Contract law – Doctrine of Privity
Facts; A company named Blue Circle Cement entered into an insurance contract with Trident General Insurance to commence construction work in the rural town of Marulan. The insurance policy concerned a public liability policy; that included coverage of Blue Circle subsidiaries, associated and related companies, contractors and sub-contractors and or suppliers. McNiece was the principal contractor on the site who carried out work for Blue Circle.
An employee named Hammond, working under the direction of McNiece Bros had been severely injured and suffered personal injuries. Hammond successfully sought recovery for damages for his injuries from McNiece.
However, Tridents Insurance Policy included compensation damages of over half a million, of which McNiece sought reimbursement. Trident denied liability to McNiece because McNiece could not enforce a claim under the insurance policy to which McNiece is not a party under the insurance contract.
Holding; McNiece took the matter to trial in the Supreme Court of New South Wales, at which he succeeded. Trident appealed to the Court of Appeal. The Court of Appeal found that there was no privity of contract and that McNiece had not provided consideration to Trident. This is because ‘contractors’ can sue, despite no privity of contract or consideration under insurance policies.
Appeal to the High Court; Trident appealed to the High Court before seven High Court Justices. Three of the radical High Court Justices affirmed the decision at trial and held that there is coverage for McNiece. However, the lone judge, Justice Gaudron agreed that there is coverage for McNiece but also adhered to the doctrine of privity and agreed with the decision of the other three conservative judges and said that there was no coverage for McNiece. Justice Gaudron took the view that the ‘promisor’s promise could where necessary, give rise to obligations that could be enforceable on principles independent of contract law’. Contrastingly, the conservative judges, determined that since McNiece had not pleaded, they fall within an exception to privity, and their claim is defeated. However, Justice Gaudron continued – asserting that Trident accepted the policy and its obligations and therefore should provide coverage for McNiece. The High Court decision was held 4:3 in favour of McNiece.
Submitted by Kubra Yazici