is a leading
House of Lords
The House of Lords, also known as the House of Peers, is the Bicameralism, upper house of the Parliament of the United Kingdom. Membership is by Life peer, appointment, Hereditary peer, heredity or Lords Spiritual, official function. Like the ...
case on
privity
Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty. It is an important concept in contract law.
Contract law
{{main article, Privity of contract
The ...
of
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
. It was a test case in which it was sought to establish a basis upon which stevedores could claim the protection of exceptions and limitations contained in a
bill of lading
A bill of lading () (sometimes abbreviated as B/L or BOL) is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill of lading may toda ...
contract to which they were not party. The Court outlined an exception to the privity rule, known as the Lord Reid test, through
agency as it applies to sub-contractors and employees seeking protection in their employers' contract.
Facts
Scruttons Ltd was shipping a load of crates through a carrier. In the contract between the two parties there was a limitation of liability clause for $500 (£179) per box. The goods were damaged in transit due to the negligence of the stevedores. The stevedores were under contract with the shipping company which contained an exclusion clause.
Midland were unaware of the relationship between the carriers and the stevedores.
Judgment
At first blush, it was clear to the Court that the stevedores could not be exempted by the exemption clause as there was no
privity of contract
The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract.
The premise is that only parties to contracts should be ab ...
. The Court looked at whether there was a bailment relationship but found none. The case turned on the application of the ''Elder, Dempster'' case
[Elder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co. Ltd. 924A.C. 522] which suggested that privity could be circumvented.
Lord Reid proposed that the stevedores could be covered under the contractual clause through agency if certain pre-conditions were satisfied.
All of Lord Reid's preconditions were satisfied in the subsequent case of
''New Zealand Shipping v Satterthwaite (The Eurymedon)'' 975
Year 975 ( CMLXXV) was a common year starting on Friday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* Arab–Byzantine War: Emperor John I raids Mesopotamia and invades Syria, using ...
AC 154.
The ''Scruttons'' case followed an earlier case with similar reasoning, ''
Adler v Dickson (The Himalaya)''.
Significance
With the ''Scruttons'' case, the issue of third party rights in a contract were made certain. There had been much speculation on the meaning of ''Elder, Dempster'' but it became clear that there was no new rule from that case. This case, among others, resulted in the change of practice in shipping contracts by adding
Himalaya clause
A Himalaya clause is a contractual provision expressed to be for the benefit of a third party who is not a party to the contract. Although theoretically applicable to any form of contract, most of the jurisprudence relating to Himalaya clauses rel ...
s to protect third parties.
See also
*
Privity
Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty. It is an important concept in contract law.
Contract law
{{main article, Privity of contract
The ...
*
Privity in English law
Privity is a doctrine in English contract law that covers the relationship between parties to a contract and other parties or agents. At its most basic level, the rule is that a contract can neither give rights to, nor impose obligations on, any ...
*
Third party beneficiary
A third-party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a ''ius quaesitum tertio'', arises when the thir ...
External links
Full text of House of Lords decision from BAILII.org
References
{{reflist
House of Lords cases
English contract case law
English privity case law
1961 in British law
1961 in case law