Contracts and third party rights
Contracts and third party rights

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • Contracts and third party rights
  • Why consider the effects of contracts on third parties?
  • Privity of contract—the general position
  • Contracts (Rights of Third Parties) Act 1999
  • Third party or collateral contract?
  • Third party or multiple (group) contract?
  • Third party or agency?
  • What about sub-agency?
  • How to determine whether a third party can sue or be sued?

Contracts and third party rights

This Practice Note considers why a third party may wish to rely on a contract to which it is not privy, and whether the common law doctrine of privity contract may be avoided by recognising instead a collateral agreement, a group contract or an agency scenario on the given facts.

Why consider the effects of contracts on third parties?

Although your client is not a party to the contract in question, you may still want to know whether they may be:

  1. liable for any obligations or

  2. entitled to enforce any benefits

under the contract.

Consider the following scenarios:

  1. in a contract between A (promisor) and B (promisee), A agrees to pay £1,000 to C (third party)

  2. in a contract between A (promisor) and B (promisee), A agrees that any liability in respect of C (third party) should be limited to £5,000

In both of these examples, there is a benefit to C (payment of £1,000 and limitation of their liability to a fixed sum of £5,000, respectively) which C might wish to avail itself of.

Alternatively, in a group supply arrangement, parent supplier (S) may have agreed with parent customer (C) that S will supply, and will procure its subsidiaries (S2 and S3) to supply, raw materials to C and also to C's subsidiaries, C2 and C3. Only S and C are parties to the contract.

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