Enforcing Contract Terms under Contracts (Rights of Third Parties) Act 1999 – Case Spotlight

The Act serves as an exception to the traditional common law doctrine of privity of contract, which only allowed the actual parties to a contract to enforce its terms. Under the Act, a third party can assert their rights if the contract grants, or appears to grant, them a benefit.

Facts of the case 

In HNW Lending Ltd v Lawrence [2025] EWHC 908 (Ch), HNW Lending Ltd was a Financial Conduct Authority (“FCA”) authorised peer-to-peer lender that facilitated loans from lenders to businesses. Ms Lawrence, a property developer with a portfolio of properties, sought a loan from HNW to refinance existing loans taken for the redevelopment of one of her properties. 

HNW agreed to arrange this loan, and Ms Lawrence signed a loan agreement. 

A substantial sum was advanced to her, secured by charges on several of her properties, including the property for which the loan was concerned (“the Property”).

When Ms Lawrence defaulted on her loan repayments, HNW sought possession of the Property and payment of the amount allegedly owed under a charge registered against it. The lender was not named in the Agreement but was identified in a schedule to the Agreement by the number '1'. 

HNW was not a party to the Agreement, which was between Ms Lawrence and 'the Lender (acting by HNW Lending Ltd as Security Agent)'.

Clause 26.7 of the Agreement stated that while HNW was not a party to the Agreement, it could 'take the benefit of and specifically enforce each express term' of the Agreement 'and any term implied under it' pursuant to the Act.

The Decision 

S 1(1) of the Act states that a term of the contract may be enforced by a third party if:

'(a) the contract expressly provides that he may, or 

(b) subject to subsection (2), the term purports to confer a benefit on him'. 

In the judge's view in this specific case, s 1(1)(a) of the Act was not limited to the enforcement by a third party of a term purporting to benefit the third party since this was specifically covered by s 1(1)(b). 

Rather, it was sufficient that the Agreement expressly provided that the third party may enforce the term. That was what clause 26.7 of the Agreement, which the judge thought had been drafted with the Act in mind, did in relation to all the express and implied terms of the Agreement, enabling HNW to enforce obligations owed to and benefitting the lender. 

The relevant clause of the Agreement stated that HNW may take the benefit of, and specifically enforce, each express or implied Agreement term. 

Because of the express intention to confer such a benefit on HNW, the judge held that, in the alternative, the clause would also be effective pursuant to s 1(1)(b).

Key Takeaway Points

1. Support in favour of enforcing Third-Party Rights: The Act shows a potential willingness to interpret the law in a way that upholds the enforceability of third-party rights.
2. Explicit Third-Party Rights: It's crucial to draft contracts that clearly outline the rights of third parties to avoid potential disputes. 
3. Clarity in Contractual Terms: Ensure all contractual terms, including schedules, are clear and precise to prevent or facilitate, as intended, rights of third parties.

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