Introduction
The case of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) stands as a landmark decision in English contract law, particularly in relation to the doctrine of privity of contract. This essay aims to provide an overview of the key facts of the case and to discuss the doctrine it reinforced, alongside its exceptions, with reference to relevant legal authorities and illustrative examples. Privity of contract, a fundamental principle, dictates that only parties to a contract can enforce its terms or be subject to its obligations. While the decision in Dunlop v Selfridge solidified this rule, subsequent legal developments and exceptions have nuanced its application. This essay will first outline the facts and judicial reasoning in the case before exploring the doctrine of privity, its significance, and the exceptions that allow third parties to engage with contractual obligations or rights under specific circumstances. The discussion will draw on authoritative sources and case law to ensure a sound understanding suitable for a business law undergraduate context.
Brief Facts of Dunlop v Selfridge (1915)
The case of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 arose from a dispute over price maintenance agreements, a common commercial practice at the time. Dunlop, a tyre manufacturer, sold tyres to a distributor, Dew & Co, under a contractual agreement that prohibited Dew from reselling the tyres below a specified price. Furthermore, Dew was required to ensure that any subsequent buyers or retailers adhered to this price maintenance condition. Dew sold the tyres to Selfridge, a retailer, under a similar agreement that included the price restriction. However, Selfridge subsequently sold the tyres below the agreed price, prompting Dunlop to sue Selfridge for breaching the price maintenance term.
Dunlop argued that they could enforce the price restriction against Selfridge, despite not being in direct contractual agreement with them, on the grounds that Dew had acted as their agent in imposing the condition. Selfridge contended that they were not bound by the agreement between Dunlop and Dew, as they were a third party to that contract. The case reached the House of Lords, where the court unanimously held in favour of Selfridge. The court reaffirmed the doctrine of privity of contract, stating that only parties to a contract could sue or be sued under its terms. Lord Haldane LC famously articulated that “in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it” ([1915] AC 847 at 853). Consequently, since Dunlop had no direct contractual relationship with Selfridge, they could not enforce the price restriction against them. This decision underscored the strict application of privity in English contract law at the time.
The Doctrine of Privity of Contract
The doctrine of privity of contract, as reinforced in Dunlop v Selfridge, holds that a contract creates rights and obligations solely between the parties who have entered into it. This means that a third party, even if they stand to benefit from or be affected by the contract, cannot enforce its terms or be held liable under it. The principle seeks to maintain clarity and certainty in contractual relations by limiting the scope of enforceable rights and duties to those who have mutually agreed to them. Its origins can be traced back to earlier cases such as Tweddle v Atkinson (1861) 1 B & S 393, where the court similarly held that a third party could not sue on a contract made for their benefit, reinforcing the notion that consideration must flow from the promisee.
In Dunlop v Selfridge, the House of Lords’ decision highlighted the practical implications of privity. Dunlop’s attempt to control resale prices through indirect agreements was thwarted by the absence of a direct contractual link with Selfridge. This ruling reflected the judiciary’s commitment to preserving individual freedom in commercial dealings and preventing the imposition of obligations on parties who had not consented to them. However, the strict application of privity in this case also exposed its limitations, particularly in scenarios where third parties are closely connected to the contract’s purpose or performance. As McKendrick (2020) notes, such rigid adherence to privity can sometimes hinder commercial efficacy and fairness, prompting the development of exceptions and legislative interventions.
Exceptions to the Doctrine of Privity
While Dunlop v Selfridge entrenched the doctrine of privity, English law has since recognised several exceptions that mitigate its rigidity. These exceptions, developed through case law and statute, address situations where enforcing privity would be unjust or impractical. Below are key exceptions, supported by relevant authorities and examples.
Firstly, the concept of agency provides a significant exception to privity. If a party enters into a contract as an agent for a disclosed principal, the principal may enforce the contract or be held liable under it, even though they are not a named party. For instance, in New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd [1975] AC 154 (The Eurymedon), the court held that a stevedore, acting as an agent, could benefit from an exclusion clause in a contract between a shipper and carrier, illustrating how agency can bridge the privity gap.
Secondly, collateral contracts offer another workaround. A collateral contract is a secondary agreement that runs parallel to the main contract and can bind or benefit third parties. In Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854, the court recognised a collateral contract between a pier owner and a paint supplier, despite the main contract being between the pier owner and a contractor. This allowed the third party (the pier owner) to enforce warranties directly against the supplier.
Furthermore, trusts of a promise constitute a less common but noteworthy exception. If a contracting party holds a contractual right on trust for a third party, the third party may enforce that right as a beneficiary of the trust. This principle was acknowledged in Gregory and Parker v Williams (1817) 3 Mer 582, though its application remains limited in modern contract law due to the need for clear intent to create a trust.
Perhaps the most significant development is the statutory exception introduced by the Contracts (Rights of Third Parties) Act 1999. This legislation allows a third party to enforce a contractual term if the contract expressly provides for it or if the term purports to confer a benefit on them, subject to certain conditions (s.1). For example, if a contract between two companies includes a term benefiting a subsidiary, the subsidiary could potentially enforce that term under the 1999 Act. As Beatson et al. (2016) argue, this reform addresses many of the inequities highlighted by cases like Dunlop v Selfridge, aligning English law more closely with commercial realities.
Conclusion
In conclusion, Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) remains a pivotal case in English contract law, firmly establishing the doctrine of privity of contract. The decision highlighted the principle that only parties to a contract can enforce or be bound by its terms, as demonstrated by Dunlop’s inability to sue Selfridge for breaching a price maintenance agreement. While the ruling provided clarity and certainty, it also exposed the doctrine’s limitations in accommodating complex commercial arrangements or protecting third-party interests. Exceptions such as agency, collateral contracts, trusts, and the statutory framework of the Contracts (Rights of Third Parties) Act 1999 have since mitigated the harshness of privity, ensuring greater flexibility and fairness in contractual dealings. These developments reflect an evolving legal landscape that balances the sanctity of contractual agreements with the need to address practical and equitable concerns. For business law students, understanding privity and its exceptions is crucial, as they underpin many modern commercial disputes and legislative reforms. Indeed, the tension between strict legal principles and commercial needs continues to shape the application of contract law in the UK.
References
- Beatson, J., Burrows, A., and Cartwright, J. (2016) Anson’s Law of Contract. 30th ed. Oxford: Oxford University Press.
- McKendrick, E. (2020) Contract Law: Text, Cases, and Materials. 9th ed. Oxford: Oxford University Press.
