Hong Kong: Asia Pacific - focus on insurance: Hong Kong

Impact of the Contracts (Rights of Third Parties) Bill on the insurance industry in Hong Kong

'Privity of contract' is a well-established common law doctrine establishing that a person cannot acquire or enforce rights under a contract to which he is not a party. The strict application of the doctrine may, however, give rise to absurdity or even unfairness. By way of example, A promises B to pay a sum of money to C. If A fails to pay as agreed, under the privity of contract doctrine, C cannot enforce the contract between A and B. While B can sue A, it may be difficult for B to prove loss as the contract is to confer benefit to C and not B. Legislators in Hong Kong are considering the Contracts (Rights of Third Parties) Bill (the Bill), which is intended to address such possible absurdity. The Bill has gone through its first reading and the date for second reading has yet to be fixed.

Applicability of 'privity of contract' in employees' compensation insurance context

In a situation where a subcontractor takes out an insurance policy with an insurer to cover his and the principal contractor's liability to employees' compensation, if an employee of the subcontractor is injured due to the negligence of the principal contractor's employee and the principal contractor pays the compensation to the injured employee, can the principal contractor (who is not a party to the insurance policy) seek indemnity from the insurer?

The authority suggests that the common law principle of privity of contract applies. In B+B Construction Ltd v Sun Alliance and London Insurance Plc [2000] 2 HKC 295, the plaintiff, as principal contractor, subcontracted its construction work to Pak Kee Transportation Co Ltd (Pak Kee). Under the sub-contract Pak Kee was obliged to provide employees' compensation insurance. Pak Kee had taken out an insurance policy with Sun Alliance and London Insurance plc under which Pak Kee 'and his contractors' were the insured. The policy expressly excluded liability to 'employees of contractors to the insured' (the Exception). An employee of Pak Kee was subsequently injured during the course of employment, which was due to the negligence of an employee of the principal contractor. The principal contractor was held liable for damages and brought an action against the insurer for an indemnity.

The Court of First Instance granted a summary judgment against the insurer. The insurer successfully appealed to the Court of Appeal on the ground that the plaintiff's claim fell within the Exception and thus was wholly outside the scope of Pak Kee's employees' compensation policy. The insurer did not rely on the argument that the principal contractor was not a party to the contract, and therefore could not enforce the rights under the contract. The Court of Appeal proceeded on the basis that the principal contractor's claim, if otherwise good, was enforceable in the usual way. Having said that, the Court of Appeal, set out that the law in Hong Kong remained as magisterially stated in Dunlop Pneumatic Tyre Co td v Selfridge & Co Ltd [1915] AC 847 and that only a person who is a party to a contract can sue on it, affirming the privity of contract principle. The case continued up to the Court of Final Appeal which upheld the decision of the Court of Appeal.

Proposed regime

Under the proposed regime set out in the Bill, a third party may enforce a term of a contract if (a) the contract expressly provides that the third party may do so, or (b) the term purports to confer a benefit on the third party unless on a proper construction of the contract, the term is not intended to be enforceable by the third party. The contracting parties, however, can expressly agree that their contract does not give rise to any third party rights to enforce it.

Taking the B+B Construction Ltd case as an example, under the Bill, unless the application of which is expressly excluded, the principal contractor may, if challenged, argue that the policy purports to confer a benefit on it.

Existing regime in the insurance industry

Notwithstanding the 'privity of contract' doctrine, under the Third Parties (Rights against Insurers) Ordinance (Cap 273), a third party may have a direct cause of action against the insurer in certain 'specified circumstances'. This would include a situation whereby an insured under a liability policy becomes bankrupt or makes a composition or arrangement with his creditors, in which case the insured's rights against the insurer shall be transferred to and vested in the third party to whom the insured is primarily liable.

Take-away points

The Bill is intended to have a more extensive application than the Third Parties (Rights against Insurers) Ordinance. The full impact of the Bill on the insurance industry in Hong Kong, however, remains to be seen given the existing regime allows third parties to claim against insurers in specified circumstances. In other circumstances, for instance, in the case of a life insurance policy which anticipates payment to a third party nominated by the insured, a trust is usually expressly created in favour of the third party who could then assert its rights under the policy.

Having said that, if the Bill is passed, we can expect an increase in claims by third parties seeking to enforce policies. When drafting policy terms, insurers should set out clearly who will be entitled to enforce the policy. If the insurer wishes to exclude any rights that a third party may have against the insurer, this should also be set out clearly in the policy terms.

It is worthwhile for insurers to review policy wording to ensure that it clearly reflects the intent as to whether or not a third party can enforce the terms of the relevant policy. This could help avoid an argument from a third party claiming a benefit under the policy.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions