The Legislative Assembly of the Cayman Islands has recently
passed the Contracts (Rights of Third Parties) Law, 2014 (the
"Law") which is expected to enter in to
force shortly. The Law confers on third parties a statutory
right of direct enforcement of contractual obligations contained in
contracts to which they are not a party. Prior to the Law,
contracts governed by Cayman Islands law could only be directly
enforced by the parties to the contract.
The Law is particularly relevant to commercial situations where
there is an express intention to make contractual obligations
directly enforceable by third parties, but no desire for the third
party to be a party to the contract. The Law will remove the
need for parties to seek alternative solutions to enable the
enforcement of contractual terms by a third party. Similarly,
it means that a third party will no longer necessarily need to be a
party to the contract to initiate legal proceedings in order to
enforce third party rights under it. This ensures that third
parties benefit from the same protection and benefits afforded to
them in other key onshore jurisdictions, such as the United
The Law is based in large part upon the UK Contracts (Rights of
Third Parties) Act 1999 with many of its provisions being identical
or similar to those in the UK legislation (subject to one important
exception set out below). This was done deliberately to
enable the Cayman Islands courts to benefit from the UK courts'
interpretation of the legislation and to provide a regime which is
likely to be familiar to contracting parties and their advisors in
many different jurisdictions.
The key provisions of the Law are as follows:
The Law contains an opt-in requirement. Only contractual
terms that are expressed in writing to be capable of enforcement by
the relevant third party or parties will be so enforceable.
Having opted in, the parties to the contract may not rescind or
vary the contract so as to qualify or extinguish a third
party's rights without their consent. This is one way in
which the Law differs from the UK legislation (which has an opt-out
The Law applies to contractual benefits capable of being
enforced by third parties, including indemnities and exculpation
and other limitation of liability provisions. Certain
contracts and instruments are specifically excluded, including
bills of exchange, promissory notes or other negotiable
instruments; claims against employees under employment contracts;
contracts for carriage of goods by sea, road or air; and letters of
Effect on existing contracts
Terms in contracts entered into prior to the Law coming into
force will be capable of direct enforcement by third parties as
(a) where the contract
already contains appropriate opt-in language – upon the Law
coming into force; or
(b) where the contract is
amended to insert such language – upon the amendment becoming
effective after the Law has come into force.
However it is important to note that causes of action which
accrued prior to the Law coming into force will not be capable of
being enforced under the Law.
Identification of third party
The third party must be identifiable from the contract as a
member of a class or as answering a particular
A third party will have no greater rights than a contracting
party, including with respect to:
(a) the availability of
contractual defences; and
(b) the submission of
disputes to arbitration in accordance with the terms of the
No double recovery
Where a term of the contract is enforceable by both a third
party and a party to the contract, the court will take account of
any previous recoveries made by the contracting party when
assessing any recovery under the Law, so as to prevent the
possibility of double recovery.
In summary, the Law will permit parties to structure agreements
to confer rights of enforcement on third parties where it is
considered appropriate to do so. It is to be welcomed as an
enhancement of the principles of freedom of contract in the Cayman
The Law is likely to be beneficial in a number of different
scenarios, including for example, in relation to Cayman Islands
exempted limited partnerships where the partners wish to agree to
enable a wider class of persons to benefit from the indemnity and
exculpation provisions in the partnership agreement than only the
partners, but without making all of the members of the class
parties to the partnership agreement.
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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