CONTRACT LAW Essay Example | Topics and Well Written Essays - 2000 words

CONTRACT LAW - Essay Example Consideration moves from the promisee, not the third party and thus the third party cannot sue upon the contract (Tweddle v Atkinson [1861]2. As imagined, this was done in the interest of certainty in law but it did have the potential of leading to unfairness for a party to whom the benefit was provided, such as that witnessed in Dunlop and Shanklin Pier v Detel Products3. This is where the Law Commission came in with its reforms in 1996. The resulting Contract (Rights of Third Parties) Act 1999 brought into force that report of the Law Commission (1996) which allows third parties to enforce the contract and be able to sue for breaches subject to a few conditions. Needless to say, this brought forth a welcome wave of statutory protection for third parties which previously were entitled to benefits under that contract but still could not enforce it due to lack of consideration. Section 1 of the Contract (Rights of Third Parties) Act 1999 provides that a third party may be able to enfo rce the terms of the contract if â€Å"the contract expressly provides that he may† (s.1(1)(a)) and â€Å"the term purports to confer a benefit on him† (s. 1(1)(b)) (except where on proper construction   of the contract it appears that the parties did not intend the term to be enforceable by the third party (s.1(2)). Thus if A agrees to pay C $100 on the performance of an obligation by B, C can enforce that payment if A fails to pay in breach. This was not the case earlier, as seen in Beswick v Beswick4 where the nephew made a contract with his uncle which involved payment of weekly maintenance to the aunt. The House of Lords held that Mrs. Beswick could not enforce the contract since she was not privy to it. In light of the Contract (Rights of Third Parties) Act 1999 today, it is clear that the case would have been decided differently. The third party may also rely on exclusion clauses in order to protect its interest. However, simply conferring a benefit to the thi rd party may not be enough to grant him a right to sue. Where there is doubt as to whether the parties designed the agreement to avoid conferring a right to sue on the third party, s.1(2) applies and the courts will, on a proper construction of the contract, seek to determine the actual intention of the parties. This presents certain problems if the contract does not expressly state the intention of the parties. In Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003]5, the burden of proof to counter a right granted to a third party to sue under s.1(2) was placed on the party that alleges that such a right has been wrongfully applied (as per Colman J). Thus, in a neutral contract, where there is no language barring the third party to sue, it would usually follow that the statute often grants a right to sue to the third party. This safeguards the third party a little too broadly, and it has been applied differently where the chain of sub-contracts is long. In cases where the contract con sist of sub-contracts that purport to confer a benefit to a third party, it is more likely for courts to construe that parties privy to a sub-contract lower down the chain did not intend to enable the third party benefitting under that contract to sue up the hierarchy the original contractor (see Junior Book v. Veitchi & Co Ltd [1983]6. Of course, it must be noted that the Act does not allow the right to a third party in all cases and the parties may explicitly bar him to sue on it. In addition, there must be some identification