Third Party Rights – why contracts are not as private as you might think

When entering into a contract with another business, you would not expect to be granting rights to another business who have not signed the contract. However, unless the terms limit the benefits of a contract to those who are a party, there is a risk you could find yourself facing this situation.

Traditionally, only parties to a contract have rights to enforce its terms, even where the contract a benefit on a third party. This common law principle, ‘privity of contract’ safeguards against third parties enforcing, or being bound by, a contract they have not signed. Essentially, only the individuals (or entities) which have formally agreed to a contract can sue, or be sued, based on the contract terms.

Exceptions to privity of contract

However, there are exceptions which allow third parties to enforce contract terms under certain circumstances. The Contracts (Rights of Third Parties) Act 1999 (the ‘Act’) significantly reformed privity of contract by creating an exception to the rule stating:

A person who is not a party to a contract (a “third party”) may enforce a term of the contract if:

• the contract expressly provides that they may; or
• the term purports to confer a benefit on them (unless the contract expressly excludes enforcement by third parties).

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 signed.

Subsequently, it is common for modern day contracts to include standalone ‘third-party rights’ provisions that either grant or specifically exclude rights to individuals or entities who are not parties to the contract.

Interpreting exceptions to privity of contract: HNW Lending Limited v Lawrence [2025]

The recent case of HNW Lending Limited v Lawrence [2025], saw the High Court consider the scope and application of the Act, and the ability of a third party to enforce a contract term where the contract expressly gives it the right to do so, despite the term not conferring a benefit on the third party.

The defendant in the case (Lawrence), entered into a loan agreement with a lender, for whom HNW, the claimant in the case, acted as the ‘security agent for the lender’. HNW was not a party to the loan agreement. The loan agreement contained the following provision purporting to grant HNW third-party rights to enforce the terms of the loan agreement:

“The Borrower 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 defaulted on her repayments under the loan agreement and subsequently HNW sought to enforce the agreement to (1) gain possession of the charged property under the agreement; and (2) claim payment of the outstanding amounts. However, Lawrence argued HNW did not have the right to bring the claim under the Act as HNW was not itself a party to the loan agreement and the benefit had not been expressly conferred onto them in the loan agreement.

The judge held that the contract was drafted with The Contracts (Rights of Third Parties) Act 1999 Act in mind, and with the intention HNW would be able to enforce its obligations in the same way as the lender. Further, it was not necessary that the relevant term conferred a benefit on HNW, merely that the contract expressly provided HNW could enforce it.

This decision potentially widens the scope of third-party claims under the Act, namely that third parties may enforce the terms of a contract where such contract expressly provides for that party to be able do so, even if such third party is not expressed to benefit from the contract itself.

Reminder on contracts and third-party clauses

The case serves as an important reminder to parties entering into a contract with third-party clauses:

1. Privity of contract is a concept which cannot be relied on in isolation – the Contracts (Rights of Third Parties) Act 1999 always has the potential to apply.
2. The Act should be addressed in the drafting of any contract you enter into.
3. Clear and unambiguous drafting is essential when outlining the rights of third parties in contracts, to avoid potential disputes.

If you need further information or guidance around entering into a contract with another entity, or have concerns about third party contract clauses, please get in touch with the Corporate team at Hamlins to learn how we can help.