The Contracts (Rights of Third Parties) 1999 This received the Royal Assent on 11 November 1999. 10 May 2000. The Act applies to all contracts entered into after this date.
New development: The Contracts (Rights of Third Parties) Act 1999 (“CRTPA”)
Background: This new law will fundamentally change the doctrine of privity of contract in English law. At present, if I agree in a contract to indemnify somebody who is not a party to that contract, that indemnity is worthless. This is for the simple reason that the party benefiting from the indemnity is not a party to the contract and therefore cannot sue on it to enforce the indemnity. The CRTPA will change all that and bring English law into line with other systems of contract law, for example New York law.
What will change: CRTPA applies automatically to all contracts signed after 10 May 2000 and to any contract signed between now and then which states in terms that the CRTPA will apply. gives somebody who has not signed a contract (the “third party”) the right to sue under it. They will have this right if the contract expressly says that the third party can do so or if there is a term in the contract which “purports to confer a benefit” on that party.
Up until now, the “privity principle” has often been got round by arranging for one of the parties to contract as “agent” for a disclosed principal, thus giving the principal a right to sue under the contract even though it has not actually signed it. Since advertising agencies and other marketing businesses traditionally contract as principals, however this way of recovering benefits apparently due to them under their agencies’ contracts with others has not been open to brand owners. Now all this will change.
Other cases where the CRTPA will have an effect in the marketing industry include contracts between advertising agencies and suppliers such as personalities appearing in advertising campaigns. Traditionally there has always been a debate as to whether the contract should be three-way, with the client as well as the agency and the performer signing, or whether a two-way contract between the agency and the performer is sufficient. After this Act, three-party contracts will not be necessary in this context.
Timetable: Between now and 11 May 2000 the CRTPA will only apply to contracts which state that the CRTPA applies.
What happens next: The CRTPA will apply to all contracts entered into after 10 May 2000.