is a leading

House of Lords The House of Lords, also known as the House of Peers, is the upper house of the Parliament of the United Kingdom. Membership is by appointment, heredity or official function. Like the House of Commons, it meets in the Palace of Westminst ...

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 ...

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 tr ...

. 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 Agency may refer to: Organizations * Institution, governmental or others ** Advertising agency or marketing agency, a service business dedicated to creating, planning and handling advertising for its clients ** Employment agency, a business that ...

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 ...

. The Court looked at whether there was a bailment relationship but found none. The case turned on the application of the ''Elder, Dempster'' caseElder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co. Ltd.

924 __NOTOC__ Year 924 ( CMXXIV) was a leap year starting on Thursday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * Byzantine–Bulgarian War: Forces led by Simeon I, ruler (''knyaz'') ...

A.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)'' 975AC 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 clauses to protect third parties.

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

Facts

Judgment

Significance

See also

External links

References