Most Read Contributor in British Virgin Islands, February 2017
The Contracts (Rights of Third Parties) Law (the
Law) gives third parties the ability to
enforce contractual rights expressly granted to them in Cayman
Islands law governed contracts to which they are not a party,
subject to certain exceptions.
Rights of a third party
The general position in the Cayman Islands is that only parties
entering into a contract are bound by its terms and persons who are
not parties to a contract do not have rights and obligations under
that contract. The general position arises from the English common
law principle known as 'privity of contract'. The Law was
introduced in 2014 to provide an 'opt in' regime, to allow
parties to a contract to confer rights on persons specifically
intended to benefit from it.
Under 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
Subject to any express term in a contract to the contrary, the
Law restricts the contract parties' ability to rescind or vary
a third party's right so as to extinguish or vary it, without
the third party's consent. The Law also allows a contract party
to apply to court to dispense with any third party consent needed
if it is just and equitable to do so in the circumstances.
Application and exceptions
The Law applies to contractual benefits capable of being
enforced by third parties, including indemnification and
Without using the powers granted by the Law, standard indemnity
provisions in contracts governed by Cayman Islands law which seek
to provide indemnification from one party to persons who are not
parties to the contract are ineffective because only the parties
will have enforcement rights under privity of contract
Under the Law, parties can choose to opt in and grant
non-parties to the contract specific enforcement rights. For
example, in limited partnership agreements standard indemnity and
limitation of liability coverage can be extended to cover third
parties (such as an investment manager, its employees and owners)
without having to make them a party to the limited partnership
As noted above, depending on the commercial requirements, unless
the intention is to seek consent from third parties for any changes
to the contract, wording must be included to provide that third
parties can enforce the rights granted to them under the contract
but that their consent is not required to amend or rescind the
terms of the relevant agreement.
Under the Law, a third party has the same remedies as would have
been available to it for breach of contract as if it had been a
party to the contract. If the contract validly excludes or limits
the right of the parties to make claims, the third party will be
bound by the same exclusions or limitations. The Law also sets out
that if the contract includes an arbitration clause, then the third
party is bound by that arbitration agreement regarding any disputes
in connection with the third party's enforcement of the
relevant term of the contract.
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.
Third party rights are also included in the Exempted Limited
Partnership Law, which specifically provides for members of
committees established by a partnership agreement to be entitled to
the benefit of the provisions regarding committees in the relevant
agreement, including indemnity and exculpation rights, where they
are not a party to it.
Impact on existing contracts
The Law applies to contracts containing the relevant terms which
are made on or after the Law came into force in May 2014. Contracts
entered into before the Law came into force are capable of being
enforced by third parties directly if:
the contract is amended after the Law
came into effect to include the relevant terms; or
the contract already contained the
relevant terms and 'opt in' language for effect when the
Law came into force.
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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Confidentiality of corporate documents and information is one of
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company search of the BVI Registrar of Corporate Affairs will only
disclose certain information and documents.
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