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Published online by Cambridge University Press: 12 February 2016
An exemption clause which purports to affect the rights and liabilities of a stranger to the contract raises the question of the connection between privity and exemption clauses. It is usual to regard the denial of validity to an exemption clause referring to the liability of a stranger as deriving from privity. Let us therefore commence by clarifying the meaning of privity and its relationship to exemption clauses and then go on to explain our view that such clauses should operate in favour or against a stranger in accordance with general principles of the positive contract law. Since privity has two aspects — denying a contract the capacity neither to benefit nor to harm a stranger — our treatment of the influence of privity upon exemption clauses will likewise deal with exempting a stranger and fettering him. After describing the situation in English law, we will turn to Israeli law which is no longer identical with English law, regarding the relationship between privity and exemption clauses.
1 The position was different before the enactment of the Contracts (General Part) Law, 1973 (27 L.S.I. 117): as in England, privity prevailed to its full extent. This followed from the view that privity derives from consent and not from the doctrine of consideration. The latter had no firm foundation in Israel even before the above mentioned Law, and it is doubtful whether such an important matter as privity could rest thereon. But see State of Israel v. Hidnah (1960) 14 P.D. 926.
2 The doctrine crystallized in English law, over a century ago, in Tweddle v. Atkinson (1861) B & S 393; (1861–73) All E.R.Rep. 369, and was finally confirmed in the House of Lords in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge [1915] A.C. 847 More recently it has been approved in Beswick v. Beswick [1968] A.C. 58, rejecting the revolutionary views of Lord Denning expressed in the Court of Appeal in Beswick v. Beswick [1966] 3 W.L.R. 396, 407.
3 See State of Israel v. Hidnah, supra n. 1 and Halevi v. Mifal Hapayis (1973) (I) 27 P.D. 38. For criticsm of this view, see Zeltner, , “The Abolition of Consideration and its Aftermath” (1961) 17 HaPraklit 39.Google Scholar
4 Cf., Dunlop v. Selfridge, supra n. 2.
5 Cf., Shalev, , “Third Party Beneficiary: A Comparative Analysis” (1976) 11 Is.L.R. 315.Google Scholar
6 The liability, denied or restricted, cannot stem from the same contract since upon any view of privity a third person cannot be made liable by means of a contract to which he is not a party.
7 This immunity, according to the Hohfeld analysis, is included within right in its broad sense: Hohfeld, W.N., Fundamental Legal Conceptions (1964) 35–64Google Scholar. See also Salmond, , On Jurisprudence (12th ed.) 231.Google Scholar
8 Cosgrove v. Horsfall (1945) 62 T.L.R. 140. The question is whether here a contract was indeed made between the parties or only a conditional licence created. See ibid., at 140, per du Parcq L.J.
9 See Barak, , Vicarious Liability in Torts (Jerusalem, 1964, in Hebrew) 29Google Scholar. According to the “deep pocket principle” there mentioned it may be said that to give effect to an exemption clause vis-à-vis an employer and not an employee is a counterbalance to attaching liability to the party least able to bear it. But see Barak's criticism of this principle, ibid., at 30.
10 Cf. Treitel, , “Exemption Clauses and Third Parties” 18 (1955) M.L.R. 172.Google Scholar
11 Subject to the possible plea, which depends upon the circumstances and the source of the obligation, of assumption of risk. See text infra at Part F.
12 See infra text at n. 33 ff.
13 Scruttons v. Midland Silicones [1962] A.C. 446, 477, 479, 480, 494.
14 Anson, , Law of Contract (Oxford, 23rd ed., 1969) 169Google Scholar; Cheshire, and Fifoot, , The Law of Contract (London, 7th ed., 1969) 408, n. 5Google Scholar; Chitty, , On Contracts (London, 23rd ed., 1968) 344.Google Scholar
15 Elder, Dempster & Co. Ltd. v. Paterson Zochonis & Co. Ltd. [1923] 1 K.B. 420; on appeal: [1924] A.C. 522.
16 Elder, Dempster & Co. Ltd. v. Paterson Zochonis & Co. Ltd. [1924] A.C. 522, Lord Cave at 534; Lord Finlay at 547–8.
17 The same principle was voiced, but without putting it too high, by Scrutton L.J. in his dissenting judgment in Court of Appeal in Elder, Dempster [1923] 1 K.B. 420, 441.
18 (1925) 21 Lloyd's Rep. 375.
19 (1948) 21 Lloyd's Rep. 375, p. 378. See also Gilvert Stokes v. Dalgety (1948) 81 Lloyd's Rep. 337; Waters Trading v. Dalgety (1951) 2 Lloyd's Rep. 385. The principle was adopted by the Stockholm International Conference which changed The Hague Rules. See Johnston, , “More Exemptions, Not Less” (1967) J. Bus. L. 133.Google Scholar
20 (1945) 62 T.L.R. 140.
21 In Adler v. Dickson [1954] 3 W.L.R. 696 the view was rejected that Cosgrove which closely follows the privity doctrine was wrongly decided because it is not at one with the rule in Elder, Dempster. This rejection is also instructive of the view that the latter rests today on the two first grounds stipulated in finding of fact and no longer on the shattered ground of immunity.
22 In the minority, Denning L.J. totally denied that the privity doctrine was part and parcel of English law. See [1962] A.C. 446, 483 ff.
23 [1962] A.C. 446.
24 Anson, , Law of Contract (Oxford, 23rd ed., 1969) 167Google Scholar, observes that the effect of this decision is not a happy one with respect to sea carriage contracts since clauses exemptive of the carrier and his servants from liability are a creation of international convention drawn up after much deliberation as the Hague Rules (becoming law by statutory enactment in the Carriage of Goods by Sea Act, 1925). Denial of a claim by the owner of the goods against a servant of the carrier (and equally against an independent contractor working for him) undermines, in the opinion of the author, the convention. The decision, however, is undoubtedly praiseworthy in those instances where, for instance, the carriage of passengers is involved and the carrier exempts himself from injuries to the person. See Adler v. Dickson [1954] 3 W.L.R. 696.
25 Suisse Atlantique Société d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale [1966] 2 AH E.R. 61.
26 [1954] 3 W.L.R. 696.
27 This thesis needs completing by the element of express or implied agreement by the other party. (Denning L.J. explicitly states that such a term will receive force provided the injured party agrees to it). But that also is insufficient. If the agreement is express, then we have an independent contract. If it is not express, we are faced with an exception to privity (implied contract) with which we will deal later. In any event, it is difficult to reconcile this deviation from privity without authority.
28 [1966] W.L.R. 758.
29 [1967] 2 Q.B. 31.
30 Leaving aside also here the question whether this was a contract or a licence. See in this regard Treitel, , The Law of Contract (London, 3rd ed., 1970) 115, 127.Google Scholar
31 See text infra at Part F.
32 Hall v. N.E.Ry. (1875) L.R. 10 Q.B.L. 437, 442. See also Treitel, , “Exemption Clauses and Third Parties” (1955) 18 M.L.R. 172, 173.Google Scholar
33 [1924] A.C. 522.
34 Lord Cave at 534, Lord Summer at 564.
35 See for instance the exemption clause in a contract for carriage given by Anson, op. cit., at 171.
36 Although it appears that the conclusion regarding the existence of such agency is more easily reached when the stranger is not a servant of one of the parties. See Treitel, op. cit., See also the observations of Jenkins, L.J. in Adler v. Dickson (1954) 3 W.L.R. 696, 713.Google Scholar
37 Taddy v. Sterious [1904] 1 Ch. 354.
38 But see in Israel law, sec. 7 of the Agency Law, 1965 (19 L.S.I. 232) and Barak, Agency, in Tedeschi, , ed., Commentary on the Law of Contracts 323.Google Scholar
39 Not so in Israel law: sec. 6(c) of the Agency Law, under which a corporation can ratify an act done on its behalf before its establishment. See Barak, op. cit., at 309.
40 In Scruttons v. Midland (supra n. 13) these conditions were not present: see per Lord Reid at 474. But see more recently A.N. Satterthwaite v. New Zealand Shipping Co. Ltd. (1971) 2 Lloyd's Rep. 399, and the note thereon by Coote, , “Vicarious Immunity by an Alternative Route” (1972) 35 M.L.R. 1976.Google Scholar
41 See Pyrene v. Scindia Navigation [1954] 2 Q.B. 402 explained in Scruttons v. Midland, supra n. 18, at 471.
42 See supra n. 15.
43 Lord Sumner hints strongly at this in his judgment at 564. The case was indeed so explained to the Court of Appeal in Midland Silicones v. Scrutions [1959] 2 Q.B. 171, 187.Google Scholar
44 [1962] A.C. 446.
45 [1941] 2 K.B. 343.
46 [1937] 1 All E.R. 108.
47 [1954] 2 Q.B. 402.
48 In Pyrene itself Devlin L.J. said that in drawing up the contract the purchasers acted as agents of the vendors. Hence another reason for the exception from the doctrine. Here also it is possible to explain the possible application of assumption of risk when the liability negatived or limited sounds in tort.
49 In the manner of Denning L.J. in Midland Sillicones v. Scruttons, supra n. 43, and Adler v. Dickson [1954] 3 W.L.R. 696, 702.
50 For instance, when the owner of the goods agrees to their carriage on the conditions contained in the bill of lading, and the said rule enables him to avoid these conditions by means of a claim by a stranger.
51 The source of these exceptions may be the common law (implied contract and agency), or statutory law.
52 As to the Israel law on this subject matter, before 1973, see: Shalev, G., “Third Party Beneficiary: A Comparative Analysis” (1976) 11 Is.L.R. 315, 336.Google Scholar
53 Sec. 34 of the Law. Generally on this innovation see: G. Shalev, ibid., at 338.
54 Cf., per Kister J. in Sharafi v. Director of Israel Lands (1966) (IV) 20 P.D. 821, 831: “If the right of action is not to be limited, a fortiori a defence based on the terms of a contract made for the benefit of the defendants is not to be limited.”
55 Williams, G., Joint Torts and Contributory Negligence 312Google Scholar, per Denning, Lord in Midland Silicones v. Scrutions [1962] A.C. 446, 488.Google Scholar See supra n. 13.
56 Cf., Furmstom, , “Return to Dunlop v. Selfridge?” (1960) 23 M.L.R. 373.CrossRefGoogle Scholar
