Privity of Contract

The Explanatory Notes to the Contracts (Rights of Third Parties) Act 1999 explain the common law rule the Act reforms: "The Act reforms the rule of 'privity of contract' under which a person can only enforce a contract if he is a party to it," adding that “the rule means that, even if a contract is made with the purpose of conferring a benefit on someone who is not a party to it, that person (a ‘third party’) has no right to sue for breach of contract.”

The 1999 Act creates a statutory exception to that rule. Section 1 provides that “a person who is not a party to a contract (a ‘third party’) may in his own right enforce a term of the contract if” the contract expressly provides for this, or the term purports to confer a benefit on the third party (unless the contracting parties did not intend the term to be enforceable by them). The third party does not need to be named individually: the Act requires only that “the third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.” Once a third party's right has accrued, section 2 restricts the original parties from rescinding or varying the contract to remove that right without the third party's consent in specified circumstances.