Contracts (Rights of Third Parties) Act 1999

Summary

The Contracts (Rights of Third Parties) Act 1999 created a significant statutory exception to the long-established common law doctrine of privity of contract. Under the privity doctrine as affirmed in Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847 and Tweddle v Atkinson (1861), only a party to a contract could enforce it, meaning that a third party who stood to benefit from a contractual promise had no right of action against the promisor. The 1999 Act, which implemented the Law Commission's recommendation in Report No 242 (Privity of Contract, 1996), confers on third parties a right of enforcement in two circumstances: (a) the contract expressly provides that the third party may enforce the term; or (b) the term purports to confer a benefit on the third party, unless on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. The third party must be identified in the contract by name, as a member of a class, or by a particular description; they need not be in existence at the time the contract was made. The Act also protects third parties from having their crystallised rights extinguished by variation or rescission by the contracting parties (s.2), allows promisors to rely on defences and set-offs that would have been available against the promisee (s.3), and preserves all existing third party rights at common law and in equity (s.7). Certain categories of contract are excluded from the Act, notably bills of lading, company memoranda and articles, and employment contracts (insofar as they would give rights to employees to enforce contracts between employers).

Key Points

• Right of enforcement (s.1(1)) — a person who is not a party to a contract may enforce a term of the contract in his own right if (a) the contract expressly provides that he may; or (b) subject to s.1(2), the term purports to confer a benefit on him
• Negative construction proviso (s.1(2)) — s.1(1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party; this is a rebuttable presumption that shifts the burden of proof to the contracting parties to show exclusion of the right
• Identification requirement (s.1(3)) — 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
• Remedies (s.1(5)) — the third party has available to him all remedies that would have been available to him in an action for breach of contract if he had been a party, including damages, injunction, and specific performance, subject to the rules relating to those remedies
• Protection against cancellation (s.2) — once the third party has communicated assent to the term to the promisor, or the promisor knows the third party has relied on the term, or the third party has relied on the term, the contracting parties may not rescind or vary the contract so as to extinguish or alter the third party's entitlement without the third party's consent
• Defences of promisor (s.3) — the promisor may rely on any defence or set-off arising from the contract that would have been available to the promisor in a claim by the promisee; the promisor may also rely on any defence or set-off that would have been available to the promisor against the third party in a claim arising otherwise than from the contract
• Exclusions (s.6) — the Act does not apply to contracts for the carriage of goods by sea (except as regards s.1(5) rights in bills of lading), employment contracts (so far as conferring rights on employees of persons other than the parties), and company constitutional documents; parties may also expressly exclude the Act
• Preservation of existing rights (s.7) — the Act does not affect any right or remedy of a third party that exists or is available apart from the Act; existing common law exceptions such as collateral contracts, agency, and statutory rights (e.g. Third Parties (Rights against Insurers) Act) continue to operate

Parts & Sections

Amendments History

Frequently asked questions

When can a third party enforce a contract term under the 1999 Act?

Under the Contracts (Rights of Third Parties) Act 1999, a non-party can enforce a contract term if the contract expressly allows it, or if the term purports to benefit them. However, this benefit-based right does not apply if a proper construction of the contract shows the parties did not intend the term to be enforceable by the third party. This creates a rebuttable presumption that shifts the burden of proof to the contracting parties to demonstrate exclusion of the right.

How must a third party be identified in a contract to use the Act?

The third party must be identified in the contract by name, as a member of a class, or by a particular description. They do not need to be in existence at the time the contract is made. Once identified, they can enforce the term in their own right, subject to the conditions regarding express provision or intended benefit.

Which types of contracts are excluded from the Act?

The Act does not apply to contracts for the carriage of goods by sea (except for specific remedies in bills of lading), employment contracts (where they would give rights to employees to enforce contracts between employers), or company constitutional documents. Parties may also expressly exclude the Act from their agreements. Existing common law rights, such as those under agency or assignment, remain unaffected.

Can the original parties change or cancel the contract after a third party has relied on it?

Once a third party has communicated assent to the term, or the promisor knows the third party has relied on it, the contracting parties cannot rescind or vary the contract to extinguish or alter the third party's entitlement without their consent. This protection ensures that crystallised rights are not removed by agreement between the original parties.

What remedies are available to a third party if the contract is breached?

A third party has access to all remedies available in a breach of contract action, including damages, injunctions, and specific performance, subject to the usual rules governing those remedies. Additionally, the promisor can rely on any defences or set-offs that would have been available against the promisee, or against the third party in claims arising outside the contract.