CASE

Duff Inc. are appointed main contractors under a construction contract by Cairn Products plc, to build an apartment block. The contract between Cairn and Duff provides, inter alia, that ‘Duff Inc.'s liability for loss will be limited to $10 million’. Assume this is a valid limitation of liability, not open to challenge.

Duff enter into a subcontract with Spark Ltd, to carry out the electrical work on the apartment block. Due to Spark's negligence in carrying out the electrical works, certain floors in the apartment block are damaged. This will cost $15 milion to rectify.

Given the limit on Duff's liability, Cairn raise proceedings in tort against Spark. Assume that this is a valid claim, the requirements of a relevant claim in tort having been satisfied by Cairn. In defending the action, Spark seek to rely upon the limitation of liability clause in the contract between Cairn and Duff.

Questions

• 1. Can Spark rely on the limitation of liability clause?

• 2. Would your answer to 1 be different if the contract between Cairn and Duff provided that ‘Duff Inc. and its agents’ (including independent contractors’) liability for loss will be limited to $10 million’?

DISCUSSIONS

BELGIUM

Siel Demeyere and Vincent Sagaert

I. Operative Rules

• 1. Spark cannot rely on the limitation of liability clause.

• 2. In this scenario, Spark could rely on the limitation of liability clause.

CASE

Mrs Fidel wants to buy Mr Goodman's house. Mr Goodman appoints Mr Delmonte, a surveyor, to assess the value of the house. Mr Delmonte estimates the value of the house at €700,000. In making his valuation he fails to take into account both the sharp decline in house prices in the neighbourhood in the last month and a remark in an inspection report mentioning heavy soil contamination. Based on Mr Delmonte's valuation report, Mrs Fidel purchases the house for €695,000. The bank, having seen the valuation report, provides a loan to Mrs Fidel for the same amount and takes a security over the house. Three months later, Mrs Fidel is fired from her job, and is forced to sell the house. She decides to do this, as she knows the bank will foreclose when she cannot make her loan repayments, and that this will result in additional costs. She sells the house for only €575,000, and is unable to repay the bank the residual debt.

Question

Assuming there is professional negligence on the part of Mr Delmonte, who can sue him for damages?

DISCUSSIONS

BELGIUM

Siel Demeyere and Vincent Sagaert

I. Operative Rules

Both Mrs Fidel and the bank can sue Mr Delmonte.

Descriptive Formants

Firstly, the professional negligence by Mr Delmonte constitutes a breach of the contract with Mr Goodman. However, Mr Goodman suffered no damage, and was even able to realise extra profit from the sale, thanks to the overvaluation of his house.

The subject of this volume is ‘contracts and third parties’. Although the reader could infer from the title that the scope of the project is restricted to contract law only, that has not been the case. While going through the project and drafting the cases, the editors had some difficulty in identifying the scope of the project.

Narrowly defined, the project ‘contracts and third parties’ could be limited to third-party clauses in contracts, restricting the project to contract law alone. In this case, the contractual parties may, for example, grant a right to a third person in their contract. However, ‘contracts and third parties’ could also encompass cases where a third party may indirectly rely on a contract to which they are not a party, such as a limitation of liability clause in a related contract. In such cases, third-party rights and contract law are very much related to delictual law (unlawful acts, tort law), already expanding outside the field of contract law.

From a broader perspective, ‘contracts and third parties’ will also deal with several separate doctrines, such as agency or representation, tort law (again), property law, assignment, commercial law, insolvency law, general rules of patrimonial law and other parts of the law of obligations. This broader perspective readily appears if a third party is involved in the conclusion or execution of a contract.

THE CONTRACT/TORT DIVIDE

A BLURRING BORDERLINE

It is well known that classical legal thinking imposed a sharp distinction between contract and tort. It considered that contract was the essential manifestation of the power of self-determination of the parties (private autonomy), where the breach of pre-existing obligations created by contract gave rise to different remedies – damages being one of them – that could be claimed either on their own or in addition to other remedies. In tort law, damages were also an important remedy – probably the most important one – but in contrast to contract, liability arising from tort had its origin in the infringement of interests protected by law rather than by private arrangement.

However, this sharp distinction has been eroded over time and no longer reflects the current situation. Even the first European civil codes established obligations between contractual parties which were based, not on the parties’ consent, but on general duties of conduct established by the law, as in the case of good faith in the creation or performance of contracts. Growing state interventionism and the need to protect vulnerable parties have given rise to more obligations imposed by law, as in the case of professional liability, and in some cases even to entirely new areas of law, such as labour law or consumer law. In the tort law area, it is no longer true that all obligations arise independently of the defendant's will.

CASE

Anita decides to rent her husband, Ben, a boat from Anchors Ltd, as a gift. The contract is between Anita and Anchors, and specifies that the crew of the boat will be Ben and four friends.

Ben and his friends take the boat out. They have a great time – so great, in fact, that they are a day late in returning the boat to Anchors. Anchors tell Ben that he will have to pay a late return penalty of €750. Ben refutes this. Anchors draw Ben's attention to clause 14(a) of the contract between Anchors and Anita, which provides for a late-return fee.

Question

From whom can Anchors seek payment of the penalty?

DISCUSSIONS

BELGIUM

Siel Demeyere and Vincent Sagaert

I. Operative Rules

Anchors can seek payment from Anita under the contract. They may, alternatively, be able to seek damages from Ben on a non-contractual basis, as a result of Ben's complicity in contractual breach.

II. Descriptive Formants

This case can be solved in two ways, depending on whether the timely return of the boat, under penalty of the fee, is in the first place conceived as a contractual obligation, or as a burden connected with the clause in favour of a third party. Looking at it from the former point of view, Anchors can seek payment of the penalty from Anita: she is the contracting party and the breach of contract is toerekenbaar/imputable (accountable) to her.

CASE

Sell Co Holdings Ltd (‘Holdings’) is the parent company of a group of companies, The Sell Co Group. Recently, Holdings outsourced certain of the group's IT functions to Digital Age Services Ltd (‘Digital Age’). The contract between Holdings and Digital Age provides, inter alia, that Digital Age will provide certain IT services to the companies set out in a schedule to the contract, from 1 February 2016 until 31 January 2021; that Holdings can add to, remove or replace any company in the schedule on giving written notice to Digital Age; and that Holdings are responsible for making all payments to Digital Age. The schedule lists a number of companies in the Sell Co Group, including Sell Co Direct Ltd (‘Direct’).

Due to a breach of the contract by Digital Age, Direct suffer loss, due to lost sales, in the region of €10 million.

The directors of Holdings make clear that Holdings will not raise court proceedings against Digital Age for breach of contract.

To date, Holdings have sent notices to remove two group companies from, and add another group company to, the schedule to the contract. Direct have not been removed from the schedule.

Questions

• 1. Can Direct take action against Digital Age for breach of contract?

• 2. Would Direct be able to force Holdings to raise proceedings against Digital Age to recover Direct's losses?

In answering the above questions, assume that causation is not an issue, i.e. assume that Direct would be able to prove that the losses they have suffered are as a result of Digital Age's breach of contract.

It is a special pleasure to welcome the 23rd book in the series The Common Core of European Private Law. This book is edited by two scholars, who together represent two different legal cultures: the Dutch and the Scottish. Their works are already renowned and appreciated well beyond the ‘Common Core’ circles.

The Common Core project was launched in 1993 at the University of Trento under the auspices of the late Professor Rudolf B. Schlesinger. The methodology used in the Common Core project, then novel, is now a classic. By making use of case studies, it goes beyond mere description to detailed inquiry into how most European Union legal systems resolve specific legal questions in practice, and to thorough comparisons between those systems. It is our hope that these volumes will provide scholars with a valuable tool for research in comparative law and in their own national legal systems. The collection of materials that the Common Core project is offering to the scholarly community is already quite extensive and will become even more so as more volumes are published. The availability of materials attempting a genuine analysis of how things seem to be is, in our opinion, a prerequisite for an intelligent and critical discussion on how they should be. Perhaps in the future European private law will be authoritatively restated or even codified. As of today, the Common Core project is the longest-running scholarly enterprise in the field.

INTRODUCTION

The third party is omnipresent, yet hard to define in law. There is one foundational principle which has set the stage throughout legal history: alteri stipulari nemo potest – no-one may stipulate for another. Third persons find themselves, thereby, principally placed outside another's obligation – this vinculum iuris (chain of law) which binds debtor to creditor. Justinian's metaphor characterises the obligation between the parties, and also signifies its exclusionary force towards third parties. It is not just a principle from civil law, but is similarly strongly present in common law traditions of privity of contract:

Yet contracts and obligations not only appear in juridicial vitro – in the books – but also in vivo – in practice. Hence, third parties have quite commonly appeared in the actual world of transactional practice throughout history.

The third party found its bond as a debtor or creditor only with difficulty, established in the variety of legal formants over time, whereby schools of legal thought, sources of law, means of reasoning, as well as substantive concepts provided the building blocks making or breaking the third parties’ position. The factual variety in social reality adds to the picture.

CASE

Mr Kane, a real estate investor, acquires real property in order to rent it out to companies. Mr Kane has hired a real estate agent, Waltmann & Co., to rent out his properties. Waltmann sign the rental contracts for the account of Kane, but in their own name; the rental contracts are concluded between Waltmann and the tenants. Waltmann carry out a number of administrative obligations, including giving the keys to the tenant at the start of the rental period and inspecting the properties after the end of the rental period. Waltmann also send invoices, collect the rent, deduct a fee, and then pay the remainder to Kane. Kane never comes into contact with the tenants, and most tenants have no particular knowledge of Kane being the owner of the property, although they could find out through the land registry, or by inquiring with Waltmann. One of the tenants, MyPad Inc., have damaged the property it has rented.

Questions

1. Can Waltmann sue MyPad for compensation for the damage caused to the property?

2. If Waltmann become insolvent after concluding a new rental contract with Nickel & Dime Ltd, what remedies do Nickel & Dime and Kane have against each other to safeguard their respective interests under this contract (access to and use of the building, and payment of the rent, respectively)?

DISCUSSIONS

BELGIUM

Siel Demeyere and Vincent Sagaert

I. Operative Rules

1. Waltmann can sue MyPad.

2. Nickel & Dime would be able to use the building. Kane would be able to seek payment of the rent.

CASE

Xervix Inc. sells and acquires paintings and real estate for wealthy private clients who wish to remain anonymous. Xervix enters into contracts with the sellers and buyers of the valuable items, and receives the money in the event of a sale, and the paintings or real estate in the event of a purchase, each time in its own name for the benefit of its private clients.

In particular, the money is wired to one of Xervix's bank accounts, paintings are handed over to Xervix and stored on Xervix's premises, and deeds of transfer for disposal of real property are signed by Xervix, with the keys of real property acquired being handed over to Xervix. The parties dealing with Xervix know that Xervix acts as an intermediary.

On Wednesday 22 February 2017, Xervix sells two Mesdag paintings to Mr Ross for €180,000, for the benefit of Mrs Brown. Mr Ross has not yet paid. Xervix acquires a Van Dyck painting worth €3 million, for the benefit of Mr Landwell. The painting is handed over to an employee of Xervix. Xervix also acquires an apartment for Mr and Mrs Astor.

Assume that Xervix have not yet taken any action by Thursday 23 February 2017.

Questions

• 1. On that date, who are the owners of the Van Dyck painting and the apartment?

• 2. Assuming Xervix are the owners of the Van Dyck painting and the apartment, if Xervix become insolvent do Mr Landwell and Mr and Mrs Astor have any rights in relation to those assets in preference to Xervix's general creditors?

CASE

Cloud Investments Ltd delivers IT services. On 1 January 2016, Cloud Investments enter into a loan agreement with Santa Bank for the amount of €10 million. The loan is due to be repaid to Santa Bank by 1 January 2020, with an interest rate of 2 per cent per annum.

The contract contains a clause which allows Santa Bank to raise the interest rate to 5 per cent. In security of repayment of the loan, Cloud Investments has granted a mortgage on its real property in favour of Santa Bank. The contract also allows Santa Bank to terminate the loan agreement and immediately demand payment of all outstanding amounts of principal and interest, if Cloud Investments default on the loan.

By 1 January 2017, Cloud Investments have provided several IT services to Santa Bank, worth €2 million, which have not yet been paid for.

On 31 January 2017, Santa Bank, as assignor, assigns the right to be repaid under the loan agreement to Rangifer Tarandus Bank (‘RT Bank’), as assignee. The assignment is intimated to Cloud Investments.

Questions

• 1. Which rights remain with Santa Bank as assignor, and which rights pass to RT Bank as assignee?

• 2. Can Cloud Investments set off their claim of €2 million against the claim of €10 million assigned to RT Bank?

INTRODUCTION

As noted in the Introduction to this volume, the topic of ‘contracts and third parties’ is extensive. Different jurisdictions deal with a variety of different legal situations within that broad umbrella term. The topic is not necessarily one that sits within one area of the law of obligations. As Professor Martín-Casals’ chapter amply demonstrates, some legal systems use contract law, and others tort law, to deal with the protection of third parties. It is, therefore, hoped that this work will be of interest to scholars and students of contract and tort law alike.

The apparent lack of uniformity within European legal systems on ‘contracts and third parties’ was what prompted the idea for this work in the first place. Its aim is to provide some clarity on the approaches of the various legal systems considered in this work. While the case studies in this volume deal with a variety of situations where a contract between two parties impacts on a third party, there are some themes to be taken from the analysis of those situations. As discussed in the Introduction, these themes can be broken down into four main categories: (A) defining a third party's rights and obligations in a contract between two contractual parties (including exclusion or limitation of liability); and, related to this, (B) the actio Pauliana; (C) acquisition of contractual rights in the case of the transfer of property and assignment; and (D) relationships of principal and agent in the conclusion and performance of contracts.

CASE

Tasman Ltd have entered into a contract to lease machines to Vinci Company. The lease contract states that Vinci have to pay a monthly rent of €2,000 for the machines. In reality, Vinci and Tasman have agreed that Vinci only have to pay €1,500. Tasman sell their assets, including the machines and the lease contract with Vinci, to Kepsky & Co. The lease is validly assigned. While neither Tasman nor Vinci make any inaccurate statements to Kepsky, neither of them inform Kepsky of the lower monthly rent. Based on the rent set out in the lease, Kepsky thinks it is worth buying the lease from Tasman. When Kepsky send out the first monthly invoice for €2,000 to Vinci after the sale, Vinci reply that they only have to pay €1,500.

Question

What do Vinci have to pay Kepsky?

DISCUSSIONS

BELGIUM

Siel Demeyere and Vincent Sagaert

I. Operative Rules

Vinci would likely have to pay €2,000 to Kepsky.

II. Descriptive Formants

Tasman and Vinci have agreed a different rent to that mentioned in their contract. This situation is addressed in Belgian law as a situation of veinzing/simulation (simulation). Simulation can relate to the existence of the agreement (e.g. sale where there is none), the sort of agreement (e.g. sale instead of gift), the identity of the contracting parties (in the case of naamlening/prête-nom (name lending)) or the content of the agreement.