Under the doctrine of privity of contract, only parties to a contract may sue or be sued on it. In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 the High Court held this traditional privity rule did not apply to contracts of insurance taken out for the benefit of third party subcontractors. This is in addition to a person for whose benefit a contractual obligation has been entered into being able to enforce the contractual obligation in equity, in a proceeding to which the contractual obligor and contractual obligee are joined, if an intention to hold the obligation on trust for the person can be imputed: Wilson v Darling Island Stevedoring and Lighterage Co Ltd [1956] HCA 8; (1955) 95 CLR 43 at 67.
Further topics relevant to the rights of third parties include:
- Jin Resources (Aus) Pty Ltd ACN 641 111 195 & Others v Steven Nicols & Anor [2022] QSC 158, which analysed the doctrine of consideration with respect to promises to third parties to perform contract terms; and
- Nashco Pty Ltd v Yang [2022] NSWCA 137, concerning a contract made with a named entity “and its successors and assigns”.
Within Queensland these concepts are potentially changed by legislation. Where a promise is made to do or refrain from doing an act for the benefit of a third party, the promise is enforceable by the beneficiary if the beneficiary has accepted the promise pursuant to section 55 of Property Law Act 1974 (Qld). Once accepted, the parties to the transaction may not vary the terms without consent of the beneficiary under the terms of the legislation. This very unusual provision appears to have come up in submissions relating to Jin Resources but was not ultimately relevant in that matter. That is unfortunate as it leaves unresolved a number of important questions in relation to whether the law of privity continues to apply in any circumstances in Queensland, not the least of which is whether the legislation may operate to deprive a party of rights which would otherwise be recognised at common law applying in Trident v McNiece.
Under the Act, the beneficiary’s rights are subject to communication of “acceptance” by the beneficiary within a “reasonable time” of the promise coming to the notice of the beneficiary. In practice, it may be unlikely that acceptance occurs prior to a dispute arising. Where an action was to be brought against an insurer, would the beneficiary be deprived of their rights if they were aware the insurance extended coverage to them years before any incident giving rise to a claim occurred? It is submitted that this seems to the logical application of the provision, and is the approach taken by Macrossan J in Re Davies [1989] 1 Qd R 48. The Supreme Court of South Australia appears to have taken the view that the provision, relevant as the law of the contact was Queensland Law, sits as an alternative avenue for relief to Trident rather than as replacing it: Merrell Associates Ltd V HL (Qld) Nominees Pty Ltd [2010] SASC 155. Hyatt Australia Ltd v LTCB Australia Ltd [1996] 1 Qd R 260 contemplated that acceptance not communicated within a reasonable time would disentitle the beneficiary (per McPherson J.A. at 266), again without considering the existence of an alternative common law right. The better view appear to be that the statutory provision operates as a code which can defeat third party claims that would otherwise be available at common law.