Doctrine of Privity

The doctrine of privity of a contract means that only persons who are parties to the contract are entitled to take action if its terms are broken. The parties who have not contributed any considerations to a contract cannot sue on it if it is breached. In the same way, the burdens of the contract are unable to be enforced against a party to whom no consideration has been agreed. For example, in Dunlop Rubber Co. Ltd v Selfridge , Dunlop supplied tires to Dew & Co. at a discounted price and Dew & Co. agreed to not resell the tires below the list price. However, Dew had supplied to Selfridge, who had breached the resale price agreement. Since there was no privity of contract between Dunlop and Selfridge, Dunlop could not sue Selfridge.

The Contracts (Rights of Third Parties) Act 1999 creates an exception which gives the right to a third party to enforce the term of the contract to which that the third party is not a party of the contract. The entire privity rules, existing rights and remedies to third parties will maintain and not be abolished by this Act. In this Act, a person who is not a party of the contract may only enforce a term of a contract if the contract expressly provides that he may do so, or if the purpose of the contract is to benefit the third party unless the contract clearly indicates that that party was not intended to be able to create rights.