Privity of Contract

Privity of contract means that contracts exist between the offeror and offeree only. Other parties affected by the contract are called strangers to consideration. Even if you enter a contract to benefit outsiders (for example, insurance to cover customers or sub-contractors), strict legality excludes them from enforcing the contract even if they are entitled to the benefits.

 

There are nonetheless, ways around this. Laws exist to allow or compel someone else into the benefits and obligations under a contract, or to obtain a remedy for conduct that would otherwise be in breach. These include such laws as:

​

• Agency,

• Negligence,

• Trust,

• Estoppel,

• Unjust enrichment,

• Misleading and deceptive conduct.

 

For an example of some of these foregoing principles, see the insurance case of Trident v McNeice[1]. The High Court found that a sub-contractor which fitted within the class of entities covered buy an insurance contract should be indemnified and not required to take out their own insurance.

​

​

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44.

​