Contracts (Rights of Third Parties) Bill: implications for the construction industry

By Samuel Cho

The Legislative Council is currently debating the Contracts (Rights of Third Parties) Bill, and the bill may be passed as early as in the second half of this year. The main purpose of the proposed legislation is to reform the doctrine of privity by granting statutory rights to a person to acquire and enforce rights under a contract to which he is not a party. This article considers the potential impact of these statutory third-party rights on the construction industry.

The statutory third-party rights set out in the bill enable a third party to enforce a term of a contract to which he is not a party where the rights are expressly or impliedly conferred by the contract. For this to happen, the third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description. It is possible for the contracting parties to opt out of the statutory regime by agreement.

The conferral of these third-party rights is effective even if the third party has not given consideration for the conferred rights. The conferral is also effective even if the third party was not in existence at the time the underlying contract was entered into. Statutory third-party rights may be assigned to another party in the same way that the contracting parties may assign their contractual rights unless the contract expressly prohibits it or the rights cannot be assigned due to it being personal to the third party…

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