Rights of third parties- FS Flashcards
(14 cards)
What is the Contracts (Rights of Third Parties) Act 1999 designed to do?
It allows a third party to enforce a term of a contract to which they are not a party, in limited circumstances, even if they provided no consideration.
What rights does the Act confer upon qualifying third parties?
- Under Section 1(5): The right to enforce a contractual remedy as if the third party were a party to the contract.
- Under Section 1(6): The right to enforce an exemption clause for their benefit.
Does the Act abolish previous common law exceptions to the doctrine of privity?
No. Under Section 7(1), the Act preserves all previous statutory and common law exceptions to privity.
Which contracts are excluded from the scope of the 1999 Act?
Section 6 excludes specific contract types, including:
- Employment contracts
- Contracts between a company and its members
- Certain contracts relating to carriage of goods
What are the two statutory routes by which a third party may enforce a contract under Section 1(1)?
- Section 1(1)(a): The contract expressly states the third party may enforce it.
- Section 1(1)(b): The contract purports to confer a benefit on the third party.
What prevents a third party from enforcing a benefit under Section 1(1)(b)?
If, upon proper construction of the contract, it appears the parties did not intend the term to be enforceable by the third party.
What does Section 1(3) require for a third party to enforce a contract?
The third party must be:
* Identified by name, or
- Identified as a member of a class, or
- Identified by description,
but need not exist at the time the contract was made.
What does Purporting to Confer a Benefit mean?
A contract is considered to “purport to confer a benefit” on a third party when the term provides a direct advantage to the third party beyond incidental gain.
Can a third party enforce a contract if the benefit is incidental?
No. The benefit must be explicitly intended for the third party. Incidental improvements to their position are insufficient.
Test for Third-Party Enforceability under the 1999 Act:
- Is the third party expressly identified (Section 1(3))?
- Does the contract expressly state the third party may enforce it? (1(1)(a))
- Alternatively, does the contract purport to confer a benefit on them? (1(1)(b))
- Is there a contrary intention in the contract that overrides enforceability?
What is the effect of a valid claim under Section 1(1)(a) or 1(1)(b)?
The third party may enforce any term that benefits them and may claim remedies for breach, including reliance on exclusion clauses.
Is it necessary for a third party to exist when the contract is made?
No. Under Section 1(3), the third party may be unborn or not yet in existence at the time of the contract.
How do courts treat identification by class under Section 1(3)?
Courts allow third parties identified by class terms (e.g., “clients,” “residents aged 60–65”) to enforce the contract, provided the class is clear and intended.
What did the courts decide regarding third parties in the Chudley case?
A term like “client account” may validly identify a class of beneficiaries. Therefore, third-party investors falling within that class could enforce the contract.
