Apart from a few exempted categories, a contract entered into,
renewed or restated after midnight on 10th May, 2000 is capable of
granting directly enforceable rights to third parties (possibly,
even if the contracting parties do not realise it). If this
happens, the contracting parties may not be able to reverse or
modify the effect of the Act or terminate the contract without the
third party’s consent.
For the first six months since the Act came into
force (on 11th November, 1999) the Act could not apply unless the
contract expressly adopted it. On 11th May the balance shifted, so
that the Act will automatically be taken to apply unless the
contract expressly provides otherwise.
If the contract expressly states that an
identifiable third party has the right to enforce a term of the
contract in his own right, that right will be protected by the Act.
Broadly, the Act will also protect the third party against any
attempt by the contracting parties to remove or vary it without the
third party’s consent. The same can apply where the
contract does not expressly confer on a third party a direct right
to enforce, but is capable of being read as intending to do
As a precaution, the Act should be considered as a
matter of course in relation to all new contracts (apart from
excepted categories, such as negotiable instruments and employment
contracts). If necessary, the contract should be reworded before it
becomes binding, to make sure that the Act does not apply. If it is
intended that the Act should apply, very careful drafting is
required to ensure that the scope of the rights granted is no less
or more extensive than the parties intend.
Further information on the Act is stored in the
LawNow archive, including the article dated 1st March, 2000. Or you
can contact Simon Howley on 020 7367 3000 (email@example.com)