Third parties without benefits

Commercial contracts frequently exclude the ability of third parties to enforce contractual rights under the Contract (Rights of Third Parties) Act 1999. But, if the parties provide in general terms that a third party can enforce a contract, does that right extend to terms that do not benefit them?

The High Court says they can. The court found that, where A and B make a contract and provide that C can enforce the terms of the agreement, C can enforce any term of the agreement. It does not matter whether the term C seeks to enforce benefits C or not. 

The court explained that the relevant section simply says that a third party can enforce the terms of a contract “if the contract expressly provides that he may” (s1(1)(a)). Restricting the scope to terms that benefit C was incorrect since this type of term is specifically addressed as an alternative elsewhere in the legislation (s1(1)(b)).

So how did the theory apply in practice? Lawrence entered into a loan agreement with “the Lender (acting by [HNW] (as Security Agent)”. HNW describes itself as a peer-to-peer asset-based lender, so “the Lender” was not named in the loan agreement but was identified in a schedule to the agreement by the number “1” and was described as “a person … who lends money through [HNW] who has granted permission for [HNW] to act as their Security Agent in entering into and administering this loan to the Borrower.” 

HNW alleged, and Lawrence denied, that Lawrence had failed to make various payments when due and sought possession of a charged property and significant cash sums from Lawrence. Lawrence applied to strike out HNW’s claim, arguing HNW did not have the right to enforce the loan agreement or charge.

The loan agreement provided that “while HNW … is not a party to this loan agreement, HNW … may take the benefit of and specifically enforce each expressed term of this loan agreement and any term implied under it, pursuant to [the 1999 Act]”.

Earlier, on the same wording but different proceedings, the County Court had found that this provision did not allow HNW to enforce the loan agreement and charge because HNW did not benefit from either. Here, in contrast, the High Court found that HNW could enforce both because this provision expressly provided that it could. 

Given the tension between two judgments on the same wording, permission was granted to take the matter to the Court of Appeal, but no appeal has yet been lodged.

Judgment: HNW v Lawrence