credit Act 1995 No 24/1995 Irl Contracts (Privity) Act 1982 1982 No 132 NZ Contracts (Rights of Third Parties) Act 1999 c 31 Eng Contracts (Rights of Third Parties) Act 2001 No 39/2001 Cap Sing 53B Defective Premises Act 1972 c 35 Eng Law of Property Act 1925 15 & 16 Geo c 20 Eng Law of Property Act 2000 NT No 46/2000 Aus Law Reform Act 1993 SNB 1993 c L-1.2 Can Liability for Defective Products Act 1991 No 28/1991 Irl Marine Insurance Act 1906 6 Edw 7 c 41 Irl Married Women’s Status Act 1957 No 5/1957 Irl Package Holiday and Travel Trade Act 1995 No 17/1995 Irl Policies of Assurance Act 1867 30 & 31 Vic c 144 Irl Property Law Act 1969 No 32 of 1969 Aus Property Law Act 1974 No 76 of 1974 Aus Road Traffic Act 1961 No 24/1961 Irl Sale of Goods and Supply of Services Act 1980 No 16/1980 Irl Supreme Court of Judicature (Ireland) Act 1877 40 & 41 Vic c 57 Irl Western Australian Property Law Act 1969 W Austl Acts Aus 1969 No 32 ix TABLE OF CASES Adler v Dickinson [1955] 1 QB 158 Eng Beswick v Beswick [1968] AC 581 Eng Bourne v Mason (1669) 1 Vent 6 Eng Burke (a minor) v Dublin [1991] 1 IR 341 Irl Corporation Cadbury (Ireland) Ltd v Kerry Co- [1982] ILRM 77 Irl Operative Creameries Ltd Carnegie v Waugh (1823) 2 Dow & Ry KB 277 Eng Chancellor Manor v United States (2003) 331 F.3d 891 USA Choate, Hall & Stewart v SCA (1979) 378 Mass 535 USA Services Inc Crow v Rogers (1724) 1 Str 591 Eng Donoghue v Stevenson [1932] AC 62 Eng Drimmie v Davies (1899) 1 IR 176 Irl Drive Yourself Hire Co (London) [1954] 1 QB 250 Eng Ltd v Strutt Dunlop & Co v Selfridge & Co [1915] AC 847 Eng Dunne v PJ White [1989] ILRM 803 Irl Dutton v Poole (1677) 3 Keb 786 Eng Fraser River Pile & Dredge Ltd v [1999] 3 SCR 108 Can Can-Dive Services Ltd Glencar Exploration plc v Mayo [2002] 1 IR 84 Irl Co Co (No 2) Glow Heating Ltd v Eastern Health [1988] IR 110 Irl Board In re Application by the Director of High Court 5 December 2001 Irl Consumer Affairs In re Tout and Finch Ltd [1954] 1 All ER 127 Eng Karo v San Diego Symphony (1985) 762 F 2d 819 USA Orchestra Assoc Laemthong International Lines Co [2005] 2 All ER (Comm) 167 Eng Ltd v Artis Lawrence v Fox (1859) 20 NY 268 USA Linden Gardens Trust Ltd v [1994] 1 AC 85 Eng Lenesta Sludge Disposals Ltd London Drugs v Kuehne & Nagel [1992] 3 SCR 299 Can International Ltd xi Malden Mills Industries Inc v (1991) 766 F Supp 1202 USA Ilgwu National Retirement Fund Martyn v Hind (1776) 2 Cowp 437 Eng McCoubray v Thompson (1868) 2 IRCL 226 Irl McCullough Sales Ltd v Chetham High Court 1 February 1983 Irl Timber Co Ltd McEvoy v Belfast Banking [1935] AC 24 Eng McManus v Cable Management High Court 8 July 1994 Irl (Ireland) Ltd & Ors Midlands Silicones Ltd v Scruttons [1962] AC 446 Eng Ltd Morton-Jones v RB & JR Knight [1992] 3 NZLR 582 NZ Ltd Murphy v Bower (1868) IR 2 CL 506 Irl National Bank of Sharjah v Court of Appeal 9 July 1997 Eng Dellborg New Zealand Shipping Co.
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