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In May 2000, the Contracts (Rights of Third Parties) Act 1999 came into force. The Act brought to an end one of the basic principles of English law known as "privity of contract", whereby it was established that nobody could make a claim under a contract unless he or she was a party to that contract.
The Act provides that third parties can make claims under a contract to which they are not a party. In order to make such a claim, the third party must be expressly referred to as having the right to enforce the contract or the contract must "purport to confer a benefit" on the third party. That latter provision does not apply if, on a proper consideration of the terms of the contract, "it appears that the parties did not intend the term to be enforceable by the third party".
The construction industry has generally been quite hostile to this new Act. Lawyers have advised their clients that contracts should clearly exclude the provisions of the Act on the basis that, in the example of a contract between a client and a main contractor, there is an unacceptable and unquantifiable risk in permitting potential claims from third parties such as funders, purchasers, future tenants, designers and subcontractors.
The one notable exception to this is the new Major Project Form, published last year by the JCT. This wholly embraces the Act by identifying the third parties that may be entitled to obtain benefits under the main contract and by...