Proyectos de Innovación Docente

The exceptions and evasions of the doctrine of privity which we have looked at so far, have all been concerned with the recovery of a benefit by a third party. In this section we are concerned with the possibility of imposing a restriction on a third party’s behaviour.

In land transactions, the seller of a piece of land will often wish to restrict the use to which the purchaser can put the land, particularly if the seller is retaining ownership of adjacent land. Of course, as between the original seller and purchaser, this can be achieved by contract. What about someone who buys from the original purchaser, however? Can that person be made subject to the restriction? In Tulk v Moxhay125 it was held that this could be the case in relation to land, provided that certain conditions were satisfied, in particular, that the original vendor still had an interest to protect (for example, continued ownership of the adjacent land).

5.12.1 Application outside land law

Land law has subsequently developed a complicated set of rules dealing with the enforceability of such ‘restrictive covenants’. Outside the land law area, however, the courts have been reluctant to extend this exception to the privity doctrine. In Taddy v

Sterious126 the court refused to apply it to an attempt to restrict the price at which the plaintiff’s goods were sold by a third party. The plaintiffs had attached a notice to the packets of tobacco which they manufactured indicating that it was supplied to retailers on condition that it was not sold below the stipulated price. Acceptance of the goods was deemed to be acceptance of these conditions, and where the goods were bought from a wholesaler, the wholesaler was deemed to be the agent of the manufacturer. Despite this elaborate attempt to create an obligation which attached to the goods, in the same way as a covenant may attach to land, it was held that the defendant, who bought the goods from a wholesaler with full knowledge of the conditions, was nevertheless not bound by them. There have, however, been some cases concerned with shipping contracts where an approach analogous to the restrictive covenant has been used to bind a third party. In De

Mattos v Gibson,127_{for example, the plaintiff had chartered a ship from its owner, C. C had}

then mortgaged the ship to G, who had notice of the charter. When C ran into financial difficulties, G proposed to sell the ship. The plaintiff successfully obtained an injunction restraining G from acting in a way which was inconsistent with the charter. Knight Bruce LJ said that where a person had acquired property from another with knowledge of a prior binding contract as to the use of the property made with a third party:128

125 (1848) 2 Ph 774; 41 ER 1143. 126 [1904] 1 Ch 354.

127 (1859) 4 D & J 276; 45 ER 108. 128 Ibid, p 282; p 110.

... the acquirer shall not, to the material damage of the third person, in opposition to the contract and inconsistently with it, use and employ the property in a manner not allowable to the giver or seller.

Moreover, he considered that the rule applied in the same way to both land and personal property. The same line was taken by the Privy Council in Lord Strathcona SS Co v

Dominion Coal Co.129 The plaintiffs had chartered a ship which had subsequently been sold. It was held that the new owner, the defendant, could be restrained by injunction from using the ship in a way which would prevent the operation of the charter contract made by the previous owner. It was regarded as significant, however, that the new owner had been aware of the existence of the charter at the time that the ship was bought.

5.12.2 The current position

The further development of this exception to privity was halted by the refusal of Diplock J (as he then was) in Port Line Ltd v Ben Line Ltd,130to accept the earlier decisions as being correctly based on equitable principles analogous to the law relating to ‘restrictive covenants’. He took the view that these cases could be more properly viewed as falling within the area where the law of tort could provide a remedy,131rather than as examples of a more general exception to the doctrine of privity. This analysis was apparently accepted for the following 20 years, but in 1979 Browne-Wilkinson J indicated that there might still be some life in the equitable, restrictive covenant approach outside the area of land law. In Swiss Bank Corporation v Lloyds Bank Ltd,132 a loan had been made to buy shares. The lender argued that the borrower was contractually bound to repay the loan and interest out of the proceeds of any dealings with the shares. This was said to be a specifically enforceable obligation. The shares were also subject to a charge by Lloyds Bank (presumably they had been put up as security for a loan). The lender alleged that Lloyds’ rights over the shares were subject to the rights of the lender as set out in the original contract of loan. Browne-Wilkinson J held that the obligation to repay the loan out of dealings with the shares was specifically enforceable. This meant that the lender held an equitable interest in the shares, and that Lloyds’ rights were subject to this obligation. The Court of Appeal and the House of Lords held that there was no specifically enforceable obligation of the kind alleged, but did not disagree with the judge’s analysis of the relationship between the parties if there had been. It seems, therefore, that the equitable approach will still be available in certain appropriate cases. What will be needed is to show that the contract which is alleged to bind the third party has created an equitable interest in property falling within the scope of the contract. The third party will not then be allowed to act in a way which adversely affects this equitable interest. Nevertheless, although this demonstrates the theoretical availability of the ‘restrictive covenant’ approach in relation to personal property, the tortious action considered in the next section is more likely to work in practice.

129 [1926] AC 108.

130 [1958] 2 QB 146; [1958] 1 All ER 787. 131 See 5.13, below.