THE CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

The Contracts (Rights of Third Parties) Act 1999 has made significant changes to English law in relation to third party rights of action in contract (the rule that burdens cannot be imposed on third parties without their consent has not been altered by the Act). The regime which is set up by the Act very much depends upon the intention, at the time of entry into the contract, of the original contracting parties, both in relation to the existence and the scope of the third party right of action. The intention of the parties should, wherever possible, be stated clearly by them; otherwise difficulties are likely to arise in terms of working out whether or not the third party has a right of action or not. The Act will require contracting parties in the construction industry to re-examine their standard form contracts and it will also require those responsible for drafting model form contracts to re-assess these model forms. Whenever a term of a contract purports to confer a benefit on a third party, consideration should be given by the parties to the question whether or not they intend that third party to have a right of action to enforce or give effect to that right. Parties who fail to make their intention clear run the risk of litigation, the outcome of which will be difficult to predict with any degree of confidence.

Third party rights or another exception to the doctrine of privity?

It could be said that the Act introduces into English law a limited third party right of action to enforce the term of a contract made between two other parties or, alternatively, it could be said that it carves out a further (substantial) exception to the doctrine of privity of contract. This may turn out to be no more than two ways of saying the same thing; on the other hand, the difference in emphasis may turn out to be important. The Act is based on a Law Commission Report (Privity of Contract: Contracts for the Benefit of Third Parties: Law Com No 242, 1996) and in that Report the Law Commission stated (at paragraph 5.16) that, while their proposed reform