Privity reform and the nature of contractual obligations

Abstract

This paper examines the justificatory arguments that the UK Law Commission advances in support of privity reform (Law Com no 242) (1996). The Commission believes that its proposed reforms will not cut across the ‘underpinning principles’ of the common law. This is borne out by the Commission's primary justificatory argument - that the privity rule undermines the intentions of the contracting parties - and by its proposal that consideration remain as the test of enforceability of contracts. But given the substantive change to privity that is proposed, and the prospect of the crystallisation of the third party right, it is argued that the Commission in fact favours the more modern reliance-based account of contractual obligation. The effect of this is to create an independent third party right to sue for the performance of the promise, ie a right that does not arise out of the contractual relationship between the parties, but from the third party's own reliance on the promise. This may have implications for enforcement of promises by gratuitous promisees.