CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

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Don't know how aware everyone is of this Act. Although it will not assist people who have previously entered into or paid for mortgage indemnity schemes with their lenders, it may assist in the future. The act basically reforms the privity of contract rules which is often used as a shield by lenders to refuse to release documentation to which people are not directly a party SUMMARY

The Act reforms the rule of "privity of contract" under which a person can only enforce a contract if he is a party to it. The rule means that, even if a contract is made with the purpose of conferring a benefit on someone who is not a party to it, that person (a "third party") has no right to sue for breach of contract.

The Act sets out the circumstances in which a third party is to have a right to enforce a term of the contract (section 1), the situations in which such a term may be varied or rescinded (section 2) and the defences available to the promisor when the third party seeks to enforce the term (section 3). It makes it clear that section 1 does not affect the promisee's rights, or any rights that the third party may have which are independent of the Act (sections 4 and 7(1)). The Act does not apply to certain contracts (whether wholly or partially) (section 6).

Section 1 gives effect to the central purpose of the Act. It sets out the circumstances in which a third party would have the right to enforce a term of the contract.

Subsection (1) sets out a two-limbed test for the circumstances in which a third party may enforce a term of a contract. The first limb is where the contract itself expressly so provides. The second limb is where the term purports to confer a benefit on the third party unless it appears on a true construction of the contract that the contracting parties did not intend him to have the right to enforce it (subsection (2)).

Subsection (3) requires that, for subsection (1) to apply, the third party must be expressly identified in the contract by name, class or description, but establishes that the third party need not be in existence when the contract is made. This allows contracting parties to confer enforceable rights on, for example, an unborn child or a future spouse or a company that has not yet been incorporated.

Subsection (4) clarifies subsection (1). The third party's right of enforcement is subject to the contract's terms and conditions. It is open to the parties to limit or place conditions on the third party's right; for example, if he wishes to enforce the right he is to do so by way of arbitration and not litigation.

Subsection (5) makes it clear that the courts may award all the remedies which are available to a person bringing a claim for breach of contract to a third party seeking to enforce his rights under subsection (1). The normal rules of law applicable to those remedies, including the rules relating to causation, remoteness and the duty to mitigate one's loss, apply to the third party's claim.

Subsection (6) makes it clear that the Act is to apply so as to enable a third party to take advantage of an exclusion or limitation clause in the contract, as well as to enforce "positive" rights. The Act, for example, allows a term of a contract which excludes or limits the promisee's liability to the promisor for the tort of negligence and expressly states that the exclusion or limitation is for the benefit of the promisee's "agents or servants or subcontractors" to be enforceable by these groups.

Subsection (1) ensures that the Act does not affect any existing right or remedy of the third party and allows for the judicial development of a third party's rights.

COMMENCEMENT 41. The Act is to come into force on Royal Assent (section 10). It will only apply to contracts which are entered into during the six month period after Royal Assent if the contract expressly provides for it to do so. Where there is no such express provision it will not apply to contracts entered into before the end of that six month period.



-- (alison23@excite.co.uk), October 05, 2000

Answers

It seems that most lenders are now dropping the MIG having been "sussed" over this questionable "earner".

Hopefully the fact that this act has been deemed neccessary, may mean it may just be able to be used to question the credibility of past MIGs by casting a "reflection of doubt" over them.

-- Tony Hayter (Tony@Hayter.com), October 06, 2000.


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