The Contracts (Rights of Third Parties) Law 2014 (the
Law) came into force on 21 May 2014.
Subject to certain exemptions, the Law allows for the direct
enforcement of contractual rights by third parties in contracts to
which they are not a party. Prior to the Law, contracts governed by
Cayman Islands law could only be enforced by parties to the
contract, following the common law doctrine of privity of
Rights of a Third Party
The Law is similar to the UK's Contracts (Rights of Third
Parties) Act 1999 (the UKAct) and to legislation enacted in
several other common law jurisdictions. The main difference with
the UK Act is that the Law contains an "opt-in"
requirement. The Law only confers rights on persons specifically
intended to benefit from it, unlike the UK Act which allows a third
party to enforce contractual terms which purport to confer a
benefit on them (and has an "opt-out" requirement).
Pursuant to the Law, a third party may enforce a contractual term
in its own right if:
the third party is expressly identified in the contract
by name, as a member of a class or as answering a particular
description (and a third party may include a person not in
existence when the contract is entered into); and
the contract expressly provides in writing that the relevant
third party may enforce the relevant term.
The Law further restricts the contract parties' ability to
rescind or vary the third party's right so as to extinguish or
vary a third party's entitlement under that right, without the
third party's consent unless the contract itself expressly
provides that the contract may be rescinded or varied without the
third party's consent.
Application and Exceptions
The Law applies to contractual benefits capable of being
enforced by third parties, including indemnification and
exculpation provisions. It is anticipated that the Law will provide
a helpful mechanism for agreements where indemnity provisions are
currently ineffective, for example, in limited partnership
agreements which are extended to cover third parties (such as an
investment manager) but without having the make such parties a
party to the limited partnership agreement. The Law does not confer
rights on certain contracts and instruments and specifically
excludes the following: bills of exchange, promissory notes and
other negotiable instruments, rights under memorandum and articles
of association, contracts of employment, contracts for carriage of
goods by sea, road or air and letters of credit.
Impact on existing contracts
The Law applies to contracts containing the relevant terms which
are made on or after the Law came into force. Contracts entered
into prior to the Law coming into force are capable of directly
being enforced by third parties if:
the contract is amended after the Law has come into effect to
include the relevant terms; or
the contract already contains the relevant terms "opt
in" language for effect when the Law came into
The Law will permit parties to structure contractual
arrangements to confer rights of enforcement on third parties where
appropriate. In doing so, the Law ensures third parties to Cayman
Island law governed contracts the same protections and benefits
afforded to them in other key offshore jurisdictions, such as the
UK and the US.
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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