By Anthony Travers From Travers Thorp Alberga

This law is now effective in the Cayman Islands. In all substantive respects the provisions of the law will be familiar to English lawyers as it follows, in the main, the Contracts (Rights of Third Parties) Act 1999, save the Cayman law requires express wording to opt in.

A third party who would otherwise under laws of contract not have been in a position to enforce that contract may now do so if sufficiently well identified by name or class or description and if expressly entitled to such third party right.

Any remedy including damages, injunction and specific performance available for breach of contract is now available to such third party who is, understandably, also subject to and may benefit from any provision in the contract excluding, limiting or exculpating liability. The promisor may plead set off or counterclaim against the third party as if the third party had been a party to the contract.

A contractual term of an existing contract purporting to grant such third party right is enforceable after 21 May 2014, the effective date. A contract not containing such third party right may be amended after that date to enable enforcement subsequent to that date.

A third party granted such third party right is required to consent to any rescission or variation of the contract unless the contract otherwise provides.

Such third party is subject to any submission to arbitration in the contract and, as in the United Kingdom, there are provisions which protect a promisor against double liability.

Notably, the law does not apply to:

the contract contained with the memorandum or articles of association of a company. Absent a specific separate directors agreement, it seems therefore the director will continue to have to rely on a collateral contract;

a contract on a bill of exchange, promissory note or other negotiable instrument;

a contract of employment against an employee;

a contract for carriage of goods;

a letter of credit.

Unlike the position in the UK, express wording will need to be included in the contract to ensure a third party can benefit from these statutory provisions.

END

Image: www.hrreview.co.uk

See also related story:

Cayman Islands: The Contracts (Rights Of Third Parties) Law 2014

By Louise Groom From Harneys

The Contracts (Rights of Third Parties) Law 2014 (the Law) came into force on 21 May 2014. Subject to certain exemptions, the Law allows for the direct enforcement of contractual rights by third parties in contracts to which they are not a party. Prior to the Law, contracts governed by Cayman Islands law could only be enforced by parties to the contract, following the common law doctrine of privity of contract.

Rights of a Third Party

The Law is similar to the UK’s Contracts (Rights of Third Parties) Act 1999 (the UK Act) and to legislation enacted in several other common law jurisdictions. The main difference with the UK Act is that the Law contains an “opt-in” requirement. The Law only confers rights on persons specifically intended to benefit from it, unlike the UK Act which allows a third party to enforce contractual terms which purport to confer a benefit on them (and has an “opt-out” requirement). Pursuant to the Law, a third party may enforce a contractual term in its own right if:

the third party is expressly identified in the contract by name, as a member of a class or as answering a particular description (and a third party may include a person not in existence when the contract is entered into); and

the contract expressly provides in writing that the relevant third party may enforce the relevant term.

The Law further restricts the contract parties’ ability to rescind or vary the third party’s right so as to extinguish or vary a third party’s entitlement under that right, without the third party’s consent unless the contract itself expressly provides that the contract may be rescinded or varied without the third party’s consent.

Application and Exceptions

The Law applies to contractual benefits capable of being enforced by third parties, including indemnification and exculpation provisions. It is anticipated that the Law will provide a helpful mechanism for agreements where indemnity provisions are currently ineffective, for example, in limited partnership agreements which are extended to cover third parties (such as an investment manager) but without having the make such parties a party to the limited partnership agreement. The Law does not confer rights on certain contracts and instruments and specifically excludes the following: bills of exchange, promissory notes and other negotiable instruments, rights under memorandum and articles of association, contracts of employment, contracts for carriage of goods by sea, road or air and letters of credit.

Impact on existing contracts

The Law applies to contracts containing the relevant terms which are made on or after the Law came into force. Contracts entered into prior to the Law coming into force are capable of directly being enforced by third parties if:

the contract is amended after the Law has come into effect to include the relevant terms; or

the contract already contains the relevant terms “opt in” language for effect when the Law came into force.

Summary

The Law will permit parties to structure contractual arrangements to confer rights of enforcement on third parties where appropriate. In doing so, the Law ensures third parties to Cayman Island law governed contracts the same protections and benefits afforded to them in other key offshore jurisdictions, such as the UK and the US.