Privity of Contract and Third Party Beneficiaries 2007

VI. Should the ULCC Undertake this Project?

(A) Arguments For

[96] As the preceding sections elaborated, the current state of the law is marked by a complex series of exceptions, which although mitigating the application of the privity doctrine have not eliminated the possibility of injustices occurring. Further, the distinction drawn in some of the case law between a third party relying on a contract in their defence and enforcing a contract intended for their benefit is difficult to justify.

[97] Uniform legislation providing for a detailed legislative scheme could address the problem. This is the approach adopted in Quebec, the UK, Hong Kong, New Zealand, and Australia (Western Australia and Queensland). It would be possible to draw upon these resources in drafting a uniform act for Canada. It is also the approach favoured by most of the Canadian law reform commissions that have considered this issue. (Only Ontario rejected this approach as defining the class of beneficiaries entitled to sue and the problem of modification or rescission by the original parties was thought to be too complex to resolve through legislation).

(B) Arguments Against

[98] Preliminary consultations in Alberta revealed polarized views from the legal profession as to the need for reform and an indication from the government that this was not a priority area for reform. The majority of legal practitioners were not aware of this issue. The failure to implement recommendations for reform in other Canadian jurisdictions confirms that Alberta is not unique in this regard. Extensive communication and consultation would be needed if this project is to be undertaken by the ULCC first, to ensure that there is a common understanding of the problem and second, to gather ideas and insight towards building a consensus.

[99] Reform of this area of law raises complex issues such as the definition of the class of beneficiaries entitled to sue and the question of when the parties to a contract may vary or rescind a contract. While some have argued that these issues are too complex to be addressed in uniform legislation, other jurisdictions have dealt with these issues through detailed legislative provisions.

[100] As discussed earlier, New Brunswick is the only common law jurisdiction in Canada to have legislatively reformed the doctrine of privity. Quebec, like other civil law jurisdictions, has long recognized the enforceability of contracts for the benefit of third parties. A proposal for uniform legislation would have to take into account these provincial variations.

(C) Recommendation

[101] The ULCC should complete a study on this issue, including recommendations for uniform legislative reform. The doctrine of privity of contract with respect to third party beneficiaries is in need of reform. The existing exceptions and judicial devices mitigating the effect of this doctrine on third party beneficiaries are complex. In addition, the common law is unclear as to whether a third party can enforce a contract intended for his or her benefit. The result may be inconsistent with the parties’ intentions and commercial realities. Further, there is a clear trend in other common law jurisdictions outside of Canada to permit third parties to enforce contracts made for their benefit.

[102] Uniform legislative change is preferable to waiting for the courts to address this issue as the latter is incremental and depends on the facts of a particular case.

[103] Implementation will likely pose a challenge. As the study proceeds it will be important that governments, as well as the legal profession are consulted and provided with background materials to assist them in understanding the nature of the problem and the proposals for reform. A uniform reform proposal would have the advantage of carrying greater weight than recommendations from individual provincial law reform bodies.

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