Contracts (Rights of Third Parties) Act 1999
It is now lost in the mists of history, but once upon a time there must have been a reason why lawyers of the international capital markets were so collectively hostile to the Contracts (Rights of Third Parties) Act 1999, a small piece of well-intended legislation which allowed contractual parties to agree that persons benefiting from their contract, but who were not parties to it (and thus did not have the necessary “privity of contract” required by the common law to take action under it), might, upon a breach, be allowed to sue the breaching party directly to recover their loss. Look, who could possibly object to that worthy goal?
Well, the community of English lawyers did, most likely, through its instinctive, huffy, reactionary petulance — perhaps understandable in 1999 but, ladies and gentlemen, come on: haven’t we grown out of that now?
So the great canon of capital markets boilerplate is shot through with hostility to this poor act. There’s Para 27.10 of the 2010 GMSLA for example: the very last paragraph, when all else is said and done, they knife the poor CRTPA just when, perhaps, it thought it had finally got away with it.
It seems to your correspondent the CRTPA has its uses. To a careful user of the English language — and is there a carefuller one than a member of the worshipful company of solicitors? — it really ought not present much risk. If you don’t wish to confer a benefit on a third party then ... don’t. But if you have reason to, why not? To be sure there are cases where it might be interesting: where the contracting counterparty who might enforce on a beneficiary’s behalf is dead, or insolvent, suddenly indisposed to the well-being of his erstwhile friend, or just disinclined to take action for fear of upsetting a mendacious client. The usually advanced objections: uncertainty; indeterminate liability and so on, surely fall upon stony ground: if an obligor has given away a right, then it should be compelled to perform it. Does it matter who it should be that is allowed to bid it do what it has promised to do?
So, set the beneficiary free to fight his own battles, independent of the whims of his privitous friend!
And these authorities:
- Secure Capital v Credit Suisse [2017] EWCA Civ 1486: A bearer security held as a global note by a common depositary on behalf of clearing systems which has a CRTPA provision excludes the right of the end noteholder (in the clearing systems) to sue the issuer. Held: end noteholder could not pursue the issuer directly.
- Chudley v Clydesdale Bank plc — a classic case where the CRTPA would have delivered a sound result where the common law of contract fails to. A fraudster who takes your money and says he’ll put it in the bank for you, but puts it in his own bank account instead — the contract to do this is between fraudster and bank; scamee has no privity so could the — ? Well, it is a nice idea, and the CRTPA neatly solves it, with no real loss.
Another place where CRTPA remains unloved is in the terms and conditions of bearer debt securities. This seems especially strange: since a bearer note is unilateral and, by its very terms, intended to benefit whomsoever in the world should for the time being bear it, exactly whom is one trying to exclude with this boilerplate? And how — presuming that person did not bear it (if she did, she would not be a third party) — would such a person formulate a claim that the issuer intended to benefit her?
For now, the Contracts (Rights of Third Parties) Act 1999 remains unwanted. Shunned. Unloved; garnering only negative notice in the run-off boilerplate of our modern contractual frameworks. Perhaps it is time for a rethink?
See also
- Contracts (Rights of Third Parties) Act 1999 clause —our boilerplate guide
- Contracts (Rights of Third Parties) Act 1999 - GMSLA Provision
- ...and any of its Affiliates and any of its, or their, directors, officers, employees, contractors or professional advisers
- Privity of contract