What is privity in contract law?

Privity in contract law

‘Privity of contract’ is a fundamental principle in contract law, meaning that only the parties to a contract can enforce its terms. A third party cannot, save in exceptional cases, enforce a contract to which it is not a party – it had no ‘rights’ in respect of that contract.

What are the rules?

There are rules which state who can take action to sue a party to a contract. In the important case of Dunlop v Selfridge (1915), there was a contract between two parties, Dunlop and Selfridge. It was ruled that a third party could not sue Selfridge over an agreement as to the price because that third party was not in contract with Selfridge. The court decided that there was no contract between the third party and the others, and it did not have the right to sue on that contract. This ‘privity’ rule means only those who are party to a contract have the right to take action against another party to the contract.

However, the rule of privity of contract can cause disadvantages including a degree of unfairness and inequity to third parties in some cases. The Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999) was introduced to provide an exception to the general rule. There are also further exceptions to the rule that have been developed by the courts over the years.

Exceptions to the rule of privity of contract

The C(RTP)A 1999

Under the 1999 Act, a person who is not a party to a contract has the right to enforce some terms of the contract in specified circumstances. The contracting parties can incorporate limits and restrictions on the rights given to a third party, such as a consultant, under the contract.

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