Trident General Insurance Co Ltd v McNiece Bros Pty Ltd

Under the heading Public Liability in Section 2 the policy provided:

The Insurance indemnifies the Assured against all sums which the Assured shall become legally liable to pay in respect of

1. Death of or bodily injury to or illness of any person not being a person who at the time of the occurrence is engaged in and upon the service of the Assured under a Contract of service or apprenticeship

An exception to Section 2 was stated to be "Any claim arising under any Workmen's Compensation Law".

On 4 July 1979 Gary Hammond was seriously injured while driving a crane at the construction site. Hammond was working under the direction of the McNiece site engineer, although he was actually employed by Faro Constructions, a firm which organized workers for contractors such as McNiece. Hammond subsequently brought an action against McNiece and recovered judgment in his favour in the sum of $541,768.16 less worker's compensation payments already received. McNiece sought indemnity from Trident for the amount of the judgment awarded to Hammond. Trident denied liability.

McNiece then commenced an action against Trident for indemnity. While an appeal was pending by McNiece against the award in favour of Hammond, the action came on for hearing before Yeldham J. who found that there was no contract of service between Hammond and McNiece but that McNiece would be liable for any injuries to Hammond due to its negligence. The effect of this finding was to eliminate the possibility that McNiece could seek indemnity from its worker's compensation insurer. It also meant that McNiece could seek indemnity under the Trident policy as a person legally liable to pay damages for bodily injury to any person "not being a person who at the time of the occurrence is engaged in and upon the service of the Assured under a Contract of service "

Yeldham J. also found that McNiece was in contemplation as one of "The Assured" at "the attachment date for which a suitable indorsement" was issued in respect of the Marulan contract. No indorsement was actually issued but the action proceeded on the basis that an indorsement had been made, that the period of insurance commenced on the date when work at Marulan began, and that the accident involving Hammond occurred within that period. The learned judge found that consideration was given by McNiece to Trident, because Blue Circle took into account as between itself and McNiece, "in a financial way", that it had contracted with Trident to insure McNiece, and in that sense the latter, through Blue Circle, provided consideration for part of the premium paid to the insurer. Yeldham J. held that it was not established that Blue Circle had actual authority to enter into the insurance policy on behalf of McNiece, but that the service of the statement of claim in the action before him constituted ratification of the policy by McNiece. Thus, his Honour held that there was a contract between McNiece and Trident and that McNiece was entitled to an indemnity from Trident for the amount of Hammond's award less the worker's compensation payments made.

Trident appealed to the Court of Appeal. The appeal was dismissed, Hope and Priestley JJ.A. agreeing with the judgment of McHugh J.A. McNiece had sought leave to plead an alternative case based on the existence of a trust. Leave was refused.

The first question before the Court of Appeal was whether McNiece was one of "The Assured". Trident argued that the expression "The Assured" consisted of a class fixed at the date of issue of the policy and McNiece was not in contemplation as a party at that date. However, McHugh J.A. found that as a matter of business efficacy the policy was intended to cover any contractor, sub-contractor or supplier who was engaged at any time during the contract period. He also found that Blue Circle alone was liable for payment of the premium. These findings dictated the conclusions that McNiece was not a party to the contract of insurance and that it did not provide consideration to Trident. The conclusion that McNiece was not a party to the contract followed from the fact that it was not ascertainable as a principal when the policy issued. To make a contract on behalf of a principal an agent must contract on behalf of a principal who is then ascertainable.

McHugh J.A. also rejected the finding that McNiece had ratified the policy. Although his Honour concluded that a general policy of insurance can be ratified after loss and that commencement of an action on the policy against the insurer may constitute ratification, the policy was not ratified because ratification did not take place within a reasonable time.

McHugh J.A. went on to accept the far-reaching submission that at common law a beneficiary under a policy of insurance can sue on the policy even though it is not a party to the policy and provides no consideration. His Honour so decided because he concluded that the two common law rules that only a party to a contract can sue on it and consideration must move from the promisee work injustice in many situations. He considered that the law should allow an intended beneficiary to sue on a policy when commercial convenience and practice demand it. Moreover, he thought that the development of the common law should proceed in parallel fashion with statutory reforms enabling non-party beneficiaries to sue on policies of insurance. His Honour instanced the Motor Vehicles (Third Party Insurance) Act 1942 N.S.W., s. 10 and the Insurance Contracts Act 1984 Cth, s. 48: see also Life Insurance Act 1945 Cth, s. 94.

Trident's case in this Court is that the rules that only a party to a contract can sue on it and that consideration must move from the promisee are fundamental principles of the common law of contract. These principles evolved in the course of the nineteenth century in the development in England of the law of contract and they have been consistently applied, not only in England but also in Australia, to contracts for the benefit of third parties, including insurance contracts. The argument is that the principles are so well accepted and so embedded in our law of contract that they should not be overturned by judicial decision, even if their application to contracts for the benefit of third parties is not altogether satisfactory, a matter which Trident by no means concedes. According to Trident, the recognition in appropriate circumstances by the courts of the trust of a contractual promise provides an adequate mechanism for protecting the rights of the third party under a third party contract. The concept of the trust of a contractual promise, it is said, overcomes any serious problem which might otherwise arise if the common law principles alone were to govern third party contracts.

Although the principle that only a party to a contract can sue on it is described as fundamental, the early common law permitted third parties to enforce contracts made for their benefit: see Flannigan, Privity - The End of an Era (Error), Law Quarterly Review, vol. 103 (1987) 564, at pp. 564-565, esp. fn. 6. The decision in Bourne v. Mason [2] marked the beginning of a shift in the attitude of the common law. In that case the third party, who failed in his action on the contract, was described as "a meer stranger to the consideration" [3] . Thereafter, until Tweddle v. Atkinson [4] , the question whether the third party could bring an action on the contract was the subject of conflicting decisions: compare, e.g., Pigott v. Thompson [5] and Carnegie v. Waugh [6] (where the court upheld the right of the third party to enforce the contract) with Price v. Easton [7] (where the court denied the third party's entitlement to sue on the contract). With reference to the common law before 1861, Windeyer J. observed in Coulls v. Bagot's Executor & Trustee Co. Ltd. [8] :

The law was not in fact "settled" either way during the two hundred years before 1861. But it was, on the whole, moving towards the doctrine that was to be then and thereafter taken as settled. 1. (1669) 1 Vent. 6 [86 E.R. 5]. 2. (1669) 1 Vent., at p. 7 [86 E.R., at p. 6]. 3. (1861) 1 B. & S. 393 [121 E.R. 762]. 4. (1802) 3 Bos. & Pul. 147 [127 E.R. 80]. 5. (1823) 1 L.J. (K.B.) 89. 6. (1833) 4 B. & Ad. 433 [110 E.R. 518]. 7. (1967) 119 C.L.R. 460, at p. 498.

The received doctrine is that Tweddle v. Atkinson decided that a third party cannot sue on a contract for his benefit, though Denning L.J. considered that it was wrongly decided: Smith and Snipes Hall Farm Ltd. v. River Douglas Catchment Board [9] ; White v. John Warwick & Co. Ltd. [10] . There is much to be said for the view that the ratio of Tweddle v. Atkinson was that the plaintiff third party failed because no consideration moved from him. However, this view was not accepted in the years that followed: see, e.g., Gandy v. Gandy [11] . The decision in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [12] firmly entrenched the two principles in the common law of England. So much emerges from the speech of Lord Haldane [13] . The Privy Council in Vandepitte v. Preferred Accident Insurance Corporation of New York [14] subsequently applied the law as stated in Dunlop by Lord Haldane to a policy of insurance covering a motor vehicle by which the insurer agreed to indemnify the insured and anyone operating the car with the permission of the insured against third party risks. In the result the insurer was not liable under the policy in respect of a judgment obtained against the insured's daughter for damages for personal injury caused by her negligent driving of the motor vehicle. The Privy Council recognized [15] that the common law rules are qualified by the equitable principle that a party to a contract can constitute himself a trustee for a third party of a right under a contract so that the third party can enforce the promise, making the promisee-trustee a defendant in an action against the promisor. However, Lord Wright went on to say that "the intention to constitute the trust must be affirmatively proved: the intention cannot necessarily be inferred from the mere general words of the policy" [16] .

1. [1949] 2 K.B. 500, at p. 514. 2. [1953] 1 W.L.R. 1285; [1953] 2 All E.R. 1021. 3. (1885) 30 Ch. D. 57, at p. 69. 4. [1915] A.C. 847. 5. [1915] A.C., at p. 853. 6. [1933] A.C. 70, at p. 79. 7. [1933] A.C., at p. 79. 8. [1933] A.C., at pp. 79-80.

This Court has hitherto accepted that a third party cannot sue upon a contract and that a stranger to the consideration cannot maintain an action at law upon it: see, e.g., Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [17] per Williams J.; Fullagar J. (with whom Dixon C.J. agreed) [18] ; Kitto J. [19] ; Taylor J. [20] ; Coulls [21] , per Barwick C.J., McTiernan J. [22] , Taylor and Owen JJ. [23] , Windeyer J. [24] .

1. (1956) 95 C.L.R. 43, at p. 56. 2. (1956) 95 C.L.R., at p. 67. 3. (1956) 95 C.L.R., at p. 80. 4. (1956) 95 C.L.R., at p. 91. 5. (1967) 119 C.L.R., at p. 478. 6. (1967) 119 C.L.R., at pp. 482-483. 7. (1967) 119 C.L.R., at pp. 486-487. 8. (1967) 119 C.L.R., at p. 494.

So far we have proceeded on the footing that there are two distinct common law rules. This accords with the law as Lord Haldane stated it in Dunlop [25] : see also Vandepitte [15] ; Kepong Prospecting Ltd. v. Schmidt [26] . However, as Windeyer J. noted in Coulls [24] , there is an opposing view that the two rules are but one. In other words, to say that A is not a party to the contract is to say only that he is not a person who gave a promise in exchange for another: see Coote, Consideration and the Joint Promisee [1978] Cambridge Law Journal 301, at pp. 309-310; Furmston, Return to Dunlop v. Selfridge?, Modern Law Review, vol. 23 (1960) 373, at pp. 383-385. As a matter of history this view has much to support it. The consideration requirement was the nub of the earlier cases. The privity requirement seems to have gained acceptance either as an alternative way of asserting the consideration requirement or as a by-product of it. Nevertheless the weight of authority points to the existence of two distinct, albeit interrelated, principles. Thus, if A, B and C are parties to a contract and A promises B and C that he will pay C $1,000 if B will erect a gate for him, C cannot compel A to carry out his promise, because, though a party to the contract, C is a stranger to the consideration: see Law Revision Committee (Eng.) Sixth Interim Report (Statute of Frauds and the Doctrine of Consideration) par. 37, 1937 Cmd. 5449. Contrast par. 41 of that Report and its discussion of the privity rule. For the purposes of the present case and contracts for the benefit of third parties, however, it is of little consequence whether the rules are in fact separate.

1. [1915] A.C., at p. 853. 2. [1933] A.C., at p. 79. 3. [1968] A.C. 810. 4. (1967) 119 C.L.R., at p. 494.

These "fundamental" traditional rules, where they survive, have been under siege throughout the common law world. In the United Kingdom the Law Revision Committee, which included many distinguished lawyers under the chairmanship of Lord Wright, recommended the abolition of the consideration rule and the privity rule in its Sixth Interim Report. The Committee described the consideration rule in its application to the example given in the last paragraph as lacking any reason in logic or public policy: par. 37. The Committee stated that the English common law (an expression which, in the context of the Report in 1937, may be taken to include the Australian common law) was alone among modern systems of law in its insistence on the privity rule and observed that the United States had taken steps to mitigate the rigour of the rule. Even in England, the Committee noted, Parliament had found it necessary to create legislative exceptions: par. 41. The Committee went on to make the point that the trust concept as applied to the promise for the benefit of the third party had not proved to be a satisfactory solution because there was uncertainty surrounding the approach of the courts to the recognition of a trust: par. 44. Another criticism of the trust concept was that, once created, the trust was not revocable by the promisor or the promisee: par. 47. A third comment was that insistence on the privity rule casts doubts on the enforceability of bankers' commercial credits by sellers of goods as against the banker setting up the credit: par. 45. The final point made by the Committee was that the position of the third party is more analogous to that of an assignee of a contractual right than to that of a cestui que trust: par. 46.

The Committee recommended that the statutory recognition of third party rights should be carefully limited. The proposed limitations were: (1) no third party right should be acquired unless given by the express terms of the contract; (2) the promisor should be able to raise against the third party any defence available against the promisee; and (3) the right of the promisor and of the promisee to cancel the contract at any time should be preserved unless the third party has received notice of the agreement and has adopted it. It might be noted that this regime is much like that which has developed in the United States. There, the problems arising from the traditional rules have been avoided by not requiring that consideration move from the promisee to the promisor: see Farnsworth, Contracts (1982), ss. 2.3, fn. 9, 10.2. As it stands now in most American states, third parties can sue directly upon contracts made for their benefit by others: see generally Restatement (2d), Contracts (1979), Ch. 14.

Despite the criticisms and the proposals for reform, the traditional rules survive in the United Kingdom: see, e.g., Midland Silicones Ltd. v. Scruttons Ltd. [27] ; Beswick v. Beswick [28] ; Woodar Investment Ltd. v. Wimpey Ltd. [29] . Legislative procrastination prompted Lord Reid in 1968 to suggest that, if there were to be a further long delay, then the House of Lords might be compelled to deal with the question: Beswick [30] . Similarly, Lord Scarman, supported by Lord Keith of Kinkel, expressed the view in 1980 that the House of Lords might "reconsider Tweddle v. Atkinson [31] and the other cases which stand guard over this unjust rule": Woodar [32] . In Swain v. Law Society [33] , Lord Diplock described the doctrine of privity as "an anachronistic shortcoming that has for many years been regarded as a reproach to English private law". And in this country, Windeyer J. reflected similar sentiments to those of Lord Scarman when he referred in Olsson v. Dyson [34] to the possibility "that some day this Court too, expounding the common law as Australia has inherited it, will see the way clear" to reform the traditional rules.

1. [1962] A.C. 446. 2. [1968] A.C. 58. 3. [1980] 1 W.L.R. 277; [1980] 1 All E.R. 571. 4. [1968] A.C., at p. 72. 5. (1861) 1 B. & S. 393; [121 E.R. 762]. 6. [1980] 1 W.L.R., at p. 300; [1980] 1 All E.R., at p. 591. 7. [1983] 1 A.C. 598, at p. 611. 8. (1969) 120 C.L.R. 365, at p. 393.

In Western Australia dissatisfaction with those rules has resulted in the enactment of s. 11 of the Property Law Act 1969 W.A., which confers in certain circumstances a right on a third party to sue on a contract for his benefit. In 1973 the Queensland Law Reform Commission recommended that the law be amended so as to allow that a contract conferring a benefit on a third party should be enforceable by him in his own name: see Report No. 16, cl. 55 of the draft bill and the commentary on that provision. The recommendation was adopted and is expressed in s. 55 of the Property Law Act 1974 Q.. And in New Zealand the Contracts (Privity) Act 1982 N.Z., like the Queensland Act, allows the third party to enforce a contract made for his benefit by imposing an obligation on the promisor in favour of the third party where the parties intend that the third party should be able to enforce the provision for his benefit: compare Property Law Act 1974 Q., s. 55(6)(c)(ii) with Contracts (Privity) Act 1982 N.Z., ss. 4, 8.

The Australian Law Reform Commission in its Report No 20 on Insurance Contracts noted (par. 122) that Vandepitte [35] had been legislatively displaced in all Australian jurisdictions in respect of compulsory third party insurance. Otherwise the Commission acknowledged that Vandepitte was alive and well, well enough to cause injustice to third parties. Indeed, as the Commission observed, Vandepitte was invoked by an insurer as a defence to an action on a policy by a person, not a party to the contract, who fell within the class of persons expressed to be insured: Jovanovic v. Broers [36] . The Commission, concluding that the problems could not be solved by the application of the principles of trust and agency, recommended that persons falling within the class of persons expressed by a policy to be entitled to indemnity should be able to sue on the policy. The Commission stated (par. 124) that this alteration in the law should be uncontroversial because most insurers already act as though they were under such a liability to such persons. Section 48 of the Insurance Contracts Act 1984 Cth gives effect to this recommendation.

There is much substance in the criticisms directed at the traditional common law rules as questions debated in the cases reveal. First, there is the vexed question whether the promisee can recover substantial damages for breach by the promisor of his promise to confer a benefit on the third party. The orthodox view is that ordinarily the promisee is entitled to nominal damages only because non-performance by the promisor, though resulting in a loss of the third party benefit, causes no damage to the promisee: see West v. Houghton [37] ; Viles v. Viles [38] ; but cf. Drimmie v. Davies [39] . On the other hand, Lush L.J. in Lloyd's v. Harper [40] said:

I consider it to be an established rule of law that where a contract is made with A. for the benefit of B., A. can sue on the contract for the benefit of B., and recover all that B. could have recovered if the contract had been made with B. himself. Windeyer J. in Coulls [41] thought, correctly in our opinion, that Lush L.J. was referring to a contract where A was trustee of the promised benefit for B, a view in which Lord Upjohn acquiesced in Beswick [42] . Windeyer J. went on to say that the promisee could recover more than nominal damages in a situation in which he had sustained actual loss or damage by reason of the promisor's breach of his promise to confer a benefit on the third party. Plainly his Honour correctly stated the law in this respect. His Honour then expressed his disagreement with suggestions by Lord Esher M.R. and Fry L.J. in Cleaver v. Mutual Reserve Fund Life Association [43] that the promisee could recover not unliquidated damages but any sum which the promisor had agreed to pay to the third party [44] . 1. (1879) 4 C.P.D. 197. 2. [1939] S.A.S.R. 164. 3. [1899] 1 I.R. 176. 4. (1880) 16 Ch. D. 290, at p. 321. 5. (1967) 119 C.L.R., at p. 501. 6. [1968] A.C., at p. 101. 7. [1892] 1 Q.B. 147, at pp. 153, 157, 158. 8. (1967) 119 C.L.R., at p. 502.

It is clear enough that the availability of an action for damages at the suit of the promisee for breach of the promise to benefit the third party is not a sufficient sanction to secure performance of the promise. What is more, the uncertain status of the decision in Jackson v. Horizon Holidays Ltd. [45] is a telling indictment against the law as it presently stands. There, the plaintiff recovered substantial damages for the travel company's breach of contract to provide a satisfactory family holiday, but the basis on which the decision can be supported is by no means clear, even after the comments by the House of Lords in Woodar [46] . Rules which generate uncertainty in their application to ordinary contracts commonly entered into by the citizen call for reconsideration.

1. [1975] 1 W.L.R. 1468; [1975] 3 All E.R. 92. 2. [1980] 1 W.L.R., at pp. 283-284, 291, 293, 297; [1980] 1 All E.R., at pp. 576-577, 584, 588.

Next, there is the question whether the contract to confer a benefit on the third party is capable of specific performance. In Coulls [47] Barwick C.J. considered that where a promisor promises to make a payment to a third party the promisee may obtain specific performance of the promises at least where the nature of the consideration would have allowed the remedy. Windeyer J. [48] went even further, asserting that contracts to pay money or transfer property to a third party are always or very often contracts for breach of which damages are an inadequate remedy and that on this ground such contracts are susceptible of specific performance. We agree with his Honour's comment and with his additional observations [48] which point the way to a more general recognition of the availability of specific performance as a remedy. As Lord Upjohn noted in Beswick [49] , "Equity will grant specific performance when damages are inadequate to meet the justice of the case" (our emphasis): see also the dissenting judgment of Sir Garfield Barwick in Loan Investment Corporation of Australasia v. Bonner [50] . There is no reason to doubt that the courts will grant specific performance of a contract of indemnity or insurance, even if it involves payment of a lump sum, at least where the payment is to be made to a third party, damages being an inadequate remedy. But, even if we assume the availability of specific performance at the suit of the promisee in a wide variety of situations, there are nonetheless situations, such as that in Jackson v. Horizon Holidays Ltd. [51] , where specific performance is not a suitable remedy and damages are inadequate. In these situations the incapacity of the third party to sue means that the law gives less protection to the promisee and the third party than the promisor: see Collins, Law of Contract (1986), p. 107. And, assuming the availability of specific performance, the third party is nonetheless dependent on the willingness of the promisee to exercise his rights, in the absence of a trust, an agency relationship or an enforceable agreement between the promisee and the third party.

1. (1967) 119 C.L.R., at p. 478. 2. (1967) 119 C.L.R., at p. 503. 3. (1967) 119 C.L.R., at p. 503. 4. [1968] A.C., at p. 102. 5. [1970] N.Z.L.R. 724, at p. 742. 6. [1975] 1 W.L.R. 1468; [1975] 3 All E.R. 92.

Then there is the trust of the contractual promise on which the appellant places particular reliance as a palliative of the difficulties generated by the common law principles. Despite the insistence in Vandepitte [52] and In re Schebsman [53] , on the need for a clear expression of intention to create a trust and the warning that such an intention cannot necessarily be inferred from general words, there are a number of authorities which justify the difficulty expressed by Fullagar J. in understanding the reluctance of the courts sometimes to infer trusts: Wilson [54] . In Robertson v. Wait [55] ; Lloyd's v. Harper [56] ; Les Affréteurs Réunis Société Anonyme v. Leopold Walford (London) Ltd. [57] and Williams v. Baltic Insurance Association of London Ltd. [58] the courts readily inferred the existence of a trust from the circumstance that the contract was made for the benefit of a third party. The contrast between Vandepitte and Williams is striking. Both cases concerned motor vehicle insurance policies expressed to cover persons driving the vehicle apart from the insured. Fullagar J.'s comment followed a reference to the two decisions: see also "Notes", Law Quarterly Review, vol. 49 (1933), p. 474. As we have seen, critics of the common law rules have pointed to the uncertainty surrounding the circumstances in which the courts will recognize a trust in contracts for the benefit of third parties as a reason for rejecting the trust concept as a sufficient answer to the difficulties caused by those rules: Corbin, Contracts for the Benefit of Third Persons, Law Quarterly Review, vol. 46 (1930) 12, esp. at p. 17.

1. [1933] A.C., at pp. 79-80. 2. [1944] Ch. 83, at p. 104. 3. (1956) 95 C.L.R., at p. 67. 4. (1853) 8 Ex. 299 [155 E.R. 1360]. 5. (1880) 16 Ch. D. 290. 6. [1919] A.C. 801. 7. [1924] 2 K.B. 282.

This apparent uncertainty should be resolved by stating that the courts will recognize the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd. v. Butts [59] .

But, even if adherence to this approach produces greater consistency of outcome, there are still the cases where the third party has no remedy because there is no sufficient intention to create a trust. And there are other consequences which flow from recognizing the existence of a trust. It may circumscribe the freedom of action of the parties to the contract, especially the promisee, to a greater extent than the existence of a right to sue on the part of the third party. How can the promisee terminate the trust once it is created? Lest it be overlooked, we should mention that the creation of a third party trust rests on ascertaining the intention of the promisee, rather than on the intention of the contracting parties. And in the ultimate analysis it seems incongruous that we should be compelled to import the mechanism of a trust to ensure that a third party can enforce the contract if the intention of the contracting parties is that he should benefit from performance of the contract. A fortiori is that so if the intention common to the parties is that the third party should be able to sue the promisor.

In order to justify the privity and consideration rules in the face of these problems, three practical policy considerations are sometimes invoked. First, they preclude the risk of double recovery from the promisor by the third party as well as the promisee. If the third party is permitted to sue the risk of double recovery arises from the possibility that the one party may seek specific performance after another has recovered damages. The risk is insignificant; joinder of all parties in the first action will make the resulting decision binding on all.

The second point is that the privity requirement imposes an effective barrier to liability on the part of a contracting party to a vast range of potential plaintiffs. This may be significant in the case of government contracts intended to benefit a class of persons: see, e.g., Martinez v. Socoma Companies Inc. [60] . But it is difficult to justify the existence of a rule by reference to one of its indirect results, if in other respects its operation is unsatisfactory.

The third matter is more important. The recognition of an unqualified entitlement in a third party to sue on the contract would severely circumscribe the freedom of action of the parties, particularly the promisee. He may rescind or modify the contract with the assent of the promisor, arrive at a compromise or assign his contractual rights. He may even modify the contract so that he diverts to himself the benefit initially intended for the third party. Professor Corbin suggested that any entitlement in the third party to enforce the provision in his favour would necessarily exist at the expense of the rights, privileges and liberties that the contracting parties enjoy under the common law rules: "Third Party Beneficiary Contracts in England", University of Chicago Law Review, vol. 35 (1968) 544, at p. 549. But this does not entirely follow. The entitlement of the third party to enforce the provision in his favour can be subordinated to the right of the contracting parties to rescind or modify the contract, in which event the third party would lose his rights except in so far as he relied on the promise to his detriment: cf. Restatement, s. 311(3). To subordinate the third party's entitlement in this way would accord with legal principle and with the protection of the interests of the parties to the contract. There is to our minds no compelling reason why the interests of the third party should be preferred, though we acknowledge that in Queensland the parties lose their right to rescind and modify the contract without the third party's consent on the third party's acceptance of it (Property Law Act 1974 Q., ss. 55(2), 55(3)(d)) and in Western Australia on the third party's adoption of the contract (Property Law Act 1969 W.A., s. 11(3): see Westralian Farmers Co-operative Ltd. v. Southern Meat Packers Ltd. [61] . The Queensland and Western Australian qualifications trace back to the recommendations of the English Law Revision Committee in 1937.

Should it be a sufficient foundation for the existence of a third party entitlement to sue on the contract that there is a contractual intention to benefit a third party? Or, should an intention that the third party should be able to sue on the contract be required? Under s. 48 of the Insurance Contracts Act 1984 Cth and in the United States an intention to benefit a third party alone is necessary and that seems to be the position in Western Australia. But in Queensland (Property Law Act 1974, ss. 55(1), 55(6)(c)(ii)) and in New Zealand (Contracts (Privity) Act 1982, ss. 4, 8) an intention that the third party should be able to sue is required. This requirement again seems to have its origin in the recommendations of the English Law Revision Committee. As the contracting parties are unlikely to turn their attention to the enforcement by the third party, the ascertainment of this intention may well be fraught with similar problems to those that have surrounded the trust concept.

The variety of these responses to the problems arising from contracts to benefit a third party indicate the range of the policy choices to be made and that there is room for debate about them. A simple departure from the traditional rules would lead to third party enforceability of such a contract, subject to the preservation of a contracting party's right to rescind or vary, in the absence of reliance by the third party to his detriment, and to the availability in an action by the third party of defences against a contracting party. The adoption of this course would represent less of a departure from the traditional exposition of the law than other legislative choices which have been made. Moreover, as we have seen, the traditional rules, which were adopted here as a consequence of their development in the United Kingdom, have been the subject of much criticism and of legislative erosion in the field of insurance contracts. Regardless of the layers of sediment which may have accumulated, we consider that it is the responsibility of this Court to reconsider in appropriate cases common law rules which operate unsatisfactorily and unjustly. The fact that there have been recent legislative developments in the relevant field is not a reason for continuing to insist on the application of an unjust rule as it stood before its alteration by the Insurance Contracts Act 1984 Cth.

In the ultimate analysis the limited question we have to decide is whether the old rules apply to a policy of insurance. The injustice which would flow from such a result arises not only from its failure to give effect to the expressed intention of the person who takes out the insurance but also from the common intention of the parties and the circumstance that others, aware of the existence of the policy, will order their affairs accordingly. We doubt that the doctrine of estoppel provides an adequate protection of the legitimate expectations of such persons and, even if it does, the rights of persons under a policy of insurance should not be made to depend on the vagaries of such an intricate doctrine. In the nature of things the likelihood of some degree of reliance on the part of the third party in the case of a benefit to be provided for him under an insurance policy is so tangible that the common law rule should be shaped with that likelihood in mind.

This argument has even greater force when it is applied to an insurance against liabilities which is expressed to cover the insured and its sub-contractors. It stands to reason that many sub-contractors will assume that such an insurance is an effective indemnity in their favour and that they will refrain from making their own arrangements for insurance on that footing. That, it seems, is what happened in the present case. But why should the respondent's rights depend entirely on its ability to make out a case of estoppel?

In the circumstances, notwithstanding the caution with which the Court ordinarily will review earlier authorities and the operation of long-established principle, we conclude that the principled development of the law requires that it be recognized that McNiece was entitled to succeed in the action.

For the foregoing reasons, we would dismiss the appeal.

Trident General Insurance Co. Ltd. ("Trident") issued a policy to Blue Circle Southern Cement Ltd. ("Blue Circle") agreeing to indemnify "the Assured against all sums which the Assured shall become legally liable to pay in respect of bodily injury to any person". The "Assured" is defined by the policy to be "Blue Circle Southern Cement Limited, all its subsidiary associated and related Companies, all Contractors and Sub-Contractors and/or Suppliers". McNiece Bros. Pty. Ltd. ("McNiece") became a contractor, though it was not a contractor when the policy was issued in June 1977. McNiece became liable to pay damages to a workman employed by a sub-contractor in respect of that workman's bodily injury suffered in July 1979. McNiece seeks to be indemnified by Trident, though it paid none of the premium.

In the Supreme Court of New South Wales, Yeldham J. declared that Trident was liable to indemnify McNiece, holding that Blue Circle had entered into the contract of insurance with Trident on its own behalf and on behalf of those who were embraced in the definition of "Assured" and that McNiece, falling within that definition, had ratified the contract made on its behalf. Trident appealed to the Court of Appeal [62] . The appeal failed although the Court rejected the finding that McNiece had become a party to the contract through the agency of Blue Circle. McHugh J.A., with whom Hope and Priestley JJ.A. agreed, did not think that "Blue Circle was or intended to act as an agent for principals". That conclusion was clearly right. However, the judgment in favour of McNiece was sustained on another ground. Their Honours held that McNiece, though it was neither a party to the contract of insurance nor an "Assured" when the contract was made and though it had given no consideration for the indemnity it claimed, was entitled to sue directly on the policy. McHugh J.A. said [63] that:

this Court should now declare that at common law a non-party assured is, and has been for some time at common law, able to sue on a written policy of liability insurance. In truth the position in respect of liability insurance policies is, and has been for some time, the same as that in respect of bankers' letters of commercial credit: see Jacobs, Judicial Reform of Privity and Consideration, Journal of Business Law (November 1986), p. 466. That is to say, although once not enforceable because of the privity of contract doctrine, commercial necessity, practice and widespread use have combined to create an exception which the common law will now enforce. The judgment in favour of McNiece was sustained solely on the basis that McNiece was entitled to sue on the policy in its own name and on its own behalf, the case being an exception to the doctrine of privity by which the common law limits to a promisee the right to sue to enforce a contractual promise. It was not suggested that agency, trust or estoppel availed McNiece. The facts excluded agency. In the course of the appeal before the Court of Appeal, McNiece sought to raise a case that Blue Circle was the trustee for it of the benefit of the promise to indemnify "the Assured" contained in the policy, but leave was refused because "there was a possibility that further evidence would be available to negative a trust". It was not suggested that McNiece might be entitled to raise an estoppel against Trident founded on an assumption or expectation by McNiece that Trident held it covered against legal liability in respect of bodily injury to any person. 1. (1987) 8 N.S.W.L.R. 270. 2. (1987) 8 N.S.W.L.R., at pp. 287-288.

The declaration by the Court of Appeal that policies of liability insurance are a common law exception to the doctrine of privity of contract and that the exception has existed for some time may come as a surprise to those who have seen no reference to such an exception in the books. McHugh J.A. thought that policies of liability insurance are similar to bankers' letters of commercial credit and his Honour regarded bankers' commercial credits as exceptions to the doctrine of privity of contract. Bankers' commercial credits were not regarded as such exceptions by Jenkins L.J. in Hamzeh Malas & Sons v. British Imex Industries Ltd. [64] , who described them as "a bargain between the banker and the vendor of the goods". And in United City Merchants (Investments) Ltd. v. Royal Bank of Canada [65] , Lord Diplock said it was trite law that, in an international sale of goods to be financed by means of a confirmed irrevocable documentary credit, there are "four autonomous though interconnected contractual relationships involved", the fourth of which his Lordship described as "the contract between the confirming bank and the seller". In point of principle, bankers' commercial credits are not recognized as true exceptions to the doctrine of privity.

1. [1958] 2 Q.B. 127, at p. 129. 2. [1983] 1 A.C. 168, at pp. 182-183.

If policies of liability insurance are to be recognized as an exception to the doctrine, what are the features which might make them so? Excluding the principles of agency, trust and estoppel from consideration, what makes a "non- party assured" who has furnished no consideration for a policy of loss insurance different from any other third party mentioned in a contract between promisor and promisee as a party who is to have the benefit of a promise? The difference suggested by McHugh J.A. was that commercial necessity, practice and widespread use, strengthened by analogy with modern statutes, established policies of loss insurance as exceptions to the doctrine of privity of contract. The fact that policies of loss insurance are frequently expressed to cover losses sustained by persons who are not parties to the contract and the fact that insurers ordinarily honour those contracts do not establish the kind of commercial practice that evokes the creation of a new principle of the common law. It may be that, where the voluntary acceptance of liability by an insurer does not account for the commercial practice and use of which his Honour spoke, those factors are to be accounted for by operation of the law of agency, trusts and estoppel. His Honour's proposition that it is commercially necessary to admit an exception to the doctrine of privity would be more supportable if it were found that those principles when applied in conjunction with the doctrine leave the law powerless to prevent or remedy injustice. But it was impossible to demonstrate such a defect in this case where agency was negatived on the facts and no occasion arose to consider the application of the principles of trust and estoppel.

Nor is the argument for a judicially created exception advanced by considering modern statutory provisions. As Dawson J. points out, s. 48 of the Insurance Contracts Act 1984 Cth weakens rather than strengthens the proposition that a common law exception exists. That section creates in a person who is not a party to a contract of general insurance a statutory right to recover the amount of his loss directly from the insurer if he was specified or referred to in the contract as a person to whom the insurance cover was provided. But the Parliament did not make that provision retrospective, and it cannot be inferred that the Parliament contemplated that cases arising before the Act came into force (this case being one of them) would be governed by provisions of the common law identical with those in the Act. I would add that I respectfully agree with what Dawson J. has written about the limited use to which statute can be put in developing the common law.

To hold that policies of liability insurance are an exception to the doctrine of privity, some criterion must be found to distinguish the exception from the general rule. I can find none. Indeed, if the doctrine of privity should be overthrown in its application to policies of liability insurance, no reason either of policy or logic is advanced for retaining the doctrine for application to other contracts. It was acknowledged in the Court of Appeal that the doctrine of privity of contract is a fundamental rule of our common law, but that acknowledgment was followed immediately by an assertion [66] that:

the injustice of the rule in some situations is so obvious that it has been the subject of prolonged and intensive criticism. Few could be found today who would agree with the opinion of Myers A.J., expressed in 1954 [67] , that no change should be made to the rule: although cf. Barwick C.J. in Coulls [68] . I am numbered amongst those who agree with Myers A.J., being fortified in that view by the observations of Barwick C.J. [68] in the case referred to: It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarrassment in this conclusion. Indeed, I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another. 1. (1987) 8 N.S.W.L.R., at p. 284. 2. 27 A.L.J. 175. 3. (1967) 119 C.L.R. 460, at p. 478. 4. (1967) 119 C.L.R. 460, at p. 478.

Barwick C.J. treated privity of contract as distinct from the related question of consideration and the distinction is well founded. However, in the same case [69] Windeyer J. observed that: "Doubtless the two requisites merge in the strict view of a contract as a bargain, a promise for which the promisee has paid the price." In this case, as McNiece was not a party to the contract and did not give consideration for Trident's promise, it is not necessary to pursue the inquiry whether the two requisites merge. It is sufficient to focus on the doctrine of privity.

Privity is a doctrine which is both settled and fundamental, though it was not settled in England until the nineteenth century. In Coulls v. Bagot's Executor & Trustee Co. Ltd. [70] , Windeyer J. referred to the uncertainty prior to 1861 about the right of third parties to bring assumpsit. He concluded:

The fact is that the early cases are conflicting, because during the sixteenth, seventeenth and eighteenth centuries the doctrine of consideration in the common law was still in process of formation. Whether, and in what circumstances, third parties should be allowed to bring assumpsit was still debatable. The law was not in fact "settled" either way during the two hundred years before 1861. But it was, on the whole, moving towards the doctrine that was to be then and thereafter taken as settled. In 1861, Tweddle v. Atkinson [71] was decided. The law was then settled that "no stranger to the consideration can take advantage of a contract, although made for his benefit" [72] per Wightman J. The rule emerged in consequence of the development of the action of assumpsit, as the judgments of Crompton and Blackburn JJ. show. It may be that, at least in the understanding of the profession if not in the reports of cases, the rule was settled before Tweddle v. Atkinson was argued. In that case, the general proposition advanced by counsel for the defendant, supporting the demurrer, was that "a stranger to the agreement and to the consideration cannot sue upon the contract" [73] , and that proposition was conceded by counsel for the plaintiff who sought unsuccessfully to bring the case within an exception to the general rule. The rule was affirmed by the House of Lords in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [74] . Viscount Haldane L.C. said: My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, e.g., under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor's request. These two principles are not recognized in the same fashion by the jurisprudence of certain Continental countries or of Scotland, but here they are well established. A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted as his agent. But again, in order to entitle him so to sue, he must have given consideration either personally or through the promisee, acting as his agent in giving it. So well established were those principles that the argument of counsel for the appellants in Dunlop Pneumatic Tyre Co. was directed merely to showing that the appellants were undisclosed principals who had given consideration. In Midland Silicones Ltd. v. Scruttons Ltd. [75] , Lord Reid said: Although I may regret it, I find it impossible to deny the existence of the general rule that a stranger to a contract cannot in a question with either of the contracting parties take advantage of provisions of the contract, even where it is clear from the contract that some provision in it was intended to benefit him. That rule appears to have been crystallized a century ago in Tweddle v. Atkinson and finally established in this House in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. There are, it is true, certain well-established exceptions to that rule - though I am not sure that they are really exceptions and do not arise from other principles. 1. (1967) 119 C.L.R. 1, at p. 498. 2. (1861) 1 B. & S. 393 [121 E.R. 762]. 3. (1861) 1 B. & S., at p. 398 [121 E.R., at p. 764]. 4. (1861) 1 B. & S., at p. 395 [121 E.R., at p. 763]. 5. [1915] A.C. 847, at p. 853. 6. [1962] A.C. 446, at p. 473.

The doctrine of privity has been treated as settled not only by the House of Lords: Beswick v. Beswick [76] but also by the Supreme Court of Canada: Greenwood Shopping Plaza Ltd. v. Beattie [77] and by this Court. In Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [78] Kitto J. spoke of "the elementary general rule that the only persons entitled to the benefits or bound by the obligations of a contract are the parties to it": see also Birmingham v. Renfrew [79] ; Coulls v. Bagot's Executor & Trustee Co. Ltd. [1] and per Windeyer J. in Olsson v. Dyson [2] . The doctrine of privity has long been settled and it was settled as a doctrine of general application.

1. [1968] A.C. 58. 2. (1980) 111 D.L.R. (3d) 257. 3. (1956) 95 C.L.R. 43, at p. 80. 4. (1937) 57 C.L.R. 666, at p. 675. 5. (1967) 119 C.L.R., at pp. 478, 494. 6. (1969) 120 C.L.R. 365, at pp. 392-393.

Can an intermediate court of appeal properly refrain from applying such a settled and fundamental doctrine of the common law? If an intermediate appellate court were free to disregard a fundamental doctrine settled by the final appellate court, an endemic uncertainty would infect the administration of justice: cf. Broome v. Cassell & Co. [3] . Courts are bound to apply the principles laid down by courts higher in the appellate hierarchy and observance of that rule avoids the futility of delivering judgments which will be reversed on appeal. Of course, the rule would lose much of its cogency if the final court of appeal were to regard a principle embodied in its own decisions as settled only to the extent that a majority of its members approve the principle for application in each case falling within its scope. Unless the members of the final appellate court regard themselves as generally bound by the court's precedents, a precedent would tend to be viewed (to use the simile of Roberts J. in Smith v. Allwright [4] like "a restricted railroad ticket, good for this day and train only". Intermediate courts would be encouraged to speculate on whether a majority of the final court would apply the principle in the instant case and the judges in the final court would be encouraged to determine the case according to their individual opinions as to what the law should be rather than by applying, so far as the traditional modes of judicial reasoning permit its ascertainment, what the law is. Judicial freedom in the application of precedent is a potent stimulus to rapid development of new fashions of legal thought and, in times of social change, the authority of some precedents will be readily questioned. On the other hand, to free the judges of an appellate court from the constraint of precedent entirely would lead to such diversity of reasoning that the ratio of a decision would be (at best) obscured and the capacity of the appellate court to settle the law would be put at risk. In this Court, the practice has been adopted of requiring leave, granted by the Court itself, to argue that an earlier decision of the Court should be departed from: Evda Nominees Pty. Ltd. v. Victoria [5] . Inherent in and underlying that practice is the proposition that the earlier decision will not be departed from unless the Court so determines. And in Baker v. Campbell [6] , I stated my understanding that individual justices of this Court are not generally free to depart from principles laid down in earlier decisions of the Court unless the Court as a whole gives leave to reopen an earlier decision for reconsideration. That constraint may not apply to matters of practice and procedure, especially when the exercise of a discretion is called for, and special considerations apply to questions arising under the Constitution. But, in my opinion, the observance of such a constraint, coupled with the Court's ability to re-examine its own decisions, provides the appropriate balance between a legal system on which the dead hand of the past rests too heavily and one in which the law is in continual ferment. If the constraint is observed in relation to questions of general substantive law, there can be no uncertainty as to the duty of intermediate courts faithfully to apply the decisions of this Court. Until leave to reopen a decision of this Court is given by this Court, the authority of the decision remains and its ratio should be applied. I do not suggest, of course, that the decision should not be critically examined in order to see whether the ratio is of broad or narrow application or whether the case in hand is distinguishable: these are familiar and proper judicial inquiries. But once the ratio is distilled and it is found to be applicable to the case in hand, the decision must be accepted in other courts - and, in my opinion, ought to be accepted in this Court unless leave is given by this Court to reopen it. Leave to reopen will be given from time to time not only to correct an error which has become manifest in an earlier decision but also to permit a review of doctrines which were the product of and suited to an earlier age but which work injustice or inconvenience in contemporary conditions. It is a jurisdiction to be exercised sparingly, for contemporary conditions may themselves be moulded by existing doctrines. Judicial preference for a more elegant or logically satisfying jurisprudence is insufficient to warrant a change in settled doctrine which works satisfactorily in conjunction with other legal principles. And if a change in settled doctrine is contemplated, a substitutionary doctrine sufficiently precise to admit of practical application must be at hand.

1. [1972] A.C. 1027, at p. 1054. 2. (1944) 321 U.S. 649, at p. 66. 3. (1984) 154 C.L.R. 311. 4. (1983) 153 C.L.R. 52, at pp. 102-103.

In this case, unless the Court determines that the doctrine of privity be reopened and a new doctrine substituted, the appeal must be allowed. The Court of Appeal ought to have allowed the appeal to it. However, the doctrine of privity was directly challenged, at least to the extent of allowing an exception in the case of liability insurance where the third party is named in the policy. In my view, for reasons which will appear, to admit such an exception involves the overthrow of the doctrine. The true question for decision is, therefore, whether this Court should now decide to overrule the settled and fundamental doctrine of privity.

It is submitted that the doctrine of privity sometimes produces unjust results and that this Court should re-examine it in the light of the criticisms the doctrine has attracted. The criticisms, many of which have come from judges of great eminence and some of which may be traceable to the influence of Scots law, are rehearsed in the judgment of McHugh J.A. Those criticisms tend to erode the acceptability of the doctrine and to facilitate the postulation of an exception. If it be asserted that the doctrine works injustice, an exception can be seen as a first step on a path leading to the heights of justice and therefore a step to be taken with judicial alacrity. If this case is to be decided not by reference to the law as it is but by reference to the law as it ought to be, it is useful to consider the alternative paths by which the heights of justice might be scaled: the path followed by our law for over a century or a new path of doctrine.

According to the settled law, when A (a promisor) contractually promises B (a promisee) to confer a benefit on C, a third party who is not a party to the contract and who has given A no consideration for the promise, C acquires no right to sue A on the promise. Nor did the classical Roman Law admit such a right in the third party: alteri stipulari nemo potest was Ulpian's statement of the law (Dig. 45.1.38.17). The law of contract admits the capacity of persons who are sui juris to create by offer and acceptance rights and obligations binding as between each other. A proposal that a contractual promise in favour of a third party should give rise to a common law right in C to sue A to enforce the promise goes further. The proposal postulates the capacity of the contracting parties to create rights as between the third party and the promisor. Moreover, it precludes application of the principles of trust to any case to which the proposed exception applies. If C's right were held to grow out of a contractual promise by A to B, it is hard to see how B might be the trustee of the promise for C: C could hardly have a legal right to the performance of A's promise while B retained the same legal right as trustee for C. The principles of trust would be irrelevant in such a case. Indeed, the proposal may postulate that B, though the promisee, loses the contractual right to performance of the promise by A, that right being conferred solely upon, or being transferred to, C. And, if the proposal postulates a cause of action in C while leaving B's cause of action intact, it would expose A to double liability. To postulate the creation of a legal right in C to enforce a third party promise against A is to postulate the creation of legal relationships between the three parties which the doctrines of our legal system are not presently able to define.

If a third party promise is to confer on C a common law right enforceable against A, do A and B retain a capacity to defeat C's right by varying or abrogating their contract or is C's right indefeasible on the making of the contract? If C's right becomes indefeasible, what makes it so? Does C become subject to any obligation under the contract? Does C's right or obligation depend on C's acceptance of it? Or does C's acquisition of the right against A automatically impose any associated obligation? Does B retain a right to enforce the promise against A? Can C and A vary the right without B's consent? Does B have any right to contribution from C in respect of the consideration for the promise? If want of consideration moving from C to A is no bar to C's cause of action, is consideration moving from B to A essential? Does C lose his right to enforce the promise if he does not comply with the contractual conditions binding on B? Is B under a common law duty to C to perform the contract? Can A raise against C any defence which would be effective against B, e.g., a set-off? Legal systems which recognize the effectiveness of a third party promise to create a right in a third party to sue (a jus quaesitum tertio) give different answers to these questions.

A comparison of the solutions adopted by a number of legal systems to some of the problems in this field is furnished in an article "Ius Quaesitum Tertio: Comparison and Synthesis", International and Comparative Law Quarterly, vol. 16 (1967), p. 446, by M. A. Millner. The learned author states that the Scottish institutional writer, Lord Stair, considered that C acquires a right to sue if the parties to the contract intend C immediately to have an indefeasible right, though Scottish case law requires - at least in some cases - a delivery or other act to evidence that intention. However, it seems that C may renounce the right: "Jus Quaesitum Tertio: Remedies of the "Tertius" in Scottish Law" [1956] Juridical Review 3, by T. B. Smith, at p. 15. German law gives C an indefeasible right on the making of the contract though the German Civil Code permits C to renounce the right. In French law, however, a stipulation in favour of C is revocable until "the third party has declared his wish to take advantage of it" (Art.1121) and the Roman-Dutch law of South Africa requires notification of acceptance by C to A before C's right is perfected though in the meantime B may by interdict hold A to his bargain. The American Restatement, (2d), Contracts, Ch. 14 sets out a number of propositions which may be summarized (though accuracy is sacrificed) by saying that a contract by which the promisor and promisee intend to benefit an "intended beneficiary" creates a duty by the promisor to the beneficiary which the beneficiary may enforce directly against the promisor. The first Restatement , Ch. 6 s133, drew a distinction between the indefeasibility of rights acquired on the making of the contract by two different classes of beneficiaries - donee beneficiaries and creditor beneficiaries. The tide of authority has turned against maintaining the distinction (see Restatement, (2d), Contracts, Ch. 14 s311 Reporter's Note) but, if the doctrine of privity were to be modified or abandoned, there is much to be said for maintaining the distinction: see Professor Stoljar, Contracts for Third Parties; In Search of the Problems, New Zealand Universities Law Review, vol. 13 (1988), p. 68.

A variety of solutions can be devised for these and other problems raised by admitting a third party's right to sue. That is apparent from the diversity of statutory provisions which have been enacted in order to confer on C a statutory right enforceable directly against A. Those provisions have become increasingly complex. The Property Law Act 1969 W.A., s. 11 contains relatively simple provisions; the Property Law Act 1974 Q., s. 55 is more detailed; and the Contracts (Privity) Act 1982 N.Z. is yet more detailed and sophisticated. Their provisions are not uniform. For example, only Western Australia requires the intention to benefit the third party to be expressed in the contract. Queensland requires the third party to "accept" the contract and upon acceptance, the beneficiary may become subject to a duty enforceable against him. New Zealand alone extends the provisions of its Act to immunities and limitations on liability. Each of the Acts provides for discharge or variation of the promise without the beneficiary's consent in certain circumstances, but the prescribed circumstances are not the same in the respective Acts. It is vain to expect that the common law has a solution for the problems on which Parliaments assisted by Law Reform Commissions have differed. There is no Anglo-Australian common law by reference to which the conditions and incidents of a third party's right to sue can be ascertained. The legal systems which admit a jus quaesitum tertio see the relationships between A, B and C as a triangle: see T.B. Smith, op.cit. The Anglo-Australian common law is radically different: it sees the relationships as lineal: A and B linked by contract, B and C linked by trust or contract, A and C not linked unless B either proves to be C's agent to contract with B or assigns to C the obligation (debt or other property) owed to B by A. To admit a third party's right to sue into the common law, it would be necessary to postulate a new source of legal rights and obligations arising independently of contract and equity and to create a new set of rules prescribing the availability of the rights and the limits of the obligations to which the third party promise gives rise. And if such a new source of legal rights were postulated, our laws with respect to agency, trusts, estoppel and damages which have been constructed around the doctrine of privity of contract would have to be reworked.

Of course, the problems to which a third party promise gives rise must be addressed by any developed legal system, and the rules to govern these problems may be tentative in the earlier stages of development. Fundamental rules - i.e., rules which fix a reference point for the development of subsidiary rules - may take some time to be settled. Once settled, the subsidiary rules can be developed. So it was with the English legal system.

The subsidiary rules which the courts have developed to solve the problems raised by a third party promise are sometimes described as exceptions to the doctrine of privity, but (as Lord Reid suggested) the apparent exceptions are in truth applications of other legal principles to the contractual relationship of promisor and promisee. Fullagar J. observed in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [7] : "I doubt if there was any true exception at common law to the rule laid down by Tweddle v. Atkinson [8] ." The first so-called exception is found in the law of trusts. A promisee may be or become a trustee of the promise for a third party: Les Affréteurs Réunis Société Anonyme v. Leopold Walford (London) Ltd. [9] ; Vandepitte v. Preferred Accident Insurance Corporation of New York [10] . Where the promisee is a trustee, the third party acquires only an equitable interest in the promise. The third party does not become a party to the contract: Construction Engineering (Aust.) Pty. Ltd. v. Hexyl Pty. Ltd. [11] . The contract binds only the promisor and promisee and the third party beneficiary cannot enforce the promise as if he were a party to the contract. The third party can enforce the promise indirectly in an action in which the promisee is joined as a defendant (Vandepitte [12] ; Birmingham v. Renfrew [13] ) the promisee being an essential party in an action against the promisor: Harmer v. Armstrong [14] . A second so-called exception is found in the law of agency. If a putative promisee is merely an agent for a third party, the third party is the promisee and is privy to the contract: Port Jackson Stevedoring Pty. Ltd. v. Salmond & Spraggon (Aust.) Pty. Ltd. [15] ; ITO Ltd. v. Miida Electronics Inc. [16] . The agency cases show that, unless the third party is in truth a promisee, he cannot take the benefit of the contract: see the discussion by McIntyre J. of the cases relating to exemption clauses in ITO Ltd. v. Miida Electronics Inc. [17] ; and cf. Construction Engineering (Aust.) Pty. Ltd. v. Hexyl Pty. Ltd. Neither the principles of trust nor the principles of agency are exceptions to the doctrine of privity. In their application to a third party promise, those principles proceed on the footing that the legal contractual right is vested solely in the promisee. There is no true exception to the doctrine of privity. If an exception were now introduced and a jus quaesitum tertio were recognized in respect of some contracts, the exception would raise at least as many problems as it might solve. The field of jus quaesitum tertio may look greener, but the brambles are no fewer.

1. (1956) 95 C.L.R., at p. 67. 2. (1861) 1 B. & S. 393 [121 E.R. 762]. 3. [1919] A.C. 801. 4. [1933] A.C. 70. 5. (1985) 155 C.L.R. 541. 6. [1933] A.C., at p. 79. 7. (1937) 57 C.L.R., at p. 686. 8. [1934] Ch. 65. 9. (1978) 139 C.L.R. 231 (H.C.); (1980) 144 C.L.R. 300 (P.C.). 10. (1986) 28 D.L.R. (4th), 641. 11. (1986) 28 D.L.R. (4th), at pp. 663-669.

McHugh J.A. saw no difficulties of substance in admitting the proposed exception to the doctrine of privity. His Honour said [18] : "if we can now assert that a trust will be invariably imputed in the case of a liability insurance policy, as I think we can, then a refusal to allow the beneficiary to sue directly at common law is one of form and procedure". The assertion that a trust "will be invariably imputed" is large indeed but, passing that by, it is erroneous to regard the admission of a third party's right to sue as a matter of mere "form and procedure". It would not be a right to sue on a cause of action vested in the promisee; it would be a right to sue on a cause of action vested in the third party. Such a right to sue is a new substantive right. His Honour (in a subsequent part of his judgment) endeavoured to define some of the conditions of its existence and enforcement. He said [19] :

To be able to sue at common law the beneficiary must be a person who is specified or referred to in the contract, whether by name or otherwise. The insurer is entitled to the same defences as he would have in an action brought by the promisee-party. Moreover, so that the insurer will not be liable at the suit of the promisee-party, the latter will need to be a defendant in the action. The problems which can arise when the promisee-party is not joined in the action are graphically illustrated by Westralian Farmers Co-operative Ltd. v. Southern Meat Packers Ltd. [20] , a decision under Property Law Act 1969 W.A., s. 11(2), where the buyer was required to pay twice for cattle. McHugh J.A. did not purport to propound these rules as rules of the common law. As the common law knows of no exception to the doctrine of privity, it has developed no rules to condition the admission of a third party's right to sue. But it should not be thought that all the problems attendant on admitting the proposed exception were solved by propounding the rules set out in the quoted paragraph. A basic problem which the propounded rules do not address is whether the third party's right to sue is intended by the parties to the contract to be irrevocable. If one or both of the contracting parties can revoke the third party's right to sue, the right is contingent on the continued will of the parties to the contract. Should this be sufficient to give a third party a common law right to sue? How could it be admitted that the third party has a right to sue on the policy if that right might be abrogated at any time without his knowledge and consent? In Scots law, it would not suffice to establish a jus quaesitum tertio to show that the tertius is "a person who is specified or referred to in the contract, whether by name or otherwise". The third party would have to acquire an irrevocable right and "the mere execution of the document will not constitute irrevocability" (per Lord Dunedin in Carmichael v. Carmichael's Executrix [1] least not in the majority of cases: see per Lord Reid in Allan's Trustees v. Lord Advocate [2] . In Blumer & Co. v. Scott & Sons [3] , Lord Ardmillan (whose judgment was approved in Carmichael [4] ) said: Even if not named, the third party may be entitled to adopt the agreement, and enforce it by action. But in such a case it must be clear that both the contracting parties intended so to secure him, and that they could not, separately or together, revoke the stipulation. It may be difficult to establish that the parties to a policy of loss insurance intended to confer an irrevocable right to sue on an unnamed "Assured" who (like McNiece) becomes a member of an insured class. Would the insurer have intended to go on risk without knowing the identity of a third party "Assured"? And would the insured party to the contract have intended to abandon a right to negotiate with the insurer for an early termination of the policy and a refund of portion of the premium? In this case there was no inquiry whether Blue Circle and Trident intended McNiece to have an irrevocable right to an indemnity under the policy. Indeed, if the Court of Appeal was precluded from determining whether Blue Circle was trustee for McNiece of Trident's promise, it would surely have been precluded from investigating whether Blue Circle and Trident intended the policy to enure irrevocably for the benefit of any person who subsequently became an "Assured". 1. (1987) 8 N.S.W.L.R., at p. 287. 2. (1987) 8 N.S.W.L.R., at p. 288. 3. [1981] W.A.R. 241. 4. 1920 S.C. (H.L.) 195, at p. 201. 5. 1971 S.C. (H.L.) 45, at p. 54. 6. (1874) 1 R. 379, at p. 387. 7. 1920 S.C. (H.L.) 195.

Of greater significance is his Honour's suggested rule that a promisee-party must be a defendant in a beneficiary's action "so that the insurer will not be liable at the suit of the promisee-party". If the insurer could be liable at the suit of the promisee, the admission of a third party's right to sue duplicates the causes of action on the promise. Presumably it is thought that the joinder of the parties in whom separate causes of action are vested is effective to extinguish one of the causes of action. But mere procedural steps do not extinguish substantive rights. Joinder of the promisee-party as a defendant would not discharge any cause of action vested in him. And if the proposed exception were treated as no more than conferring on the third party a right to sue on the single cause of action vested in the promisee so that either the beneficiary third party or the promisee-party (but not both) might enforce it, what principle would govern a contest between them? Which of them would be the true creditor of the stipulation? (A question which is likely to be of more importance in life insurance than in loss insurance, though in either case the third party "beneficiary" may be a donee of the benefit purchased by the assured's payment of the premium.) The difficulties encountered in propounding a set of rules to condition the proposed exception to the doctrine of privity demonstrate the undesirability of endeavouring now to overthrow the doctrine in whole or (what might be more confusing) in part.

If our legal history had taken a different turning in 1861, the problems raised by a third party promise would have been differently addressed. In the United States, two years before Tweddle v. Atkinson [5] , it was decided to admit a third party's right to sue when the third party is a creditor of the promisee: Lawrence v. Fox [6] . The first and second Restatements reveal the great difference between the frames of reference within which American jurisprudence addresses the problems raised by a third party promise and the frames of reference within which Anglo-Australian jurisprudence addresses them. No one would suggest that the Anglo-Australian solutions are perfect. But our legal system has produced a tolerably coherent set of principles operating in conjunction with the fundamental doctrine of privity.

1. (1861) 1 B. & S. 393 [121 E.R. 762]. 2. (1859) 20 N.Y. 268.

When a third party promise is in a contract to which the third party is not a party, the promise can be enforced only by an action brought by the promisee or to which the promisee is a party. The legal cause of action against the promisor is vested solely in the promisee. Double recovery is impossible. Where the promisor has promised to pay money to or otherwise to confer a benefit on the third party directly, the promisee may compel him specifically to perform his promise, for damages would be an imperfect remedy for the promisee: Coulls [7] ; Beswick v. Beswick [8] . The availability of specific performance goes a long way towards shutting out injustice. Where damages are the appropriate remedy for breach of a promise to pay money to the promisee for the benefit of a third party, the promisee may recover the whole of the amount promised where the promisee is a trustee for the third party: Lloyd's v. Harper [9] ; Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [10] ; Coulls v. Bagot's Executor & Trustee Co. Ltd. [11] ; Beswick v. Beswick [12] or an agent who is authorised by the contract to sue on behalf of the principal: Lloyd's v. Harper [13] ; Woodar Ltd v. Wimpey Ltd. [14] . These may not be the only cases in which a promisee may recover the full amount promised. It is still an open question whether a promisee who is neither a trustee for nor an agent of a third party can recover in some circumstances more than nominal damages if the promisor's breach of a promise which is intended to confer a benefit on a third party causes the promisee no personal loss: Woodar Ltd. v. Wimpey Ltd. [15] . The speech of Lord Diplock in The Albazero [16] , raises the question whether a promisee may recover in full what was lost by a third party provided the promisee is accountable to the third party for what he recovers. It is not appropriate in this case to decide the limits of the promisee's remedies. It is sufficient to note that the possibility of injustice which might be thought to flow from the effect of the doctrine of privity on the promisee's remedies depends on the rules relating to the measure of damages. If such a case of injustice should arise, it will be appropriate to consider what Windeyer J said in Coulls [17] :

It is, I think, a faulty analysis of legal obligations to say that the law treats a promisor as having a right to elect either to perform his promise or to pay damages. Rather, using one sentence from the passage from Lord Erskine's judgment which I have quoted above, the promisee has "a legal right to the performance of the contract" [18] . Moreover, we are concerned with what Fullagar J. once called "a system which has never regarded strict logic as its sole inspiration": Tatham v. Huxtable [19] . A development of the rules relating to damages rather than the acceptance of a third party's right to sue offers the prospect of an orderly development of the law if such a development be needed to avoid injustice. 1. (1967) 119 C.L.R., at pp. 478, 502-503. 2. [1968] A.C., at pp. 82, 89, 101-102. 3. (1880) 16 Ch. D. 290. 4. (1956) 95 C.L.R., at p. 67. 5. (1967) 119 C.L.R., at p. 501. 6. [1968] A.C., at p. 101. 7. (1880) 16 Ch. D. 290. 8. [1980] 1 W.L.R. 277, at pp. 284, 293-294, 297; [1980] 1 All E.R. 571, at pp. 576-577, 585, 588. 9. [1980] 1 W.L.R., at pp. 283-284; [1980] 1 All E.R., pp. 576-577. 10. [1977] A.C. 774, at p. 847. 11. (1967) 119 C.L.R., at p. 504. 12. (1806) 13 Ves. Sun. 225, at p. 228 [33 E.R. 278, at p. 279]. 13. (1950) 81 C.L.R. 639, at p. 649.

If a third party were to complain of injustice on the ground that he has no right to cause the promisee to enforce a policy of loss insurance, the supposed injustice must arise because there is no relevant relationship between the third party and the promisee. Such a case can arise only if the third party is one (a) for whom the promisee is not an agent, fiduciary or trustee, (b) who has no relevant contractual relationship with the promisee, and (c) who has not been induced to assume or expect that the policy covers the risk of loss by the third party by any representation made by the promisor or the promisee in circumstances which would entitle the third party to claim the benefit of the policy by estoppel: see Waltons Stores (Interstate) Ltd. v. Maher [20] . Whether an injustice is likely to arise in such a case may be doubted, especially in modern times when the courts no longer feel the reluctance to infer the existence of a trust which courts felt in earlier times: see Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [21] .

1. (1988) 164 C.L.R. 387. 2. (1956) 95 C.L.R., at p. 67.

Of course, the question whether a trust has been constituted is related to the question whether the promisee reserves the right to agree with the promisor to vary or abrogate the promise. Consideration of the rights reserved by a promisee against the promisor and of the nature of the obligation accepted by the promisor may indicate that a trust of the benefit of the promise has been constituted. There is no reason to think that a system of law under which a third party's (equitable) right to sue depends on the existence of a trust is less likely to do justice than a system under which a jus quaesitum tertio is admitted. Indeed, it may be that the constitution of a trust as a criterion of a third party's right to sue is capable of adjusting more nicely the rights of promisor, promisee and third party. For example, if a third party's right to sue were admitted only when the terms of the contract show that the promisor and promisee intend the third party's right to be irrevocable, that right would be more inflexible than the right of a beneficiary under a trust who is able to sue even if the trust is revocable so long as it is not revoked: see per Fullagar J in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [21] . Indeed, the injustice which could flow from a rigid criterion of irrevocability in Scotland arose in but was avoided by the judgment of the Court of Session in Love v. Amalgamated Society of Lithographic Printers [22] .

1. (1956) 95 C.L.R., at p. 67. 2. (1912) 2 S.L.T. 50, at p. 52.

This is not the occasion to spell out the developments in the law of trusts, estoppel and damages which are needed if the law is finally to scale the heights of justice. This case did not raise those questions. I have referred to them merely to state my view that the appropriate path of legal development lies in those areas, not in the admission of a third party's right to sue. I think that is the path which accords with the views expressed by Sir Owen Dixon in his paper "Concerning Judicial Method" which Dawson J. cites in his judgment. In this case, McNiece endeavours to turn aside from the familiar path of privity, trust, agency and estoppel. But there is no other path unless we retrace our steps back at least to 1861. That is a course we ought not follow. It is a course we cannot follow. In my opinion, the relief which the Court of Appeal granted to McNiece was misconceived and the appeal must be allowed.

At the time of the establishment of this Court, the common law of England and of this country was long settled in its insistence upon the principle of privity of contract, that is to say, the general rule that only the parties to a contract are bound by, and entitled to enforce, its terms. Thus, in the first edition of Principles of the English Law of Contract published in 1879, Sir William Anson commenced a sometime tentative identification of the limits of contractual obligation (Pt III, Ch. I, p. 195) with the unequivocal statement that we "may safely lay down the general rule that a person, who is not a party to a contract, cannot be included in the rights and liabilities which the contract creates so as to enable him to sue or be sued upon it": see, to the same effect, Pollock, Principles of Contract at Law and Equity, 1st ed. (1876), pp. 167, 190-191. "This", Professor Anson went on to say, "is not only established by decided cases, but seems to flow from the very conception which we form of contract". In subsequent editions of the work published before his death in 1914, Professor Anson consistently stressed that "the general rule" of privity constitutes "an integral part of our conception of contract".

In the course of the present century, the "decided cases" have served only to reinforce the principle of privity of contract as a fundamental rule of the common law. Those subsequent cases include decisions of the House of Lords, of the Privy Council and of this Court. In the House of Lords and Privy Council, the principle has been described as "fundamental", "elementary", "established", "as well established as any in our law" and "firmly built into the structure of English law" see Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [23] ; Vandepitte v. Preferred Accident Insurance Corporation of New York [24] ; Midland Silicones Ltd. v. Scruttons Ltd. [25] . In this Court, the requirement of privity as a general rule has never been doubted. The closest one comes to any questioning of the doctrine in any judgment in this Court is in an obiter comment of Windeyer J. in Olsson v. Dyson [26] that "it may be that someday this Court will see the way clear" to find a right of action at common law for the third party beneficiary under a contract. That comment was made in the light of Lord Reid's suggestion in Beswick v. Beswick [27] to the effect that, if the matter were not dealt with by legislation, the House of Lords "might find it necessary to deal with" the absence of any such right of action. Lord Reid's comment must, however, be read in the context that the four other members of the House of Lords in Beswick (Lord Hodson [28] , Lord Guest [29] , Lord Pearce [30] and Lord Upjohn [31] clearly regarded the rule of privity as fundamental and settled. Equally important, Windeyer J's passing speculation in Olsson about what might happen at some future time was preceded by the statement that the doctrine of privity "is now firmly established and it binds us" and followed by the conclusion that "[w]e must take the law as it is and refuse to recognize a ius tertii arising by way of contract" [32] .

1. [1915] A.C. 847, at p. 853. 2. [1933] A.C. 70, at p. 79. 3. [1962] A.C. 446, at pp. 467-468, 473, 494. 4. (1969) 120 C.L.R. 365, at p. 393. 5. [1968] A.C. 58, at p. 72. 6. [1968] A.C., at p. 80. 7. [1968] A.C., at p. 85. 8. [1968] A.C., at pp. 92-93. 9. [1968] A.C., at p. 95. 10. (1969) 120 C.L.R., at p. 393.

Other cases in this Court confirm the fundamental nature and binding character of the common law rule that a third party is neither bound by nor entitled to enforce the terms of a contract between others. Indeed, in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [33] Fullagar J., in a judgment which attracted the entire concurrence of Dixon C.J. [34] and the subsequent entire approval ("with every line and every word") of Viscount Simonds: see Midland Silicones Ltd. [35] , went so far as to suggest that there was no true exception at common law to that rule which he described as a "general principle applied in many cases" and a "rule accepted by the House of Lords and by the Privy Council". In the same case Kitto J. spoke of "the elementary general rule that the only persons entitled to the benefits or bound by the obligations of a contract are the parties to it". [36] . Again, in Coulls v. Bagot's Executor & Trustee Co. Ltd. [37] Barwick C.J. referred to the general rule of privity of contract as one which "must be accepted", while Windeyer J. described the common law rule that "only those who are parties to a contract can sue upon it" as being "[f]or us incontrovertible" [38] .

1. (1956) 95 C.L.R. 43, at p. 67. 2. (1956) 95 C.L.R., at p. 52. 3. [1962] A.C., at p. 472. 4. (1956) 95 C.L.R., at p. 80. 5. (1967) 119 C.L.R. 460, at p. 478. 6. (1967) 119 C.L.R., at p. 494.

Professor Anson's description of the rule of privity as "an integral part of our conception of contract" can be readily explained by further reference to the first edition of his classic textbook (p. 195):

A contract is an agreement between two or more persons, by which an obligation is created, and those persons are bound together thereby. If the obligation takes the form of a promise by A to X to confer a benefit upon M, the legal relations of M are nevertheless unaffected by that obligation. He was not a party to the agreement. He was not bound by the vinculum juris which it created, and the breach of that legal bond cannot affect the rights of a party who was never included in it. This explanation of the general rule remains valid to the present day. Indeed, it corresponds with that advanced by Barwick C.J. in Coulls [39] when his Honour commented that he would "find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another". As those explanations make clear, the rule of privity is not properly to be seen as a rule of exclusion of rights of action which would otherwise exist. It is a statement or reflection of an aspect of the nature of a contract, namely, that a contract between two or more parties does not, of itself, directly confer rights or impose liabilities upon persons who are not parties to it. If a third party is to be entitled to rights and subject to obligations in relation to a contract to which he is a stranger, those rights and obligations must have some basis, either in statutory provision or in common law principle, beyond the mere contract. They cannot be based merely on the contract since the contract, of itself, directly operates only between the parties to it. On the other hand, if they arise by reason of the operation of some other principle or some statutory provision, the rule of privity will have nothing to say to them. It is in that context that it would seem accurate to say, as Fullagar J.: Wilson v. Darling Island Stevedoring [40] and Lord Reid (Midland Silicones Ltd.) [41] have suggested, that there are no true exceptions at common law to the rule of privity. 1. (1967) 119 C.L.R., at p. 478. 2. (1956) 95 C.L.R., at p. 67. 3. [1962] A.C., at p. 473.

Circumstances can undoubtedly arise in which accepted processes of legal reasoning require a court, usually a final appellate court, to reverse the development of the law by disowning established principle. However, where the established principle is as entrenched, by authority and in legal conception, as is the principle of privity, such a reversal can only be justified by precisely defined and compelling reasons advanced as part of a plainly identified process of legal reasoning. No such reasons are available to justify a wholesale abrogation of the general common law rule of privity of contract. Indeed, I do not understand the contrary to have been suggested in the present case either in the courts below or in argument in this Court. The New South Wales Court of Appeal, in upholding the learned trial judge's decision that the third party insured ("McNiece") was entitled to maintain proceedings for indemnity against the insurer ("Trident"), did not purport to displace the requirement of privity as a general rule. In argument in this Court, senior counsel for McNiece expressly affirmed that he did "not, of course, invite [the Court] to abrogate the doctrine of privity in its totality". What the Court of Appeal has held, and what McNiece has sought to maintain, is that, within the context of the general rule, a limited exception should be recognized in the field of liability insurance to enable a third party, who is specified or referred to (whether by name or otherwise) in the contract of insurance as a person to whom the insurance cover extends, to maintain a common law action against the insurer if "the court is satisfied" that it was "the intention of the parties" that the third party should have enforceable rights under the policy: see the judgment of Hope J.A., with which Priestley J.A. agreed, in the Court of Appeal [42] .

It must, of course, be conceded that there has been considerable contemporary criticism by distinguished lawyers of the absence, in common law jurisdictions outside the United States of America, of any general direct right of action in a third party to enforce a promise contained in a contract between others. Much of that criticism has been advanced in the context of a call for legislative reform and has not been directed to seeking to lay a foundation for a judicial reversal of the law by some acceptable process of legal exegesis. Even in that context however, that criticism has (at least if viewed with the benefit of hindsight) often been flawed by an incomplete perception of the extent to which the practical effect of the rule of privity is confined and qualified, and to which the injustice which the rule might otherwise cause is precluded, by the application and development of other principles.

Of its nature, the rule of privity operates within the confines of the law of contract. Within those confines, it neither operates to deny the validity of a promise to benefit a third party nor hinders proceedings by the promisee against the promisor for specific performance of such a contractual obligation. That being so, the chose in action constituted by rights to enforce the promise will, in some circumstances, be susceptible of assignment by the promisee to the third party. Nor does the rule of privity preclude the promisee from undertaking a collateral contractual obligation to the third party to institute and maintain such proceedings against the promisor for specific performance or to authorize the third party to maintain such proceedings for specific performance in the name of the promisee. If the promisee contracts as agent for a disclosed or undisclosed principal, the principal will ordinarily himself be, for the purposes of the requirement of privity, a party to the contract. If the terms of a contract incorporate a promise to benefit a third party in the form of an offer which is susceptible of being accepted by the third party, that third party can, at least if the consideration provided to the offeror under the head contract can be treated as having been provided (jointly or partly) by or on behalf of the third party (cf. Coulls ) [43] , acquire direct contractual rights against the promisor by an appropriate acceptance of the offer.

If, within the confines of the law of contract, a third party who would be benefited by the performance of a contractual promise is left without redress, other principles of law operate (unhindered by the rule of privity) upon or within the context of contractual rights and obligations to avoid injustice in particular categories of case. The point can be conveniently illustrated by reference to a contract of the type involved in the present case, namely, a policy of liability insurance which includes a stranger to the contract among the persons whom the insurer promises to indemnify. If the insurer under such a policy induces, by his conduct, the third party to act to his detriment on the assumption that he is effectively indemnified under the policy, the insurer will, in an appropriate case, be estopped from denying the enforceability of such indemnity. Even if, in such a case, the assumption induced by the insurer is, upon analysis, an assumption as to future fact (e.g. that the third party will, in the event of liability within the period of the policy, be effectively protected by the policy) the doctrine of estoppel by conduct would, in my view, be applicable to preclude the insurer from raising the requirement of privity of contract (or from denying enforceability or the existence of a trust of the promise) as a basis for a departure from that assumption as to future fact: (cf. Waltons Stores (Interstate) Ltd. v. Maher [44] ). Again, if the insurer under such a policy has received the moneys payable for the promised indemnity but has then refused to indemnify the third party on the ground that the third party was not a party to the contract of insurance, the circumstances could conceivably be such as to give rise to a cause of action by the third party against the insurer founded upon principles of unjust enrichment (cf. Pavey & Matthews Pty. Ltd. v. Paul) [45] ; Australia & New Zealand Banking Group Ltd. v. Westpac Banking Corporation [46] .) The path by which relief would be granted in such a case might well involve some reassessment of the extent of curial powers, both statutory and inherent, to mould the relief appropriate to do justice in the circumstances of a particular case: note, in that regard, the discussion in Professor Peter Birks' article, Restitutionary Damages for Breach of Contract [1987] Lloyd's Maritime and Commercial Law Quarterly 421, at pp. 422ff. It is, however, unnecessary in the present case to embark upon a detailed examination of questions of estoppel by conduct or to seek to identify what, if any, circumstances could found an action in unjust enrichment by the third party against an insurer who has refused to honour the indemnity which he has been paid to provide. The reason why that is so is that it has not been suggested in the present case that Trident is estopped by its conduct from relying upon the rule of privity to deny liability to McNiece or that the circumstances are such as might arguably give rise to a right of action (in McNiece) founded on unjust enrichment. Nor has any reliance been placed, either in the judgments in the Court of Appeal or in argument in this Court, upon the doctrine of estoppel by conduct or (except to the extent that they are reflected in the law of trusts) upon principles of unjust enrichment. If there be a doctrinal basis for the recognition by the Court of Appeal of a right of action in the third party assured to enforce the insurer's promise of indemnity in the present case, it must be found, either directly or by way of analogy, in the law of trusts.

1. (1988) 164 C.L.R. 387, at p. 452. 2. (1987) 162 C.L.R. 221, at pp. 227, 256-257. 3. (1988) 164 C.L.R. 662 at 673-674.

In the course of his judgment in Wilson v. Darling Island Stevedoring [47] Fullagar J. pointed to the fact that "equity could and did intervene in many cases" involving circumstances in which the common law requirement of privity could operate unjustly "by treating the promisee as a trustee of a promise made for the benefit of a third party, and allowing the third party to enforce the promise, making the promisee-trustee, if necessary, a defendant in an action against the promisor". His Honour went on to comment that it is "difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases": see, for a helpful discussion of the main earlier decisions, J. G. Starke, Contracts for the Benefit of Third Parties Pt IV, Australian Law Journal, vol. 22 (1948) 67, at p. 69. That comment of Fullagar J. was, in my view, fully justified. Indeed, the "reluctance" of courts to find a trust in such cases seems often to have been caused by a misunderstanding of the nature of equity's requirement of an intention to create an express trust, or put differently, by a failure to appreciate the innate flexibility of the law of trusts: cf., per Cardozo J., Adams v. Champion [48] .

1. (1956) 95 C.L.R., at p. 67. 2. (1935) 294 U.S. 231, at p. 237.

In equity, "intention alone will not constitute a trust obligation [and] mere conduct without such intention is ineffectual to impose it, or, as Lewin , 12th ed. (1911), p. 88, says, to "impute" it": per Isaacs J., Commissioner of Stamp Duties (Q.) v. Jolliffe [49] and see, now, Lewin , 16th ed. (1964), p. 35. The requisite intention to create a trust of a contractual promise to benefit a third party can, however, be formed and carried into effect (either by the contract itself or some other act) by a promisee who would be bemused by the information that the chose in action constituted by the benefit of a contractual promise is property and uncomprehending of the distinction between law and equity. In that regard, the analogy of Molière's M. Harpagon who unwittingly spoke poetry or "verse" would arguably have been a more instructive one than that of M. Jourdain who merely spoke ordinary prose: see In re Schebsman [50] . In the context of such a contractual promise, the requisite intention should be inferred if it clearly appears that it was the intention of the promisee that the third party should himself be entitled to insist upon performance of the promise and receipt of the benefit and if trust is, in the circumstances, the appropriate legal mechanism for giving effect to that intention. A fortiori, equity's requirement of an intention to create a trust will be at least prima facie satisfied if the terms of the contract expressly or impliedly manifest that intention as the joint intention of both promisor and promisee.

1. (1920) 28 C.L.R. 178, at p. 189. 2. [1944] Ch. 83, at p. 104.

A trust can attach to the benefit of the whole contract or of the whole or part of some particular contractual obligation. In the case of a policy of liability insurance under which the insurer agrees to indemnify both a party to the contract and others, there is no reason in principle or in common sense why the party to the contract should not hold the benefit of the insurer's promise to indemnify him on his own behalf and the benefit of the promise to indemnify others respectively upon trust for those others. Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant.

An intention to create a trust of the benefit of a contractual promise can be evidenced and/or carried into effect by the contract itself or by action of the promisee aliunde. When the trust is created by the actual contract between promisor and promisee, the beneficiary can nonetheless properly be described as a stranger to the creation of the contract. Indeed, he may be quite unaware of its existence. It would, however, be misleading to say that the promisor, in such a case, is a stranger to the creation of the trust in that the overall effect of the contract itself, to which he is a party, may be that the relevant promise is made by him to the promisee in the latter's capacity as trustee for the designated beneficiary or class of beneficiaries and that the intention to create a trust which the contract manifests and carries into effect is a joint intention of both promisor and promisee who might both be regarded as settlors. It is unnecessary to consider here what, if any, rights or obligations in relation to the trust might be enjoyed by or imposed upon the promisor in such a case. What is relevant for present purposes is that, in such a case, there will ordinarily be neither need nor occasion to seek to identify some independent intention (i.e. apart from that manifested in the contract) or action of the promisee. That is not, of course, to say that either the third party or the parties to the contract are restricted to the terms of the contract (to which the third party is a stranger) or precluded from relying on other circumstances to establish or negative the existence of a trust in the third party's favour in any dispute between the third party and one or more of the parties to the contract: see, e.g., Royal Exchange Assurance v. Hope [51] .

The question whether a particular contract itself creates a trust of the benefit of one or more of the promises which it contains is primarily a question of the construction of the terms of the contract. Those terms must, however, be construed in context and a trust of a contractual promise will obviously be more readily discerned in the terms of some classes of contracts than it will in others. It is difficult to envisage a class of contract in which the creation of such a trust would be more readily discernible than the type of contract which is involved in the present case, namely, a policy of liability insurance indemnifying both a party to the contract and others who are designated either by specific identification or by their membership of an identified group. In the case of such a policy, the terms of the contract itself will, in the context of the nature of insurance, ordinarily manifest an intention to the effect that each non-party assured is to be fully entitled to the benefit of the promisor's promise to indemnify him, that is to say, that the promisee should hold the chose in action constituted by the right to enforce that promise upon trust for the relevant non-party assured: cf. Jacobs' Law of Trusts in Australia, 5th ed. (1986), pp. 24-25. The intention so manifested will commonly be a joint intention of promisor and promisee. It would suffice, however, that it be the intention of the promisee alone.

The relevant terms of the policy of insurance in the present case are set out or summarized in the judgment of McHugh J.A. in the Court of Appeal and in the joint judgment of Mason C.J. and Wilson J. in this Court. It is unnecessary that I repeat them. It suffices to say that, in the context of the nature of liability insurance, those contractual terms manifest an unmistakable intention that each assured should be entitled to the benefit of the insurer's promise to indemnify it against the specified loss and should be itself entitled to insist upon enforcement of that promise. That intention is properly to be construed in legal terms as an intention that the chose in action constituted by the benefit of Trident's promise to indemnify each contractor and sub-contractor on the identified sites in respect of specified loss should be held by the promisee ("Blue Circle") upon trust for the relevant contractor or sub-contractor. Prima facie, the contract operated to give effect to that intention which it manifested. That being so, the prima facie effect of the policy itself in the events which occurred (i.e. McNiece becoming a designated contractor or sub-contractor) was to create a trust for McNiece of the benefit of Trident's promise to indemnify it against relevant loss. There is nothing in the material before the Court which could have the effect of negativing or modifying the creation or effect of that trust. Indeed, in the context of the circumstances disclosed by that material, it is difficult to conceive of any real possibility of the existence of circumstances which could have had that effect. There are, however, two related difficulties involved in giving effect on this appeal to a conclusion that Blue Circle holds the benefit of Trident's promise to indemnify McNiece upon trust for McNiece. The first is that Blue Circle is not a party to the appeal. The second lies in the course which the proceedings followed in the courts below.

McNiece did not initially seek to base its action against Trident on the existence of a trust in its favour of Trident's promise to indemnify it. It succeeded at first instance on the basis that Blue Circle had acted as an agent for it and the other third party assured and that it had subsequently ratified the policy. The learned trial judge's finding to that effect was reversed by the Court of Appeal and McNiece has not sought to reinstate it in this Court. In the Court of Appeal, McNiece belatedly applied for leave to amend the pleadings to base its case on the existence of a trust. Blue Circle, which agreed to that course being adopted, was apparently added as a defendant. Trident, however, objected to reliance being placed upon the existence of a trust. It suggested that it might wish to call further evidence on that question. The Court of Appeal refused McNiece leave to amend its statement of claim to raise a claim of trust.

McHugh J.A., in a judgment from which I have derived much assistance, expressed the conclusion that in the case of a policy of liability insurance indemnifying both the promisee and designated third parties [52] :

Unless the terms of the policy or the surrounding circumstances compel the opposite conclusion, the inference is surely overwhelming that the promisee intends to hold the benefit of the insurer's promise on behalf of any assured as well as himself. I am in general agreement with that conclusion subject only to the qualification that I would ordinarily see the intention to which his Honour refers as a joint intention of both promisor and promisee which is manifested by the policy of insurance. His Honour went further, however, and expressed the view that it could now be asserted that such "a trust will be invariably imputed in the case of a liability insurance policy" (emphasis added) [53] . For my part, I am not prepared to go so far. I can envisage circumstances in which the policy of insurance, construed in context, might make it plain that the insurer's promise to indemnify a third party was intended to confer no enforceable benefit upon that third party but was to be subject to the desires and requirements of the promisee alone. In circumstances where the cost and availability of insurance is commonly and significantly affected by claims history, I can see no acceptable process of legal reasoning which would justify the imputation to a promisee of an intention to create a trust of an insurer's promise to indemnify a third party in circumstances where the contract itself, construed in context, made clear that the intention of both insurer and promisee was that no trust should be created and that no enforceable rights should be conferred upon the third party. My disagreement with McHugh J.A. on this aspect of the matter precludes me from accepting his Honour's conclusion that a refusal to allow a non-party assured to sue directly on a written policy of liability insurance is no more than a matter of "form and procedure" [53] . In the exceptional case where no trust of the promise exists and where other principles, such as estoppel or unjust enrichment, are not available to found a cause of action, the refusal to allow such a third party to sue for the enforcement of a contractual promise is, in my view, in the absence of applicable legislation, a matter of entrenched law. 1. (1987) 8 N.S.W.L.R., at p. 287. 2. (1987) 8 N.S.W.L.R., at p. 274. 3. (1987) 8 N.S.W.L.R., at p. 274.

Hope and Priestley JJ.A. both expressed their agreement with the reasoning of McHugh J.A. However, the supplementary comments made by Hope J.A., with which Priestley J.A. expressed his concurrence, contain what appears to me to be an important qualification. In the last paragraph of his judgment, Hope J.A. was at pains to stress that the "step of allowing third parties to sue" for enforcement of a contractual promise in some cases "must be taken cautiously and only in circumstances where the court is satisfied as to the intention of the parties" [53] . His Honour went on to express a conclusion that the present was "such a case" in that he was of the view that the policy of insurance "was entered into upon the expressed intention that the parties other than Blue Circle should have enforceable rights under it" [54] . It was within the context of that qualification and on the basis of that conclusion that Hope J.A., and presumably Priestley J.A., decided that McNiece could succeed in its claim for indemnity without there being any need for it either to rely upon a trust or to join Blue Circle as a party.

1. (1987) 8 N.S.W.L.R., at p. 274. 2. (1861) 1 B. & S. 393 [121 E.R. 762].

It should be apparent from what has been written above that the area of disagreement between Hope and Priestley JJ.A. and myself is narrowly confined Like their Honours, I am of the view that a third party assured under a policy of liability insurance will ordinarily be entitled to maintain proceedings to enforce the promise to indemnify him if the policy expresses or manifests an intention that the third party should have an enforceable right to insist upon the benefit of the indemnity. Like their Honours, I consider that the policy in the present case expresses or manifests an intention that McNiece should have such an enforceable right. Where I respectfully differ from their Honours is that, in the absence of applicable statutory provision, I am unable to take the final step of seeing McNiece's right to obtain the benefit of the indemnity as arising otherwise than under a trust of the benefit of the insurer's promise. My refusal to take the final step of recognizing, in a case such as the present and in the absence of some applicable statutory provision, a direct right of action in the third party against the insurer to enforce the contract is not based on an insistence upon matters of form or procedure. It flows from an inability to see such a direct right of action in contract otherwise than as inconsistent with the established legal position. For present purposes, a refusal to take that final step is significant in at least two distinct ways. First, the defeasibility and extent of the third party assured's rights under a trust of the insurer's promise are as defined by the law of trusts and not as laid down by some new judicial prescription. Secondly, the existence of an intention to create such a trust (manifested by a contract, not directly binding between the parties to it on the one hand and a third party on the other) could be negatived or modified by other circumstances. That being so, it would be unfair to hold in the present case that McNiece was entitled to succeed in an action against Trident on the basis of a trust without extending to Trident any opportunity at all of establishing the existence of further circumstances which could negative or modify the creation or effect of any such trust.

Nor, in my view, does there exist any acceptable justification for the alteration of that established legal position by the creation, by judicial decision as distinct from legislative reform, of a direct right of action in a third party assured under a policy of liability insurance to enforce a contract to which he is not a party. As has been seen, it has long been the settled law of this country that it is of the very nature of a contract that it does not, of itself, confer any direct right of enforcement upon a person who is not a party to it. In the light of the provisions of s. 48 of the Insurance Contracts Act 1984 Cth, the only real point to be served by the judicial creation of such a direct right of enforcement would seem to be its retrospective application to any hard cases that might have arisen before the commencement of that Act. Even that doubtful point is, however, of doubly doubtful validity since it is far from apparent that there are, in fact, any such outstanding cases in which an insurer, who has invoked absence of privity to decline indemnity to a third party assured, is beyond the reach of doctrines of trust and estoppel or the principles of unjust enrichment. Moreover, the consequences of the creation of such an exception to the rule of privity are far from clear even in relation to the present case unless one treats the right of the third party to enforce the contract as being unconditional and indefeasible. If, e.g., such a direct right of action of the third party assured could be terminated by the promisee or insurer or both up until the time when the third party had acted on the basis of the promise or when the third party has given notice to the insurer that he has accepted the benefit of the promise, there has been no investigation in the present case of the question whether McNiece ever acted to its detriment on the basis of the policy or gave such notice or, for that matter, was even aware of the existence of the policy at any relevant time.

Accordingly, it is necessary to decide what are the appropriate orders which should be made for the disposal of the appeal in view of my conclusion that the policy itself prima facie created a trust in McNiece's favour of the benefit of Trident's promise to indemnify it. Were it not for the refusal of the Court of Appeal to allow McNiece to formulate its claim on the basis of a trust, the appropriate order would, in the light of that conclusion, be that the appeal should be dismissed. In that regard, the fact that Blue Circle was apparently not requested by McNiece to institute proceedings as promisee-trustee should be seen, as between McNiece and Trident, as a matter of mere procedure which should not, of itself, be allowed to preclude the proper resolution of the real dispute. The question arises whether, in view of that refusal of the Court of Appeal and of my conclusion that McNiece must rely upon the existence of a trust to succeed in the action against Trident, the appeal should be allowed and the action dismissed leaving it open to McNiece to institute new proceedings. With some doubt, I have reached the conclusion that that course should not be followed in all the circumstances. The refusal of the Court of Appeal to permit McNiece to propound its case on the basis of an express trust must be viewed in the context of McHugh J.A.'s expressed view that a trust will "invariably" be imputed in a case such as the present and of the Court of Appeal's ultimate conclusion that McNiece was entitled to succeed on the appeal to that Court in any event. The matter has now proceeded, as a result of the further appeal by Trident, to a determination by this Court of the essential questions of law involved. The course of any new proceedings could be complicated by the need to determine (for purposes of issue estoppel) the precise scope of the issues determined by the present proceedings. As I have pointed out, it is difficult to conceive of any real possibility of the existence of circumstances which could negate or modify the effect of the intention to create a trust which the policy of insurance itself manifests. It appears to me that, in all the circumstances, it would be wrong to force McNiece, which succeeded both at first instance and in the Court of Appeal, to institute such new proceedings at this stage. The appropriate course is to give McNiece leave to join Blue Circle as a respondent to the proceedings in this Court and to stand the matter over to allow McNiece to file a notice of contention alleging the existence of a trust and to allow Trident, if it can, to place before this Court material showing that it has an arguable case, based on further evidence, that there are circumstances which have the effect of precluding or modifying the trust which the policy of insurance would otherwise have sufficed to create. If, as would seem likely, Blue Circle files a submitting appearance and Trident is unable to place such material before the Court, the appropriate order would then be for the appeal to be dismissed. If Blue Circle does not submit as a defendant or Trident does place such material before the Court, it will be necessary for orders to be made remitting the matter to the Court of Appeal to determine the appropriate procedure for finally disposing of the dispute between the parties.

The appellant ("Trident") was the insurer under an insurance policy taken out by Blue Circle Southern Cement Ltd. ("Blue Circle") against, amongst other things, liability to the public for accidents occurring during the course of alterations and extensions to its limestone crushing plant at Marulan in New South Wales. The assured under the policy were expressed to be Blue Circle, all its subsidiary, associated and related companies, all contractors and sub-contractors and/or suppliers. The respondent ("McNiece") was the principal contractor engaged in the work at the plant. It was held liable in damages for injuries sustained by a workman in the course of his employment at the plant. The workman was not employed by McNiece but by a sub-contractor. The sole question argued in this Court was whether the New South Wales Court of Appeal was correct in holding, as it did, that McNiece could compel Trident to indemnify it under the insurance policy against its liability to the workman, notwithstanding that it, McNiece, was not a party to the contract of insurance and had given no consideration.

The decision of the Court of Appeal rejected, at least so far as an insurance policy is concerned, the established doctrine that only a person who is a party to a contract and who provides consideration may sue upon it. The rejection was a departure from accepted principle, for the Court of Appeal did not question that the decided cases lead to an opposite result. Nor was that questioned in argument before us. It is, for that reason, unnecessary to retrace in any detail the familiar course of the law since Tweddle v. Atkinson [54] established that a third person cannot sue upon a contract made between others even though made for his benefit. It matters not for present purposes whether that case turned upon the fact that the third person was not a party to the contract or upon the fact that consideration did not move from him; the one may in many circumstances be no more than the corollary of the other. What is important is that the doctrine of privity of contract has long been accepted and from it stems a long line of cases each affirming the doctrine as inescapable having regard to the place which the promise occupies in our concept of contract: see Fried, Contract as Promise (1981).

The House of Lords in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [55] held the principle that only a person who is a party to a contract can sue on it to be fundamental. The principle was applied by the Privy Council in Vandepitte v. Preferred Accident Insurance Corporation of New York [56] to an insurance policy expressed to be for the benefit of persons not parties to the contract. The House of Lords reaffirmed the principle in Midland Silicones Ltd v. Scruttons Ltd. [57] and in Beswick v. Beswick [58] the principle was not challenged.

1. [1915] A.C. 847. 2. [1933] A.C. 70. 3. [1962] A.C. 446. 4. [1968] A.C. 58.

All of this is against the background that in latter years privity of contract has had many more detractors than supporters. It is true that in a number of cases, with the law in its present state of development, it may work injustice. In Dunlop v. Selfridge [59] Lord Dunedin was led to say of that case that it was "apt to nip any budding affection which one might have had for the doctrine of consideration" and that its effect was "to make it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce". In 1937 a Law Revision Committee recommended in England (Cmnd. 5449) that where a contract by its express terms purported to confer a benefit directly upon a third party, it should be enforceable by the third party in his own name subject to any defences that would have been valid between the contracting parties. Then there were the efforts of some, notably Lord Denning, to deny unsuccessfully the principle and to find, equally unsuccessfully, an answer to it in s. 56(1) of the Law of Property Act 1925 U.K.: see Smith & Snipes Hall Farm Ltd. v. River Douglas Catchment Board [60] ; Drive Yourself Hire Co. (London) Ltd. v. Strutt [61] ; Beswick v. Beswick.

1. [1915] A.C., at p. 855. 2. [1949] 2 K.B. 500. 3. [1954] 1 Q.B. 250.

Equity, however, provided a means of averting the hardship which might otherwise arise from the application of the common law doctrine whilst at the same time preserving the conceptual basis of the law of contract. Any benefit promised to a third person under a contract cannot be enforced by the third person himself, but the promisee might be seen to hold his right under the contract on trust for the third person and to be compellable at the suit of the third person to exercise that right. In Lloyd's v. Harper [62] the Court of Appeal had no difficulty in endorsing the judgment of Fry J at first instance where he said [63] :

where a contract is made for the benefit and on behalf of a third person, there is an equity in that third person to sue on the contract, and the person who has entered into the contract may be treated as a trustee for the person for whose benefit it has been entered into. See also Les Affréteurs Réunis Société Anonyme v. Leopold Walford (London) Ltd. [64] . But in Vandepitte [65] the Privy Council laid it down that the intention to create a trust "must be affirmatively proved" and cannot necessarily be inferred from the mere general words of the contract. Subsequently in In re Schebsman [66] du Parcq L.J. observed that a "court ought not to be astute to discover indications of such an intention". This led Fullagar J. in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [67] to query any reluctance to infer a trust in cases of this sort. Particularly in the case of an insurance policy for the benefit of third persons, where equitable principle may, without undue complication, be employed to temper any harshness arising from the common law concept, there is every reason why the rules of equity should be given a generous application: cf. Williams v. Baltic Insurance Association of London Ltd. [68] ; In re Engelbach's Estate [69] ; and see generally Starke, Contracts for the Benefit of Third Parties. Part III, Australian Law Journal vol. 21 (1948), p. 455. And as was recently said in this Court in Bahr v. Nicolay [No. 2] [70] : If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting the interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. The future development of this approach in facilitating recovery by a third person under a contract to which he is not a party must await other cases. In this case no trust was pleaded and an amendment to cure the defect was refused at the appeal stage because of the possibility that evidence might be called. There is no appeal before us against that decision. 1. (1880) 16 Ch. D. 290. 2. (1880) 16 Ch. D., at p. 309. 3. [1919] A.C. 801. 4. [1933] A.C., at pp. 79-80. 5. [1944] Ch. 83, at p. 104. 6. (1956) 95 C.L.R. 43, at pp. 67-68. 7. [1924] 2 K.B. 282. 8. [1924] 2 Ch. 348. 9. (1988) 164 C.L.R., at 618-619.

In the United States the doctrine of privity of contract has not been generally accepted since the decision of the New York Court of Appeals in Lawrence v. Fox [71] : see Restatement (2d), Contracts [72] . In Australia, however, its acceptance was made inevitable by the decisions in Dunlop v. Selfridge [73] and Vandepitte . There is no question that it is part of our law: Wilson v. Darling Island Stevedoring [74] per Fullagar J.; per Kitto J. [75] ; Coulls v. Bagot's Executor & Trustee Co. Ltd. [76] , per Barwick C.J.; per McTiernan J. [77] ; per Taylor and Owen JJ. [78] ; and per Windeyer J. [79] . But equally in this country the doctrine has had its critics. In Olsson v. Dyson [1] Windeyer J. referred to a suggestion by Lord Reid in Beswick v. Beswick [2] that if, having regard to the time which had elapsed since the recommendation of the Law Revision Committee, one had to contemplate a further long period of parliamentary procrastination, the House of Lords might find it necessary to deal with the matter. Windeyer J. then observed:

And it may be that someday this Court too, expounding the common law as Australia has inherited it, will see the way clear to take the same path. But, for the present time at all events, decisions of high authority stand directly in the way. We must take the law as it is and refuse to recognize a ius tertii arising by way of contract. In jurisprudence and legal theory and for recent commentators, this may be seen as a regrettable example of the rigidity of conceptual thinking. Doubtless the common law of contract is developing in England, and along parallel lines here, by the application of old principles in new situations. But we cannot yet go further than the decisions in In re Schebsman; The Official Receiver v. Cargo Superintendents (London) Ltd. and Schebsman [3] and Beswick v. Beswick in England and Coulls' Case here can carry us. 1. (1859) 20 N.Y. 268. 2. (1979), Ch. 14. 3. [1915] A.C. 847. 4. (1956) 95 C.L.R., at p. 67. 5. (1956) 95 C.L.R., at p. 80. 6. (1967) 119 C.L.R., 460, at p. 478. 7. (1967) 119 C.L.R. at p. 483. 8. (1967) 119 C.L.R., at p. 487. 9. (1967) 119 C.L.R., at p. 494. 10. (1969) 120 C.L.R. 365, at p. 393. 11. [1968] A.C., at p. 72. 12. [1944] Ch. 83.

Even if an intention on the part of the promisee to hold his right under the contract upon trust cannot be discerned, either as a matter of express provision or as a matter of reasonable inference, a contract for the benefit of a third person is not entirely ineffective. It is binding both at law and in equity as between the promisor and promisee and the failure to perform it is a breach of contract. Damages recoverable by the promisee for breach may be only nominal, although if the relationship between the promisee and the third party is such that the promisee suffers detriment - e.g., where the promise is to pay a sum which will reduce the promisee's indebtedness to the third person - substantial damages may be awarded. And as Windeyer J. pointed out in Coulls [4] there is every reason why, if damages to the promisee may only be nominal, the remedy is inadequate and an order for specific performance to pay money or transfer property may be made: see also Beswick v. Beswick; cf. Jackson v. Horizon Holidays Ltd. [5] ; Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [6] . But it is one thing to expand the law or to change its direction by the application of recognized principles to new situations. It is quite another thing to confront the law head-on by the rejection of a rule which has stood for a century or more.

1. (1967) 119 C.L.R., at p. 503. 2. [1975] 1 W.L.R. 1468; [1975] 3 All E.R. 92. 3. [1980] 1 W.L.R. 277; [1980] 1 All E.R. 571.

To say the least, one may question the role of the court below, as an intermediate court of appeal bound by the decisions of this Court, in purporting to determine this case by the abandonment of established doctrine: see Dugan v. Mirror Newspapers Ltd. [7] ; State Government Insurance Commission v. Trigwell [8] ; Public Service Board of N.S.W. v. Osmond [9] ; Australian Conservation Foundation v. The Commonwealth [10] ; per Gibbs J.; per Stephen J. [11] ; per Mason J. [12] ; McHugh, Law Making in an Intermediate Appellate Court: The New South Wales Court of Appeal, (1987) Sydney Law Review vol. 11 (1987), p. 183. Like it or not, there can be no doubt, nor did the Court of Appeal entertain any, that this Court has accepted the rule that only those who are parties to a contract can sue upon it. If Wilson v. Darling Island Stevedoring [13] did not establish that to be so, then Coulls clearly did. Indeed, in the latter case Windeyer J. described the rule as incontrovertible [14] . Those decisions, read in the light of Vandepitte , leave no room for argument whether or not the doctrine of privity applies to insurance policies expressed to be for the benefit of third persons. By what authority then, other than preference for a particular result, did the Court of Appeal decide that the rule has no application to the policy in this case?

1. (1978) 142 C.L.R. 583. 2. (1979) 142 C.L.R. 617. 3. (1986) 159 C.L.R. 656. 4. (1980) 146 C.L.R. 493, at p. 529. 5. (1980) 146 C.L.R., at p. 540. 6. (1980) 146 C.L.R., at p. 552. 7. (1956) 95 C.L.R. 43. 8. (1967) 119 C.L.R., at p. 494.

The justification was said to lie in the fact that the Motor Vehicles (Third Party Insurance) Act 1942 NSW, s. 10, the Life Insurance Act 1945 Cth, s. 94, and the Insurance Contracts Act 1984 Cth show that statute law applying in New South Wales has been progressively amended to give third person beneficiaries the right to sue on policies of insurance. So much may be conceded. Indeed, s. 48 of the Insurance Contracts Act, had it been in force at the time, would have covered the very circumstances of this case. It provides, so far as is relevant, that:

(1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of his loss from the insurer in accordance with the contract notwithstanding that he is not a party to the contract.

(2) Subject to the contract, a person who has such a right -

(a) has, in relation to his claim, the same obligations to the insurer as he would have if he were the insured; and

(b) may discharge the insured's obligations in relation to the loss.

(3) The insurer has the same defences to an action under this section as he would have in an action by the insured.

To establish the relevance of the legislative changes, reliance was placed upon a passage in the speech of Lord Diplock in Warnink v. Townend & Sons (Hull) Ltd. [15] :

Where over a period of years there can be discerned a steady trend in legislation which reflects the view of successive Parliaments as to what the public interest demands in a particular field of law, development of the common law in that part of the same field which has been left to it ought to proceed upon a parallel rather than a diverging course. This Court commented upon that passage in Lamb v. Cotogno [16] and pointed out that it represents an attenuated version of an idea first suggested by Pound in 1908: see Pound, Common Law and Legislation, Harvard Law Review, vol. 21, p. 383. Pound's suggestion was that it should be possible in appropriate cases to go beyond the express provisions of a statute and to draw from it some principle to be applied by way of analogy in shaping the common law. The Court observed in Lamb v. Cotogno [16] that Pound's approach never really gained general acceptance in the form in which he conceived it. If the more restricted approach adopted by Lord Diplock were to have any application, it could only be where it was possible to discern some general principle or trend from a series of enactments and where there was room for development of the common law along parallel lines. In other words, his Lordship was not suggesting that a court would be justified in departing from accepted doctrine where there was no room for departure or where there were only limited statutory changes to the law which afforded no indication of any policy beyond the actual provisions themselves: see also Public Service Board of N.S.W. v. Osmond [17] . 1. [1979] A.C. 731, at p. 743. 2. (1987) 164 C.L.R., at pp. 11-12. 3. (1987) 164 C.L.R., at pp. 11-12. 4. (1986) 159 C.L.R., at pp. 669-670.

Legislatures in this part of the world and in England have on a number of occasions been invited to abrogate the doctrine of privity of contract and to substitute for it the right of a third person to sue, in specified circumstances, upon a contract to which he is not a party. In Queensland and in New Zealand, following upon the reports of Law Reform Commissions, the common law rule has been abolished: see Property Law Act 1974 Q.; Contracts (Privity) Act 1982 N.Z.. Western Australia had passed similar legislation earlier: Property Law Act 1969 W.A., s. 11(2) and (3). In England there was the recommendation of the Law Revision Committee in 1937 to which I have already referred. Against all of this it can hardly be said that the statutory provisions relied upon, which modify the application of the common law rule in New South Wales in several discrete instances only, involve anything like the sort of general trend which Lord Diplock had in mind. Moreover, his Lordship speaks of development and not abrogation of the common law making it plain that there must be some conceptual foundation for the parallel course which he advocates, not merely the arbitrary abandonment of an established doctrine in emulation of some particular statutory provision. And, of course, s. 48 of the Insurance Contracts Act, which was relied upon by the Court of Appeal, proves too much. Not only does that Act make it plain that the legislature did not intend to interfere with the doctrine of privity in any manner other than that adopted by it, but it did not make s. 48, the terms of which would cover this case, retrospective in its operation. It is a curious notion that a court should be able to do by way of analogous action that which the legislature did not do and manifestly did not intend to do.

This Court, whilst adhering to the doctrine of precedent, has always held itself able to depart from its own decisions when that is required for the proper exposition and development of the law. It is, therefore, not as confined as the court below which is bound by decisions of this Court. The argument before us accordingly took the higher ground that we ought to abandon, at least in the case of contracts of insurance, the rule that only a party to a contract can sue upon it, because it has produced results which are unsatisfactory. But the invitation was not so much to engage in judicial creativity as to engage in the destruction of accepted principle, which is a very different thing. The difference was pointed out by Viscount Simonds in Midland Silicones Ltd. v. Scruttons Ltd. [18] :

"Our law," said Lord Haldane, "knows nothing of a jus quaesitum tertio arising by way of contract". Learned counsel for the respondents claimed that this was the orthodox view and asked your Lordships to reject any proposition that impinged upon it. To that invitation I readily respond. For to me heterodoxy, or, as some might say, heresy, is not the more attractive because it is dignified by the name of reform. Nor will I easily be led by an undiscerning zeal for some abstract kind of justice to ignore our first duty, which is to administer justice according to law, the law which is established for us by Act of Parliament or the binding authority of precedent. The law is developed by the application of old principles to new circumstances. Therein lies its genius. Its reform by the abrogation of those principles is the task not of the courts of law but of Parliament. The same notion was elaborated by Sir Owen Dixon, Concerning Judicial Method in Jesting Pilate (1965) 152, at p. 158: It is one thing for a court to seek to extend the application of accepted principles to new cases or to reason from the more fundamental of settled legal principles to new conclusions or to decide that a category is not closed against unforeseen instances which in reason might be subsumed thereunder. It is an entirely different thing for a judge, who is discontented with a result held to flow from a long accepted legal principle, deliberately to abandon the principle in the name of justice or of social necessity or of social convenience. The former accords with the technique of the common law and amounts to no more than an enlightened application of modes of reasoning traditionally respected in the courts. It is a process by the repeated use of which the law is developed, is adapted to new conditions, and is improved in content. The latter means an abrupt and almost arbitrary change. 1. [1962] A.C., at pp. 467-468.

There are compelling reasons for this approach. Ordinarily the abrogation of settled principle leaves a gap which a court acting judicially is unable to fill. The fashioning of any replacement invariably requires the choice, as a matter of policy, between competing alternatives. The review required to form the appropriate policy is unsuited to judicial procedures, which necessarily impose a practical limit upon the capacity of a court for judicial innovation: see State Government Insurance Commission v. Trigwell [19] . This case provides a good illustration. Rejection of the doctrine of privity of contract by judicial decision could not be restricted upon any conceptual basis to contracts of insurance. There may be practical reasons for wishing to retain the doctrine in its application to some kinds of contract, but such a choice could not be made by a court by reference to any coherent body of principle. However, the rejection of the doctrine in anything other than a restricted manner requires the elaboration of a number of matters without which the law would be left unacceptably confused and uncertain. A glance at the legislation in those jurisdictions in which the doctrine has been abolished shows that it has been found necessary to provide for such matters as the manner in which the third person is to be specified in the contract, whether the benefit to the third person must be direct, whether any defence which is available against the promisee should be available against the third person and whether the promisee not being a party to any action should nevertheless be bound by the result, whether the third person should be bound by any obligations imposed upon him by the contract, whether acceptance of the contract by the third person is required and whether the contract may be discharged or varied without the consent of the third person. These are things which are beyond the purview of a court in its task of expounding the law in the context of resolving individual disputes.

No doubt there is still a considerable capacity in the law for the amelioration of any hardship which a third person beneficiary may suffer under the present rule. Windeyer J. thought so. But in the passage which I have cited from his judgment in Olsson v. Dyson [20] he did not conceive of future development being other than by the adaptation of existing principles to meet new situations. The role of the court must be limited. As was pointed out in State Government Insurance Commission v. Trigwell [1] , it is neither a legislature nor a law reform agency. It would do more harm than good to attempt to reach a right result by the wrong means.

1. (1969) 120 C.L.R. 365. 2. (1979) 142 C.L.R., at p. 633.

The background to this appeal is set out in the judgment of Mason C.J. and Wilson J. It is unnecessary to repeat what is said there. Because of the terms on which special leave to appeal was granted, this Court is concerned with the application of the doctrine of privity of contract only in relation to a public liability indemnity policy. It is not called upon to deal with the doctrine in all its aspects. Still, it would be unreal to think that a decision upholding the Court of Appeal would not have implications for privity of contract in other situations. And the disposition of this appeal inevitably takes the Court into areas that lie outside the field of insurance.

The proposition that " only a person who is a party to a contract can sue on it" (Viscount Haldane L.C. in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [2] ) has been the subject of much criticism by judges, academics and law reform agencies. Its origin is of doubtful legitimacy, as Professor Flannigan has demonstrated in Privity - The End of an Era (Error), Law Quarterly Review, vol. 103 (1987), p. 564. The law, although still fluid by the middle of the nineteenth century, is generally taken to have been settled by Tweddle v. Atkinson [3] in favour of the view that at common law a third party cannot sue on a contract made for his benefit. Nevertheless doubts surround the true ratio of this case. It may be that it was decided on the basis that the plaintiff was a stranger to the consideration rather than on the ground that he was not a party to the agreement (see Atiyah, The Rise and Fall of Freedom of Contract (1979), pp. 413-414, although this is disputed by Jacobs, Judicial Reform of Privity and Consideration [1986] Journal of Business Law 466, at p. 467, n. 12) or, as the defendant argued in Tweddle , on both grounds. The reports of the case do not provide a conclusive answer. Those found in 1 B. & S. 393, 4 L.T. 468, 9 W.R. 781 and 8 The Jurist, Pt 1, 332 suggest that the plaintiff failed because he gave no consideration. However, the report in 30 L.J. (N.S.) Q.B. 265, especially the judgment of Wightman J. [4] , supports the view that the absence of privity and lack of consideration moving from the plaintiff formed the basis of the decision.

1. [1915] A.C. 847, at p. 853. 2. (1861) 1 B. & S. 393 [121 E.R. 762]. 3. (1861) 30 L.J. (N.S.), at p. 267.

If this conflict had to be resolved, the better view seems to be that the plaintiff in Tweddle failed because he was not a party to the contract and because he had not provided any consideration. This conclusion follows from the facts of the case and the parties' submissions. The facts are straightforward. After marriage between the plaintiff (J.T.'s son) and X (W.G.'s daughter) J.T. and W.G. entered into a written agreement whereby W.G. agreed to pay £200 to the plaintiff and J.T. agreed to pay £100 to the plaintiff. The plaintiff was not a party to this written agreement although he and his wife later ratified and assented to the agreement. W.G. failed to provide the £200. W.G. having died, the plaintiff brought action against his executor. The defendant demurred. In support of the demurrer the defendant argued that the plaintiff could not sue upon the contract because he was a stranger to the agreement and to the consideration. The plaintiff's counsel conceded that if the general rule (as stated by the defendant) applied the action would not be maintainable. Nevertheless the plaintiff argued for an exception to this general rule on the grounds of "natural love and affection". The argument seems to have been that a promise made to a father and consideration provided by him could extend to his children due to the natural love and affection that a father had for his children. In other words, the exception was being invoked to get over the hurdle of the plaintiff not being a party and not having provided any consideration. The judges in Tweddle were of the opinion that no such exception existed. Even if some "old" cases could be found in support of such an exception, it was no longer justified.

It follows then that Professor Flannigan's assertion, loc. cit., p. 569, that Tweddle was "decided exclusively on the absence of consideration moving from the third party" is open to challenge. It has been said that with the decision in Dunlop v. Selfridge [5] : "From this day forward the two rules, the "privity" rule and the consideration rule, were cemented into the common law as two separate rules" (Flannigan, p. 572; and see Treitel, Law of Contract, 7th ed. (1987), p. 458). Nevertheless there are those who contend that there is but one rule, as for instance Furmston, Return to Dunlop v. Selfridge?, Modern Law Review, vol. 23 (1960) 373, at pp. 382-385. What authority there is in Australia favours the view that the two doctrines are separate: see Coulls v. Bagot's Executor & Trustee Co. Ltd. [6] .

In Vandepitte v. Preferred Accident Insurance Corporation of New York [7] the Privy Council acknowledged that "at common law no one can sue on a contract except those who are contracting parties and (if the contract is not under seal) from and between whom consideration proceeds" [8] . That decision is relevant so far as the present appeal is concerned because the Privy Council held that an insurer under a third party policy was not liable to a plaintiff who had obtained a judgment against the insured's daughter for damages for personal injuries caused by her negligence while driving the insured's car with his permission. The privity rule was applied by the House of Lords in Midland Silicones Ltd. v. Scruttons Ltd. [9] and by the Privy Council in New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite & Co. Ltd. [10] .

1. [1933] A.C. 70. 2. [1933] A.C., at p. 79. 3. [1962] A.C. 446. 4. [1975] A.C. 154.

Notwithstanding, several Law Lords have expressed their unease at a law which precludes a third party from suing on a contract taken by another for his benefit. Lord Reid in Beswick v. Beswick [11] ; Lords Keith of Kinkel and Scarman in Woodar Ltd. v. Wimpey Ltd. [12] ; Lord Diplock in Swain v. Law Society [13] , provide instances. "Unease" is perhaps too mild a word, at any rate for Lord Diplock, who spoke of the non-recognition of a jus quaesitum tertio as "an anachronistic shortcoming that has for many years been regarded as a reproach to English private law".

1. [1968] A.C. 58, at p. 72. 2. [1980] 1 W.L.R. 277, at pp. 297-298, 300; [1980] 1 All E.R. 571, at pp. 588-589, 591. 3. [1983] 1 A.C. 598, at p. 611.

In Australia the privity rule has been recognized in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [14] ; Coulls v. Bagot's Executor & Trustee Co. Ltd. and in Olsson v. Dyson [15] . In the last of these cases Windeyer J. joined the critics, commenting [16] :

We must take the law as it is and refuse to recognize a ius tertii arising by way of contract. In jurisprudence and legal theory and for recent commentators, this may be seen as a regrettable example of the rigidity of conceptual thinking. 1. (1956) 95 C.L.R. 43. 2. (1969) 120 C.L.R. 365. 3. (1969) 120 C.L.R., at p. 393.

The Canadian courts have followed Midland Silicones Ltd. v. Scruttons Ltd. (see Canadian General Electric Co. Ltd. v. Pickford & Black Ltd. [17] ) and New Zealand Shipping v. Satterthwaite Ltd. (see ITO Ltd. v. Miida Electronics Inc. [18] ) and treat the concept as "one of general application": Greenwood Shopping Plaza Ltd. v. Beattie [19] .

1. (1970) 14 D.L.R. (3d) 372. 2. (1986) 28 D.L.R. (4th) 641. 3. (1980) 111 D.L.R. (3d) 257, at p. 263.

Not all are critical of the notion of privity. Thus, Barwick C.J. in Coulls v. Bagot's Executor & Trustee Co. Ltd. [20] :

It must be accepted that, according to our law, a person not a party to a contract may not himself sue upon it so as directly to enforce its obligations. For my part, I find no difficulty or embarrassment in this conclusion. Indeed, I would find it odd that a person to whom no promise was made could himself in his own right enforce a promise made to another. 1. (1967) 119 C.L.R., at p. 478.

But this debate does not go to the issue which lies at the heart of this appeal. That issue, as I see it, is whether the principled development of the common law supports the conclusion of the Court of Appeal that "this Court should now declare that at common law a non-party assured is, and has been for some time at common law, able to sue on a written policy of liability insurance": McHugh J.A., with whom Hope and Priestley JJ.A. agreed [21] .

Even when courts have expressed their impatience with the limitations imposed by privity of contract, they have applied the doctrine. At the same time they have not withheld approval from developments in the law that have by-passed privity of contract, so that, for instance, a promisee might be regarded as holding his right under a contract on trust for a third person to whom a benefit had been promised and might be required to exercise that right at the instance of the third person. There is no doubt considerable scope for the development of the law of trusts in this direction, and with reference to contracts of insurance. As Fullagar J. noted in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [22] : "It is difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases." But, in the present case, no trust was pleaded and the Court of Appeal refused to allow an amendment to the statement of claim to raise such an issue. The decision of the Court of Appeal did not involve sidestepping privity of contract; rather it rejected the notion in its application to contracts of insurance.

In my view, the proposition enunciated by the Court of Appeal that for some time at common law a non-party assured has been able to sue on a written policy of liability insurance is not supported by authority. The proposition seems to rest on the tenuous foundation that contracts of liability insurance have from time to time been enforced by persons who were not parties to those contracts. That may well be so where no objection has been taken by an insurer to a claim made by someone within the apparent scope of a policy, though not a contracting party to it. But that is to say no more than that commercial reality has not put obstacles in the way of the enforcement of such arrangements. It says nothing as to what the state of the law is. The generality of the statements in the authorities already mentioned, Australian and English, are against the proposition; I would add a reference to the decision of Connor J. in Jovanovic v. Broers [23] . And it is not to the point, except to demonstrate the unsatisfactory state of the law, to know that at times the courts have turned a blind eye to the consequences of privity. Thus in Gardner v. Moore [24] , a case involving agreements between the Motor Insurers' Bureau and the Minister of Transport in which the former agreed to compensate persons injured by uninsured drivers, Lord Hailsham of St. Marylebone L.C. said of the agreements [25] :

Their foundations in jurisprudence are better not questioned any more than were the demises of John Doe and the behaviour of Richard Roe in the old ejectment actions. 1. (1979) 25 A.C.T.R. 39. 2. [1984] A.C. 548. 3. [1984] A.C., at p. 556.

To cite, as did McHugh J.A., examples of statutes which permit the enforcement of contracts by persons not parties to those contracts does not truly enlighten the development of the common law. Those statutes may amount to no more than acceptance of the need for legislative action because judicial change appears not to be available. It is a considerable step to draw from them "some principle to be applied by way of analogy in fashioning the common law": Lamb v. Cotogno [26] .

To hold, as in the present case, that a person not a party to a contract of insurance may sue on that contract represents a change in the common law and that must be acknowledged. Against the background of the decisions of this Court in Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd.; Coulls v. Bagot's Executor & Trustee Co. Ltd. and Olsson v. Dyson [27] , it is not, I think, a change to be made by an intermediate court of appeal. The change is not disguised by pointing to the various ways in which third parties have been permitted to sue, whether by way of trust, agency or the like: in this regard see Treitel, pp. 484-496; Jacobs' Law of Trusts in Australia, 5th ed. (1986), pp. 18-27. In the circumstances of the present case, given the scope of the insurance cover as formulated in the policy, it might not have been difficult to spell out a trust in favour of the respondent. But, for reasons already mentioned, that course is not open, at least not without an amendment to the statement of claim. It would require a remission to the trial judge to hear whatever evidence bore on the existence or non-existence of a trust; that course is not warranted nor, importantly, was it urged by the respondent.

In a quite different context, that of hearsay evidence, Lord Reid said in Myers v. Director of Public Prosecutions [28] :

The common law must be developed to meet changing economic conditions and habits of thought, and I would not be deterred by expressions of opinion in this House in old cases. But there are limits to what we can or should do. If we are to extend the law it must be by the development and application of fundamental principles. We cannot introduce arbitrary conditions or limitations: that must be left to legislation. And if we do in effect change the law, we ought in my opinion only to do that in cases where our decision will produce some finality or certainty. The most powerful argument of those who support the strict doctrine of precedent is that if it is relaxed judges will be tempted to encroach on the proper field of the legislature, and this case to my mind offers a strong temptation to do that which ought to be resisted. Can it be said that, in the present case, to uphold the Court of Appeal is to encroach on what is the proper field of the legislature, given the very strong preponderance of authority against the enforcement of a contract by a person who is not a party thereto? 1. [1965] A.C. 1001, at pp. 1021-1022.

The insurance policy in the present case indemnifies the assured against liability in respect of death or bodily injury to third parties. "The Assured" is defined as:

Blue Circle Southern Cement Limited, all its subsidiary, associated and related Companies, all Contractors and Sub-Contractors and/or Suppliers.

The trial judge, Yeldham J., found that the respondent was within the description "The Assured" and that it was "sufficiently designated as a contractor". The respondent was the principal contractor for work being carried out by Blue Circle on one of the work sites identified in the policy. Although the notice of appeal challenged the finding of Yeldham J., the appellant did not press the point in argument and this Court must accept the finding. Yeldham J. held that the act of issuing a statement of claim against the appellant "was an act of ratification so as to render the [respondent and appellant] parties to the contract of insurance". The Court of Appeal rejected the argument based on ratification and that point was not pursued before this Court. However the Court of Appeal, as already indicated, upheld the respondent's claim on the broader basis that a non-party assured is able, at common law, to sue on a written policy of liability insurance.

I do not accept that a non-party assured is, as the common law presently stands, able to sue. But equally I accept that the law which precludes him from doing so is based on shaky foundations and, in its widest form, lacks support both in logic or in jurisprudence. My concern is whether the law is so well entrenched that nothing short of legislative interference can fairly budge it.

My conclusion is that the law is not so well entrenched as to be incapable of change. Lord Reid commented in Tomlinson (A) (Hauliers) Ltd. v. Hepburn [29] :

No doubt the principle preventing jus quaesitum tertio has been firmly established for at least half a century. But it does not appear to me to be a primeval or necessary principle of the law of England. 1. [1966] A.C. 451, at pp. 470-471.

It is true that his Lordship added: "We must uphold it until it is altered." But I do not understand Lord Reid to be excluding the possibility of alteration judicially as well as legislatively; the same may be said of Windeyer J. in Olsson v. Dyson [30] .

Although the use of trusts has been formally circumscribed by the requirement that "the intention to constitute the trust must be affirmatively proved" (Vandepitte [31] ; see also In re Schebsman [32] ), there is no doubt that they have enjoyed some success as a means of avoiding the consequences of privity of contract. The cases noted in Halsbury's Laws of England, 4th ed. (1974), vol. 9, pars 339-341, and in Treitel, pp. 485-490, bear witness to this. Nevertheless there is force in the comment in Cheshire & Fifoot's Law of Contract, 5th Australian ed. (1988), par. [1535]:

But, despite its promising appearance and the positive terms in which it has occasionally been acclaimed, the [trust] device has in practice proved a disappointing and unreliable instrument, employed and rejected on some occasions on no very obvious principle. 1. [1933] A.C., at pp. 79-80. 2. [1944] Ch. 83, at p. 104.

At common law apparent exceptions have been recognized in the fields of agency, assignment of choses in action, carriage of goods, commercial letters of credit, covenants concerning land, claims in tort and proprietary or possessory rights: Halsbury , par. 336. Jacobs' Law of Trusts in Australia notes thirteen "common law modifications of the principles governing third party contracts" (p. 23). Within the area of insurance there has arisen a number of exceptions to privity of contract, though generally statutory in origin. Section 48 of the Insurance Contracts Act 1984 Cth now authorizes the sort of action which the respondent brought against the appellant. While the enactment of s. 48 should not be taken as more than legislative recognition of the abrogation of privity of contract in the circumstances to which it refers, equally it does not stand in the way of this Court upholding the Court of Appeal if that course is otherwise warranted.

The Supreme Judicial Court of Massachusetts, in Choate, Hall and Stewart v. S.C.A. Services Inc. [33] , took the step which had been taken more than a hundred years earlier by the New York Court of Appeals in Lawrence v. Fox [34] of permitting a plaintiff to sue on a contract to which he was not a party. In the Massachusetts case Kaplan J. referred to the various exceptions to privity of contract that had grown up, some of which he described as "rationalization[s] after the event" [35] and continued:

The rather confusing patchwork should be supplanted by the general rule now prevalent, [a reference to the rule prevailing in other State jurisdictions allowing third party enforcement] which avoids circuity of action and is calculated to accord with the probable intentions of the contracting parties and to respond to the reasonable reliance of the third party creditor. 1. (1979) 392 N.E. (2d) 1045. 2. (1859) 20 N.Y. 268. 3. (1979) 392 N.E. (2d), at p. 1051.

The same criticism may be made of privity of contract as it has developed in this country. There is a powerful statement by Professor Corbin in Contracts for the Benefit of Third Persons, Law Quarterly Review, vol. 46 (1930) 12, at pp. 44-45:

Law is not a complete and perfect system of pre-existing and unchangeable rules, handed down on some Sinai in the dark infinity of the past. Instead it is an ever-changing and developing system of rules, every judicial decision as well as every legislative act being a part of the never-ending process of creation. Every stated rule can be traced to some specific human inventor of the formula. Step by step, its life history can be traced, with every change in its wording created by a new jurist, and with every variation caused by the judicial decisions respecting new facts.

It may well be that the expansion of the trust concept to include cases such as these is an instance of the growth of law by fiction. It has often been by fiction that old rules have been avoided, discredited, and finally broken down. No one familiar with the history of debt and assumpsit can doubt the growth of law through the giving of new meanings to old terms or can doubt the beneficence of the process. The result is the same whether reached by fiction or not. It is merely a question as to when independent judicial minds will openly recognize the fact that fiction has been employed, that a change has been worked in the law by its use, and that the time has come to state the result in terms that will no longer mislead able judges and mystify the lawyers who must advise their clients and predict judicial action.

Whether the expansion of the trust concept in this context is fairly described as a fiction is debatable. But when a rule of the common law harks back no further than the middle of the last century, when it has been the subject of constant criticism and when, in its widest form, it lacks a sound foundation in jurisprudence and logic and further, when that rule has been so affected by exceptions or qualifications, I see nothing inimical to principled development in this Court now declaring the law to be otherwise in the circumstances of the present case. That view is strengthened when, as Windeyer J. pointed out in Olsson v. Dyson [36] : "It is not however a rule which is necessarily inherent in the idea of contract." The appellant entered into a contractual obligation with Blue Circle Southern Cement Ltd. and it did so with the intention that the benefit of that obligation should extend to those involved with Blue Circle as contractors and sub-contractors on the work sites in question. That is borne out by the terms of the policy. The respondent was sufficiently identified as one of those involved. The policy was intended by both the appellant and Blue Circle to be a basis of insurance in respect of the work being carried out on the sites and Blue Circle and its contractors and sub-contractors could be expected to arrange their business in that light.

Certainly a court must look long and hard at the implications of declaring the law to be otherwise than hitherto accepted. In particular the court must consider the impact of any change on existing rights and obligations. But in the present case, to allow the respondent to sue the appellant is to give effect to the presumed intention of the appellant at the time it issued the insurance policy. If that not be the case, then as Professor Flannigan noted (p. 579):

If we are concerned with retaining the status quo in order to protect the planning interest, it is well to point out that those who plan on the basis of the rule are those who contract with the knowledge that they will not have to perform the contract, a very odd position for the common law to support.

When a final court of appeal is minded to change the common law, the notion of prospective overruling aims to deal with problems created by "departures from precedents on which expectations have been built": Stone, Precedent and Law (1985, p. 186). It seeks to mitigate the hardship and possible injustice caused by overturning a law on which the parties have reasonably relied when ordering their affairs. The possible application of prospectivity does not arise in the present case for to declare that the law permits the respondent to bring action against the appellant does not frustrate the intentions of those involved; rather it gives effect to those intentions.

Yeldham J. was of opinion that "the inference is irresistible that, whether with or without the knowledge of the plaintiff [i.e. the respondent in the present appeal], Blue Circle took into account, as between itself and the plaintiff, in a financial way that it had contracted with the second defendant [i.e. the appellant in the present appeal] to insure the plaintiff, and in that sense the latter through Blue Circle provided consideration for part of the premium paid to the insurer".

McHugh J.A. [37] , rejected this approach because there was no direct evidence to support it and because of what his Honour described as "a more basic objection", that there was "no evidence to suggest that McNiece made or authorized any payment or deduction in reliance on the indemnity given to the assured". The respondent did not submit that McHugh J.A. erred in this view of the case so that the doctrine of estoppel provides no firm footing for the respondent. But it is enough, for present purposes, that the insurance policy was expressed to be and was intended to be for the benefit of others, of which the respondent was one and that the others might be expected to order their affairs accordingly.

The proposition which I consider this Court should now indorse may be formulated along these lines. When an insurer issues a liability insurance policy, identifying the assured in terms that evidence an intention on the part of both insurer and assured that the policy will indemnify as well those with whom the assured contracts for the purpose of the venture covered by the policy, and it is reasonable to expect that such a contractor may order its affairs by reference to the existence of the policy, the contractor may sue the insurer on the policy, notwithstanding that consideration may not have moved from the contractor to the insurer and notwithstanding that the contractor is not a party to the contract between the insurer and assured.

No doubt, a decision upholding the Court of Appeal will itself give rise to a number of questions. Are there other situations in which a third party may sue on a contract when consideration has not moved from the third party to the promisor? What defences are available to the promisor in such cases? These are questions which do not now require an answer. Other situations must await another day; the terms on which special leave to appeal was granted preclude a decision in wider terms than have been expressed in these reasons. The defences available to an insurer against whom action may lie at the suit of a third party do not have to be explored for none was advanced on behalf of the appellant before this Court.

Subject to one matter pertinent to my consideration of this appeal the facts are fully set out in the judgment of Mason C.J. and Wilson J. The matter to which I would additionally advert is that by its statement of defence the appellant admitted that it had agreed for reward to indemnify Blue Circle Southern Cement Ltd., its subsidiary, associated, and related companies, and all contractors, sub-contractors and/or suppliers as alleged in the statement of claim filed by the plaintiff, the respondent in the present appeal. The "reward" so admitted was the payment of a premium calculated provisionally at $233,450 and expressed in the policy to be "payable 50% at inception and 50% 12 months thereafter". No issue has been raised to suggest that the premium was not paid in accordance with the terms of the policy.

It is necessary to refer to the question of payment of premium because although I agree generally with the reasons for judgment of Mason C.J. and Wilson J., I differ from their Honours in two significant respects. It is as well to state them at the outset. In my view a promisor who has accepted an agreed consideration for a promise to benefit a third party comes under an obligation to the third party to fulfil that promise and the third party acquires a right to bring an action to secure the benefit of that promise. The right of the third party is not a right to sue on the contract: rather, it is a right independent of, but ordinarily corresponding in content and duration with, the obligation owed under the contract by the promisor to the promisee.

The doctrine of privity of contract and the related requirement that consideration should be provided by the person seeking to enforce a contractual obligation do not deny the binding nature of a contractual promise the performance of which will benefit a third party. Breach of the contractual obligation may sound in damages at the suit of the promisee. However, it is not clear on existing authority whether the promisee is restricted to recovering damages for his loss only or whether damages can also be recovered by the promisee for the third party's loss: Coulls v. Bagot's Executor & Trustee Co. Ltd. [38] ; Olsson v. Dyson [39] ; Beswick v. Beswick [40] . If damages are an inadequate remedy, the promisee may obtain a decree of specific performance of the contract: Coulls [41] ; Beswick [42] ; Olsson [43] . The third party, however, cannot institute an action for breach of contract or for specific performance unless he can bring himself within one of the recognized exceptions to or qualifications of the rules. Commonly the position of the third party is expressed in terms of inability to sue on the contract: see, e.g., Wilson v. Darling Island Stevedoring & Lighterage Co. Ltd. [44] ; Coulls [45] .

1. (1967) 119 C.L.R. 460, at pp. 501-502. 2. (1969) 120 C.L.R. 365, at p. 392. 3. [1968] A.C. 58, at pp. 73, 81, 88 and 102. 4. (1967) 119 C.L.R., at pp. 478, 499, 502-503. 5. [1968] A.C., at pp. 78, 82, 88-89; (1969) 120 C.L.R. 101-102. 6. (1969) 120 C.L.R., at p. 392. 7. (1956) 95 C.L.R. 43, at p. 67. 8. (1967) 119 C.L.R., at pp. 478, 494.

Although the position of the third party is commonly expressed - and in my view accurately expressed - in terms of inability to sue on the contract, common understanding is that the consequence of the rules is that no obligation is owed by the promisor to the third party and no right is created in the third party to secure the benefit of the contract. For the sake of simplicity I leave out of account conduct by the promisor which may create some other recognizable obligation to the third party, or which may lead to an assumed state of affairs by reference to which their mutual rights and obligations will be determined.

The source of the obligation to perform a contractual promise is the contract itself, but there is no reason in logic or in law why the existence of a contract should preclude the existence of another obligation ordinarily corresponding in content and duration with the contractual obligation, but having its source in law rather than in the contract. Thus an obligation to pay a debt to which a contract has given rise is separate and independent from the contractual obligation, although corresponding in content with it. An action to recover the debt is an action on the debt and not an action on the contract. In Young v. Queensland Trustees Ltd. [46] , the position was put as follows:

The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money See also Turner v. Bladin [47] ; Pavey & Matthews Pty. Ltd. v. Paul [48] per Brennan J. and per Dawson J. [49] . 1. (1956) 99 C.L.R. 560, at p. 567. 2. (1951) 82 C.L.R. 463, at p. 474. 3. (1987) 162 C.L.R. 221, at pp. 233-234. 4. (1987) 162 C.L.R., at pp. 265-267.

So too, if consideration has been wholly executed under an unenforceable contract, the law imposes an obligation or imputes a promise to make compensation for the benefit accepted: Pavey & Matthews [50] . The obligation may be limited by the terms of the contract to correspond in content with the unenforceable contractual obligation, but it is an obligation which has its source in law and not in the contract.

1. (1987) 162 C.L.R., at pp. 227-228, 255-256, 269.

In Pavey & Matthews it was stated by Deane J. [51] (and accepted by Mason and Wilson JJ. [52] ) that the basis of the obligation imposed by law to pay compensation for a benefit accepted under an unenforceable contract was preferably to be seen as lying in restitution. Deane J. added [49] :

That is not to deny the importance of the concept of unjust enrichment in the law of this country. It constitutes a unifying legal concept which explains why the law recognizes, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognize such an obligation in a new or developing category of case. 1. (1987) 162 C.L.R. at p. 256. 2. (1987) 162 C.L.R., at p. 227. 3. (1987) 162 C.L.R., at pp. 265-267.

The obligation to make restitution and the concept of unjust enrichment are not limited to situations in which the parties stand in a contractual relationship, or would so stand but for some matter rendering the contract invalid or bringing the relationship to an end. So much seems to have been accepted by Lord Wright M.R. (in Brook's Wharf & Bull Wharf Ltd. v. Goodman Brothers [53] ) who described the obligation to make restitution as "a debt or obligation constituted by the act of the law, apart from any consent or intention of the parties or any privity of contract". The concept of unjust enrichment suggests actual enrichment, which might be thought not to occur until there is actual impoverishment. However, as Windeyer J. pointed out in Mason v. New South Wales [54] , the concept of impoverishment as a correlative of enrichment, whilst it may be relevant to some fields of continental law, is foreign to our law. Thus obligations having their source in notions of unjust enrichment may arise prior to, and indeed independent of, any actual impoverishment of the party to whom the obligation is owed and the concept of unjust enrichment is apt to include a consideration that there is a possibility of unjust enrichment occurring as a result of a benefit having been received under a contract - an idea which underlies the imposition of a constructive trust in cases of mutual wills. Thus in Birmingham v. Renfrew [55] , Dixon J. stated:

The objection that the intended beneficiaries could not enforce a contract is met by the fact that a constructive trust arises from the contract and the fact that testamentary dispositions made upon the faith of it have taken effect. It is the constructive trust and not the contract that they are entitled to enforce. 1. [1937] 1 K.B. 534, at p. 545. 2. (1959) 102 C.L.R. 108, at p. 146. 3. (1937) 57 C.L.R. 666, at p. 690.

Where the consideration is wholly executed in favour of a promisor under a contract made for the benefit of a third party a rule that the third party may not bring action to secure the benefit of the contract permits of the possibility that the promisor may be unjustly enriched to the extent that the promise is not fulfilled. Certainly that is so if the promisee is unable or unwilling to bring an action on the contract. It will also be the case if action by the promisee will result only in the award of nominal damages. True it is that the possibility of unjust enrichment does not exist in all cases, but, as Mason C.J. and Wilson J. demonstrate in their reasons for judgment, the right of action available to the promisee and the limited rights available to the third party by operation of trust or estoppel, fail to provide a universal guarantee that the contractual obligation will be fulfilled, or if not fulfilled, will attract legal consequences proportional to its non-fulfilment.

In my view it should now be recognized that a promisor who has accepted agreed consideration for a promise to benefit a third party is unjustly enriched at the expense of the third party to the extent that the promise is unfulfilled and the non-fulfilment does not attract proportional legal consequences. Although exceptions to and qualifications of the rules of privity and consideration and the doctrines of trust and estoppel operate in certain circumstances to preclude any unjust enrichment, the exceptions, qualifications and doctrines should not be seen as reasons to impede the development of legal principle which will obviate all possibility of unjust enrichment. Rather, their existence should be seen as demonstrating the necessity for the recognition of such an obligation.

The possibility of unjust enrichment is obviated by recognition that a promisor who has accepted agreed consideration for a promise to benefit a third party owes an obligation to the third party to fulfil that promise and that the third party has a corresponding right to bring action to secure the benefit of the promise. It may be that the perceived pre-eminence in the field of contract law of the writ of assumpsit, with its associated requirements of privity and consideration, has delayed the recognition of an enforceable obligation and corresponding right as between promisor and third party. Whether or not this be so, there is no legal principle to preclude the recognition of an obligation and corresponding right as between promisor and third party separate from the contractual obligation existing between promisor and promisee. Rather the fact that the law, as it is presently understood, permits of the possibility of unjust enrichment provides a compelling reason for the recognition of such an obligation of the same nature of the obligation imposed by law to compensate for a benefit received under an unenforceable contract.

To recognize an obligation on the part of a promisor who has accepted agreed consideration for a promise to benefit a third party, is not to abrogate the doctrine of privity of contract. It is merely to confine it to the only area in which it can properly operate, viz. the area of rights and obligations having their source in contract. The matter can be put another way. A right to enforce an obligation imposed by law by reason of the acceptance of agreed consideration for a promise to benefit a third party is no more a right to sue on the contract than an action to recover a debt on an executed consideration is an action upon a contract.

The circumstances which warrant the imposition of an obligation, viz. the acceptance of agreed consideration for a promise to benefit a third party, also necessarily require that the content and duration of that obligation should ordinarily correspond with the content and duration of the contractual obligation owed to the promisee. Thus should the obligation as between promisor and promisee be varied, modified or extinguished, then correspondingly the obligation of the promisor to the third party will be varied, modified or extinguished. It may be that in a particular case there will be some intervening circumstance which will create an obligation not to vary, modify or extinguish the promise or which will create an assumed state of affairs such that the mutual rights and obligations of the promisor and third party are to be ascertained by reference to that state of affairs rather than by reference to the contract between the promisor and promisee. But these considerations aside, the content and duration of the obligation by the promisor to the third party will correspond with the contractual obligation of the promisor to the promisee.

On the basis that the appellant received the agreed consideration specified in the policy of insurance - a matter that has not been disputed - it came under an obligation to the respondent to fulfil its promise to indemnify it as provided in the policy. The respondent is entitled to maintain an action to enforce that obligation. Accordingly the appeal should be dismissed.