third party rights.10 To do so would be to make the regime for the creation of third party rights unnecessarily restrictive, given the requirements of form or notarisation often applied by national legal systems to donations.

Conceptions of tripartite relationships such as agency or trust, while involving third parties, are distinct legal relationships, and are thus not the focus of the following discussion. The existence of such other tripartite relationships has inevitably impacted upon the theory and practice of third party rights in contract, though it is not possible in the present discussion to explore this complex issue.

Whichever conception of third party rights is chosen has, in the past, been in part to do with finding a way of getting around the traditional antagonism of Roman law, discussed in the following section, towards conferring enforceable rights upon third parties. As that antagonism faded, to be replaced by a desire to make parties adhere to their word, promise became the favoured means to permit the upholding of someone’s word, given to a non-contracting party, that he would confer a bene­ fit upon that party.

2.  The historical legal background

In Chapter 3 it was seen how the stipulatio, a formal promise, was one of the major components of Roman contract law. Classical Roman law prohibited any stipulation in favour of a third party, whether the stipulator had an interest in the performance or not. This rule was embodied in the maxim alteri stipulari dari nemo potest (no one may stipulate that something be given to a third party).11 In later Roman law, the position was amended to allow for a valid stipulation in favour of a third party so long as the stipulator had an interest in the performance of the promise. The maxim had by then come to be expressed somewhat differently as alteri stipulari nemo potest (no one may stipulate on behalf of another),12 though this amended wording does not convey the change in view. An interest of the stipulator in performance meant circumstances where such performance would have a direct pecuniary effect upon the stipulator’s position. The position of the later Roman law regarding the stipulatio is explained in the Digest as being that ‘obligations of this kind were devised in order

10Louisiana is one system where donative rules are held to apply to donations of third party rights.

11See Hallebeek and Dondorp, Contracts for a Third Party Beneficiary, p. 10.

12D. 45.1.38.17.

that each man should acquire for himself what is of benefit to him’.13 Such a benefit could be provided through stipulating that non-performance would result in a penalty being incurred by the promisor, the penalty to be paid to the stipulator.14 The absence of any conception that an ‘interest’ in another’s performance might extend beyond material interests to, for instance, an affective interest (such as a friendly concern for another) proved to be a continuing stumbling block against third party rights even in the post-Roman period.

The Digest provides examples in the later law of instances where an interest of the stipulator in a third party performance might arise. For instance, the example is given of a tutor stipulating with a replacement for the benefit of the pupil.15 Here there was a valid stipulation: because the old tutor would be liable if the pupil’s affairs were not properly administered, the old tutor had an interest in the stipulation. Further examples given are of a slave stipulating for his master, or a son for his father.16 The Institutes mention a debtor stipulating for his creditor.17 Even where a valid interest arose, so that stipulation might require performance to be made to a third party, it was the stipulator alone who could complain about defective or non-performance, not the third party.

In post-classical Roman law, certain exceptional cases were admitted where a third party might have a direct action to enforce a right in its favour. One such case was that of the donatio sub modo: a direct action was permitted by a third party donee to whom a donation was meant to have been transferred after a certain time.18

Under influence of the canonists, a movement began in favour of allowing a more generalised enforcement by third parties of benefits in their favour. The discussion in Chapter 2 has already disclosed the canonical stress upon the importance of a party keeping its word, and that there be no falsity in parties’ words. Such emphases proved crucial in developing a more favourable view of commitments made in favour of third parties. The canonist de Butrio argued that a promise made by A to B to perform in favour of C, an absent third party, could be enforced by C against the promisor by means of the canonical denunciatio evangelica,19 a view with which later canonists concurred. Though the third party had no legal

13Ibid.

14This use of stipulationes poenae, to provide tangential enforcement of third party rights, is explained in the latter part of D. 45.1.38.17.

right, not being the promisee, he had a natural right to hold the promisor to his word, and this natural right might be enforced in the ecclesiastical courts.20

Matters moved beyond natural obligations in the Kingdom of Castile, where a law of 1348, the ley ‘Paresciendo’ of the Ordenamiendo de Alcalá, provided that a party intending to bind himself to another through a promise, contract, or by some other means, was obliged to perform what he had promised. The legal duty created by this provision was enforceable by the beneficiary, regardless of whether the obligation was entered into with another party. The law further provided that it was no defence that the formalities of the law, including those for a stipulation, had not been made. Under this Castilian law, a stipulator no longer required an interest in the performance in favour of the third party. The phraseology of the law was sufficiently wide to encompass both contracts concluded by an agent in favour of a principal as well as genuine third party rights (that is, contracts between A and B as principals, with a provision in favour of third party C).

In the seventeenth century, natural law arguments were brought to bear in favour of the stipulatio alteri by Hugo Grotius. In his De jure belli as pacis, Grotius argued that stipulations in favour of third parties were agreeable to the natural law, remarking that

by the Law of Nature I acquire a Right of accepting, that thereby the Right of demanding the Performance of the Promise may pass to another, if he also will accept of it.21

The requirement that the third party accept before the obligation is constituted­ in his favour is consistent with Grotius’s general view of the need for an acceptance before a promise binds. This passage does not go so far as to suggest that the third party is conceived of as being the recipient of a direct promise in his favour; on the contrary, the language used, of the right to demand the performance ‘passing’ to another, suggests that, while the third party acquires a right to demand performance, this occurs through some sort of transfer from stipulator to third party. That conceptualisation differs from what appears to be Grotius’s analysis in his Inleidinge, in which he states that, out of a concern for equity, ‘a third party may accept a promise, and thereby acquire a right, unless the promisor has revoked his promise before the third party has accepted it.’22 Grotius’s support for direct enforcement by third parties of rights in

20See further Hallebeek and Dondorp, Contracts for a Third Party Beneficiary, pp. 22–9.

21II.xi.18. 22 Inleidinge, III.iii.38.

their favour came to be applied by the Dutch courts.23 A similar approach was adopted by Scots law, without the need for an acceptance by the third party, a development discussed below.

The historical antipathy to direct claims by third parties in English law is well known.24 There were a number of reasons for this. One that must not be ignored is the Common law institution of the trust, which itself provides a vehicle for the conferral on a right upon a third party, the beneficiary under the trust. Another is the institution of agency, whereby B may conclude a contract with C on behalf of A. It is not proposed to discuss these institutions in any detail here, but merely to note that their existence explains in part the absence from English law of the jus quaesitum tertio. These two institutions apart, the English law approach to contracts was that only parties to, or beneficiaries under, formal contracts could bring an action under them, and that only those who had given consideration for a right under an informal contract could raise an action. In exceptional cases, such as claims permitted by C, a creditor of B, to whom A had promised to pay C, a promissory analysis was at least maintained as the basis of the claim, even if the courts ignored the fact that consideration had not moved from C to A as it was meant to.25 The creation in the nineteenth century of a general contractual architecture out of the medieval actions allowed the various old rules against third party claims to be systematised under a single concept of privity of contract: a person who was not a party to a contract could derive neither rights nor come under duties in respect of the contract. A third party, not being such a contracting party (the third party, after all, had issued no acceptance of any contractual offer) was thus excluded by the privity principle from deriving any enforceable rights under it. The privity rule was entrenched in the decision of the Queen’s Bench in Tweddle v. Atkinson,26 which held that a promise by a man to pay money to the son of another was not directly enforceable by the son.

The entrenchment of the privity rule in English law created an incentive for avoidance techniques and exceptions. Some exceptions were provided for statutorily;27 some were developed by the courts, such as in relation

23Hallebeek and Dondorp, Contracts for a Third Party Beneficiary, p. 63.

24Ibid., Ch. 5; also Palmer, The Paths to Privity.

25Hallebeek and Dondorp, Contracts for a Third Party Beneficiary, p. 106.

26(1861) 1 B & S 393, 30 LJQB 265, 4 LT 468, 9 WR 781.

27For instance, under the Third Parties (Rights Against Insurers) Act 1930 and the Restrictive Trade Practices Act 1956.

to the ‘negative’ rights contained within exclusion clauses,28 though an early willingness to protect third parties in this area was later subject to restriction, which itself produced a change in contract drafting procedure to create third parties as principals acting through the medium of an agent.29 Sometimes the courts were willing to hold that someone who appeared to be a third party was in fact in a direct contractual relationship with a promisor;30 sometimes liability in tort furnished a remedy for defective performance to a third party, if not non-performance.31 These various ways proved, however, of limited assistance in filling the gap left by a genuine third party right in contract. The problem was not eventually remedied until the Contracts (Rights of Third Parties) Act 1999, which provided for the direct enforcement by a third party of a right conceived in its favour. This development is discussed further below.

More might be said of the historical development of third party rights, and indeed something more is said below in relation to nineteenthand twentieth-century development, but it will already be appreciated from the history narrated above that there has been a long-standing antipathy in many legal systems to granting a non-contracting party title to sue under a contract in respect of a right which one of the contracting parties has stipulated for the other to confer upon the third party. In some instances, this was because of a view that a promisee did not have any recognised interest in the stipulated performance in favour of the third party. If that were so, however, why would such a performance have been requested in the first place? The traditional arguments failed to give sufficient value to the simple desire of the stipulator for the requested performance and to the objectively manifested commitment of the promisor to undertake the promised act. In some instances, the objection was on the grounds that any promise was made to the stipulator, and not to the third party. This objection presupposes that the third party has had no promise communicated to it, but if such communication has been undertaken, then this argument clearly has no force; naturally, if the third party has not been the recipient of any such promise made to it, then the argument is a good one. Sometimes the objection was that the third party had given nothing for the right in its favour. That, however, was an argument which was subject to all the criticisms of the doctrine of consideration

28Elder Dempster & Co. v. Paterson Zochonis & Co. Ltd [1924] AC 522.

29The clause so drafted was referred to as a ‘Himalaya clause’, after the name of the ship involved in important litigation on this issue (see Adler v. Dickson [1955] 1 QB 158).

30Shanklin Pier v. Detel Products Ltd [1951] 2 KB 854.

31See for instance Hedley Byrne & Co. v. Heller & Partners Ltd [1964] AC 465.