The Law Reform Commission is seeking views on its proposal to reform the privity doctrine so as to respect contracting parties' freedom of contract and, where appropriate, to give effect to their intention to benefit a third party.

The privity doctrine has two aspects. As a general rule, a person cannot acquire and enforce rights under a contract to which he is not a party; and a person who is not party to a contract cannot be made liable under it.

While the second aspect is generally regarded as just and sensible, the first aspect has been subject to widespread criticism by the courts, academics and law reform bodies in a number of common law jurisdictions.

In the commission's Privity of Contract Sub-committee's opinion, the doctrine frustrates contracting parties' intention to benefit third parties, and the doctrine is unduly complex, uncertain and artificial.

The sub-committee has recommended that the doctrine should be reformed, but not completely abolished, by means of a detailed legislative scheme which will provide a comprehensive, systematic and coherent solution.

Major issues arise from proposed change

It has also suggested that all the major issues arising from their proposed statutory exception should be dealt with in the new legislation, including:

* How should a third party be designated?

* Under what circumstances should a third party have the right to enforce a contract to which he is not party?

* How should the balance between the contracting parties' freedom to vary or rescind the contract and the third party's interests be struck?

* Should the courts have the discretion to authorise variation or cancellation of the contract by the contracting parties?

* What defences, set-offs and counterclaims should be available to the contracting party who has promised to confer benefits on the third party in an action brought by the latter to enforce the promise against the former?

The sub-committee chairman Benjamin Yu said the proposal is a general and wide-ranging statutory exception to the privity doctrine.

If the parties prefer, they will be able to make it clear in their contract that the proposed legislation is not to apply to their contract, he added.

Submission deadline: August 31

Copies of the consultation paper are available from the commission's secretariat at 20^th floor, Harcourt House, 39 Gloucester Road, Wan Chai.

Comments and suggestions should reach the commission by email to hklrc@hkreform.gov.hk or mail to the commission by August 31.