The Doctrine of Privity of Contract and the Impact of the Contracts Act 1999 - Essay Example

121, 1991) the Contracts (Rights of Third Parties) Act 1999 which essentially modified the doctrine of privity of contract and confers upon third parties a limited right of action relative to a contract which confers upon the third party a benefit. Ultimately a third party may enforce a term or condition of a contract if the contract “expressly” makes provision for the right of the third party to enforce a term of the contract.5 Secondly, a third party may enforce a contractual term if the term “purports to confer a benefit” on that third party.

6 It is assumed that once parties to a contract confer on a third party a benefit under a contract, the contracting parties intend that the third party may enforce the term creating the relevant benefit.7 In Nisshin Shipping Co. Ltd. v Cleaves & Co. Ltd. it was held that the assumption that parties to a contract intend that a third party with a benefit under the contract can enforce the term creating the benefit can only be rebutted by substantial evidence to the contrary.8 In other words there must be proof that the contracting parties did not intend that the third party have enforceable rights under the contract.

Otherwise the third party must be identified either expressly or by description in the body of the contract in order to get around the doctrine of privity of contract.9 Essay question – restraint of trade – employees and sale of business. Restraint of trade clauses in contracts of employment are intended by employers to safeguard against competition from former employees.10 Similarly, upon the sale of a business, a contract for the sale of the business may contain a covenant in which the vendor covenants not to engage in a business area for a prescribed period in order to safeguard against the deterioration of goodwill purchased by the purchaser.

11 When a business is sold or transferred to another party, an existing restraint of trade agreement impacting an employee survives the transfer of the business.12 Like employment covenants for the restraint of trade13a covenant for the restraint of trade under an agreement for the sale of a business will be generally upheld when the restraint of trade covenant is reasonable.14 It was held in Dairy Crest Ltd. v Pigott that an employer may only enforce an agreement in restraint of trade for preventing unfair competition as opposed to competition altogether.

15 Ultimately, the restraint of trade clause in a contract of employment or in the sale of transfer of a business must be reasonable in that it must be for the purpose of protecting a legitimate interest. For instance it would not be unreasonable for an employer or a purchaser to want to protect trade secrets or confidential information relevant to trade.16 In Danaway, Day & Co. Ltd. v De Braconier D’