Third Parties: Rationalising a Right to Sue

Peter Kincaid

doi:10.1017/S0008197300105306

Third Parties: Rationalising a Right to Sue

Published online by Cambridge University Press: 16 January 2009

Peter Kincaid

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In a revolutionary but unsatisfactory recent decision, the High Court of Australia has allowed a third-party beneficiary of an insurance contract a right to sue the promisor. The decision casts doubt upon the whole doctrine of privity and ultimately upon bargain as the theoretical basis of promissory liability. The Trident case is unsatisfactory not because it allowed a third-party beneficiary a cause of action or because it challenges privity and bargain, but because it offers no satisfactory replacement for the theory of bargain. The reasons the court gave for recognising a right to sue are weak and inconsistent with the common law's approach to questions of civil liability. That approach is to give a plaintiff a cause of action against a defendant not solely because of something the defendant has done, but because there is a legally relevant link between what he has done and the plaintiff's condition. That is, the plaintiff must, in order to establish a right, satisfy some criterion for linking the defendant's behaviour to his complaint.

Type: Articles
Information: The Cambridge Law Journal , Volume 48 , Issue 2 , July 1989 , pp. 243 - 270

DOI: https://doi.org/10.1017/S0008197300105306 [Opens in a new window]
Copyright: Copyright © Cambridge Law Journal and Contributors 1989

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^{page 243 note 2} Trident General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd., FC 88/140, 8 September 1988 (Mason C.J., Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ.). Now reported at (1988) 80 A.L.R. 574.

^{page 243 note 3} Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 40 A.L.J.R. 471 (H.C.A.); and Beswick v. Beswick [1968] A.C. 58 (H.L.).

^{page 245 note 4} (1677) 2 Lev. 210; 83 E.R. 523.

^{page 246 note 5} (1861) 1 B. & S. 393; 121 E.R. 762.

^{page 246 note 6} Atiyah, P. S., The Rise and Fall of Freedom of Contract (Oxford, Oxford University Press, 1979), p. 216Google Scholar.

^{page 246 note 7} Street, T. A., The Foundations of Legal Liability (Northport, New York, Edward Thompson Company, 1906), Vol. II, p. 141Google Scholar.

^{page 246 note 8} (1840) 11 Ad. & El. 438; 113 E.R. 482.

^{page 246 note 9} [1949] 2 K.B. 500 (C.A.).

^{page 246 note 10} [1949] 2 K.B. 500 at 514.

^{page 246 note 11} (1778) 7 T.R. 346 (H.L.).

^{page 247 note 12} Atiyah, P. S., Consideration in Contracts: A Fundamental Restatement (1971), p. 60Google Scholar.

^{page 247 note 13} (1840) 11 Ad. & El. 438.

^{page 247 note 14} See J., Windeyer in Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 119 C.L.R. 460 at 498; 40 A.L.J.R. 471 at 485Google Scholar.

^{page 247 note 15} Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B 130.

^{page 247 note 16} (1952) 15 Mod. L. Rev. 1 at 5.

^{page 248 note 17} [1951] 2 K.B. 215 at 219 (C.A.).

^{page 248 note 18} Referred to by J., Windeyer in Coulls (1967) 119 C.L.R. 460 at 495Google Scholar.

^{page 248 note 19} [1915] A.C. 847 (H.L.).

^{page 248 note 20} (1967) 40 A.L.J.R. 471.

^{page 248 note 21} At p. 484.

^{page 248 note 22} At p. 485. It can be argued that Tweddle could not overrule Dutton because the former was a decision at first instance whilst the latter was a decision of the Court of Exchequer Chamber on appeal from the Court of King's Bench. Whatever technical force that argument may have had in 1861, it has been short-circuited by the House of Lords' endorsement of Tweddle in Dunlop v. Selfridge [1915] A.C. 847 and Scruttons Ltd. v. Midland Silicones Ltd. [1962] A.C. 446 (H.L.), as Windeyer J.'s remarks indicate. In any case, the decision in Eastwood v. Kenyon (1840) 11 Ad. & El. 438 and the policy choice it represented surely meant that the rule in Tweddle would eventually prevail.

^{page 248 note 23} [1966] Ch. 538 (C.A.).

^{page 248 note 24} [1949] 2 K.B. 500.

^{page 248 note 25} [1915] A.C. 847.

^{page 249 note 26} Beswick v. Beswick [1966] Ch. 538 at 557.

^{page 249 note 27} [1962] A.C. 446.

^{page 249 note 28} [1966] Ch. 538 at 557.

^{page 249 note 29} [1968] A.C. 58.

^{page 249 note 30} At pp. 88 and 92.

^{page 249 note 31} At p. 101.

^{page 249 note 32} (1967) 119 C.L.R. 460.

^{page 249 note 33} Greenwood Shopping Plaza Ltd. v. Beattie (1980) 111 D.L.R. (3d) 257 (S.C.C.).

^{page 249 note 34} See Reid, Lord in Midland Silicones [1962] A.C. 446 at 474 and Lush L.J. in Lloyd's v. Harper (1880) 16 Ch. D. 290 at 321 (C.A.)Google Scholar.

^{page 249 note 35} Trident Insurance v. McNiece (1988) 80 A.L.R. 573, per Brennan J. at 594.

^{page 249 note 36} Wilson, Louise, “Contract and Benefit for Third Parties” (1987) 11 Syd. L. Rev. 230 at 246Google Scholar.

^{page 249 note 37} Tomlinson v. Gill (1756) Amb. 330; 27 E.R. 221 (L.C.).

^{page 249 note 38} Corbin, Arthur, “Contracts for the Benefit of Third Parties” (1930) 46 L.Q.R. 12Google Scholar.

^{page 250 note 39} Vandepitte v. Preferred Accident Corp of New York [1933] AC 70 (P.C.); Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd. [1980] 1 W.L.R. 277 per Lord Scarman at p. 300 (H.L.); Greenwood Shopping Plaza Ltd. v. Beattie (1980) 111 D.L.R. (3d) 257.

^{page 250 note 40} Brennan, Deane and Dawson JJ.

^{page 250 note 41} Brennan J. (1988) 80 A.L.R. 574 at pp. 597–598; Deane J. at pp. 604–605; Dawson J. at p. 609.

^{page 250 note 42} (1988) 80 A.L.R. 574.

^{page 250 note 43} Mason C.J. and Wilson J. at p. 585 and Toohey J. at p. 621. Toohey J.'s test is in fact subtly different from that of Mason C.J. and Wilson J. Whereas the first two judges take judicial notice of the likelihood of reliance by third parties, Toohey J. requires the third party to show that in the circumstances it was likely that he would rely, although he need not show that he relied. This requirement is really that it must have been foreseeable to the promisor that the third party might rely. The test still focuses upon the duty of the promisor.

^{page 250 note 44} At p. 599.

^{page 250 note 45} At p. 599.

^{page 250 note 46} At p. 607.

^{page 250 note 47} At pp. 604–605.

^{page 250 note 48} At p. 603.

^{page 250 note 49} At p. 621.

^{page 251 note 50} At p. 623. Unjust enrichment lay behind the early, pre-bargain, actions in debt and early recognition of third-party rights in cases in assumpsit analogous to debt: de Cruz, S. P., “Assumpsit, Consideration and Third Party Rights” (1986) 7 J.L.H. 53 at 59Google Scholar.

^{page 251 note 51} At p. 623. She quotes J., Deane in Pavey & Matthews Pty. Ltd. v. Paul (1987) 162 C.L.R. 221 at 256–257 to this effectGoogle Scholar.

^{page 251 note 52} At p. 623.

^{page 251 note 53} At p. 623.

^{page 251 note 54} (1859) 20 N.Y. 268.

^{page 251 note 55} Brennan J., at p. 591.

^{page 251 note 56} Brennan J., at p. 593.

^{page 251 note 57} Brennan J., at p. 596; Dawson J., at p. 612.

^{page 252 note 58} Brennan J., at p. 597.

^{page 252 note 59} Dawson J., at p. 609.

^{page 252 note 60} New Zealand, Queensland, and Western Australia.

^{page 252 note 61} Property Law Act, 1974 (No. 76 of 1974), s.55(l).

^{page 252 note 62} S.55(6)(a).

^{page 252 note 63} Property Law Act 1969 (No. 32 of 1969), s.11(2) and (3); see Longo, J., “Privity and the Property Law Act: Westralian Farmers Co-operative Ltd. v. Southern Meat Packers Ltd [1981] W.A.R. 241” (1983) 15 U. W. Aust. L. Rev. 411Google Scholar.

^{page 252 note 64} Contracts (Privity) Act 1982 (No. 132 of 1982), s.4; see Newman, Rodney, “The Doctrine of Privity of Contract: The Common Law and the Contracts (Privity) Act 1982” (1983) 4 Auckland U. L. Rev. 339Google Scholar.

^{page 252 note 65} S.5(1).

^{page 252 note 66} (1859) 20 N.Y. 268.

^{page 253 note 67} Andrew, Rogers J., “Contract and Third Parties,” Chapter 3 in Finn, P. D. (ed.), Essays on Contract (Sydney, Law Book, 1987), p. 88Google Scholar.

^{page 253 note 68} American Law Institute, Second Restatement of the Law of Contract, s.304.

^{page 253 note 69} Second Restatement, s.311(3).

^{page 253 note 70} Dold, G. W. F., Stipulations for a Third Party (London, Stevens, 1948), pp. 5 and 39Google Scholar.

^{page 254 note 71} The Foundations of Legal Liability, Vol. II, 1906.

^{page 254 note 72} Street, op. cit., p. 156.

^{page 254 note 73} Street, op. cit., p. 152.

^{page 254 note 74} Street, op. cit., p. 158.

^{page 254 note 75} Street, op. cit., p. 159.

^{page 254 note 76} “The Property in the Promise: A Study of the Third Party Beneficiary Rule” (1985) 98 Harvard L. Rev. 1109.

^{page 254 note 77} (1859) 20 N.Y. 268. For the facts, see p. 252, supra. Waters surmises that Holly's debt to Lawrence was a gambling debt and hence unenforceable. This would explain why Lawrence sued Fox instead of Holly (whose real name was Hawley), himself a man of substance and hence worth suing. Waters, op. cit., p. 1127.

^{page 255 note 78} Waters, op. cit., p. 1121, n. 33.

^{page 255 note 79} Waters, op. cit., p. 1140, n. 99.

^{page 255 note 80} Williston, Samuel, “Contracts for the Benefit of a Third Person,” (1902) 15 Harvard L. Rev. 767 at 772Google Scholar.

^{page 255 note 81} de Cruz, S. P., “Privity in America: A Study in Judicial and Statutory Innovation,” (1985) 14 Anglo-American L. Rev. 265 at 281Google Scholar.

^{page 255 note 82} G. W. F. Dold, op. cit., p. 97.

^{page 255 note 83} Mason C.J., Wilson, Toohey and Gaudron JJ.

^{page 255 note 84} (1859) 20 N.Y. 268 (N.Y.C.A.).

^{page 255 note 85} At p. 274.

^{page 256 note 86} At p. 275.

^{page 256 note 87} (1988) 80 A.L.R. 574 at 623.

^{page 256 note 88} Sixth Interim Report (London, H.M.S.O., 1937), Cmd. 5449.

^{page 256 note 89} Report, para. 45. See Dold, op. cit., p. 103.

^{page 256 note 90} Para. 27.

^{page 256 note 91} Para. 28.

^{page 256 note 92} (1778) 7 T.R. 350.

^{page 256 note 93} Para. 29.

^{page 257 note 94} (1988) 80 A.L.R. 574 at 579–580.

^{page 257 note 93} At p. 595. But see n. 43, above, for a slight difference in Toohey J.'s approach.

^{page 257 note 96} Ferson, M. L., The Rational Basis of Contracts (Brooklyn, Foundation Press, 1949)Google Scholar.

^{page 257 note 97} Ferson, op. cit., p. 151.

^{page 258 note 98} Loc. cit.

^{page 258 note 99} “The Doctrine of Privity of Contract: The Common Law and the Contracts (Privity) Act 1982” (1983) 4 Auckland U. L. Rev. 339.

^{page 258 note 1} At p. 341.

^{page 258 note 2} “Contracts for the Benefit of Third Parties” (1968) 8 U. W. Aust. L. Rev. 378.

^{page 258 note 3} 11 At p. 400.

^{page 259 note 4} Dold, G. W. F., Stipulations for a Third Party (1948), p. 30Google Scholar.

^{page 259 note 5} Stern, Walter, “Consideration and Gift” (1965) 14 I.C.L.Q. 675 at 676; Street, op. cit., p. 11Google Scholar.

^{page 259 note 6} Street, op. cit., pp. 11, 14; Barton, J. L., “The Early History of Consideration” (1968) 85 L.Q.R. 372 at 390Google Scholar.

^{page 259 note 7} Ferson, op. cit. n. 96, supra, pp. 124–126.

^{page 259 note 8} Strangborough v. Warner (1588) 4 Leon 3; and see Street, op. cit. n. 71, supra, p. 55.

^{page 259 note 9} Street, op. cit., p. 152.

^{page 260 note 10} By J., Lush in Currie v. Misa (1875) L.R. 10 Ex. 153 at 162Google Scholar.

^{page 260 note 11} Street, op. cit., p. 68.

^{page 260 note 12} See my discussion of Lords Mansfield and Denning's campaigns on this question, above, pp. 246–249.

^{page 260 note 13} Rann v. Hughes (1778) 7 T.R. 346 and Eastwood v. Kenyan (1840) 11 Ad. & El. 438.

^{page 260 note 14} See Street, op. cit., pp. 142–143; and J., Windeyer in Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 40 A.L.J.R. 471 at 485Google Scholar; but contra, Atiyah, P. S., The Rise and Fall of Freedom of Contract (1979), p. 216Google Scholar.

^{page 260 note 15} (1861) 1 B. & S. 393; 121 E.R. 762.

^{page 261 note 16} Dunlop Pneumatic Tyre Co Ltd. v. Setfridge & Co. Ltd. [1915] A.C. 847; Scruttons Ltd. v. Midland Silicones Ltd. [1962] A.C. 446; Coulls's case, supra; Beswick v. Beswick [1968] A.C. 58; Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd. [1980] 1 W.L.R. 277; and Greenwood Shopping Plaza Ltd. v. Beattie (1980) 111 D.L.R. (3d) 257.

^{page 261 note 17} By Pearson, G. D., “Privity of Contract: Proposed Reform in New Zealand” (1982) 5 Otago L. Rev. 316 at 320Google Scholar; and Tearle, W. J., “Third Party Contracts” (1968) 6 Sydney L. Rev. 96 at 102Google Scholar. McHugh J. A. made the same assertion without explanation in the New South Wales Court of Appeal: Trident General Insurance Co. Ltd. v. McNiece Bros. Pty. Ltd. (1987) 8 N.S.W.L.R. 270 at 288.

^{page 261 note 18} (1967) 119 C.L.R. 460.

^{page 261 note 19} Coulls's. case (1967) 119 C.L.R. 460 at 493.

^{page 261 note 20} Coote, Brian, “Consideration and the Joint Promisee” [1978] C.L.J. 301Google Scholar.

^{page 261 note 21} (1988) 80 A.L.R. 574.

^{page 261 note 22} Brennan J., dissenting in Trident, at pp. 590–591.

^{page 262 note 23} Hohfeld, W. N., Fundamental Legal Conceptions (Westport, Connecticut, Greenwood Press, 1978), pp. 36–38Google Scholar; Ervin, Pollack, Jurisprudence (Columbus, Ohio State University Press, 1979), p. 335Google Scholar; Pound, Roscoe, Jurisprudence (1959) Vol. IV, p. 85Google Scholar; SirSalmond, John, Jurisprudence, 6th ed. (London, Sweet & Maxwell, 1920), p. 184Google Scholar.

^{page 262 note 24} Allen, C. K., Legal Duties (Oxford, Clarendon, 1931), p. 183Google Scholar.

^{page 262 note 25} Ervin Pollack, op. cit., p. 74.

^{page 262 note 26} (1859) 20 N.Y. 268.

^{page 262 note 27} SirPollock, Frederick, Jurisprudence, 4th ed. (London, Macmillan, 1918), p. 86Google Scholar.

^{page 262 note 28} Stone, Julius, Legal System and Lawyers' Reasonings (Sydney, Maitland Publications, 1964), pp. 149–151Google Scholar.

^{page 263 note 29} Salmond, op. cit., p. 181; Pound, op. cit., p. 70.

^{page 263 note 30} Williston, Samuel, “Contracts for the Benefit of a Third Person” (1902) 15 Harvard L. Rev. 767 at 773Google Scholar.

^{page 263 note 31} Wyiie, J. C. W., “Contracts and Third Parties” (1966) 17 N. Ireland Legal Q. 351 at 422Google Scholar.

^{page 263 note 32} Salmond, op. cit., p. 181; Pound, op. cit., p. 70.

^{page 263 note 33} Pearson, G. D., “Privity of Contract: Proposed Reform in New Zealand” (1982) 5 Otago L. Rev. 316 at 318Google Scholar.

^{page 264 note 34} SirSalmond, John, Jurisprudence 6th ed. (1920), p. 71Google Scholar.

^{page 264 note 35} Allen, C. K., Legal Duties (1931), p. 228, referring to AustinGoogle Scholar.

^{page 264 note 36} Salmond, op. cit., p. 71.

^{page 264 note 37} Bayles, Michael, “The Purposes of Contract Law ” (1983) 17 Valparaiso U. L. Rev. 613 at 616Google Scholar.

^{page 264 note 38} Penal or exemplary damages when they are awarded may be disregarded here as an aberration and out of step with the civil law approach. C. K. Alien, op. cit., p. 226.

^{page 264 note 39} Stoljar, Samuel, Moral and Legal Reasoning (London, Macmillan, 1980), p. 153CrossRef Google Scholar.

^{page 265 note 40} Fletcher, George, “The Search for Synthesis in Tort Theory,” in Justice, Rights, and Tort Law (Boston, D Reidel Publishing, 1983), p. 98Google Scholar.

^{page 265 note 41} Pearson, G. D., “Privity of Contract: Proposed Reform in New Zealand” (1982) 5 Otago L. Rev. 316 at 317Google Scholar.

^{page 265 note 42} A. J. Waters, op. cit., p. 1112.

^{page 265 note 43} “Privity—The End of an Era (Error)” (1987) 103 L.Q.R. 564 at 593.

^{page 265 note 44} J., Brennan in Trident (1988) 80 A.L.R. 574 at 591Google Scholar.

^{page 266 note 45} Je Maintiendrai Pty. Ltd. v. Quaglia and Quaglia (1980) 26 S.A.S.R. 101; Legione v. Hateley (1983) 152 C.L.R. 406 (H.C.A.).

^{page 266 note 46} Combe v. Combe [1951] 2 K.B. 215. In a recent case in the High Court of Australia, Waltons Stones (Interstate Ltd. v. Maher (1988) 62 A.L.J.R. 110, Combe was not followed so that equitable estoppel can now be used in Australia to establish a cause of action. However, the High Court characterised this as part of the general principles of estoppel, not part of the law of enforcement of promises.

^{page 267 note 47} Above, p. 258.

^{page 267 note 48} Central London Property Trust Ltd. v. High Trees House Ltd. [1947] K.B. 130.

^{page 267 note 49} (1980)26 S.A.S.R. 101.

^{page 268 note 50} S. 311(3).

^{page 268 note 51} Contracts (Privity) Act 1982 (No. 132 of 1982), s.5(l); see Newman, Rodney, “The Doctrine of Privity of Contract: The Common Law and the Contracts (Privity) Act 1982” (1983) 5 Auckland U. L. Rev. 339 at 349Google Scholar.

^{page 269 note 52} Property Law Act 1974 (No. 76 of 1974), s.55(l).

^{page 269 note 53} Finlay, A. M., Contracts for the Benefit of Third Persons (1939), pp. 1–2Google Scholar.

^{page 269 note 54} Contracts and Commercial Law Reform Committee, New Zealand.

^{page 269 note 55} Contracts (Privity) Act 1982 (No. 132 of 1982).

^{page 269 note 56} Privity of Contract, A Report by the Contracts and Commercial Law Reform Committee, New Zealand, presented to the Hon. the Minister of Justice on 29 May 1981, p. 2.

^{page 269 note 57} Corbin, Arthur, “Contracts for the Benefit of Third Persons” (1930) 46 L.Q.R. 12 at 44Google Scholar.

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