Contracts (Rights of Third Parties) Act 1999
A product of legislative reform in response to growing criticism about the number, and incoherency of, exceptions to the doctrine of privity.
Statutory third-party rights
Two main circumstances where contractual provisions can be enforced by a third party:
where the contract expressly provides that he may (section 1(1)(a));
where the contract term purports to confer a benefit upon him (section 1(1)(b));
provided that it appears that the parties did not intend the term not to be enforceable by the third party (section 1(2))
Nisshin Shipping Co Ltd v Cleaves & Co Ltd - if the contract is neutral on the question of whether the contract should be enforceable by a third party, this does not mean that section 1(1)(b) cannot apply.
Dolphin & Maritime & Aviation Services Ltd - Clark J drew a distinction between
contracts which have a purpose of conferring a benefit and those which have a benefit as an incidental effect:
“the language used by the parties should show that one of the purposes of their bargain (rather than one of the incidental effects if performed) was to benefit the third party.”
Section 1(3) provides that the party must be identified by name, as a member of a class or answering a particular description but need not exist when the contract is entered into.
Great Eastern Shipping Co Ltd v Far East Chartering Ltd - successful reliance on section 1 where a letter of indemnity was held to be capable of being accepted by a ship-owner as the agent of the charterer.
The Act will not apply to:
bills of exchange, promissory notes and negotiable instruments (section 6(1));
contracts of employment (section 6(3));
contracts for the carriage of goods by sea (other than clauses of exclusion or limitation) (section 6(4)).
Variation of the contract = the promised benefit to the third party may NOT be removed by variation of the original contract, where:
the third party has communicated his assent to the term to the promisor
the promisor is aware (or can be reasonably be expected to have been aware) that the third party has relied on the term
Remedies for Third Parties
Section 1(5) = any remedy that would have been available to the third party, were he a party to the contract.
BUT if the promisee has already claimed damages on behalf of the third party, Section 5 operates to reduce the amount of damages the third party can claim.
