Testing the scope of third-party rights – Are there any limits to the terms that third parties can enforce? HNW v Lawrence [2025] EWHC 908

This High Court decision looked at the scope of Section 1(1) of the Contracts (Rights of Third Parties) Act 1999 (the ‘Act’). The Act provides an exception to the common law doctrine of privity of contract, according to which only the parties to a contract may enforce its terms. The Act enables third parties to enforce contract terms if the contract expressly provides for this or if the contract purports to benefit the third party in question. 

Section 1(1) of the Act 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" 

Given the reach of the Act, it is common to include a ‘Third Party Rights’ clause in contracts which clarifies the parties’ intentions around the application of the Act and whether any third parties may be entitled to bring a contractual claim against either party. This was the case in in HNW v Lawrence and the court was asked to determine the reach of the Third Party Rights clause. 

What were the facts of this case?

The dispute related to the enforcement of a loan agreement between a borrower, Ms Lawrence and a lender who was identified in a schedule in the agreement by the number 1. The loan agreement stated that the lender was acting by HNW as its ‘security agent’.  HNW wasn't a party to the loan agreement and received no benefit under it.  However, the contract contained a Third Party Rights clause, which stated that the borrower and lender agreed that while HNW wasn't a party to the loan agreement, HNW could ‘take the benefit of and specifically enforce each express term of this Loan Agreement and any term implied under it pursuant to the [Act]’ (Clause 26.7 of the loan agreement).

HNW alleged that the defendant had failed to make various payments when due and sought possession of a charged property and significant cash sums from the defendant. The defendant applied to strike out HNW's claim, arguing that as the contract didn’t include any terms that benefitted HNW, it could not enforce the loan agreement or charge.
 

What was the key legal issue for the High Court?

The court was asked to consider whether, if the parties provide in general terms that a third party can enforce a contract, does that right extend to terms that do not benefit the third party?
In a similar case in August 2024, HNW v Mark, the court found in favour of Mr Mark, the defendant, and concluded that under the Act a third party may be entitled to enforce the rights of a contract if the parties expressly provided for this, but that there must be a benefit construed on the third party in the contract for the third party to enforce.  Ms Lawrence based her argument heavily on the judgement in HNW v Mark as the Third Party Rights clause in the loan agreement in that case was identical to that in HNW v Lawrence.

However, the court in Lawrence reached a different conclusion. 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 benefiting the lender. The judge considered Section 1(1)a of the Act, and noted that it was not limited to terms purporting to benefit the third party, since this is specifically addressed in section 1(1)b of the Act; so the two limbs of section 1(1) of the Act should operate independently from each other.

Instead, it was held to be sufficient that the contract expressly provided that the third party could enforce its terms, which is exactly what clause 26.7 did. On this basis, the judge dismissed Ms Lawrence’s application to strike out HNW's claim, finding that HNW had title to bring the claim under the loan agreement.

What are the key takeaways?

1. The first is a legal point: this decision gives a broad interpretation to section 1(1)a of the Act and highlights that it has a wider reach than to merely enable third parties to enforce terms that confer a benefit on them. Instead, the court held that a third party should be able to enforce a term of the contract if it expressly provides for that party to be able to do so, even where the contract doesn't expressly confer a benefit on them. In relation to Clause 26.7, the judge noted that courts should, where possible, give effect to contractual provisions rather than treating any part of them as meaningless. This is likely to be of particular significance with respect to agency contracts, to enable agents to enforce contractual terms where they are not themselves party to the relevant contract.
2. The second key takeaway is, as always, the importance of careful drafting. When drafting, think about whether any third parties should be able to enforce any specific terms of the contract or the contract as a whole (especially where the contract doesn’t confer any express or implied benefit on them), and also whether there are any third parties that should be excluded from doing so, and make sure that the third party rights clause is drafted carefully to reflect the intended position.

As a final note, the judge in this case gave permission to Ms Lawrence to appeal to the Court of Appeal on this issue, recognising that he had found differently to the judge in HNW v Mark and an appeal has been lodged. We’ll provide a further update once the Court of Appeal makes its judgment in that case.

English contract law is at the heart of much of the work that lawyers in our London office do. To ensure we keep up to date with developments, we continuously monitor new contract cases and identify any that we think will be relevant to our commercial and disputes lawyers. For more information on this, or any other recent decision, please contact Esther Johnson or your usual Bird & Bird contact.