Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd

(1988) 165 CLR 107
[1988] HCA 44

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(Judgment by: Brennan J)

Between: Trident General Insurance Co Ltd
And: McNiece Bros Pty Ltd

Court:

Judges: Mason CJ
Wilson J

Brennan JDeane J
Dawson J
Toohey J
Gaudron J

Subject References:
Insurance

Hearing date: 3 November 1987
Judgment date: 8 September 1988

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Judgment by:
Brennan J

Trident General Insurance Co. Limited ("Trident") issued a policy to Blue Circle Southern Cement Limited ("Blue Circle") agreeing to indemnify "the Assured against all sums which the Assured shal1 become legally liable to pay in respect of ... bodily injury to ... any person". The "Assured" is defined by the policy to be "Blue Circle Southern Cement Limited, all its subsidiary associated and related Companies, all Contractors and Sub-Contractors and/or Suppliers". McNiece Bros. Pty Limited ("McNiece") became a contractor, though it was not a contractor when the policy was issued in June 1977. McNiece became liable to pay damages to a workman employed by a sub-contractor in respect of that workman's bodily injury suffered in July 1979. McNiece seeks to be indemnified by Trident, though it paid none of the premium.

2. In the Supreme Court of New South Wales, Yeldham J. declared that Trident was liable to indemnify McNiece, holding that Blue Circle had entered into the contract of insurance with Trident on its own behalf and on behalf of those who were embraced in the definition of "Assured" and that McNiece, falling within that definition, had ratified the contract made on its behalf. Trident appealed to the Court of Appeal: (1987) 8 N.S.W.L.R.270. The appeal failed although the Court rejected the finding that McNiece had become a party to the contract through the agency of Blue Circle. McHugh J.A., with whom Hope and Priestley JJ.A. agreed, did not think that "Blue Circle was or intended to act as an agent for principals". That conclusion was clearly right. However, the judgment in favour of McNiece was sustained on another ground. Their Honours held that McNiece, though it was neither a party to the contract of insurance nor an "Assured" when the contract was made and though it had given no consideration for the indemnity it claimed, was entitled to sue directly on the policy. McHugh J.A. said (at pp.287-288) that -

"this Court should now declare that at common law a non-party assured is, and has been for some time at common law, able to sue on a written policy of liability insurance. In truth the position in respect of liability insurance policies is, and has been for some time, the same as that in respect of bankers' letters of commercial credit: see Jacobs, "Judicial Reform of Privity and Consideration" The Journal of Business Law (November 1986) at 466. That is to say, although once not enforceable because of the privity of contract doctrine, commercial necessity, practice and widespread use have combined to create an exception which the common law will now enforce."

The judgment in favour of McNiece was sustained solely on the basis that McNiece was entitled to sue on the policy in its own name and on its own behalf, the case being an exception to the doctrine of privity by which the common law limits to a promisee the right to sue to enforce a contractual promise. It was not suggested that agency, trust or estoppel availed McNiece.

The facts excluded agency. In the course of the appeal before the Court of Appeal, McNiece sought to raise a case that Blue Circle was the trustee for it of the benefit of the promise to indemnify "the Assured" contained in the policy, but leave was refused because "there was a possibility that further evidence would be available to negative a trust". It was not suggested that McNiece might be entitled to raise an estoppel against Trident founded on an assumption or expectation by McNiece that Trident held it covered against legal liability in respect of bodily injury to any person.

3. The declaration by the Court of Appeal that policies of liability insurance are a common law exception to the doctrine of privity of contract and that the exception has existed for some time may come as a surprise to those who have seen no reference to such an exception in the books. McHugh J.A. thought that policies of liability insurance are similar to bankers' letters of commercial credit and his Honour regarded bankers' commercial credits as exceptions to the doctrine of privity of contract. Bankers' commercial credits were not regarded as such exceptions by Jenkins L.J. in Hamzeh Malas & Sons v. British Imex Industries Ltd. [1958] 2 QB 127 , at p 129, who described them as "a bargain between the banker and the vendor of the goods". And in United City Merchants (Investments) Ltd. v. Royal Bank of Canada [1983] 1 AC 168 , Lord Diplock said it was trite law that, in an international sale of goods to be financed by means of a confirmed irrevocable documentary credit, there are "four autonomous though interconnected contractual relationships involved" (pp.182-183), the fourth of which his Lordship described as "the contract between the confirming bank and the seller".

In point of principle, bankers' commercial credits are not recognized as true exceptions to the doctrine of privity.

4. If policies of liability insurance are to be recognized as an exception to the doctrine, what are the features which might make them so? Excluding the principles of agency, trust and estoppel from consideration, what makes a "non party assured" who has furnished no consideration for a policy of loss insurance different from any other third party mentioned in a contract between promisor and promisee as a party who is to have the benefit of a promise? The difference suggested by McHugh J.A. was that commercial necessity, practice and widespread use, strengthened by analogy with modern statutes, established policies of loss insurance as exceptions to the doctrine of privity of contract. The fact that policies of loss insurance are frequently expressed to cover losses sustained by persons who are not parties to the contract and the fact that insurers ordinarily honour those contracts do not establish the kind of commercial practice that evokes the creation of a new principle of the common law. It may be that, where the voluntary acceptance of liability by an insurer does not account for the commercial practice and use of which his Honour spoke, those factors are to be accounted for by operation of the law of agency, trusts and estoppel. His Honour's proposition that it is commercially necessary to admit an exception to the doctrine of privity would be more supportable if it were found that those principles when applied in conjunction with the doctrine leave the law powerless to prevent or remedy injustice. But it was impossible to demonstrate such a defect in this case where agency was negatived on the facts and no occasion arose to consider the application of the principles of trust and estoppel.

5. Nor is the argument for a judicially created exception advanced by considering modern statutory provisions. As Dawson J. points out, s.48 of the Insurance Contracts Act 1984 (Cth) weakens rather than strengthens the proposition that a common law exception exists. That section creates in a person who is not a party to a contract of general insurance a statutory right to recover the amount of his loss directly from the insurer if he was specified or referred to in the contract as a person to whom the insurance cover was provided. But the Parliament did not make that provision retrospective, and it cannot be inferred that the Parliament contemplated that cases arising before the Act came into force (this case being one of them) would be governed by provisions of the common law identical with those in the Act.

I would add that I respectfully agree with what Dawson J. has written about the limited use to which statute can be put in developing the common law.

6. To hold that policies of liability insurance are an exception to the doctrine of privity, some criterion must be found to distinguish the exception from the general rule. I can find none. Indeed, if the doctrine of privity should be overthrown in its application to policies of liability insurance, no reason either of policy or logic is advanced for retaining the doctrine for application to other contracts. It was acknowledged in the Court of Appeal that the doctrine of privity of contract is a fundamental rule of our common law, but that acknowledgment was followed immediately by an assertion (at p.284) that:

the injustice of the rule in some situations is so obvious that it has been the subject of prolonged and intensive criticism. Few could be found today who would agree with the opinion of Myers AJ, expressed in 1954 ( 27 ALJ 175 ), that no change should be made to the rule: although cf Barwick CJ in Coulls ((1967) 119 C.L.R.460) at 478".

7. I am numbered amongst those who agree with Myers A.J., being fortified in that view by the observations of Barwick C.J. (at p.478) in the case referred to:

"It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarrassment in this conclusion.

Indeed, I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another."

8. Barwick C.J. treated privity of contract as distinct from the related question of consideration and the distinction is well founded. However, in the same case Windeyer J. observed (at p.494) that:

"Doubtless the two requisites merge in the strict view of a contract as a bargain, a promise for which the promisee has paid the price."

In this case, as McNiece was not a party to the contract and did not give consideration for Trident's promise, it is not necessary to pursue the enquiry whether the two requisites merge. It is sufficient to focus on the doctrine of privity.

9. Privity is a doctrine which is both settled and fundamental, though it was not settled in England until the 19th century. In Coulls v. Bagot's Executor and Trustee Co. Ltd. (1967) 119 CLR 460 , Windeyer J. referred to the uncertainty prior to 1861 about the right of third parties to bring assumpsit .

He concluded (at p.498):

"The fact is that the early cases are conflicting, because during the sixteenth, seventeenth and eighteenth centuries the doctrine of consideration in the common law was still in process of formation. Whether, and in what circumstances, third parties should be allowed to bring assumpsit was still debatable. The law was not in fact 'settled' either way during the two hundred years before 1861. But it was, on the whole, moving towards the doctrine that was to be then and thereafter taken as settled."

In 1861, Tweddle v. Atkinson (1861) 1 B.& S.393 (121 ER 762) was decided. The law was then settled that "no stranger to the consideration can take advantage of a contract, although made for his benefit": per Wightman J. at p.398; p.764. The rule emerged in consequence of the development of the action of assumpsit , as the judgments of Crompton and Blackburn JJ. show. It may be that, at least in the understanding of the profession if not in the reports of cases, the rule was settled before Tweddle v. Atkinson was argued. In that case, the general proposition advanced by counsel for the defendant, supporting the demurrer, was that "a stranger to the agreement and to the consideration ... cannot sue upon the contract", and that proposition was conceded by counsel for the plaintiff who sought unsuccessfully to bring the case within an exception to the general rule. The rule was affirmed by the House of Lords in Dunlop Pneumatic Tyre Company, Limited v. Selfridge and Company, Limited [1915] AC 847 . Viscount Haldane LC. said (at p 853):

"My Lords, 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. Our law knows nothing of a jus quaesitum tertio arising by way of contract.

Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor's request. These two principles are not recognized in the same fashion by the jurisprudence of certain Continental countries or of Scotland, but here they are well established. A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted as his agent. But again, in order to entitle him so to sue, he must have given consideration either personally or through the promisee, acting as his agent in giving it."

So well established were those principles that the argument of counsel for the appellants in Dunlop Pneumatic Tyre Co. was directed merely to showing that the appellants were undisclosed principals who had given consideration. In Midland Silicones Ltd. v. Scruttons Ltd. [1962] AC 446 , Lord Reid said (at p 473):

"Although I may regret it, I find it impossible to deny the existence of the general rule that a stranger to a contract cannot in a question with either of the contracting parties take advantage of provisions of the contract, even where it is clear from the contract that some provision in it was intended to benefit him. That rule appears to have been crystallised a century ago in Tweddle v. Atkinson and finally established in this House in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. There are, it is true, certain well-established exceptions to that rule - though I am not sure that they are really exceptions and do not arise from other principles."

10. The doctrine of privity has been treated as settled not only by the House of Lords (Beswick v. Beswick [1968] AC 58 ) but also by the Supreme Court of Canada (Greenwood Shopping Plaza Ltd. v. Beattie (1980) 111 DLR (3d) 257) and by this Court. In Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd. (1956) 95 CLR 43 Kitto J. spoke (at p 80) of "the elementary general rule that the only persons entitled to the benefits or bound by the obligations of a contract are the parties to it". See also Birmingham v. Renfrew (1937) 57 CLR 666, at p 675; Coulls, at pp 478,494 and per Windeyer J. in Olsson v. Dyson (1969) 120 CLR 365 , at pp 392-393. The doctrine of privity has long been settled and it was settled as a doctrine of general application.

11. Can an intermediate court of appeal properly refrain from applying such a settled and fundamental doctrine of the common law? If an intermediate appellate court were free to disregard a fundamental doctrine settled by the final appellate court, an endemic uncertainty would infect the administration of justice: cf. Broome v. Cassell & Co. [1972] AC 1027 , at p 1054. Courts are bound to apply the principles laid down by courts higher in the appellate hierarchy and observance of that rule avoids the futility of delivering judgments which will be reversed on appeal. Of course, the rule would lose much of its cogency if the final court of appeal were to regard a principle embodied in its own decisions as settled only to the extent that a majority of its members approve the principle for application in each case falling within its scope.

Unless the members of the final appellate court regard themselves as generally bound by the court's precedents, a precedent would tend to be viewed (to use the simile of Roberts J. in Smith v. Allwright (1944) 321 US 649, at p 669) like "a restricted railroad ticket, good for this day and train only". Intermediate courts would be encouraged to speculate on whether a majority of the final court would apply the principle in the instant case and the judges in the final court would be encouraged to determine the case according to their individual opinions as to what the law should be rather than by applying, so far as the traditional modes of judicial reasoning permit its ascertainment, what the law is. Judicial freedom in the application of precedent is a potent stimulus to rapid development of new fashions of legal thought and, in times of social change, the authority of some precedents will be readily questioned. On the other hand, to free the judges of an appellate court from the constraint of precedent entirely would lead to such diversity of reasoning that the ratio of a decision would be (at best) obscured and the capacity of the appellate court to settle the law would be put at risk. In this Court, the practice has been adopted of requiring leave, granted by the Court itself, to argue that an earlier decision of the Court should be departed from: Evda Nominees Pty. Ltd. v. Victoria (1984) 154 CLR 311 .

Inherent in and underlying that practice is the proposition that the earlier decision will not be departed from unless the Court so determines. And in Baker v. Campbell (1983) 153 CLR 52 , at pp 102-103, I stated my understanding that individual justices of this Court are not generally free to depart from principles laid down in earlier decisions of the Court unless the Court as a whole gives leave to reopen an earlier decision for reconsideration.

That constraint may not apply to matters of practice and procedure, especially when the exercise of a discretion is called for, and special considerations apply to questions arising under the Constitution. But, in my opinion, the observance of such a constraint, coupled with the Court's ability to re-examine its own decisions, provides the appropriate balance between a legal system on which the dead hand of the past rests too heavily and one in which the law is in continual ferment. If the constraint is observed in relation to questions of general substantive law, there can be no uncertainty as to the duty of intermediate courts faithfully to apply the decisions of this Court.

Until leave to reopen a decision of this Court is given by this Court, the authority of the decision remains and its ratio should be applied. I do not suggest, of course, that the decision should not be critically examined in order to see whether the ratio is of broad or narrow application or whether the case in hand is distinguishable: these are familiar and proper judicial enquiries. But once the ratio is distilled and it is found to be applicable to the case in hand, the decision must be accepted in other courts - and, in my opinion, ought to be accepted in this Court unless leave is given by this Court to reopen it.

Leave to reopen will be given from time to time not only to correct an error which has become manifest in an earlier decision but also to permit a review of doctrines which were the product of and suited to an earlier age but which work injustice or inconvenience in contemporary conditions. It is a jurisdiction to be exercised sparingly, for contemporary conditions may themselves be moulded by existing doctrines. Judicial preference for a more elegant or logically satisfying jurisprudence is insufficient to warrant a change in settled doctrine which works satisfactorily in conjunction with other legal principles. And if a change in settled doctrine is contemplated, a substitutionary doctrine sufficiently precise to admit of practical application must be at hand.

12. In this case, unless the Court determines that the doctrine of privity be reopened and a new doctrine substituted, the appeal must be allowed. The Court of Appeal ought to have allowed the appeal to it.

However, the doctrine of privity was directly challenged, at least to the extent of allowing an exception in the case of liability insurance where the third party is named in the policy. In my view, for reasons which will appear, to admit such an exception involves the overthrow of the doctrine. The true question for decision is, therefore, whether this Court should now decide to overrule the settled and fundamental doctrine of privity.

13. It is submitted that the doctrine of privity sometimes produces unjust results and that this Court should re-examine it in the light of the criticisms the doctrine has attracted. The criticisms, many of which have come from judges of great eminence and some of which may be traceable to the influence of Scots law, are rehearsed in the judgment of McHugh J.A. Those criticisms tend to erode the acceptability of the doctrine and to facilitate the postulation of an exception.

If it be asserted that the doctrine works injustice, an exception can be seen as a first step on a path leading to the heights of justice and therefore a step to be taken with judicial alacrity. If this case is to be decided not by reference to the law as it is but by reference to the law as it ought to be, it is useful to consider the alternative paths by which the heights of justice might be scaled: the path followed by our law for over a century or a new path of doctrine.

14. According to the settled law, when A (a promisor) contractually promises B (a promisee) to confer a benefit on C, a third party who is not a party to the contract and who has given A no consideration for the promise, C acquires no right to sue A on the promise. Nor did the classical Roman Law admit such a right in the third party: alteri stipulari nemo potest was Ulpian's statement of the law (Dig.45.1.38.17). The law of contract admits the capacity of persons who are sui juris to create by offer and acceptance rights and obligations binding as between each other. A proposal that a contractual promise in favour of a third party should give rise to a common law right in C to sue A to enforce the promise goes further. The proposal postulates the capacity of the contracting parties to create rights as between the third party and the promisor. Moreover, it precludes application of the principles of trust to any case to which the proposed exception applies. If C's right were held to grow out of a contractual promise by A to B, it is hard to see how B might be the trustee of the promise for C: C could hardly have a legal right to the performance of A's promise while B retained the same legal right as trustee for C. The principles of trust would be irrelevant in such a case. Indeed, the proposal may postulate that B, though the promisee, loses the contractual right to performance of the promise by A, that right being conferred solely upon, or being transferred to, C. And, if the proposal postulates a cause of action in C while leaving B's cause of action intact, it would expose A to double liability. To postulate the creation of a legal right in C to enforce a third party promise against A is to postulate the creation of legal relationships between the three parties which the doctrines of our legal system are not presently able to define.

15. If a third party promise is to confer on C a common law right enforceable against A, do A and B retain a capacity to defeat C's right by varying or abrogating their contract or is C's right indefeasible on the making of the contract? If C's right becomes indefeasible, what makes it so? Does C become subject to any obligation under the contract? Does C's right or obligation depend on C's acceptance of it? Or does C's acquisition of the right against A automatically impose any associated obligation? Does B retain a right to enforce the promise against A? Can C and A vary the right without B's consent? Does B have any right to contribution from C in respect of the consideration for the promise? If want of consideration moving from C to A is no bar to C's cause of action, is consideration moving from B to A essential? Does C lose his right to enforce the promise if he does not comply with the contractual conditions binding on B? Is B under a common law duty to C to perform the contract? Can A raise against C any defence which would be effective against B, for example, a set off? Legal systems which recognize the effectiveness of a third party promise to create a right in a third party to sue (a jus quaesitum tertio) give different answers to these questions.

16. A comparison of the solutions adopted by a number of legal systems to some of the problems in this field is furnished in an article "Ius Quaesitum Tertio: Comparison and Synthesis" (1967) 16 International and Comparative Law Quarterly 446 by M.A. Millner. The learned author states that the Scottish institutional writer, Lord Stair, considered that C acquires a right to sue if the parties to the contract intend C immediately to have an indefeasible right, though Scottish case law requires - at least in some cases - a delivery or other act to evidence that intention. However, it seems that C may renounce the right: "Jus Quaesitum Tertio: Remedies of the 'Tertius' in Scottish Law" (1956) The Juridical Review 3, by T.B. Smith at p.15.

German law gives C an indefeasible right on the making of the contract though the German Civil Code permits C to renounce the right. In French law, however, a stipulation in favour of C is revocable until "the third party has declared his wish to take advantage of it" (Art.1121) and the Roman-Dutch law of South Africa requires notification of acceptance by C to A before C's right is perfected though in the meantime B may by interdict hold A to his bargain. The American Restatement, Second, Contracts Ch.14 sets out a number of propositions which may be summarized (though accuracy is sacrificed) by saying that a contract by which the promisor and promisee intend to benefit an "intended beneficiary" creates a duty by the promisor to the beneficiary which the beneficiary may enforce directly against the promisor. The first Restatement, Ch.6 133, drew a distinction between the indefeasibility of rights acquired on the making of the contract by two different classes of beneficiaries - donee beneficiaries and creditor beneficiaries. The tide of authority has turned against maintaining the distinction (see Restatement, Second, Contracts Ch.14 311 Reporter's Note) but, if the doctrine of privity were to be modified or abandoned, there is much to be said for maintaining the distinction: see Professor Stoljar, "Contracts for Third Parties; In Search of the Problems" (1988) 13 New Zealand Universities Law Review, 68.

17. A variety of solutions can be devised for these and other problems raised by admitting a third party's right to sue. That is apparent from the diversity of statutory provisions which have been enacted in order to confer on C a statutory right enforceable directly against A. Those provisions have become increasingly complex. The Property Law Act 1969 (W.A.), s.11 contains relatively simple provisions; the Property Law Act 1974 (Q.), s.55 is more detailed; and the Contracts (Privity) Act 1982 (N.Z.) is yet more detailed and sophisticated. Their provisions are not uniform. For example, only Western Australia requires the intention to benefit the third party to be expressed in the contract. Queensland requires the third party to "accept" the contract and upon acceptance, the beneficiary may become subject to a duty enforceable against him. New Zealand alone extends the provisions of its Act to immunities and limitations on liability. Each of the Acts provides for discharge or variation of the promise without the beneficiary's consent in certain circumstances, but the prescribed circumstances are not the same in the respective Acts. It is vain to expect that the common law has a solution for the problems on which Parliaments assisted by Law Reform Commissions have differed. There is no Anglo-Australian common law by reference to which the conditions and incidents of a third party's right to sue can be ascertained.

The legal systems which admit a jus quaesitum tertio see the relationships between A, B and C as a triangle: see T.B. Smith, op.cit. The Anglo-Australian Common law is radically different: it sees the relationships as lineal: A and B linked by contract, B and C linked by trust or contract, A and C not linked unless B either proves to be C's agent to contract with B or assigns to C the obligation (debt or other property) owed to B by A. To admit a third party's right to sue into the common law, it would be necessary to postulate a new source of legal rights and obligations arising independently of contract and equity and to create a new set of rules prescribing the availability of the rights and the limits of the obligations to which the third party promise gives rise. And if such a new source of legal rights were postulated, our laws with respect to agency, trusts, estoppel and damages which have been constructed around the doctrine of privity of contract would have to be reworked.

18. Of course, the problems to which a third party promise gives rise must be addressed by any developed legal system, and the rules to govern these problems may be tentative in the earlier stages of development. Fundamental rules - that is, rules which fix a reference point for the development of subsidiary rules - may take some time to be settled. Once settled, the subsidiary rules can be developed. So it was with the English legal system. 19. The subsidiary rules which the courts have developed to solve the problems raised by a third party promise are sometimes described as exceptions to the doctrine of privity, but (as Lord Reid suggested) the apparent exceptions are in truth applications of other legal principles to the contractual relationship of promisor and promisee. Fullagar J. observed in Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd. (at p 67):

"I doubt if there was any true exception at common law to the rule laid down by Tweddle v. Atkinson."

The first so-called exception is found in the law of trusts. A promisee may be or become a trustee of the promise for a third party: Les Affreteurs Reunis Societe Anonyme v. Leopold Walford (London), Limited [1919] AC 801 ; Vandepitte v. Preferred Accident Insurance Corporation of New York [1933] AC 70 . Where the promisee is a trustee, the third party acquires only an equitable interest in the promise. The third party does not become a party to the contract: Construction Engineering (Aust.) Pty. Ltd. v. Hexyl Pty. Ltd. (1985) 155 CLR 541. The contract binds only the promisor and promisee and the third party beneficiary cannot enforce the promise as if he were a party to the contract.

The third party can enforce the promise indirectly in an action in which the promisee is joined as a defendant (Vandepitte, at p 79; Birmingham v. Renfrew, at p 686) the promisee being an essential party in an action against the promisor: Harmer v. Armstrong (1934) Ch 65. A second so-called exception is found in the law of agency. If a putative promisee is merely an agent for a third party, the third party is the promisee and is privy to the contract: Port Jackson Stevedoring Pty. Ltd. v. Salmond & Spraggon (Aust.) Pty. Ltd. (1978) 139 CLR 231 and on appeal to the Privy Council (1980) 144 CLR 300 ; ITO Ltd. v. Miida Electronics Inc. (1986) 28 DLR (4th) 641. The agency cases show that, unless the third party is in truth a promisee, he cannot take the benefit of the contract: see the discussion by McIntyre J. of the cases relating to exemption clauses in ITO Ltd. v. Miida Electronics Inc., at pp 663-669; and cf. Construction Engineering (Aust.) Pty. Ltd. v. Hexyl Pty. Ltd.

Neither the principles of trust nor the principles of agency are exceptions to the doctrine of privity. In their application to a third party promise, those principles proceed on the footing that the legal contractual right is vested solely in the promisee. There is no true exception to the doctrine of privity. If an exception were now introduced and a jus quaesitum tertio were recognized in respect of some contracts, the exception would raise at least as many problems as it might solve. The field of jus quaesitum tertio may look greener, but the brambles are no fewer.

20. McHugh J.A. saw no difficulties of substance in admitting the proposed exception to the doctrine of privity. His Honour said (at p.287):

"if we can now assert that a trust will be invariably imputed in the case of a liability insurance policy, as I think we can, then a refusal to allow the beneficiary to sue directly at common law is one of form and procedure."

The assertion that a trust "will be invariably imputed" is large indeed but, passing that by, it is erroneous to regard the admission of a third party's right to sue as a matter of mere "form and procedure". It would not be a right to sue on a cause of action vested in the promisee; it would be a right to sue on a cause of action vested in the third party. Such a right to sue is a new substantive right. His Honour (in a subsequent part of his judgment) endeavoured to define some of the conditions of its existence and enforcement.

He said (at p.288):

"To be able to sue at common law the beneficiary must be a person who is specified or referred to in the contract, whether by name or otherwise. The insurer is entitled to the same defences as he would have in an action brought by the promisee-party. Moreover, so that the insurer will not be liable at the suit of the promisee-party, the latter will need to be a defendant in the action. The problems which can arise when the promisee-party is not joined in the action are graphically illustrated by Westralian Farmers Co-operative Ltd v. Southern Meat Packers Ltd (1981) WAR 245, a decision under the West Australian Property Law Act 1969, s.11(2), where the buyer was required to pay twice for cattle."

McHugh J.A. did not purport to propound these rules as rules of the common law. As the common law knows of no exception to the doctrine of privity, it has developed no rules to condition the admission of a third party's right to sue. But it should not be thought that all the problems attendant on admitting the proposed exception were solved by propounding the rules set out in the quoted paragraph. A basic problem which the propounded rules do not address is whether the third party's right to sue is intended by the parties to the contract to be irrevocable. If one or both of the contracting parties can revoke the third party's right to sue, the right is contingent on the continued will of the parties to the contract.

Should this be sufficient to give a third party a common law right to sue? How could it be admitted that the third party has a right to sue on the policy if that right might be abrogated at any time without his knowledge and consent? In Scots law, it would not suffice to establish a jus quaesitum tertio to show that the tertius is "a person who is specified or referred to in the contract, whether by name or otherwise". The third party would have to acquire an irrevocable right and "the mere execution of the document will not constitute irrevocability" (per Lord Dunedin in Carmichael v. Carmichael's Executrix (1920) SC(H.L) 195, at p 201) at least not in the majority of cases: see per Lord Reid in Allan's Trustees v. Lord Advocate (1971) SC(H.L) 45, at p 54. In Blumer and Co. v. Scott and Sons (1874) 1 R.379, at p 387, Lord Ardmillan (whose judgment was approved in Carmichael) said:

"Even if not named, the third party may be entitled to adopt the agreement, and enforce it by action. But in such a case it must be clear that both the contracting parties intended so to Secure him, and that they could not, separately or together, revoke the stipulation."

It may be difficult to establish that the parties to a policy of loss insurance intended to confer an irrevocable right to sue on an unnamed "Assured" who (like McNiece) becomes a member of an insured class. Would the insurer have intended to go on risk without knowing the identity of a third party "Assured"? And would the insured party to the contract have intended to abandon a right to negotiate with the insurer for an early termination of the policy and a refund of portion of the premium? In this case there was no enquiry whether Blue Circle and Trident intended McNiece to have an irrevocable right to an indemnity under the policy. Indeed, if the Court of Appeal was precluded from determining whether Blue Circle was trustee for McNiece of Trident's promise, it would surely have been precluded from investigating whether Blue Circle and Trident intended the policy to enure irrevocably for the benefit of any person who subsequently became an "Assured".

21. Of greater significance is his Honour's suggested rule that a promisee-party must be a defendant in a beneficiary's action "so that the insurer will not be liable at the suit of the promisee-party".

If the insurer could be liable at the suit of the promisee, the admission of a third party's right to sue duplicates the causes of action on the promise. Presumably it is thought that the joinder of the parties in whom separate causes of action are vested is effective to extinguish one of the causes of action. But mere procedural steps do not extinguish substantive rights. Joinder of the promisee-party as a defendant would not discharge any cause of action vested in him. And if the proposed exception were treated as no more than conferring on the third party a right to sue on the single cause of action vested in the promisee so that either the beneficiary third party or the promisee-party (but not both) might enforce it, what principle would govern a contest between them? Which of them would be the true creditor of the stipulation? (A question which is likely to be of more importance in life insurance than in loss insurance, though in either case the third party "beneficiary" may be a donee of the benefit purchased by the assured's payment of the premium.) The difficulties encountered in propounding a set of rules to condition the proposed exception to the doctrine of privity demonstrate the undesirability of endeavouring now to overthrow the doctrine in whole or (what might be more confusing) in part.

22. If our legal history had taken a different turning in 1861, the problems raised by a third party promise would have been differently addressed. In the United States, two years before Tweddle v. Atkinson, it was decided to admit a third party's right to sue when the third party is a creditor of the promisee: Lawrence v. Fox (1859) 20 N.Y.268. The first and second Restatements reveal the great difference between the frames of reference within which American jurisprudence addresses the problems raised by a third party promise and the frames of reference within which Anglo-Australian jurisprudence addresses them. No one would suggest that the Anglo-Australian solutions are perfect.

But our legal system has produced a tolerably coherent set of principles operating in conjunction with the fundamental doctrine of privity.

23. When a third party promise is in a contract to which the third party is not a party, the promise can be enforced only by an action brought by the promisee or to which the promisee is a party.

The legal cause of action against the promisor is vested solely in the promisee. Double recovery is impossible. Where the promisor has promised to pay money to or otherwise to confer a benefit on the third party directly, the promisee may compel him specifically to perform his promise, for damages would be an imperfect remedy for the promisee: Coulls, pp 478,502-503; Beswick v. Beswick, at pp 82,89,101-102. The availability of specific performance goes a long way towards shutting out injustice. Where damages are the appropriate remedy for breach of a promise to pay money to the promisee for the benefit of a third party, the promisee may recover the whole of the amount promised where the promisee is a trustee for the third party (Lloyd's v. Harper (1880) 16 ChD 290; Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd., at p 67; Coulls, at p 501; Beswick v. Beswick, at p 101) or an agent who is authorized by the contract to sue on behalf of the principal: Lloyd's v. Harper; Woodar Ltd. v. Wimpey Ltd. (1980) 1 WLR 277 , at pp 284,293-294,297; (1980) 1 All ER 571, at pp 576-577,585,588. These may not be the only cases in which a promisee may recover the full amount promised. It is still an open question whether a promisee who is neither a trustee for nor an agent of a third party can recover in some circumstances more than nominal damages if the promisor's breach of a promise which is intended to confer a benefit on a third party causes the promisee no personal loss: Woodar Ltd. v. Wimpey Ltd., at pp 283-284; pp 576-577. The speech of Lord Diplock in The Albazero [1977] AC 774 , at p 847, raises the question whether a promisee may recover in full what was lost by a third party provided the promisee is accountable to the third party for what he recovers. It is not appropriate in this case to decide the limits of the promisee's remedies. It is sufficient to note that the possibility of injustice which might be thought to flow from the effect of the doctrine of privity on the promisee's remedies depends on the rules relating to the measure of damages. If such a case of injustice should arise, it will be appropriate to consider what Windeyer J. said in Coulls, at p.504:

"It is, I think, a faulty analysis of legal obligations to say that the law treats a promisor as having a right to elect either to perform his promise or to pay damages. Rather, using one sentence from the passage from Lord Erskine's judgment which I have quoted above, the promisee has 'a legal right to the performance of the contract'. Moreover, we are concerned with what Fullagar J. once called 'a system which has never regarded strict logic as its sole inspiration': Tatham v. Huxtable ((1950) 81 CLR 639 , at p 649)."

A development of the rules relating to damages rather than the acceptance of a third party's right to sue offers the prospect of an orderly development of the law if such a development be needed to avoid injustice.

24. If a third party were to complain of injustice on the ground that he has no right to cause the promisee to enforce a policy of loss insurance, the supposed injustice must arise because there is no relevant relationship between the third party and the promisee. Such a case can arise only if the third party is one

(a)

for whom the promisee is not an agent, fiduciary or trustee,

(b)

who has no relevant contractual relationship with the promisee, and

(c)

who has not been induced to assume or expect that the policy covers the risk of loss by the third party by any representation made by the promisor or the promisee in circumstances which would entitle the third party to claim the benefit of the policy by estoppel: see Waltons v. Maher (1988) 62 ALJR 110; 76 ALR 513 .

Whether an injustice is likely to arise in such a case may be doubted, especially in modern times when the courts no longer feel the reluctance to infer the existence of a trust which courts felt in earlier times: see Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd., at p 67.

25. Of course, the question whether a trust has been constituted is related to the question whether the promisee reserves the right to agree with the promisor to vary or abrogate the promise. Consideration of the rights reserved by a promisee against the promisor and of the nature of the obligation accepted by the promisor may indicate that a trust of the benefit of the promise has been constituted. There is no reason to think that a system of law under which a third party's (equitable) right to sue depends on the existence of a trust is less likely to do justice than a system under which a jus quaesitum tertio is admitted. Indeed, it may be that the constitution of a trust as a criterion of a third party's right to sue is capable of adjusting more nicely the rights of promisor, promisee and third party.

For example, if a third party's right to sue were admitted only when the terms of the contract show that the promisor and promisee intend the third party's right to be irrevocable, that right would be more inflexible than the right of a beneficiary under a trust who is able to sue even if the trust is revocable so long as it is not revoked: see per Fullagar J. in Wilson v. Darling Island Stevedoring and Lighterage Co. Ltd., (1956) 95 CLR, at p 67. Indeed, the injustice which could flow from a rigid criterion of irrevocability in Scotland arose in but was avoided by the judgment of the Court of Session in Love v. Amalgamated Society of Lithographic Printers (1912) 2 SLT 50, at p 52.

26. This is not the occasion to spell out the developments in the law of trusts, estoppel and damages which are needed if the law is finally to scale the heights of justice. This case did not raise those questions. I have referred to them merely to state my view that the appropriate path of legal development lies in those areas, not in the admission of a third party's right to sue. I think that is the path which accords with the views expressed by Sir Owen Dixon in his paper "Concerning Judicial Method" which Dawson J. cites in his judgment. In this case, McNiece endeavours to turn aside from the familiar path of privity, trust, agency and estoppel. But there is no other path unless we retrace our steps back at least to 1861. That is a course we ought not follow. It is a course we cannot follow. In my opinion, the relief which the Court of Appeal granted to McNiece was misconceived and the appeal must be allowed.