Contracts (Rights of Third Parties) Act 1999 - A Reminder 1

The Contracts (Rights of Third Parties) Act 1999 was passed into law on 11th November 1999. However, it does not take general effect until 11th May 2000. Any contract entered into after this date, save for a limited number of exceptions, will be affected by it.

In essence, the Act allows contracts to confer enforceable rights on third parties. In direct contrast to the old law on privity of contract, this legislation allows non-parties to a contract rights of action to enforce the rights created in their favour.

According to the Act, third party rights can be created in two situations:

(a) where the contract expressly provides the third party with a direct right to enforce a contract term; or

(b) where a contract term purports to confer a benefit on the third party. The latter category is clearly wider. That said, the Act will not cause any rights to be conferred where the contract makes it clear that it is not intended to do so.

Where third party rights are conferred, this may also have implications for the rights of the contracting parties to rescind, terminate or vary their contract. In certain circumstances, unless the contract provides otherwise, the Act states that parties will be unable to rescind or vary their contract without getting the third parties' consent.

This legislation has very great potential effects and parties are strongly urged to seek advice to avoid unintended liabilities to third parties. This is particularly so where it is intended to enter into contracts after 11th May 2000.

Previous articles we have written on the Contracts (Rights of Third Parties) Act are available on our information archive which is accessible via the LawNow section of our website (http://www.cmck.com).

For further information please contact Ann Minogue at [email protected] or on +44 (0) 20 7367 2505).