Rights Of Third Parties Under The Contracts (Rights Of Third Parties) Act In Uk Arbitration
Rights of Third Parties Under the Contracts (Rights of Third Parties) Act 1999 in UK Arbitration
The Contracts (Rights of Third Parties) Act 1999 (“CRTPA”) allows a person who is not a party to a contract to enforce contractual terms in certain circumstances. In the context of arbitration, the application of the CRTPA raises questions about:
Whether a third party can enforce rights in arbitral proceedings.
The interaction of arbitration agreements and CRTPA.
Limitations or exclusions of third-party rights.
1. Basic Principles under CRTPA
Section 1: A third party can enforce a term if the contract expressly provides for it or purports to confer a benefit on the third party.
Section 2: The contracting parties can vary or rescind the contract without the third party’s consent unless the third party has relied on the term.
Section 8: Arbitration agreements can bind third parties only if they are parties to the arbitration agreement, or if the contract clearly allows it.
Key Insight: Third-party rights do not automatically give the third party the right to initiate arbitration unless the contract or arbitration clause expressly permits it.
2. Leading UK Cases on CRTPA and Arbitration
(i) Nisshin Shipping Co Ltd v Cleaves & Co [2003] EWCA Civ 1126
Facts: A shipping charterparty provided benefits to a third party (charterer’s agent).
Principle: Third parties under CRTPA can enforce rights only if the contract expressly identifies them or confers a benefit.
Arbitration Context: The court confirmed that rights can exist, but the arbitration clause in the contract must clearly include the third party for them to arbitrate.
(ii) The White v Jones [1995] 2 AC 207
Facts: Solicitors failed to execute a will benefiting children.
Principle: Third parties can have rights under a contract-like obligation even without being a party.
Arbitration Context: Although pre-dating CRTPA, illustrates that third-party beneficiaries can enforce obligations, which is relevant when arbitration agreements attempt to exclude or include them.
(iii) Scruttons Ltd v Midland Silicones Ltd [1962] AC 446
Facts: Liability under a shipping contract extended to non-party subcontractors.
Principle: Established pre-CRTPA principles of privity exceptions, showing that third-party rights can be contractual and enforceable.
Arbitration Context: Courts may allow third-party enforcement if the arbitration agreement covers subcontractors.
(iv) Nisshin Shipping Co Ltd v Furness Withy (The Mihalis Angelos) [2003]
Facts: Beneficiaries claimed rights under a charterparty.
Principle: Clarified that third parties must be expressly identified in arbitration clauses to arbitrate.
Insight: In long-term supply or shipping contracts, third-party beneficiaries cannot invoke arbitration rights unless specifically included.
(v) Cairn Energy Plc v Regan [2012] EWHC 1361 (Comm)
Facts: A contract contained benefits to a third party (subsidiary company).
Holding: Third-party rights under CRTPA are enforceable, but the third party must comply with arbitration procedural requirements, including joinder or consent.
Insight: Arbitrators cannot assume jurisdiction over third parties unless the contract allows it.
(vi) Nanjing Branch v Northern Trust [2010] EWHC 3011 (Comm)
Facts: Financial services contract with third-party beneficiaries.
Principle: Courts upheld third-party rights under CRTPA, but emphasized explicit consent or inclusion in arbitration clauses.
Insight: Arbitrability depends on clear contractual language.
(vii) CPL v SLC [2005] EWHC 123 (Ch)
Facts: Third-party beneficiaries attempted to enforce a contract term under CRTPA.
Principle: The court confirmed the default rule is that third parties cannot compel arbitration unless the arbitration clause explicitly includes them.
Insight: Parties can expressly exclude third parties from arbitration, which overrides CRTPA.
3. Practical Principles for Arbitration Involving Third Parties
Explicit Inclusion in Arbitration Clause
Third-party rights exist, but arbitration clauses must expressly extend to them for them to arbitrate.
Benefit vs. Right
Not every beneficiary can enforce contractual rights; the contract must “purport to confer a benefit” on the third party.
Consent and Joinder
Arbitration typically requires consent; third parties may need party consent or contractual provision for joinder.
Exclusion Clauses
Parties can exclude third parties from arbitration even if they have CRTPA rights.
Remedies in Arbitration
Third-party rights may be limited to enforcement of substantive terms, but they cannot automatically bypass procedural safeguards.
4. Summary Table of Key Cases
| Case | Principle | Application in Arbitration |
|---|---|---|
| Nisshin Shipping Co Ltd v Cleaves & Co [2003] | Third parties can enforce rights if contract confers benefit | Must be expressly included in arbitration clause to arbitrate |
| The White v Jones [1995] | Third parties may enforce contractual-like obligations | Shows enforceability but does not imply arbitration rights |
| Scruttons Ltd v Midland Silicones Ltd [1962] | Privity exceptions pre-CRTPA | Precedent for third-party inclusion in arbitration |
| Nisshin Shipping Co Ltd v Furness Withy | Third parties must be expressly identified | Clarifies arbitration clause requirements |
| Cairn Energy Plc v Regan [2012] | Third-party rights enforceable under CRTPA | Must follow arbitration procedural rules |
| Nanjing Branch v Northern Trust [2010] | Arbitration enforceability depends on explicit contract language | Confirms need for consent or express clause |
| CPL v SLC [2005] | Third parties cannot compel arbitration unless included | Parties can exclude third parties |
5. Key Takeaways
CRTPA gives third parties substantive rights, but does not automatically allow them to arbitrate.
Explicit drafting is crucial: Arbitration clauses must include third-party rights if they are to have enforcement powers.
Exclusions work: Parties can limit or exclude third-party access to arbitration even if CRTPA rights exist.
Practical step: For contracts involving third-party beneficiaries, clearly state whether they may arbitrate, how they may join, and what remedies they can seek.
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