report Privity of ContraCt and third Party rights

1 (lrc 88 2008) copyright law reform commission 2008 First publishedFebruary 2008iss N 1393-3132reportPrivity of ContraCt and third Party rights thE LaW rEforM CoMMission s roLEthe law reform commission is an independent statutory body established by the Law Reform Commission Act 1975. the commission s principal role is to keep the law under review and to make proposals for reform, in particular by recommending the enactment of legislation to clarify and modernise the law. since it was established, the commission has published over 130 documents containing proposals for law reform and these are all available at Most of these proposals have led to reforming commission s role is carried out primarily under a programme of law reform.

2 Its third Programme of Law Reform 2008-2014 was prepared by the commission following broad consultation and discussion. in accordance with the 1975 Act, it was approved by the government in december 2007 and placed before both houses of the oireachtas. the commission also works on specific matters referred to it by the Attorney general under the 1975 Act. since 2006, the commission s role includes two other areas of activity, statute law restatement and the legislation directory. statute law restatement involves the administrative consolidation of all amendments to an Act into a single text, making legislation more accessible.

3 Under the Statute Law (Restatement) Act 2002, where this text is certified by the Attorney general it can be relied on as evidence of the law in question. the legislation directory - previously called the chronological tables of the statutes - is a searchable annotated guide to all legislative changes. After the commission took over responsibility for this important resource, it decided to change the name to legislation directory to indicate its function more clearly. lAw reF orM coMMissioN Privity of ContraCt and third Party rights MEMbErshiPthe law reform commission consists of a president, one full-time commissioner and three part-time commissioners.

4 The commissioners at present are: Pres dent: the hon Mrs Justice catherine Mcguinness, former Judge of the supreme court full-t me Comm ss oner: patricia t. rickard-clarke, solicitor Part-t me Comm ss oner: professor Finbarr McAuley Part-t me Comm ss oner: Marian shanley, solicitor Part-t me Comm ss oner: donal o donnell, senior counsel lAw reF orM coMMissioN vLaW rEforM rEsEarCh staff d rector of research: raymond byrne bcl, llM (Nui), barrister-at-law Legal researchers: ine clancy bcl, llM (Nui) Kate dineen llb, llM (cantab) philip Flaherty bcl, llM (Nui), diop sa gh (Nui) eleanor leane llb, llM (Nui) richard McNamara bcl, llM (Nui) gemma N chaoimh bcl, llM (Nui) Verona N dhrisceoil bcl (dl agus gaeilge), llM (Nui) Jane o grady bcl, llb (Nui), lpc (college of law) charles o Mahony bA, llb (Nui), llM (lond), llM (Nui) Nicola white llb, llM (dub) Attorney-at-law (Ny) Joanne williams llb, llM (Nui), barrister-at-lawstatutE LaW rEstatEMEnt Project Manager for restatement.

5 Alma clissmann, bA (Mod), llb, dip eur law (bruges), solicitor Legal researchers: John p. byrne bcl, llM (Nui), barrister-at-law John Kenny llb, llM (cape town), barrister-at-lawLEgisLation dirECtory Project Manager for Leg slat on d rectory: deirdre Ahern llb, llM (cantab), dip e-commerce (law society), solicitor Legal researchers: e in McManus bA, llb (Nui), llM (lond) tina o reilly bcl (law and german), llM (Nui) Privity of ContraCt and third Party rights vadMinistration staff secretary/head of adm n strat on John Quirke head of adm n strat on and development: John glennon h gher Execut ve off cer: Alan heade Execut ve off cers.

6 Emma Kenny darina Moran peter trainor Legal informat on Manager: conor Kennedy bA, h dip lis Cataloguer: eithne boland bA (hons), hdip ed, hdip lis Cler cal off cers: Ann browne Ann byrne liam dargan sabrina KellyPrinCiPaL LEgaL rEsEarChEr for this report cliona Kelly bcl, phd (Nui)lAw reF orM coMMissioNv ContaCt dEtaiLs Further information can be obtained from: head of Administration and development law reform commission 35-39 shelbourne road ballsbridge dublin 4 tELEPhonE: +353 1 637 7600 fax: +353 1 637 7601 EMaiL: WEbsitE: of ContraCt and third Party rights v aCKnoWLEdgEMEntsthe commission would like to thank the following for their assistance in the context of this de rdre ahern, school of law, trinity college dublinMr Paul appleby, director of corporate enforcementProf hugh beale Qc, university of warwick (formerly law commissioner)

7 Prof robert bradgate, university of sheffieldMr adr an brennan, office of the director of corporate enforcementdr nael bunn , chartered engineerMr andrew burr QcProf robert Clark, university college dublinMr b ll Cox, department of enterprise trade and employmentMr dav d d llon, dillon eustace solicitorsMr g les d xon, solicitorMr Peter h bberd, Joint contracts tribunal (Jct)Mr Mark hanson, law society of england and wales Mr Paul Keane, reddy charlton McKnight solicitorsMs Jeanne Kelly, Mason hayes and curran solicitors Ms s obhan Kenny, hussey Fraser solicitorsMr frank Lee, engineers ireland Mr Paul Macdonnell, irish insurance Federation Mr r chard Mossop, society of chartered surveyorsMs n av o h gg ns, Arthur cox & co solicitors Mr Peter osborne, Mccann Fitzgerald solicitorsMr don o sull van, construction industry Federation Ms Carol Plunkett, william Fry solicitors Ms alv n Pr ce, william Fry solicitors Mr nathan re lly.

8 Department of enterprise trade and employmentFull responsibility for the contents of the report rests, however, with the commission. ix TABLE OF CONTENTS Table of Legislation xi Table of Cases xiii INTRODUCTION 1 A Background 1 B Outline of the report 1 CHAPTER 1 THE CURRENT LAW IN IRELAND 5 A Introduction 5 B Overview of the Privity rule 5 C The exceptions to, and means of circumventing, the Privity rule 6 (1) Agency 6 (2) Trusts 8 (3) Assignment 9 (4) Collateral Contracts and Collateral Warranties 12 (5) Tort of Negligence 13 (6) Contracts for the benefit of a spouse or child 16 (7) Insurance 16 (8) Consumer Law 17 (9) Negotiable Instruments 19 (10) Carriage of Goods by Sea 19 (11) Employment Law 20 (12) Company Law 21 (13)

9 Covenants Running with Land 21 D Remedies available to the promisee 21 (1) Damages for third Party Loss 22 (2) Specific Performance 23 (3) Discussion 24 CHAPTER 2 GUIDING PRINCIPLES FOR REFORM 25 A Introduction 25 B The need to reform the Privity rule 25 (1) The intentions of the contracting parties 25 (2) The third Party who suffers a loss cannot sue, while the contracting Party who can sue has not suffered a loss 26 (3) The injustice to the third Party 26 (4) The effect of the exceptions to the Privity rule 26 (5) Commercial inconvenience and expense 28 (6) The use of collateral warranties 29 (7) Software licences 33 (8) Insurance contracts for the benefit of third parties 33 (9) Recovery in Tort for Economic Loss 37 (10) Risk allocation and exemption clauses 37 (11) Comparative analysis 41 (12) Conclusion 46 x C Options for Reform 47 (1) Judicial development of the rule of Privity 47 (2) Legislative reform of the promisee s remedies to give more protection to a third Party 48 (3) Legislative reform to create further exceptions 49 (4)

10 Detailed legislative reform to create a general scheme of third Party rights 50 D Guiding Principles for Reform 51 CHAPTER 3 SPECIFIC ISSUES FOR REFORM 53 A Introduction 53 B When a third Party can enforce their rights under a ContraCt 53 (1) The presumption in favour of third Party enforcement when a term of the ContraCt expressly benefits the third Party 54 (2) When the ContraCt expressly states that the third Party has a right to enforce a term of the ContraCt 57 (3) When the ContraCt excludes or limits the liability of the third Party 58 C Identification of a third Party beneficiary 59 D The requirement of consideration 60 E The right of the contracting parties to vary or cancel the ContraCt 61 F third Party rights are subject to the terms of the ContraCt 66 G Who is the proper defendant?