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Contact:

Tim Richards

Counsel, Cayman Islands

For contact details,

please see the end of this briefing.

The Contracts (Rights of Third Parties)

Law 2014 is now in force. Previously, under common law, a person had to be a party to a contract in order to be able to enforce the provisions of that contract. This applied even where the parties clearly intended that a person who was not a party to such contract (Third Party) was to be given rights under the contract. The law has completely changed this position.

Privity of contract diluted

The Law enables parties to a contract to give Third Parties the ability to enforce rights expressly granted to them in the contract. This is anticipated to be particularly helpful to enable indemnities and exculpation provisions in fund documents n favour of Third Parties to be enforceable without the need for a separate agreement.

The Law reflects in substantive terms England’s Contracts (Rights of Third Parties) Act 1999, though with key differences.

Unlike the English statute, the intention is to provide rights for Third Parties only where the contractual parties agree that the Third Party may specifically enforce them. The English statutory provision whereby a Third Party may enforce a contractual term where the term purports to confer a benefit on a Third Party has not been adopted. The Cayman statute therefore provides something akin to an opt in system which is intended to provide, among other things, greater certainty as to circumstances in which Third Parties can enforce contractual provisions.

The Law is consistent with the equivalent

English legislation in that the relevant 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 entered into. In this way, contracts can confer benefits on, for example, companies yet to be incorporated.

Any such Third Party will have any remedy that would have been available to him for breach of contract as if he had been a party to the contract. If a term of the contract excludes or limits liability in relation to any matter, the relevant exclusion or limitation of liability may also apply to the Third Party. The Law applies to Third Party rights created on or after the date it comes into force. In the case of pre existing contracts containing Third Party rights, the Third Party will only be able

to enforce such rights on or after the date the Law came into force. Case law on the English legislation has a common theme of demanding clarity and specificity in drafting of Third Party benefit provisions, and this would hold true in respect of the Law and its use in contracts governed by the law of the Cayman Islands.

Tim Richards, Counsel, Cayman Islands

+1 345 814 9141

[email protected]

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