that have already been narrated at various points in this work. Finally, the objection has sometimes been that only parties to a contract ought to be affected, whether positively or negatively, by the contractual relationship. The rationale of the ‘privity’ of contractual relationships has an obvious merit to it where it protects non-contracting parties from having unwanted duties thrust upon them. As regards benefits conceived in their favour, however, it serves no obvious useful function, so long as a separate rule is recognised that no one can have a benefit thrust upon him against his will. Such a rule is operative in some systems in respect of unwanted donations, and it would equally serve to protect third parties under contract without the need for a more restrictive rule against enforceable third party benefits.

3.  Third party rights in modern contract law

(a)  The Common law32

Within the Common law world, England lagged behind many of its sister jurisdictions in granting general recognition to directly enforceable third party rights in contract.33 Starting in 1969, various parts of Australia passed legislation to recognise the stipulatio alteri,34 New Zealand following suit in 1982.35 Most of such Commonwealth legislation is drafted

32A useful history of the Common law tradition in relation to third party beneficiaries in contract is found in Palmer, The Paths to Privity.

33Canada alone (saving of course Quebec) among the major Common law jurisdictions continues to deny third party beneficiary claims in contract, despite arguments for reform (see for instance the report in favour of reform submitted by M. Lavelle, ‘Privity of Contract and Third Party Beneficiaries’, to the Uniform Law Conference of Canada (www.ulcc.ca) in September 2007).

34See the Western Australian Property Law Act 1969, s.11(2) (‘where a contract expressly in its terms purports to confer a benefit directly on a person who is not named as a party to the contract, the contract is … enforceable by that person in his own name’), the Queensland Property Law Act 1974, s. 55 (‘A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise’), and the Northern Territory Law of Property Act 2000, s. 56(1) (‘A promisor who, for valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary is, on acceptance by the beneficiary, subject to a duty enforceable by the beneficiary to perform that promise’). In addition, the Australian Commonwealth Insurance Contracts Act 1984 allows third party beneficiaries to enforce contracts of insurance.

35See the Contracts (Privity Act) 1982, s.4, which states: ‘Where a promise contained in a deed or contract confers, or purports to confer, a benefit on a person, designated by name, description or reference to a class, who is not a party to the deed or contract … the

in promissory terms. In the United States the recognition of third party rights came even earlier, and was achieved by the courts without the need for legislation. The first decision in which such rights were clearly enforced was the New York Court of Appeals decision in Lawrence v. Fox in 1859.36 Some US states subsequently chose to entrench third party rights in legislation, as did the Restatement (Second) of Contracts.37 One such legislative enactment is section 1559 of the California Civil Code, which provides that a contract ‘made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it’. US Common law jurisprudence, like that of other jurisdictions, has recognised that a third party may be the recipient of, and may enforce, a negative right in its favour.38

English law finally broke decisively with the rigidity of the doctrine of privity, favouring instead the intention of the parties, when it passed the the Contract (Rights of Third Parties) Act 1999. The Act calls the traditional stipulator the promisee, and the party by whom the benefit is to be conferred on the third party the promisor. This identifies the promise to benefit the third party as made to the other contracting party, but says nothing about whether additionally any promise is made to the third party or whether the third party is simply seen as exceptionally being granted the right to enforce a promise made to another. In fact, the Act does not specify the nature of the third party’s right other than to say that the third party is permitted ‘in his own right [to] enforce a term of the contract’.39 The lack of any language characterising the third party’s right as a promise is not necessarily conclusive of the third party’s right not being promissory in nature, and indeed it seems that in general the third party is conceived of as enforcing a promissory right,40 though without any clarification as to whether the promise is considered as made to it also or just to the promisee. It is consistent with this promissory view that the Act is considered to permit promises to be made in favour of unborn

promisor shall be under an obligation, enforceable at the suit of that person, to perform that promise.’

36 20 NY 268 (1859).

38Thus, for instance, it is possible for a third party to take the benefit of an exclusion clause: see Carle & Montanari Inc. v. American Export Isbrandtsen Lines Inc. 275 F Supp 76 (1967). On negative benefits, see the Restatement (Second) of Contracts, §306.

39S. 1(1).

40Peel, Treitel on Contract, para. 14–095, describes the contracting party which is obliged to the third party as ‘the person who makes the promise which the third party is claiming to enforce (the promisor)’, a description which certainly seems to conceive of the third party as enforcing a promissory right.

parties, and as yet unincorporated corporate bodies.41 There is nothing in the Act itself to suggest that, as is possible under Scots law, a third party right might not be intended to arise between indirectly related parties in a contract chain, though some have suggested that such chains are incompatible with an intention by contracting parties to confer such rights upon more distant parties in such a chain.42 However, an early decision under the Act suggested that the mere fact that another remedy might be open to a third party did not mean that the contracting parties cannot have intended to confer a right under the Act.43

The third party is certainly not a full contracting party, though for remedial purposes is treated as if it were: section 1(5) says that there is available to the third party ‘any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract’ (emphasis added). The Act takes a dualist approach to the creation of the third party’s right to enforce a term of the contract. It can arise either because the contract expressly states that the third party has such a right of enforcement, or because a term of the contract purports to confer a benefit upon him.44 There is thus an emphasis both upon the express intention of the parties as well as upon a beneficial result for the third party. This latter route needs no express intention of the contracting parties to be present; rather, it in effect presumes that an intention to confer the benefit was the tacit intention of the contracting parties. The assumption of such a tacit intention can be overcome, as one would expect, by contra-indications in the contract.45 Though it might be argued that the non-intention based nature of this route for the creation of a third party right indicates that the third party’s right is not promissory in nature, it ought to be recalled that jurisdictions taking a promissory view of the nature of the right, such as that in Scotland, also maintain that the intention to confer a benefit on the third party may arise tacitly.

No acceptance of the right is required to be given by the third party in order for the right to exist in its favour, again supporting the view that the third party is not the recipient of a contractual offer. However,

41 Ibid., para. 14–100. 42 See, for instance, McKendrick, Contract Law, p. 118.

43Nisshin Shipping Co. Ltd v. Cleaves & Co. Ltd [2003] EWHC 2602 (the alternative possible remedy for the third party in that case being as beneficiary under the trust of a promise).

44s. 1(1).

45s. 1(2). It seems that, despite this subsection, contracting parties subject to English law are concerned at the possibility of third party rights being held to exist where none were intended, the regular practice being to exclude the application of the Act, the parties preferring in many cases to rely upon the use of contractual warranties as the means of conferring rights upon third parties.