Third parties

The 1999Act is a real exception to privity.And, you can see why it was thought fair for the, from the law commission's reports and why it was thought important to give effect to the party's intentions, to affect the contracting party's intentions, and to protect the reasonable expectations of third parties as well. But there's a very good critique of the 1999Act by Rob Stevensin the LQR, in the further reading at the end of the chapter. And I'd encourage you to read that and think critically about the act as well. Because twenty years on there still aren't very many cases under the 1999Act. And I think that's because it's very often excluded by commercial parties. And it's worth thinking about why it is still excluded, because I don't think it's just a fear of the new, I think there are deeper reasons why. And if you're asked, let's say in an exam to deal with the 1999Act, my top tip is to look at the statute itself, to look at the words of the statute and to open the statute book if you are able to in the exam room. But clearly there are two limbs to the 1999 Act. The first limb is by far the least controversial. It makes sense when the parties expressly say that the third party can enforce the term of the contract to allow the third party to enforce that term of the contract. But even there, you've got to be a bit careful because section two might operate in such a way that the contracting parties can't later vary their agreement, or rescind or terminate their agreement. And section two operates in quite a rigid way. So, commercial parties still have reasons to be cautious about using the 1999 Act even here. But I think the main problematic section of the Act is Section 1 (1)(b). So, the second limb, if you like, the second gateway into the 1999 Acts. Because it raised a presumption that the third party should be able to enforce the terms of their contract, which isn't clearly linked to the party's intentions at all, and can lead to some quite unexpected results. And I think a good example of that is the recent decision of the court of appeal in Chudley, which I deal with in the text, and the Supreme Court have now somewhat frustratingly refused permission to appeal. Where, as Iexplain, basically a company set up a segregated client account at a  bank, and the bank was to allow withdrawals from the account only if an unconditional undertaking was received from a named solicitor. Now, this was a very short contract. It was under a letter of instruction. And at first instance, it was found that this very short document wasn't actually a contract tool, didn't have contractual effect, for the court of appeal held that it did. And in such a short contract, the parties didn't include all the boiler plate clauses they would normally include in their standard terms. And in the long list of a party’s standard terms, in the boiler plate at the end of an agreement, there will often be a term excluding the 1999 Act. But unusually there wasn't such a clause in Chudley, because the contract was so short. And that was a real boon to the clients, because they didn't know anything about the terms. So, they hadn't reasonably relied or expected to benefit under this contract. And allowing the clients to bring a claim probably doesn't reflect the intentions of the parties to the contract itself, the bank and the company. They just wouldn't have thought about this at all. And wouldn't have expected a third party to be able to bring a claim, I think. So, it's not always clear that the 1999 Act will operate in satisfactory ways. And that's something to think about when approaching this area and to keep a critical view of the law.