Trident General Insurance Co Ltd v McNiece Bros Pty Ltd

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd - [1988] HCA 44 - HCA 1977 case summary — Zoe

[34]

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.

[60]

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.

[63]

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.

[69]

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.

[70]

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.

[72]

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.

[75]

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.

[79]

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] :

[92]

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.

[96]

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.

[108]

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.

[111]

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.

[112]

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.

[113]

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.

[121]

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.

[139]

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.

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