Third Party Liability Under Contract in the English Law

Hundreds of years of judicial practice have made the English legal system the most attractive for the business environment. The English system, as you know, is very old, and it is based on a combination of legislation and judicial precedents, and also, importantly, on the interpretation of legislative acts. Very often they have streamlined formulations, and the legislator relies on the courts in determining the norms in each case.

At the same time, the English system is distinguished by flexibility and adaptability. Despite the fact that practice constantly refers to centuries-old principles, the court is ready to change them if economic or technological changes require looking at the matter from a different point of view.

What lies beneath the ‘contractual relations’ 

In 1999, in order to simplify the use of the concept of ‘contractual relations’, the UK Law on Contracts (Third Party Rights) was introduced.

The key article governing the position of third parties in the English Law is Article 1, which states:

• Any person who is not among the parties to the contract (hereinafter the third party) may independently enforce the conditions of the contract in the following cases:

1. the terms of the contract expressly provide for such a right of the person concerned; or
2. it follows from the content of this condition that it involves the provision of benefits to it, taking into account subsection (2);

this takes into account the provisions of this law.

• Subsection (1) (b) does not apply if the proper interpretation of the contract allows us to conclude that the parties did not intend to allow the fulfillment of this condition by the relevant third party.
• An agreement must contain information that identifies a third party by indicating the name (s), membership in a certain group of persons or a specific description, while such a person is not required to exist at the time of conclusion of the contract.

Key elements of the contract

The main elements of a contract in English law are an offer, acceptance and satisfaction.

An offer is one of the key elements necessary for concluding agreements under English law. This is an expression of intention to conclude a contract on special conditions. With this tool, the contract comes into force as soon as the person to whom the offer was sent accepts it.

Acceptance is the final and unconditional expression of consent to the terms of the offer.

In order to conclude a treaty under the law of England, another consideration is needed. English law will not consider a gratuitous promise as a basis for concluding a contract. Thus, satisfaction must be expressed in some way, for example, in the form of a payment or service.

As a general rule, third parties in the law of England do not have rights and do not bear obligations under an agreement to which they are not a party. In the legal system of England it is considered that if a person is not bound by a contractual relationship, then such a person cannot file a lawsuit or be tried in accordance with the contract.

The concept of “contractual relations” has been criticized many times. It was said that there are no logical reasons why third-party benefits should be diminished due to the concept of “contractual relations” if the parties to the contract expressly expressed their intention to provide a third party with certain benefits.

Some contracts concluded under common law imply the existence of favorable conditions for third parties, however, third parties could not take advantage of such favorable conditions, and could not apply to the court if one of the parties to the contract violated the provisions governing the receipt of such benefits the reason for the existence of the concept of “contractual relations” in the general system of law. Thus, there are a number of exceptions to this rule, namely:

• statutory exemptions in England;
• supplementary agreement in England;
• agency contracts in England;
• easements in England;
• establishment of trusts in England.

Supplementary agreement

If you plan to conclude a common law agreement in the UK, then it may be accompanied by an additional agreement drawn up between one of the parties and a third party. It is important that both such contracts have a common subject. Essentially, an additional agreement is not an exception to the concept of “contractual relations,” since a new agreement is emerging. However, such an agreement is an effective way to circumvent this concept.

Agency contract

To conclude an agency agreement in the UK, you must understand the parties to this agreement, namely:

1. Principal is a party on whose behalf a contract is concluded and which benefits by concluding such a contract.
2. Agent is a party directly connected with a third party, but performing the contract on behalf of the principal, and not on its own.
3. Third party is a party that enters into a contractual relationship with an agent. However, according to the rules of the agency contract, a third party does not have a contractual relationship with the agent. Together, this principal is associated with a third party that acts on behalf of the agent.

Covenants

A covenant in England is a type of agreement between two or more parties that is concluded on the basis of an act. Thus, by definition, they are similar to the classic understanding of the contract, except that for the conclusion of the covenant is not required to provide consideration.

Also, you need to understand the concept of a restrictive covenant.

In the UK, restrictive covenant applies if the following conditions are true:

1. A third party should have known about the presence of easement at the time of purchase;
2. The original seller was supposed to retain land that had certain benefits from restrictions on use.

A Trust

The application of the concept of “contractual relations” may be limited in the case in which a person intends to establish a trust in England, thereby imposing certain advantages on a third party, and such a person intends to transfer his rights to trust in such a third party.

In order for the principle of trust management to be applied in the common law system, when drawing up a contract between the two parties, there must be a clear intention that the third party will receive a certain benefit. A trust relationship will only be applicable if the court considers that interest received by a third party is compatible with the general principles of trust.

The liability of third parties under a contract in the common law system is one of the most complex aspects.

You can order an individual legal consultation on how to prepare a contract under English law or legal advice on the third party liability issues with IQ Decision UK lawyers who will be happy to help you sort out the issues you have.