Contract Law Notes - Contract (Rights of Third Parties) Act 1999
These contract law notes cover an important piece of primary legislation: Contract (Rights of Third Parties) Act 1999.
Who can claim? Intended and incidental beneficiaries.
Contracts (Rights of Third Parties) Act 1999
- Right of third party to enforce contractual term.
(1) Subject to the provisions of this Act, 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—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
Cf Beswick v Beswick;
White v Jones [1992] 2 AC 207 (disappointed beneficiary)
Consumer who receives the goods as a present?
Junior Books v Veitchi?
(2) Subsection (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.
Cf Greater Nottingham Co-op v Cementation
(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.
What rights does third party get?
(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5) For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).
Negative benefits?
(6) Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be construed as references to his availing himself of the exclusion or limitation.
Can promisor and promisee change their minds?
Variation and rescission of contract.—
(1) Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not, by agreement, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if—
(a) the third party has communicated his assent to the term to the promisor,
(b) the promisor is aware that the third party has relied on the term, or
(c) the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.
(2) The assent referred to in subsection (1)(a)—
(a) may be by words or conduct, and
(b) if sent to the promisor by post or other means, shall not be regarded as communicated to the promisor until received by him.
(3) Subsection (1) is subject to any express term of the contract under which—
(a) the parties to the contract may by agreement rescind or vary the contract without the consent of the third party, or
(b) the consent of the third party is required in circumstances specified in the contract instead of those set out in subsection (1)(a) to (c).
…
Can promisor raise defences it could have raised against promise?
Defences etc. available to promisor.
(1) Subsections (2) to (5) apply where, in reliance on section 1, proceedings for the enforcement of a term of a contract are brought by a third party.
(2) The promisor shall have available to him by way of defence or set-off any matter that—
(a) arises from or in connection with the contract and is relevant to the term, and
(b) would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(3) The promisor shall also have available to him by way of defence or set-off any matter if—
(a) an express term of the contract provides for it to be available to him in proceedings brought by the third party, and
(b) it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(4) The promisor shall also have available to him—
(a) by way of defence or set-off any matter, and
(b) by way of counterclaim any matter not arising from the contract,
that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.
(5) Subsections (2) and (4) are subject to any express term of the contract as to the matters that are not to be available to the promisor by way of defence, set-off or counterclaim.
(6) Where in any proceedings brought against him a third party seeks in reliance on section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract.
Enforcement of contract by promisee.
Section 1 does not affect any right of the promisee to enforce any term of the contract.
Protection of promisor from double liability.
Where under section 1 a term of a contract is enforceable by a third party, and the promisee has recovered from the promisor a sum in respect of—
(a) the third party’s loss in respect of the term, or
(b) the expense to the promisee of making good to the third party the default of the promisor,
then, in any proceedings brought in reliance on that section by the third party, the court or arbitral tribunal shall reduce any award to the third party to such extent as it thinks appropriate to take account of the sum recovered by the promisee.
Protecting a sub-contractor by a clause in the sub-contract
The Pioneer Container [1994] 2 AC 324 (BBF 1200)
Goods owners contracted with a freight forwarder for their carriage from Taiwan to Hong Kong. The forwarders sub-contracted the actual carriage to the defendants, who issued bills of lading. These provided that they were to be governed by Chinese law and any dispute was to be determined in Taiwan. The vessel sank after a collision and all the cargo was lost. P issued proceedings in Hong Kong; the defendants applied to have the action stayed on the ground that it should be heard in Taiwan.
If goods owner agrees to forwarding agent/ bailee making sub-bailment on terms, and sub-bailee is aware of bailor’s interest:
(1) owner /bailor will come into direct relationship with sub-bailee; and
(2) owner/bailor impliedly agrees to be bound by terms of sub-bailment, including jurisdiction clause.
(If has in fact limited bailee’s authority to agree to limiting terms in sub-bailment, so that clause not binding, because unathorised, bailor will be liable to sub-bailee.)
