Contract law update 2019

Who can enforce contractual obligations?

It is a fundamental principle of contract law that, subject to certain exceptions, only a party to a contract (or deed) can enforce that contract. There is surprisingly little authority, however, on a related but different question: can every party to an agreement enforce every contractual promise in that agreement?

The New South Wales Court of Appeal considered this issue (in the context of deeds) in Wollongong Coal Ltd v Gujarat NRE India Pty Ltd¹. In that case, Justice Leeming (with whom Chief Justice Bathurst and Justice McCallum agreed) rejected a submission that the doctrine of privity of contract meant that every party to a deed was necessarily entitled to enforce every promise in that deed (subject to any express limitation in the deed itself). Justice Leeming held that a promise in a deed could be limited by implication so as to enable its enforcement only by a particular party. However, on that case's particular facts, he held that Wollongong Coal Ltd was entitled to enforce the relevant promise. The fact that the trial judge had taken a different view emphasises the importance of expressly dealing with this issue where there might otherwise be uncertainty about who is entitled to enforce a promise.

A similar issue arose in New Standard Energy PEL 570 Pty Ltd v Outback Energy Hunter Pty Ltd², which is also summarised in the 'Interpretation of Contracts' section of this Update. That case proceeded on the assumption that a party's ability to enforce a particular obligation was simply a matter of contractual interpretation (more ambitious arguments based on the privity doctrine were not put). The majority of the Full Court of the Supreme Court of South Australia held that if (contrary to their decision) there had been a contractual promise not to withhold consent unreasonably to a change in control, that promise could only be enforced by the 'controlled' party (and not by its parent, which was also a party to the contract). Once again, the fact that the trial judge, and one judge on the Full Court, took a different view emphasises the uncertainty that can arise if the contract does not expressly state who is entitled to enforce certain obligations.