Gatecrashing parties

By now, you are probably fed up hearing about the impact of the new Third Party Rights Act, but I make no apology for returning to the subject. This is, after all, a major change in contract law that could, at worst, mean you accidentally give rights to someone and end up with a major and unexpected problem on your hands.

Briefly then, a recap. One of the main principles of contract law has always been privity of contract. If you are not one of the parties signing the contract, you can’t have any rights or obligations under it. The act partly reverses this situation and allows contracts from 11 May 2000 to give a right to another party to enforce a term of that contract in its own right. This can work in two ways: either the right can be expressly provided in the contract or a term of the contract can purport to convey such a benefit.

So, do you want the good news or the bad? Well, the good news is that analysis of some of the standard forms of construction contract shows pretty conclusively that there are no expressly provided third-party rights. This makes sense because, until the introduction of the act, any such rights would have been unenforceable. Some of the finest legal brains in the country (and from this you will guess that I have not had much to do with it) have yet to reach a conclusion on whether any rights are purported.

Opinions vary. Some think that there are all sorts of contract provisions, mainly in relation to the role of the contract administrator and other consultants, where the contractor could have a purported right under the contract to enforce a provision. The obligation of the contract administrator to issue interim certificates would be a good example of this.

Others take a different view and say that the word “purport” used in the act means more than just “implies”. This interpretation would seriously reduce the number of occasions when the current standard forms might give third parties rights. Ultimately, only the courts will be able to give an answer on this point.

The real question is what we as an industry want in the future. The law is about to change and we need to think positively about how we take advantage of it

The bad news, though, is this: the focus so far has been on the contract conditions. No one has looked at the remainder of the contract, such as bills of quantities and drawings. These will define the materials and workmanship, name subcontractors, manufacturers and suppliers, and define interfaces with tenants, adjoining owners and the public. They may set out procedures for the approval of drawings and flesh out the contract provisions in all sorts of other ways. In amongst all this, there are bound to be areas where third-party rights could be purported, if not expressed.

Clearly, there is no way that the lawyers will check this detailed information on every contract. The advice will therefore have to be for all contracts to opt out of the act by the application of a simple exclusion clause. There are any number of examples floating around, all of which achieve the same objective. If you are in any doubt you may want to look at JCT 98 Amendment 2 to see how this can work.

So much for existing contracts. The real question is what we as an industry want in the future. The law is about to change and we need to think positively about how we take advantage of it.