Contracts (Rights of Third Parties) Bill
The Contracts (Rights of Third Parties) Act 1999 received its Royal Assent on 11th November 1999.
Before the Act was passed, only a party to a contract could enforce the terms of that contract, even if the terms conferred a benefit on a third party. So for example, if A agreed with B that B would pay money to C, C could not sue B if he did not pay.
The Act changes this rule. Section 1 of the Act provides that a third party can enforce a term of a contract where:
(a) the contract expressly allows this; or
(b) the term 'purports' to confer a benefit on the third party (as in the example above), unless it appears that the parties did not intend the term to be enforceable by the third party when the contract as a whole is considered.
Once a right to enforce a term has been given to the third party, and he has agreed to that term or relied upon it, the rights of the contracting parties to vary their contract in a way that might affect the third party is limited. In many cases, they will have to obtain the third party's consent.
The Act is however very flexible. Parties can grant narrow or wide rights to third parties, or exclude the Act altogether.
The Act will apply to all contracts in England, Wales and Northern Ireland entered into after 10th May 2000. However, parties can choose to make a contract subject to the Act now by expressly stating this in the contract.
For further information, please contact Caroline Cummins on +44 171 367 3000 or by e-mail at cxc@cms-cmck.com.
