A third party to a contract is a person who is not a party to the contract and has not provided consideration for the contract but has an interest in its performance. There has been a long established rule that only the parties to a contract could incur rights and obligations under it.
Described as the doctrine of privity, this principle meant that third parties could neither sue nor be sued under a contract. Even where a contract was made for the benefit of a third party, the party still had no rights under it as was illustrated in the case of Tweddle v Atkinson (1861).
A large number of exceptions to the privity rule had been developed over the years, to avoid extreme cases of injustice, but these numerous exceptions rendered the privity doctrine quite complex.
There are two main aspects to the rule of privity;
- The first is that the third party cannot be made the subject of a burden imposed by the contract, and
- The second is that a third party cannot enforce a benefit purported to be granted by the contract.
Contractual rights conferred on third parties
Contractual rights conferred on third parties have the character of statutory exception to the common law doctrine of privity. The range of third party rights can arise under statute, common law or equity.