A Rare Judicial Look At The Contracts (Rights of Third Parties) Act

The recent Part 8 decision in Hurley Palmer Flatt v Barclays Bank Plc considered the application of the Contract (Rights of Third Parties Act) 1999 (the Act) and whether a third party could rely on the contractual right to adjudication. This is a rare judicial consideration of the Act – although it has been in force for well over a decade, it has been the subject of limited judicial commentary. The case indicates that it is important that contracts should expressly set out the rights that a third party is intended to be granted rather than relying on statute to imply these.

Background The Act was introduced as a way to get around the traditional rule of privity of contract (i.e. that one must be a party to a contract to be able to benefit from it). Under the Act, third parties are permitted to benefit from contractual terms where they are identified by name or by class in the contract.

The Act is now referred to in most commercial contracts, but in the vast majority of instances the sole reference is to exclude its applicability so that third parties cannot gain unintended benefits; this is now a boilerplate clause in many contracts. In construction contracts, however, it is common for third party stakeholders with a relevant interest to use the Act to rely on the work by contractors and professional consultants. Another common use of the Act is to enable affiliates or group companies of a party to a contract to rely on that contract.

Facts The contract in question was an appointment for the provision of engineering services between Hurley Palmer Flatt and Barclays Plc. The contract contained a clause permitting "Affiliates" of Barclays to "enforce the terms of this Agreement as 'Client' always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client". Separately, the contract gave parties the right to refer disputes to adjudication.

Barclays Bank Plc, who fell within the definition of an "Affiliate", had a claim against Hurley Palmer Flatt in relation to the chilled water system, and served a notice of adjudication for related damages. Hurley Palmer Flatt brought Part 8 proceedings challenging Barclays' right to adjudicate.

Relying on a remedy under the contract The focus of the case was whether Barclays, as a third party, could rely on and use the contractual dispute resolution procedure of adjudication. The court construed the third party...