Variation and double liability (Parties)- FS

Question 1

Under what conditions can the original contracting parties not vary or rescind a contract to the detriment of a third party?

Answer 1

According to Section 2(1) of the Contract (Rights of Third Parties) Act 1999, they cannot do so without the third party’s consent if:

1. The third party has communicated assent to the term to the promisor (by words or conduct),
2. The promisor is aware the third party has relied on the term, or
3. The promisor ought reasonably to have foreseen reliance, and reliance has occurred.

Question 2

Communication of Assent (Section 2(1)(a))

Answer 2

For a third party’s assent to be valid under the Act, it must be effectively received by the promisor. If sent by post, the postal rule does not apply — communication is effective only upon actual receipt.

Question 3

Can parties contract out of the third party’s protection under the Act?

Answer 3

Yes. The original contract may contain an express term allowing variation or rescission without the third party’s consent, thereby overriding the protections under Section 2(1).

Question 4

What defenses are available to a promisor when a third party enforces a contract term?

Answer 4

Under Section 3(4), the promisor may raise any defense, set-off, or counterclaim that would have been available against the promisee.

Section 3(6) ensures the third party is not in a better position than if they had been a party to the contract (e.g., they cannot enforce illegal benefits or do so if they lack capacity).

Question 5

What is the rule against double liability under the Act?

Answer 5

Section 5 of the Act provides that if the promisee has already recovered substantial damages for the third party’s loss, the court must reduce any award to the third party as it sees appropriate — preventing double recovery for the same breach.

Question 6

What happens if a third party’s letter of assent is lost in the post?

Answer 6

The third party is not protected under Section 2(1)(a) unless the letter was actually received. However, they may still qualify under Section 2(1)(b) or (c) if reliance is proven or foreseeable.

Question 7

Conditions for Protection Against Variation Without Consent (Section 2(1))

Answer 7

A third party must meet one of the following:

1. Communicated assent to the promisor.
2. The promisor knows of reliance.
3. The promisor ought reasonably to have foreseen reliance, and reliance has occurred.

Question 8

In the event of a third party claim, what principles guide the court in balancing fairness between the promisor, promisee, and third party?

Answer 8

• The third party cannot obtain more than a contractual party (Section 3(6)).
• Defenses available to the promisor against the promisee may also be raised against the third party (Section 3(4)).
• Damages to the third party may be reduced to prevent double recovery if the promisee has already been compensated (Section 5).