Traditional rule:

Only a person who is a party to a contract can enforce its terms.

Key cases:

• Tweddle v Atkinson [1861] – a son could not enforce a contract between his father and father-in-law for his benefit because he was not a party to it.

• Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] – Dunlop could not enforce resale price conditions against a retailer because no contract existed between them.

Rationale:

Privity upholds the idea that contracts are based on mutual consent — rights and obligations arise only between those who agreed.

Over time, the courts developed exceptions to reduce the harshness of privity:

• Agency – An agent can contract on behalf of a principal; the principal can then sue or be sued as if they were a party (Scruttons Ltd v Midland Silicones Ltd [1962]).

• Trusts of a promise – A contracting party can hold contractual benefits on trust for a third party (Les Affréteurs Réunis SA v Walford [1919]).

• Collateral contracts – A separate contract made alongside the main one can benefit a third party (Shanklin Pier Ltd v Detel Products Ltd [1951]).

• Assignment – A party can transfer their contractual rights to another person (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994]).

• Restrictive covenants in land – Bind successors in title (Tulk v Moxhay [1848]).

Despite these, reform was needed to allow third parties to enforce clear contractual benefits without relying on complex legal devices.

This Act provides a statutory exception to the privity rule, allowing a third party to enforce certain contractual terms directly.

Key provisions:

Section 1(1):

A third party may enforce a contract term if:

(a) The contract expressly provides that they may do so, or

(b) The term purports to confer a benefit on them, unless it appears the parties did not intend that result.

Section 1(3):

The third party must be expressly identified by name, class, or description (they need not be in existence when the contract is made).

Section 2:

Once the third party’s rights are crystallised, the original parties cannot rescind or vary the contract to remove those rights without the third party’s consent.

Section 5:

The third party can seek remedies such as damages or specific performance, just like a contracting party.

Key cases under the Act:

Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] – a broker could claim commission as the contract conferred a benefit on him.

Avraamides v Colwill [2006] – the third party must be clearly identified; vague references to “customers” were insufficient.

Parties remain free to opt out of the 1999 Act if they do not wish third parties to have enforceable rights.

Typical clause: “A person who is not a party to this agreement shall have no rights under the Contracts (Rights of Third Parties) Act 1999.”