The House of Lords decision in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 is a landmark case in the English law of contract. It firmly established the doctrine of privity of contract and the related principle that consideration must move from the promisee. This assignment will explain the facts and legal reasoning of the case and consider its lasting significance, including the subsequent legislative reform designed to mitigate the harshness of the privity rule. The case demonstrates a fundamental principle of contract law: that a contract is a private agreement between two parties, and a third party who is a stranger to the contract cannot generally sue upon it.
The Facts and Decision
The case concerned a chain of contracts for the supply of tyres. The appellants, Dunlop, were tyre manufacturers who sold tyres to a wholesale distributor, Dew & Co. The contract between Dunlop and Dew contained a clause stipulating that Dew would not sell the tyres to trade buyers for less than Dunlop’s list price. A further clause required Dew to obtain the same undertaking from any retailer to whom they sold the tyres. Dew subsequently sold tyres to the respondents, Selfridge, who agreed to observe the price restriction and to pay Dunlop the sum of £5 for each tyre they sold in breach of this agreement.
Selfridge later sold tyres at a price lower than the agreed minimum. Dunlop brought an action against Selfridge, seeking an injunction and damages of £5 per tyre, arguing that Selfridge had breached its contractual promise. The House of Lords, upholding the Court of Appeal's decision, found in favour of Selfridge and dismissed Dunlop’s claim.
Viscount Haldane LC set out two fundamental principles of contract law that prevented Dunlop from succeeding. First, only a party to a contract can sue on it. Dunlop was not a party to the contract between Dew and Selfridge and, therefore, could not enforce its terms. This is the core of the doctrine of privity of contract. Second, for a promise to be enforceable, the promisee must have provided consideration. In this case, Selfridge made its promise to Dew, and it was Dew who provided the consideration for that promise (by supplying the tyres). Dunlop had provided no consideration for Selfridge’s promise to observe the minimum price, and so could not enforce it (McKendrick, 2022). This principle reinforces the rule previously seen in cases like Tweddle v Atkinson (1861) 1 B&S 393.
The Impact of the Privity Doctrine
The decision in Dunlop v Selfridge became the leading authority for the doctrine of privity. The doctrine states that a contract cannot confer rights or impose obligations on any person who is not a party to the contract. While the principle provides certainty and clarity, it was widely criticised for its potential to create injustice and defeat the express intentions of the original contracting parties. In many situations, such as the one in Dunlop, parties clearly intend to create a benefit for a third party, but the common law rule prevented that third party from enforcing their intended right.
Over time, the courts developed a number of complex and sometimes artificial exceptions to get around the strictness of the privity rule, such as through the law of agency or by finding a trust of the contractual right (Poole, 2021). However, these exceptions were not always predictable or consistently applied, leading to calls for reform. The law was seen as being out of step with commercial reality and the legal systems of many other jurisdictions which allowed for third-party enforcement.
Legislative Reform: The Contracts (Rights of Third Parties) Act 1999
The widespread dissatisfaction with the privity doctrine eventually led to legislative intervention. Following a report by the Law Commission, Parliament enacted the Contracts (Rights of Third Parties) Act 1999. This Act created a significant statutory exception to the privity rule, without abolishing the common law doctrine itself.
Under section 1 of the 1999 Act, a third party can enforce a term of a contract in their own right if one of two conditions is met. The first is if the contract expressly provides that they may (s.1(1)(a)). The second, and more commonly used, is if the term purports to confer a benefit on the third party (s.1(1)(b)), unless on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party (s.1(2)). Had this legislation been in force in 1915, the outcome of Dunlop v Selfridge would likely have been different. The clause requiring Selfridge to pay £5 to Dunlop for each breach clearly purported to confer a benefit on Dunlop, and it seems unlikely that Dew and Selfridge intended that this promise should not be enforceable by Dunlop.
Conclusion
In conclusion, Dunlop v Selfridge is a vital case for understanding the traditional English common law of contract. It provides a clear articulation of the doctrine of privity and the rule that consideration must move from the promisee. While these principles remain part of the law, the harsh effects demonstrated by the case's outcome have been largely addressed. The Contracts (Rights of Third Parties) Act 1999 now provides a clear mechanism for third parties to enforce contractual terms intended for their benefit, bringing the law more in line with the commercial expectations of contracting parties and remedying the main defect highlighted by this historic decision.
References
McKendrick, E. (2022) Contract Law: Text, Cases, and Materials. 10th edn. Oxford University Press.
Poole, J. (2021) Textbook on Contract Law. 15th edn. Oxford University Press.
Cases
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847
Tweddle v Atkinson (1861) 1 B&S 393
Legislation
Contracts (Rights of Third Parties) Act 1999
