Cayman Islands: important new legislation on third-party rights

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 was to be given rights under the contract. The law has completely changed this position.

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 in 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, although 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 that is intended to provide, among other things, greater certainty as to circumstances in which third parties can enforce contractual provisions…

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