Currently under Cayman Islands law, a person who is not a party
to a contractual agreement cannot enforce its terms directly,
irrespective of whether the agreement expressly purports to grant
to such third party any rights. In other words, strict 'privity
of contract' principles apply.
The Contracts (Rights of Third Parties) Law 2014
(Law) has been passed by the Legislative Assembly
and will come into force upon approval by the Governor. The
Law gives third parties the ability to enforce rights expressly
conferred upon them in a contractual agreement. The parties to an
agreement can now agree that specified third parties will have a
statutory right of direct enforcement of contractual obligations,
notwithstanding that such third parties are not a party to the
The Law also provides that the parties to the contract may only
rescind or amend the agreement in such a way as to extinguish or
vary the third party's rights with that third party's
consent (unless the agreement contains an express provision
permitting such extinguishment or variation without such
For third parties to be given these rights, the parties to the
agreement will have to opt-in to the application of the Law. Only
those provisions which are expressly stated to be capable of
enforcement by a particular third party will be enforceable by the
The Law provides that a third party may in such third
party's own right enforce a term of a contract if:
the third party is expressly identified in the contract by
name, as a member of a class or as answering a particular
description, which may include a person who is not in existence
when the contract is entered into; and
the contract expressly provides in writing that the third party
may enforce the relevant term of the contract.
Any term of the contract which excludes or limits liability in
relation to any matter will also apply to the relevant third
The Law will only apply to third party rights created on or
after date on which the Law came into force. Furthermore, the Law
will not apply to certain instruments, including promissory notes,
other negotiable instruments or Memorandum and Articles of
The Law is a welcome addition to Cayman Islands legislation
which will be of particular interest to the financial services
industry. In particular, the Law will enable indemnities and
exculpation provisions in favour of third parties in fund documents
and partnership agreements to be enforceable, avoiding the need for
a separate agreement or other option to solve the privity of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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