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The Contracts (Rights of Third Parties) Act 1999 significantly reformed the common law of Doctrine of Privity. Historically a third-party could not have obligations imposed by the terms of a contract, and a third-party could not enforce a contract for which a consideration was not provided. The Act allows third parties to enforce terms of contracts that benefit them in some way, or which the contract allows them to enforce. It also grants them access to a range of remedies if the terms are breached. Under the Act, the ways in which a contract can be changed are limited without the permission of an involved third-party and at the same time protection is provided for the promisor and promisee in situations where there is a dispute with the third-party. Parties to a contract are allowed to specifically exclude the protection given by the Act if they want to limit the involvement of third parties.

The doctrine of privity does however pose particular problems for exclusion clauses, a term that seeks to limit the liability of one or other party in the event of there being some problem with performance of the contract. It’s not fair that anyone should incur obligations in respect of contracts that they are not a party to and which offer them no benefit but the principle of privity means that its difficult to enter a contract that benefits a third party without taking out a separate contract with that third party.

If a contracting party believes that the contract has been breached, then there are various options available:

  1. He may continue to fulfil his obligations, then claim damages against the party in breach;
  2. He may repudiate the contract, and treat it as discharged. He may then attempt to claim damages from the party in breach.
  3. However, the other party may believe that his own actions did not constitute a breach, in which case the repudiation may be a breach of contract itself. It follows that repudiation is only a good idea if the breach has been substantial.

In no case does a breach of contract, however fundamental, automatically discharge the contract, nor does it necessarily declare it void. This means, in particular, that an exclusion clause that is to the benefit of the party in breach may still apply.

 

 

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