|
Hong Kong Law Reform Commission |
Criticisms of the privity doctrine and reform in other jurisdictions |
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1. In
December 2002, the Secretary for Justice and the Chief Justice directed the Law
Reform Commission:
"To
examine the doctrine of privity of contract and its exceptions, and the
justifications for and against its retention, and to make such recommendations
for reform as appropriate."
2. In
the same month, the Law Reform Commission appointed a sub‑committee under the
chairmanship of Mr Benjamin Yu, SC, to consider the subject and to make
proposals to the Commission for reform.
The members of the Sub‑committee reflected a range of backgrounds and expertise. All were appointed in their personal
capacity, rather than formally representing the particular organisations to
which they belong. The
membership of the Sub-committee was:
|
Mr Benjamin Yu, SC, JP |
Senior
Counsel |
|
Mr Anthony
Chow, SBS, JP |
|
|
Mr Simon Chui |
Legal Counsel Consumer Council |
|
Mr Baptista Lai |
Barrister-at-Law |
|
Mr Christopher Potts |
|
|
The Hon Mr Justice Reyes |
Judge Court of First Instance |
|
Mr Peter Schelling |
Managing Director & CEO Zurich Insurance Group (HK) |
|
Ms Isabelle Tsang |
|
|
Ms
Jessica Young |
Assistant Professor Department of
Professional Legal Education Faculty of Law The |
|
Mr Byron Leung |
Secretary |
3. The
Sub-committee began its work on
4. The
doctrine of privity of contract ("the doctrine of privity") holds
that a contract cannot confer rights or impose obligations on any persons other
than the parties to the contract.
The doctrine of privity is also known as the "third party rule". The doctrine has two aspects: as a
general rule,
(a) a
person cannot acquire and enforce rights under a contract to which he is not a
party; and
(b) a
person who is not party to a contract cannot be made liable under it.
The second aspect is generally
regarded as just and sensible.
However, the first aspect, that a third party cannot acquire rights
under a contract to which he is not privy, has been criticised. The main concern of this report is
therefore with this first aspect of the rule, and references to the doctrine of
privity or the "third party rule" are to this.
5. The
privity doctrine has long been criticised as artificial and contrary to the
parties' intention to benefit a third party. As a result, the courts have
sometimes needed recourse to devices such as agency and trust to allow a third
party to enforce a right conferred on him.
Furthermore, legislation has made incremental inroads to the doctrine in
specific cases. These legal
principles at common law and in statutes circumvent the privity doctrine in
some cases, but not generally.[1] It is no surprise that law reform bodies
in various common law jurisdictions have critically examined the doctrine and
recommended its reform.[2] In
6. The questions which fall to be
considered are whether the anomalies of the privity doctrine are serious enough
to warrant its reform and, if so, whether ad
hoc reforms, either by the courts on their own initiative or by
legislation, are adequate in the modern Hong Kong context, or whether an issue
of this magnitude calls for comprehensive legislative reform.
7. The Sub-committee published a consultation paper on Privity of Contract (the "consultation paper") in June 2004, with a consultation period until the end of August 2004. The Sub-committee received responses to the consultation paper from those listed at Annex 1. We are grateful to all those who responded to the consultation paper.
8. The
recommendations in the consultation paper were in general supported by the
majority of respondents. Nevertheless,
some respondents did have specific comments and reservations on both the
recommendations and the issues discussed in the consultation paper. Apart from written comments, the Hong
Kong Construction Association Ltd also met the Sub-committee and presented the
consolidated views of the Association itself, the Hong Kong Federation of Electrical & Mechanical
Contractors, the Hong Kong Institute of Surveyors, the Hong Kong Institute of
Architects and the Association of Consulting Engineers.
We will deal with the various comments and
reservations in the following chapters.
9. This report is the result of careful consideration of the initial
recommendations in the consultation paper in the light of the responses we
received. Chapter 1 of this report further examines
the doctrine of privity as well as the common law and statutory principles
which have the effect of circumventing the doctrine. Chapter 2 discusses the arguments for
and against reforming the doctrine, while Chapter 3 examines a number of
options for reform and concludes in favour of recommending reform by means of a
detailed legislative scheme. Chapter
4 examines the legislative schemes in other major common law jurisdictions and
considers various options before making our provisional recommendations for a
legislative scheme for
[1] These legal
principles are discussed in Chapter 1.
[2] Such
as the Queensland Law Reform Commission, Report
on a Bill to Consolidate, Amend and Reform the Law Relating to Conveyancing,
Property, and Contract and to Terminate the Application of Certain Imperial
Statutes (1973); the Law
Commission (England), Privity of Contracts:
Contracts for the Benefit of Third Parties (1996); the New Zealand Contracts and Commercial
Law Committee, Report on Privity of
Contract (1981); and Law and
Revision Division, Attorney General Chambers (Singapore), Report on the Proposed Contracts (Rights of Third Parties) Bill 2001: Law Reform Commission of Nova Scotia, Report on Pivity of Contract (Third Party
Rights) (2004).
[3] See
the Western Australian Property Law Act 1969 (