Les Affreteurs Reunis SA v Leopold Walford (London) Ltd
House of Lords
Citations: [1919] AC 801.
Facts
The appellant owned a steamship, which they chartered to Lubricating and Fuel Oils Company (the charterers). The respondents were brokers for the charterers, but were not a party to the charter agreement. The charterparty stated that ‘a commission of three per cent on the estimated gross amount of hire is due to [the respondents], on signing this charter’.
The appellant refused to pay the respondents the commission due under the clause. The charterers sued for breach of contract, and the parties agreed to allow the respondents to be added as co-claimants.
Issue(s)
- Was the appellant liable for failing to fulfil a contractual benefit to a third-party?
Decision
The House of Lords held in favour of the respondents. The charterers held the benefit of the contract ‘on trust’ for the respondents. They could sue for its breach on the respondents’ behalf.
This Case is Authority For…
This case is an example of the courts using the notion of a ‘trust of a promise’ to get around the common law rule of privity of contract. This applied where the third-party ‘effectively nominated’ another to enter into the contract for his benefit. Where there is a trust of a promise, the party to the contract can sue as a trustee for the third-party’s benefit. Presumably, they then hold the damages awarded on trust for the third-party.
In the modern era, these tactics are likely to be very rare. This is because third-parties can now usually sue under the Contracts (Rights of Third Parties) Act 1999.
