Privity of Contract and Third Party Rights - Report 2008


[1] This report is the follow-up to a study paper presented to the Uniform Law Conference of Canada [ULCC] in September 2007.[1] As per the resolution of the Civil Section a working group was established to prepare a report examining the options for reform of the doctrine of privity of contract to be considered at the ULCC 2008 meeting.[2]

[2] To this end, the ULCC Working Group on Privity of Contract [Working Group] outlines a series of issues which should be addressed in order to determine further course of action relating to privity. The aim of the Working Group report is to present a picture of the current situation, and put forward options to provide provincial delegates with tools enabling them to assert the issues set out below in the present Canadian context.

[3] The first issue is whether privity of contract creates enough problems in its current form that it needs to be reformed at the present time? Should the privity rule be further relaxed to cover other types of situation where the contracting parties’ intention or the contract’s object could be frustrated? Or provided that satisfactory remedies are currently available in most cases, does the growing list of exceptions and means of circumventing privity render the law unduly complex and uncertain to the point where it justifies a reform?

[4] The first part of the Working Group report looks at the alleged problem itself. While it is true that the doctrine of privity has resulted in unwanted outcomes in the past, and could still thwart the contracting parties’ intention or the contract’s object, the report shows that numerous exceptions and means of circumventing privity have attenuated its harsh effects. The report gives particular attention to the principled exception developed by the Supreme Court of Canada because it differentiates Canada from other common law jurisdictions which were, or still are, dealing with a stricter form of the privity rule.

[5] The second issue is what path reform of the doctrine of privity could take if the need arises? Would reform of the doctrine of privity be better achieved through legislative intervention, or judicial development of third party rights? In other words, would it be appropriate for the ULCC to propose a uniform draft bill aiming to expand and/or clarify the current exceptions to privity? Or would it be advisable to stand back and let the common law take its course?

[6] The second part of the report looks at the potential solutions to the privity issue. The report outlines the legislative and judicial options, as well as arguments for and against each option which might be considered in order to determine the best course of action if one concluded that there is a problem to address.

[7] The third issue is what options are available if legislative reform is deemed a better course of action? Which legislative option would be more suitable in the present context? Specific legislative intervention in particular circumstances? A general provision? A detailed legislative scheme? Or abolition of the privity rule?

[8] The second part of the report also outlines different legislative avenues, and briefly discusses secondary issues which follow from the development of third party rights, such as the enforceability of the contract; the identification of third party; the right to vary or cancel the contract; the third party rights subject to the terms of the contract and other defences, set-offs, counterclaims and remedies; the potential for overlapping claims; the possibility to opt-out; the exclusion of certain contracts; and the existing exceptions to privity.

[9] The third part of the report contains the Working Group conclusions and recommendation to the provincial delegates. A review of the law relating to privity ultimately leads the Working Group to conclude that legislative intervention is not needed at the present. Without denying that the privity rule has created unfair results and could still cause difficulties in its current form, the Working Group is of the opinion that privity, as it now stands in Canada, is not an urgent matter which calls for the implementation of stand alone legislation.

[10] Finally, it should be noted that the mandate of the Working Group was to look at the question of privity of contract only. A reform of the doctrine of privity could also fall within the scope of a comprehensive revision of contract law in Canada. The report does not, however, further contemplate this alternative.

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