Adam Taylor considers third-party claims against schools and draws a wider lesson for the future

Privity of contract prevents anyone except the parties to a contract from suing for its breach. Despite the changes brought about by the Contracts (Rights of Third Parties) Act 1999, the doctrine remains important. Gosfield School Ltd v Birkett & Long (a firm) & another [2005] EWHC 2905 (QB), [2005] All ER (D) 253 (Dec) shows why.


The case arose from the settlement of an earlier case between the fee-paying school and the parents of two pupils. In return for their substantial investment, the parents expected their sons to achieve good results at A-level. But their expectations were unfulfilled. The parents refused to pay outstanding fees. The school sued. The parents counterclaimed, alleging that the school had failed to give the boys an adequate education.


At this point, the plot thickens: the parents included the boys in the title of their counterclaim. The school objected; the boys had never been named as defendants and so could not make a counterclaim. Their only recourse was to bring a fresh claim and that claim could only be in tort, since the boys were not privy to the contract for their education (the 1999 Act not then being in force). The district judge gave summary judgment for the school for the outstanding fees, struck out the boys' counterclaim, but directed a trial of the parents' counterclaim.


The counterclaim never came to trial. Unusually, the school admitted some shortcomings and made an offer, which, in 2002, resulted in a settlement 'in full and final settlement of all claims' between the parties. The guns fell silent.


It was almost two years later that the school and its advisers received a shock: in 2004, the boys, now in their early 20s, issued claims of their own against the school. They sought to recover, among other things, income which, they alleged, they had lost, and would in future lose, because of their inadequate education and damages for 'disillusionment'. The school sought an indemnity or contribution from its insurers and, on the ground that the compromise reached with the parents ought to have prevented the boys' claims, against its former solicitors and counsel. The insurers settled the claim against them. The court directed that the additional claims by the school against the solicitors and counsel be tried before the boys' claims.


The main proceedings raised interesting questions: could the boys sue for losses arising from the contract with their parents? If they sued in negligence, would they be prevented from recovering damages on the ground that their loss was purely economic (D & F Estates Ltd & ors v Church Commissioners for England & ors [1999] AC 177)? Ought the court, following the 'rule in Henderson' (Henderson v Henderson [1843] 3 Hare 100), to strike out the boys' claims as an abuse of process because they should have been brought with their parents' claim?


Unfortunately - from a purely legal point of view - these questions were never answered: the school settled the boys' claims in November 2005 for relatively small sums and costs. Only the claims against the solicitors and counsel remained.


It is an odd fact of the case that, six days before the settlement of the parents' claim in 2002, a trainee solicitor pointed out to the partner acting for the school the possibility of a further claim by the boys; the partner in turn mentioned the risk in a letter to counsel.


Mr Justice Tugendhat found that 'it was foreseen by [the solicitor] that the boys might sue', but that he did not have it in mind when, at the door of the court, the 2002 settlement was concluded. The partner said in evidence that he did not then address his mind to the possibility of a further claim because 'he had formed the view that the losses for which the boys might in principle be able to sue could not be proved on the evidence'.


Counsel gave a different justification: he said that he would have thought it unwise to invite the boys to make a claim with a view to settling it at the same time as their parents' claim; the boys might have obtained public funding and have declined to settle a case that they could pursue without risk.


Were the solicitors and counsel negligent? If they had considered approaching the boys, the solicitors might have thought it wiser to 'let sleeping dogs lie'. The judge found that 'it was impossible... to conclude that the solicitors ought to have taken the course... of trying to tie the boys into the negotiations and settlement'. It was not, therefore, 'a breach of duty for them to fail to take that course'. And, if the solicitors were not, it followed that counsel could not be negligent.


The judge emphasised that his decision depended on the facts; rather than being reassured, readers should ask themselves what they can learn from the difficulties in which the school's advisers found themselves.


Gosfield School had some protection against the boys' claims because the Contracts (Rights of Third Parties) Act 1999 was not in force when the contract for their education was made. Schools involved in future cases may not be so lucky. Solicitors who advise schools should ensure that standard terms of contract are signed by all parents, which exclude rights under the Act, require prompt, written notification of complaints and prevent claims for lost earnings. Failure to include these terms risks claims by pupils for a lifetime of economic loss arising from breach of the contract for their education.


The risk of a third-party claim is not, of course, confined to cases involving schools and their pupils. A defendant's solicitor should always consider potential claims by third parties before agreeing terms of settlement. Might a relative of the claimant or a company controlled by him make a claim? Might a joint debtor or guarantor seek a contribution? Whenever such a claim is possible, the cautious solicitor will guard against it by seeking, if not an agreement with the third party, then at least an indemnity from the claimant.


District Judge Adam Taylor sits at Horsham County Court