Co-Written by Remo Dalimonthee
On November 11, 1999 the Contracts (Rights of Third Parties) Act 1999 (the "Act") became law in England and Northern Ireland. The Act will apply to contracts governed by English law or the law of Northern Ireland entered into on or after May 11, 2000. It will also apply to each English law contract entered into on or after November 11, 1999 which expressly provides for application of the Act.
The Act will have far-reaching implications for a variety of contracts, and, as contracts are at the core of business transactions, for business in general. The Act fundamentally alters the English law principle of "privity of contract" that permits only parties to a contract to enforce the terms of such contract, even if the contract clearly purports to confer a benefit on a third party.
The Act will enable a person not a party to a contract to enforce the terms of such contract if the contract expressly provides that such person may enforce the contract or one or more terms thereof, or if one or more terms of the contract purport to confer a benefit to such person, unless on a proper construction of the contract, it appears that the parties did not intend the term to be enforceable by the third party.
On and after May 11 it will be important to draft each contract with a view as to whether any third party has been given rights thereunder. The parties to a contract may agree in such contract to exclude the application of the Act with respect to such contract. If the application of the Act is not excluded by the parties, one or more of such parties may be exposed to unanticipated claims by third parties not subjectively intended to be beneficiaries of such contract.
The Act does not affect rights granted to third parties by means other than the Act itself. Therefore, if the parties to a contract wish to grant third party rights under such contract, they may continue to do so through the use of collateral contracts, novations, assignments, deed polls, trust relationships, and other established English law mechanisms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.