Privity of Contract | Rights of Third Parties
A fundamental principle of contract law is ‘privity of contract’ which states that only the parties named within the contract or agreement (‘a contract’) can seek to enforce its terms.
This principle was established by the case of Tweddle v Atkinson [1861] EWHC QB J57.
A ‘third party’ to a contract is anyone who is not privy to a contract and ‘privity of contract’ prevented any third party from suing or being sued under a contract they were not privy to.
However, the Contracts (Rights of Third Parties) Act 1999, (‘the Act’), has changed the law allowing a third party to enforce the terms of a contract where it grants an express right to do so or it confers a benefit to such third party.
Stuart Southall of KANGS Solicitors outlines the nature of the Act.
The Legislation
Subject to some exceptions, detailed below, a contract made on or after May 2000, whilst being able to confer a benefit on a third party, cannot impose a duty upon such a person.
The Act states:
‘1 Right of third party to enforce contractual term.
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(5) For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).’
General comments:
Not only may a third party enforce a term of a contract where it contains express authority, but may do so where the same term ‘purports to confer a benefit on that person.’
The term ‘a benefit’ covers a multitude of wide-ranging potentialities only evident from the specific nature, content and intent of a contract. It may refer to, for example, a promised performance or specific act but may equally refer to something totally diverse such as public rights of way over land.
It should be noted that section 3 of the Act is quite specific to the extent that the third party must be expressly identified in the manner stipulated (by name, as a member of class, or as answering to a particular description). Therefore, a third party is not able to seek to enforce any term alleging an implication that the term purported to confer any form of benefit.
When seeking to identify ‘as a member of a class or as answering a particular description’ the nature of a contract and the wording of the term will be critical. For example, a customer or consumer may be identified in a business contract either by way of description or as a member of a specific class discrete to that business. Accordingly, unless specifically excluded, the third party may, as such a consumer or customer identify within that entitled group.
The third party does not need to exist when a contract is made; for example, a contract can confer a benefit on a company that has not yet been registered.
Exclusions of Third Party Rights
The provisions of the Act may be specifically excluded or limited by the inclusion of appropriate directional clauses within a contract, thereby preventing any third party from suing or being sued.
Parties faced by proceedings issued by a third party seeking to enforce alleged rights, and who is not expressly excluded or limited, are entitled to defend themselves in the Civil Courts in the usual manner.
How Can We Assist?
The Team at KANGS is highly experienced assisting clients engaged in commercial disputes of every nature, whether seeking to enforce their rights or defending proceedings commenced against them.
Should you require our assistance please do not hesitate to contact one of our Team below.
Enquiries are welcome by telephone on 0333 370 4333 or email at info@kangssolicitors.co.uk.
Alternatively, discussions can be held virtually through live conferencing or telephone.
