Third Party Protection in Shipping

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Third party protection under English law

Third party protection under English law

7.1 As one of the leading English cases has expressed, and many other commentators have already corroborated, ‘Denying validity to the clause would be to encourage action against servants, agents, and independent contractors in order to get round exemptions’.1 This is because cargo owners can also sue parties other than contracting parties in tort.2 Third party protection has, however, been a contentious issue not only in English law in general, but also in maritime law. 7.2 The majority of shipping contracts are governed by English Law. Under this, a person that has not entered into a contract cannot benefit from it.3 As reported by Spurin (referring to White v Jones 4 and Henderson v Merrett Syndicates 5): ‘The mere fact that a contractual relationship exists does not prevent a litigant suing in either contract or in tort and selecting the course of action which provides the best procedural advantages or the most appropriate remedies’. At the same time, however, Spurin suggests ‘the terms of a contract can exclude a tortious duty of care, preventing such an action. This is most likely to happen where a contract contains exclusion clauses and limitation clauses’.6 7.3 English law has for a long time been reluctant to accept that parties outside the contract (i.e., third parties) can receive protection from it.7 However, in the shipping world there exists a need to extend this protection. Consequently, the industry has for many years used different ‘tools’8 to permit this protection.9

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Third party protection and the obstacle of privity and consideration

7.4 The extension of protection from the two parties of a contract to a third party has been an ongoing evolutionary process, especially in the carriage of goods by sea. The problem lies – especially for common law but even more so for English Law – in dealing with the old principles of privity and consideration. Privity is an obstacle because ‘an agreement is only enforceable as between the parties to the agreement. Third parties to an agreement cannot legally enforce benefits accruing to them from the agreement, nor can they have burdens thrust upon them by others’.10 More specifically, ‘an agreement must be supported by consideration, so that both parties provide or promise to provide something valuable in money or services, benefit or detriment in exchange for the like consideration of the other party’.11 7.5 In 1861, the case of Tweddle v Atkinson established what became known in the English legal system as the ‘third party rule’.12 In Drive Yourself Hire Co. (London) Ltd v Strutt,13 Lord Denning commented:

It is often said to be a fundamental principle of our law that only a person who is a party to a contract can sue on it. I wish to assert, as distinctly as I can, that the common law in its original setting knew no such principle. Indeed, it said quite the contrary. For the 200 years before 1861 it was settled law that, if a promise in a simple contract was made expressly for the benefit of a third person in such circumstances that it was intended to be enforceable by him, then the common law would enforce the promise at his instance, although he was not a party to the contract.14

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