Hong Kong Law Reform Commission

Chapter 5 - Summary of recommendations

5.2 We recommend that a clear and straightforward legislative scheme (the "recommended legislation") be enacted whereby, subject to the manifest intentions of the parties to an agreement, the parties can confer legally enforceable rights or benefits on a third party under that agreement.

(Recommendation 2)

5.3 We recommend that a third party should be expressly identified by name, as a member of a class or as answering a particular description. It should be possible to confer rights on a third party who was not in existence at the time of contracting. (Recommendation 3)

5.4 We recommend that a third party should be able to enforce a contractual term if:
(a) the contract expressly provides that he may; or
(b) the term purports to confer a benefit on him unless on a proper construction, the parties did not intend the term to be enforceable by him;

and where a contractual term excludes or limits liability, references to the third party's enforcement of the term should be regarded as references to his availing himself of the exclusion or limitation. (Recommendation 4)

5.5 We recommend that:
(a) a third party's right to enforce a contractual term should be subject to, and in accordance with, other relevant terms of the contract; and
(b) a third party should be entitled to such remedies and relief as may be just and convenient for the enforcement of the promisor's duty. (Recommendation 5)

5.6 We recommend that the contracting parties' right to vary or rescind their contract by agreement should come to an end once:

(a) the third party has communicated to the promisor his assent by word or conduct to the provision conferring benefit on him, or

(b) the third party has relied on that provision and the promisor

(i) is aware of that reliance, or

(ii) could reasonably be expected to have foreseen that the third party would so rely.

An assent sent to the promisor is not to be regarded as communicated to the promisor until received by him. (Recommendation 6)

5.7 We recommend that the contracting parties should be allowed by an express provision added before crystallisation:

(a) to reserve the right to rescind or vary the contract unilaterally or bilaterally without the third party's consent; and

(b) to set their own criteria or tests for determining when and how their rights to vary or rescind their contract will end (ie, when and how the third party rights will crystallise),

provided that the provision would not be enforceable against the third party unless he knew or ought to have known of such provision before his rights are crystallised. (Recommendation 7)

5.8 We recommend that the court should be given a wide discretion to authorise variation or rescission of the contract without the consent of the third party upon the application of any of the contracting parties. (Recommendation 8)

5.9 We recommend that the recommended legislation should expressly provide that, as against the promisor, the third party can be a volunteer, provided the promisee has given consideration for the contract. (Recommendation 9)

5.10 We recommend that

(a) a promisor can avail himself of any defence or set-off that

(i) arises from, or in connection with, the contract and is relevant to the term being enforced by the third party; and

(ii) would have been available to him if the proceedings had been brought by the promisee, subject to any express contractual term that expands or restricts the scope of defences or set-offs;

(b) a promisor can avail himself of any defence, set-off or counterclaim (not arising from the contract) that would have been available to him if the third party had been a party to the contract, subject to any express contractual term that restricts the scope of defences, set-offs or counterclaims;

(c) where in any proceedings brought against him a third party seeks to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability) under the recommended legislation, he may not do so if he could not have done so (whether or not by reason of any particular circumstances relating to him) had he been a party to the contract; and

(d) section 7(2) of the Control of Exemption Clauses Ordinance (Cap 71) should not apply where a third party sues the promisor under the recommended legislation for negligence which consists of the breach of a contractual obligation. (Recommendation 10)

5.11 We recommend that a third party's rights under the recommended legislation should not affect any right of the promisee to enforce any term of the contract. (Recommendation 11)

5.12 We recommend that the recommended legislation should specifically provide that a promisor who performs his obligations, wholly or partly, to the third party will obtain discharge, to that extent, from his obligations to the promisee. (Recommendation 12)

5.13 We recommend that where a promisee has recovered substantial damages (or an agreed sum) representing the third party's loss or the promisee's expense in making good the promisor's default, the court or arbitral tribunal should in any subsequent proceedings by the third party reduce any award to the third party to the extent appropriate to take account of the amount already recovered by the promisee. (Recommendation 13)

5.14 We recommend that:

(a) where (but only where) a contractual term conferring substantive rights on a third party is conditional upon the third party enforcing that term by arbitration, and

(b) the arbitration agreement is an agreement in writing for the purposes of the Arbitration Ordinance (Cap 341),

the third party should be treated for the purposes of that Ordinance as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive right by the third party, subject to the contracting parties' contrary intention. (Recommendation 14)

5.15 We recommend that where a contractual term conferring substantive rights on a third party is conditional upon the third party enforcing that term in a specified jurisdiction, the third party should be treated as a party to the exclusive jurisdiction clause as regards disputes between himself and the promisor relating to the enforcement of the substantive rights by the third party, subject to the contracting parties' contrary intention. (Recommendation 15)

5.16 We recommend that nothing in the recommended legislation should affect any right or remedy of a third party that exists or is available apart from the recommended legislation. (Recommendation 16)

5.17 We recommend that a third party should not have any rights under the recommended legislation in respect of:

(a) a bill of exchange, promissory note or other negotiable instrument;

(b) a contract for the carriage of goods by sea governed by the Bills of Lading and Analogous Shipping Documents Ordinance (Cap 440), except that a third party should be able to enforce an exclusion or limitation clause in such a contract; and

(c) a contract for the carriage of goods by air governed by the Carriage by Air Ordinance (Cap 500). (Recommendation 17)

5.18 We recommend that the recommended legislation should confer no right on a third party to enforce (a) any term of a contract binding on a company and its members under section 23 of the Companies Ordinance (Cap 32); and (b) any term of a contract of employment against an employee. (Recommendation 18)

5.19 We recommend that actions brought by third parties under the recommended legislation should be treated as "actions founded on simple contract" or "actions upon a specialty" under section 4(1)(a) and section 4(3) of the Limitation Ordinance (Cap 347) respectively. (Recommendation 19)

5.20 We recommend that a third party should not be treated as a party to the contract for the purposes of other statutory provisions merely because of the reference to treating him as if he were a party to the contract in some provisions in the recommended legislation. (Recommendation 20)