The Contracts (Rights of Third Parties) Act 1999 (the Act) has, as the date indicates, been around for over two decades.
Its effects were fundamental – heavily changing the general common law doctrine that only parties to a contract could benefit from its provisions. Prior to the Act, this was only possible in specific scenarios.
Under the Act, it is possible that any third party (whether they are explicitly named or not) could benefit from a contract if certain conditions are met.
Despite this, its effects have been relatively unexplored by the courts in England and Wales. Because of its far reaching and, if not properly catered for, uncertain consequences, it is frequently excluded from most commercial contracts.
The recent decision in HNW Lending Ltd v Lawrence [2025] EWHC 908 (Ch) brings welcome clarity to the Act.
Legal background
The first section of the Act states:
1 Right of third party to enforce contractual term
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5) For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).
As above, this part of the Act allows a third party enforce any term of a contract:
1. which stated that it could be enforced by that third party (highlighted in black above); or
2. could be interpreted or implied to provide a benefit to that third party.
It is enough that a third party could be a member of a class or could answer a description specified by the contractual term (such as a “customer” or “employee”).
If these requirements are satisfied, the Act states that the relevant third party can sue the offending party as if it was an original party to the contract.
In HNW Lending, the court dealt with point 1. above.
Case background
The claimant, HNW, arranged for the loan of money to the defendant, Lawrence for the purposes of refinancing existing loans from other lenders – all with the purpose with improving a property in Epsom (the Property). The loan was for approximately £3million.
HNW produced a loan agreement for Lawrence to sign (the Agreement). The Agreement was not to be, in fact, between HNW and Lawrence but ‘a person … who lends money through HNW Lending Limited who has granted permission for HNW Lending Limited to act as their Security Agent in entering into and administering this loan to the Borrower.’
HNW is a “peer-to-peer lender” which means that, in simple terms, it takes money from willing lenders (such as individuals and businesses, not banks) and lends it to willing borrowers. Investors have varying degrees of control but ultimately businesses like HNW arrange loans rather than lend its money itself.
This is the key point – HNW was not actually entering into the Agreement with Lawrence, the lender(s) are. HNW is the lender’s agent.
The Agreement contained various standard clauses that would be found in a loan agreement, such as the loan amount and interest rate. Lawrence provided the lender with a charge over the Property as security for the loan.
The Agreement also contained the following clauses:
13.1 The Lender has appointed the security agent [HNW] to act as its security agent under and in connection with the finance documents.
13.2 The Security Agent declares that it holds the security on trust for the lender on the terms contained in this agreement.
13.3 The Lender authorises the Security Agent to perform the duties, obligations and responsibilities and to exercise the rights, powers, authorities and discretions specifically given to the Security Agent (as applicable) under or in connection with the Finance Documents…
[…]
26.7 The Borrower [Lawrence] and Lender agree that, while HNW Lending Limited is not a party to this Loan Agreement, HNW Lending Limited may take the benefit of and specifically enforce each express term of this Loan Agreement and any term implied under it pursuant to the Contracts (Rights of Third Parties) Act 1999.
Lawrence failed to pay the loan and interest to HNW. HNW therefore sued Lawrence for the loan value plus interest.
Lawrence argued that because HNW was not a party to the Agreement and nor did it stand to benefit from the Agreement (Lawrence’s promise to pay was given to the relevant lender), HNW could not bring a claim against Lawrence under the Agreement or under the Act.
In making this argument Lawrence relied on a county court case brought by HNW against someone else – HNW v Mark (unreported) for broadly the same reasons. The defendant in that claim, Mark, gave security to the relevant lender arranged by HNW. The agreement between that lender and Mark contained similar terms to the Agreement, including an equivalent clause stating that HNW could bring a claim against Mark under the Act.
The relevant part of the claim brought by HNW against Mark was dismissed, because HNW was not a party to the equivalent of the Agreement and it did not benefit HNW.
High Court decision
The court in this case looked at HNW v Mark.
The judge in HNW v Mark gave the following reason for his dismissal of HNW’s claim against Mark:
‘Under the Contract (Rights of Third Parties) Act 1999 a third party is able to acquire and enforce the rights under a contract if and to the extent that the parties to the contract intend that should be the case. The difficulty in the application of that principle in the present case is that under the Loan Agreement, the defendant does not owe any obligations to the claimant, nor is the claimant expressed to benefit from the Loan Agreement….
[…]
‘The Act is intended typically, for a case where A and B agree to enter into a contract for the benefit of C, who is not a party to the contract, but in their contract A and B agree that C can enforce a claim to that benefit, pursuant to the Act of 1999. This is the opposite factual scenario; this is a case where the claimant has no cause of action because it has been expressly retained by 1. Therefore there is no benefit to be enforced by the claimant, no cause of action in its own name which it can rely on.’
The court in this case held that the decision in HNW v Mark was incorrect.
The Act states that the requirement that a contractual term benefit the relevant third party seeking to bring a claim under the Act is an “either/or” with the requirement that the term can state that it can be enforced by the third party.
In short, for the purposes of the first part of the Act, if the parties to a contract state that a third party can enforce one or more of its terms, that is enough. That term doesn’t have to benefit that third party.
If the contract does not explicitly state that a third party can enforce one or more of its terms, then, unless the Act is properly excluded, the third party can still try and rely on the Act where a term of a contract provides a benefit to them.
Lawrence’s application to dismiss HNW’s claim on the basis of the decision in HNW v Mark was therefore rejected by the court in this case.
Comment
HNW v Lawrence is an unsurprising decision, given that the first part of the Act clearly states “or” rather than “and.”
The court in this case did however give Lawrence permission to appeal his decision, because there was no legal precedent he followed in order to come to his conclusion that HNW v Mark was incorrect. HNW v Mark is also being appealed.
It seems likely that the Court of Appeal will be asked to form a view on which of the interpretations of the Act in Mark and in Lawrence is the correct one.
The courts in England and Wales generally favour interpretations that bolster the protections of third parties in the Act. Therefore, we would expect the Court of Appeal to adopt Lawrence, as opposed to Mark. That should hopefully end any uncertainty these double cases brought by HNW have raised and may perhaps be an opportunity for the court to provide additional useful commentary on how the Act is to be interpreted going forward.
At EM Law, we are experts in contract law. If you have any questions about the Contracts (Rights of Third Parties) Act 1999, or if you just want to talk about contracts more generally – we are here to help. Feel free to contact Neil Williamson or Colin Lambertus directly, or submit an enquiry here.
