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Privity and Exceptions to Privity in Scots Private Law: A New Taxonomy Lorna Jane MacFarlane Presented for the degree of Doctor of Philosophy University of Edinburgh 2018 i Abstract The doctrine of privity of contract broadly provides that a contract should neither benefit nor burden parties external to the contract. This thesis can be divided into two parts: the first on privity itself, and the second on its exceptions. The first part contains a historical analysis of the development of privity, leading to the provision of a definition of privity in modern Scots law. It also examines whether privity is compatible with the leading theories of Scots contract law (will theory, promissory theory, and assumption theory) and considers the relationship between privity and third party rights. The interaction between privity and delict has proved controversial in various situations involving third-party loss. Accordingly, this part analyses the intersection between privity and delictual liability. The first part also identifies and assesses the policy considerations that have justified statutory exceptions to privity. It concludes with discussion on whether privity does and should continue to exist in Scots law. The second part provides a taxonomy of concepts which operate where: 1. There is an extra-contractual party 2. Which has suffered loss caused by non-performance or defective performance of a contract 3. And it lacks a contractual right to recover its losses 4. And the concept provides a means of recovery for the extra- contractual party, and/ or a means by which the contracting party which did not cause the loss can recover on behalf of the extra- contractual party. The four relevant concepts are: contracts for the benefit of another; transferred loss; ad hoc agency; and undisclosed agency. The thesis analyses each concept in turn, examining its relationship with privity, contract theory, and delictual liability. Policy considerations supporting each exception are identified and assessed. The conclusions of the thesis address whether these concepts can be recognised as justifiable exceptions to privity. The question of whether external network liability should be recognised as a new exception to privity is also considered. Whilst the thesis focuses on Scots law, comparative reference is made throughout to English law. This is because the development of contracts for the benefit of another, transferred loss, and undisclosed agency is closely intertwined in the two jurisdictions. ii iii Lay Summary This thesis examines a legal rule, privity of contract, and exceptions to the rule. Privity of contract means that a contract is only between the contracting parties. In other words, parties external to the contract cannot force the parties to fulfil their contract, and the parties to the contract cannot require an external party to perform under their contract. In terms of the privity rule itself, the thesis provides historical research on the development of the rule in Scots law and considers both case law and academic works to offer a precise definition of the rule. There are a number of exceptions to the privity rule in legislation. The thesis examines these in order to identify the unifying policy justifications behind the exceptions, and consequently the reasons which justify deviation from the privity rule. The thesis also considers the relationship between the privity rule and the law of delict (the law that a person must exercise a duty of care to prevent harm to others). The second half of the thesis examines four concepts which have been created by judges, rather than introduced in Scots law through legislation: • Contracts for the benefit of another: A enters into a contract with B for the purpose of benefiting C. For example, A books a holiday for herself and C with package holiday provider B. A can recover damages from B for C’s loss if the contract is not properly performed. • Transferred loss: A contracts with B. B works on A’s property (for example, B renovates A’s house). A transfers the property to C. C then discovers a defect in B’s work. A can recover damages for C’s loss under his contract with B. • Undisclosed agency: A engages B to act as her agent (i.e. for B to make contracts on A’s behalf). B concludes a contract with C without disclosing that she is working for A, and C believes she has entered a contract directly with B. Once A’s identity and existence is revealed, A and C can sue one another under the contract. • Ad hoc agency: A has not employed B as his agent, but B is treated as A’s agent for the purposes of a specific contract between B and C, to allow A to enforce the contract. The thesis ascertains whether each concept is an exception to the privity rule, considers its compatibility with Scots law as a whole, and determines whether there are adequate policy justifications to support the existence of the concept. The conclusions of the thesis address whether the privity rule and each concept should be recognised in Scots law. The thesis also considers when and how new exceptions to privity should be permitted. iv v Declaration I, Lorna Jane MacFarlane, declare that this thesis has been composed solely by myself and that it has not been submitted, in whole or in part, in any previous application for a degree. Except where states otherwise by reference or acknowledgement, the work presented is entirely my own. Lorna Jane MacFarlane Edinburgh July 2018 vi vii Acknowledgements Above all, I thank my supervisors, Laura Macgregor and David Cabrelli, for their invaluable guidance and feedback over the last four years. I will always be immensely grateful to them. This project would not have been possible without the Edinburgh Legal Education Trust and the Clark Foundation for Legal Education. As well as providing financial support, the Edinburgh Legal Education Trust has facilitated my participation in the Ius Commune Research School Doctoral Training Programme, a wonderful opportunity to receive feedback on my work, meet other research students, and learn about the Dutch academic culture. I thank all those involved in the Training Programme, particularly Chantal Mak and Nicolas Carette for providing extensive and very useful comments on my work in Amsterdam and Leuven respectively. Participating in the Centre for the Study of European Contract Law’s Summer Schools on Contract Law in Amsterdam was a wonderful experience, and I thank the organisers and my peers for their guidance and comments. At the University of Edinburgh, Mat Campbell provided insightful and useful comments on my third-year paper. I may well not have had the confidence to embark on PGR study without the benefit of my experiences at the Scottish Law Commission and the Salzburg Summer School on European Private Law, which heavily influenced my decision to return to University. For these reasons, I also thank Hector MacQueen, Charles Garland, and Andrew Steven for their advice and encouragement. Whilst I struggle to find the words to adequately communicate my gratitude for their support throughout my studies, I thank my parents, Donald and Fiona, and my brother Drew. Mum, your patience with proofreading and interest in listening to ideas about privity has been amazing! My four grandparents, Frances, Sadie, John, and Donald have inspired me in different ways during the process of writing this thesis. I also thank my Aunt Lorna for her encouragement. Dan, Emma - your friendship has meant the world to me since our undergraduate days. Thanks for your kind words (and excellent company). I also thank Amanda, Sofia, Tizzy, Marion, Emily, Sara, Snjólaug, Katy, and Helena for their companionship, and I would like to acknowledge my Mezzanine Office colleagues for providing much-needed humour and coffee breaks on difficult writing days. Finally, I’d like to thank my husband Dave for being by my side for the last six years. viii ix Table of Contents Abstract ii Lay Summary iv Declaration vi Acknowledgements viii Chapter 1: Introduction 11 1.1. Overview of chapter 1 11 1.2. Key research questions 11 1.3. Justification for the topic of the thesis 13 1.3.1. The protection of contracting parties 14 1.3.2. The protection of third parties 15 1.3.3. Summary 16 1.4. Methodology 17 1.4.1. Doctrinal analysis 17 1.4.2. Theoretical analysis 18 1.4.3. Comparative law 18 1.4.4. Historical law 19 1.5. Scope of ‘loss’ 19 1.6. Overview of the thesis 20 1 Chapter 2: The Privity Doctrine 23 2.1. Overview of chapter 2 23 2.2. Definitional issues 23 2.2.1. Historical development of the word ‘privity’ 23 2.2.2. Use of ‘privity’ in the context of contract law 24 2.2.3. Privity without contract? 25 2.2.4. Uses of ‘privity’ which are not relevant to the thesis 26 2.3.