Chapter 7Introduction to the law of contract7 Contracts (Rights of Third Parties) Act 1999.In
1996 the Law Commission recommended that the doc-
trine of privity be relaxed to allow a person who is not a
party to a contract to sue on it, provided that the con-
tract contains an express term to that effect and it pur-
ports to confer a benefit on the third party. These
recommendations have now been implemented by the
Contracts (Rights of Third Parties) Act 1999.
The 1999 Act institutes reform of the doctrine of priv-
ity by recognising the right of third parties to enforce
contracts which have been made for their benefit. It
should be noted that the Act applies only to contracts for
the benefitof third parties and does not affect the estab-
lished principle that burdenscannot be imposed on a
third party without his consent.
The main provisions of the Contracts (Rights of Third
Parties) Act 1999 are set out below.
Right of a third party to enforce a term of
a contract (s 1)
A third party will have the right to enforce a term of a
contract:
■where the contract expressly so provides;
■where the term purports to confer a benefit on the
third party, unless it appears that the contracting par-
ties did not intend him to have the right to enforce
the term.
The third party must be expressly identified in the
contract either by name, e.g. Fred Smith; class, e.g. Fred
Smith’s employees; or description, e.g. Fred Smith’s
son. It is not necessary, however, for the third party to be
in existence when the contract is made. This provision
allows the contracting parties to confer enforceable rights
on, for example, a company which, although in the pro-
cess of formation, has not yet been incorporated.
The right of a third party to enforce a contract is
subject to the terms and conditions of the contract. It is,
therefore, open to the contracting parties to limit or
impose conditions on the rights of the third party to
enforce the contract.
The third party is entitled to all the remedies for a
breach of contract which would have been available to
him if he had been a party to the contract. The rules
relating to damages (including the duty to mitigate loss),
injunctions, specific performance and other types of
remedy will all apply.
Although the Act is primarily designed to enable third
parties to enforce positive rights, it also allows third
parties to take advantage of any exclusion or limitation
clauses in the contract. The effect of the Act on exemp-
tion clauses will be examined further in Chapter 9.
For the purposes of the Act, the ‘promisor’ is defined
as the party to the contract against whom the contrac-
tual term is enforceable by the third party, while the
‘promisee’ is the party to the contract by whom the term
is enforceable against the promisor. So if A makes a
contract with B, by which B agrees to confer a benefit on
C, B is the ‘promisor’, A is the ‘promisee’, and C is the
‘third party’.
Applying the provisions of the Act to the facts of
BeswickvBeswick(above), it is probable that if the case
arose today Mrs Beswick would have the right to enforce
John Beswick’s promise to pay her an annuity. The con-
tract between Peter Beswick and his nephew John pur-
ported to confer a benefit (the payment of an annuity)
on Mrs Beswick, who was expressly named. Under s 1 of
the 1999 Act, a presumed right of enforceability by Mrs
Beswick would be created, which could only be rebutted
if John Beswick could show ‘on a proper construction of223wife survived him she would receive an annuity of £5 per
week. John took over the business and paid the agreed
sum to Peter until Peter died. John paid Peter’s widow
for one week but then refused to make any more pay-
ments. Peter’s widow sued John for specific perform-
ance of the contract and arrears of the annuity. She
sued in her personal capacity and as administratrix of
her husband’s estate. The House of Lords held that she
was entitled to succeed in her capacity as administratrix
but privity of contract would prevent her from succeed-
ing in her personal capacity.Avraamidesv Colwill(2006)C had purchased a business from B Ltd. The transfer
agreement provided that C undertook to complete out-
standing customer orders and to pay any liabilities
properly incurred by the company. A was a dissatisfied
customer of B Ltd and brought a claim against C based
on the contract between B Ltd and C, claiming that the
transfer agreement had conferred an enforceable bene-
fit on C. The Court of Appeal held that under s 1(3) of the
Contracts (Rights of Third Parties) Act 1999, the contract
must expressly identify third parties by name or class
and no such identification had occurred in this case.