Case law update: High-Court rules on whether the Contracts (Rights of Third Parties) Act 1999 only applies when enforcing a term that confers a benefit on the third party

The High Court has considered the scope of the Contracts (Rights of Third Parties) Act 1999 (the Act), specifically the enforcement of a contract by a third party who is not conferred any benefit under the contract but is expressly given the right to enforce its terms.

Background

The ruling was part of the High Court case HNW Lending Limited v Lawrence [2025] relating to the enforcement of a loan agreement (the Loan Agreement) made between the defendant borrower, Ms Lawrence, and the claimant, HNW.

The purpose of the Loan Agreement was to fund Ms Lawrence’s development of a property (the Property) for her investment portfolio. Under a separate charge (the Charge), the Property was charged by way of legal mortgage as a continuing security for the payment of all monies, obligation and liabilities to the lender under the Loan Agreement.

HNW was acting as security agent to the lender, who was identified in the Loan Agreement only as number “1”. HNW was not a party to and received no benefit under the Loan Agreement, but the following term was included at Clause 26.7:

“The Borrower and Lender agree that, while HNW Lending Limited is not a party to this Loan Agreement, HNW Lending Limited may take the benefit of and specifically enforce each express term of this Loan Agreement, and any term implied under it pursuant to the Contracts (Rights of Third Parties) Act 1999.”

The Charge, meanwhile, provided that it was made between Ms Lawrence as Borrower and “HNW Lending Limited … acting as security agent for the Lender as defined in the Loan Agreement”.

After Ms Lawrence failed to make some of the interest payments under the Loan Agreement and to repay the balance of the monies loaned following expiry of the term of the loan, HNW sent her a letter of demand in October 2021, notifying her that the loan amount and interest were due, and the security on the Property was now enforceable. HNW sought possession of the Property and payment of c.£3.5m plus interest said to be owing to HNW.

Ms Lawrence advanced various arguments in her defence, including that she did not agree to the terms of the Loan Agreement and that the Loan Agreement and further advances were agreed to by her as a result of duress and/or undue influence.

Ms Lawrence also sought to strike out HNW’s claim on the basis that, on the correct construction of the Loan Agreement and the Charge, HNW did not have title to sue because it has no enforceable under them.

Does HNW have title to sue?

Ms Lawrence’s argument was based on a recent County Court judgment from August 2024 by HHJ Dight in relation to proceedings brought by HNW against Mr Mark (HNW v Mark). On the facts, HNW v Mark was very similar to the present case, as it also related to HNW seeking possession of a residential property in reliance on a first charge and loan agreement. The loan agreement and charge in that case contained materially the same terms as in this case (including an identical Clause 26.7) and also identified the lender only as number “1” with HNW described as the Security Agent.

In HNW v Mark, HHJ Dight dismissed HNW’s claim on the basis that HNW was not a contracting party and that it is prima facie the principal and not the agent who is entitled to enforce the contract, and at no point did HNW have its own cause of action against the defendant. HHJ Dight recognised that under the Act a third party may be entitled to acquire and enforce the rights of a contract if and to the extent that the parties to the contract intend that should be the case, however, as Mr Mark did not owe any obligations to HNW and HNW was not expressed to benefit from the loan agreement, there was nothing which HNW could enforce under the Act. HHJ Dight concluded for similar reasons that the charge could also not be enforced by HNW (despite HNW being a party) since the covenant to pay was given to the lender instead.

However, the judge in the present case reached a different conclusion, finding instead that HHJ Dight’s analysis failed to give due weight to section 1(1)(a) of the Act.

Section 1(1) provides that:

“Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if— (a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him.”

The judge recognised that there is a “dearth of case law on the scope of section 1(1)” and that the example given in Chitty on Contracts (35th Edition) - similar to the example given by HHJ Dight in his judgment - of a term being enforced by a third party was one that benefits that party, as opposed to an obligation owed to and benefiting one of the contracting parties.

The judge said that Clause 26.7 appeared to have been drafted with the Act in mind and was intended to confer on HNW equivalent rights to those of the lender, enabling it to enforce obligations owed to and benefitting the lender.

The judge considered that section 1(1)(a) of the Act is not limited to terms purporting to benefit the third party, since this is specifically addressed in section 1(1)(b). Instead, it was held to be sufficient that the contract expressly provides that the third party may enforce its terms, which is exactly what Clause 26.7 did in relation to all the express terms of the Loan Agreement and any terms implied by the Act. In the alternative, Clause 26.7 is effective under 1(1)(b) because the clause purports to confer a benefit on HNW.

Similarly, the judge considered that, although the Charge secured money, liabilities and obligations owed to the lender, HNW was entitled to enforce those liabilities and obligations via the Act on the express wording of the Loan Agreement and Charge. On this basis, the judge dismissed Ms Lawrence’s application to strike out HNW’s claim, finding that HNW did have title to sue on the Loan Agreement and the Charge.

Thoughts on the decision

When people think of the third party rights and the Act, certainly in the context of the construction industry, they tend to think of allowing third parties to enforce terms of a contract that confer a benefit on them. This decision highlights that the Act has a wider reach than that and also allows a third party to enforce a term of the contract if the contract expressly provides for that party to be able do so, even where that third party is not expressed to benefit from the contract itself.

As noted by the judge, this accords with the principle that courts should, where possible, give effect to contractual provisions rather than treating any part of them as otiose.  

This is the second case with a third party rights angle in a matter of weeks (see our update on Goldkorn v MPA [2025]), both of which reinforce that it is a good idea for contracting parties to give some thought to who should be able to enforce which terms of the contract - and equally whether there are any third parties they wish to expressly exclude from being able to do so - and make sure the related provisions are carefully and accurately drafted to reflect that position.

It will be interesting to see whether this decision begins to reverse the state that is a dearth of case law on the scope of section 1(1) of the Act. The judge in this case did also give permission to Ms Lawrence to appeal to the Court of Appeal on this issue, recognising that he had found differently to HHJ Dight in the County Court. Will the Court of Appeal reach conclusions similar to HHJ Dight or the judge in this case?