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The Jersey Law Review – June 2006

SHORTER ARTICLES AND NOTES

THIRD PARTY RIGHTS AND STIPULATION POUR AUTRUI IN MODERN GUERNSEY LAW

Jeremy Muir and William Simpson

Introduction

1       Guernsey lawyers frequently strike out references to the Contracts (Rights of Third Parties) Act 1999, which under English law enables a third party to enforce a contractual stipulation made for his or her benefit.  Other principles may, however, stand in its place.  For example, to what extent could a third party claim the benefit of the French principle of stipulation pour autrui as described in article 1121 of the Code civil and recognised in earlier French law? In particular, to what extent would the extension of that principle by the French courts following 1804 (discussed below) be relevant in Guernsey?

2       This paper considers briefly the English law position before concentrating on the development of the treatment of third party rights under French law and analysing the possible application of these principles in Guernsey.

Common law

3       Traditionally, English law did not enforce stipulations for the benefit of third parties in any consistent or coherent sense.  The dicta of Viscount Haldane in Dunlop v Selfridge[1]are clear on the issue -

“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 ius quaesitium tertio arising by way of contract.  Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam.”[2]

4       This position is based on the doctrine of privity of contract, although the lack of consideration given by the third party is also relevant.  According to the comparative lawyers Zweigert and Kötz, writing before the enactment of the Contracts (Rights of Third Parties) Act 1999 -

“English law has clung with remarkable tenacity to the principle that “only a person who is a party to a contract can sue on it”.  Whether the principle is due to the privity doctrine or the doctrine of consideration or both has been the subject of more hair-splitting discussion than one would have expected of English lawyers, and the sophisticated and artificial constructions which the courts themselves have dreamt up in their concern to keep the principle intact should evoke the admiration of Continental observers.” [3]

5       In 1999, by Act of Parliament, years of English jurisprudence were overturned and persons who are not parties to an English contract were given, in certain circumstances, the right to enforce any provision which sought to confer a benefit upon them.

French customary law

6       Meanwhile French law developed differently.  Following Roman law (nemo alteri stipulari potest), it recognised a starting position that a stranger to a contract had no right to enforce it.  Thus, according to Pothier -

 “. . . c’est un principe, que les conventions ne peuvent avoir d’effet qu’entre les parties contractantes, & qu’elles ne peuvent par conséquent acquérir aucun droit à un tiers qui n’y étoit pas partie . . . ”[4]

7       Nevertheless certain limited exceptions to the classical Roman rule were inherited from the later law of the Empire[5] and were received at some point into French law. 

Pothier’s Four Cases

8       Writing at the time of the Ancien Régime, Pothier was careful to distinguish the following four cases.[6]  In each one, although the intention is ostensibly to benefit a third party, the object of the contract between promisor and stipulator is to be considered as a stipulation pour soi-même and not pour autrui - 

(1)              where the object of the contract is to be delivered or paid to a designated third party, who is to receive the same in the name of the stipulant, either on the latter’s account or as a gift from him.  Whilst such a contract is valid as between the contractants themselves, Pothier does not go so far as to say that the third party acquires any right to sue upon it.  Indeed it seems he does not: “Ce n’est pas en sa personne, mais en la mienne que réside la créance;  . . .”[7];

(2)              a stipulation that the other party do something for a third party, provided that the first party has a personal interest (quantifiable in a pecuniary sense) that the thing be done.  The example Pothier gives is of A, obliged to carry out building work on a house for C, contracting B to carry out the work.  Here Pothier does not claim that C would have a right of action against B directly;

(3)              a stipulation for the benefit of one’s heirs (as effectively an heir is regarded as a continuation of the contracting party);

(4)              a stipulation with respect to one’s own property for the benefit of the successor(s) in title thereto (for similar reasons to (3) above).

Modalities of contract

9       Pothier also identified that, whereas a stipulation in favour of a third party could not generally form the object of an obligation, it could take effect and be enforced as a condition of a contract.  The example he gives[8] is of a “donation avec charge”, i.e. -

“…quoique je ne puisse pas directement stipuler ce qui concerne l’intérêt d’un tiers, néanmoins je puis aliéner ma chose, à la charge que celui à qui je la donne fera quelque chose qui concerne l’intérêt d’un tiers”.[9] 

10     In this case, Pothier does refer to a specific right of action on the part of the third party -

“. . . il suit qu’il peut naître d’un contrat aucun droit à un tiers, qui n’y a pas été partie; mais suivant les Constitutions des empéreurs, les tiers en faveur desquels le donateur appose une charge à sa donation, ont une action contre le donataire pour le contraindre à l’exécuter . . .”.[10]

11     Pothier’s four cases and his exception for modalities of contract are reflected in general terms in the modern Code civil.

French Civil Law

12     Articles 1165 and 1121 of the Code civil provide -

“1165    Les conventions n’ont d’effet qu’entre les parties contractantes; elles ne nuisent point au tiers, et elles ne lui profitent que dans le cas prévu par l’article 1121.

1121     On peut . . . stipuler au profit d’un tiers, lorsque telle est la condition d’une stipulation que l’on fait pour soi-même ou d’une donation que l’on fait à un autre.  Celui qui a fait cette stipulation ne peut plus la révoquer, si le tiers a déclaré vouloir en profiter.”

13     Article 1121 deals with two cases: the first where the stipulant has a personal interest in the stipulation; the second where the stipulation is a condition of a gift (the donatio sub modo of Roman law, or donation avec charge).           As will be seen, however, the scope of the principle is considerably wider than may first appear.

The development of the French position post-Code civil

14     Nicholas traces the development of article 1121 jurisprudence following the enactment of the Code civil, noting that the original pressure for evolution came from the need to provide a legal framework for life assurance.[11]  In this regard, the Cour d’Appel of Lyons held in 1863[12] that contracts of life assurance fell within the ambit of article 1121.

15     The more interesting developments, however, have come with respect to the requirement of a sufficient interest on the part of the stipulator.  For Pothier, the promisor had to have “un intérêt personnel  appreciable à prix d’argent”.[13]  In 1888 the Cour de Cassation stated that a moral interest was sufficient (in the case of a contract of life assurance, the assured’s moral benefit from the advantage conferred on the beneficiary).[14]  Therefore, as Nicholas summarises -

“. . . the effect of these developments was to establish that wherever it could be shown that an agreement between S and P was intended to confer a benefit on T, T could claim the benefit from P.  (In order to do so T must evidence an intention to accept the benefit, but since the making of the claim will be sufficient evidence, the practical importance of this requirement is that it preserves in the meantime S’s power to revoke.)  T’s right vests in him directly and retrospectively from the moment of the agreement between S and P and it does not therefore pass through the patrimoine of S, but it is nevertheless S’s right to the extent that P can set up against T any defences which would have been available against S.  Moreover, it is S’s right in the sense that S can proceed against P if P fails to perform the contract.  S has all the remedies normally available to the plaintiff in a contractual action.”

16     Zweigert and Kötz also write usefully on the development of the principle by the French courts[15] -

“It is only under very strict conditions that art. 1121 declares a “stipulation au profit d’un tiers” to be admissible; this shows that while French lawyers at the end of the eighteenth century were ready to abandon the Roman principle that “alteri stipulari nemo potest”, they were still very far from accepting the modern principle that contracts for the benefit of third parties should be allowed generally.  Under art. 1121 the “stipulation au profit d’un tiers” is only valid if the person who promises to render performance to the third party simultaneously promises something to the other contractor as well, or if the contracting party makes the promisor some gift in connection with the transaction.  If these requirements were taken seriously, it would mean that in order for an uncle to make a binding promise to a father to render some performance to his son, either the uncle must promise something to the father as well or receive something from the father as a gift, on condition of the performance to the son.  Nowadays, however, it is established that a contract for the benefit of third parties may be perfectly valid even if these requirements are not satisfied.  The performance which the promisee must make to the promisor under art. 1121 need no longer be a gift; any economic transfer will suffice, and the alternative requirement of the Code, that the promisee must at the time of the contract always stipulate for something for himself, has been understood by the courts as being satisfied if any “profit moral” accrues to him as a result of the transaction.  In the case of insurance such a “profit moral” exists in the certainty of the insured that the insured sum will be paid to the third party on the occurrence of the insured event (Civ. 16 Jan. 1888, DP 1888, 1.77) . . .” [16]

17     Another commentator, a doctoral student, has even gone so far as to comment that -

“[o]n peut donc dire que, pratiquement, la prohibition établie par le Code civil n’existe plus”.[17] 

Application to Guernsey

18     There does not appear to be any readily available Guernsey case law on the question of third party rights.  Nor do the traditional customary law sources address the question.  Where, then, should the Guernsey lawyer turn?  Terrien notes, pragmatically, that -

“Vray qu’ès cas où la Coutume ou l’usage defaut, et qui ne sont compris aux ordonnances Royaux, ou autres que nous observons pour loy, nous usons bien et nous aidons de lois et constitutions Impériales, et du droit escrit par les Romains: non pas comme de loix qui nous obligent, mais comme de raison commune où elles sont fondées”.[18]

19     This practice is also noted by Routier in his Principes généraux du droit civil et coutumier de la province de Normandie.[19]  It seems reasonable, then, that Guernsey lawyers should be able at least to look to the position under Roman law.  From this point, it is no great stretch to consider that the writing of Pothier on the subject should prove useful in Guernsey.  Indeed, Pothier is considered a respectable source on contractual law points in both Channel Island jurisdictions.  From this perspective, Guernsey would recognise only the very limited exceptions to the basic principle discussed by Pothier.          It remains unclear, however, to what degree Guernsey should (and a Guernsey court would) adopt the formulation in articles 1165 and 1121 of the Code civil and, more significantly, the subsequent French jurisprudence which widens the ambit of the stipulation pour autrui principle. 

20     Of course the principle in Morton v Paint[20]might also permit development of the customary contractual law of Guernsey along similar lines to England and France, thus enabling a more modern approach to the rights of third parties to be adopted.

Jeremy Muir is a barrister & solicitor (New Zealand) and an advocate of the  Royal Court of Guernsey.  He is also a Cayman Islands attorney in addition to being an English solicitor.  Currently with Minter Ellison in Auckland, he previously worked for Ogier in their Guernsey office.

William Simpson is an advocate of the  Royal Court of Guernsey and practised as an English barrister, and also in Cayman and the British Virgin Islands, before coming to Guernsey in 1991.  He is a partner in Ogier.

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