Introduction
The Contracts (Rights of Third Parties) Act 1999 changed English contract law by allowing third parties to enforce terms meant to help them, even if they were not part of the original agreement. This law replaced the older privity rule, which limited enforcement to the initial parties. The Act sets out when a third party can enforce a term, such as being named in the contract or meant to benefit from it. Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening [2009] EWHC 716 (Comm) reviews these rules, focusing on how third-party rights work. This case shows the Act’s application, providing clear examples of when a third party may enforce terms.
Section 1: The Doctrine of Privity and its limits
Before the 1999 Act, the privity rule stopped third parties from enforcing contracts, even if the agreement aimed to help them. This sometimes led to unfair results, particularly in business or insurance cases. Courts created limited fixes, such as trusts or linked agreements, but these were hard to use. The Law Commission proposed changes, leading to the new law.
Section 2: Key Parts of the Contracts (Rights of Third Parties) Act 1999
The 1999 Act created a legal structure for third-party rights. Section 1(1) lets a third party enforce a contract term if the contract explicitly allows it or the term is meant to benefit them. Section 1(3) requires the third party to be named, part of a specific group, or fit a particular description. This limits unclear claims by unintended parties.
Section 3: The Dolphin Maritime Case: Testing the “purports to confer a benefit” rule
In Dolphin Maritime, shipowners had an insurance policy covering “managers and/or charterers.” Dolphin Maritime, acting as managers, sought coverage under this clause. The court assessed whether the clause aimed to benefit them under Section 1(1)(b) of the Act. Mr. Justice Aikens reviewed the clause objectively, focusing on its wording rather than hidden intentions. He ruled the clause did intend to benefit Dolphin Maritime, stressing the need for clear contract terms.
Section 4: Effects of the Dolphin Maritime Ruling
The case clarified two points about the 1999 Act. First, the “purports to confer a benefit” test relies on the contract’s wording, not undisclosed intentions. Second, precise drafting is critical. Broad terms like “managers and/or charterers” work if clear. Third, the ruling matched the Act’s goal of allowing third-party enforcement, making contracts fairer and more predictable.
Section 5: Later Cases and Drafting Advice
After Dolphin Maritime, cases like Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm) highlighted careful contract reading when judging third-party rights. When drafting contracts, parties should clearly state if third-party rights are allowed or excluded. Naming beneficiaries or defining them by group or role helps avoid disputes.
Conclusion
The Contracts (Rights of Third Parties) Act 1999 and cases like Dolphin Maritime have reshaped contract enforcement in English law. The Act replaces strict privity with a clear method for third-party claims. Dolphin Maritime’s emphasis on contract wording offers practical advice for deciding when third parties can enforce terms. This case shows the importance of clear drafting and sets rules for future disputes. Later cases, including Nisshin Shipping, illustrate how these rules work in practice. Together, the Act and related judgments create a fairer and more transparent system for enforcing contracts.
