The Contracts (Rights of Third Parties) Act 2016 (Bill) was introduced into the Bermuda House of Assembly on 4 March 2016. The Bill introduces changes to the common law rule of "privity of contract", under which a person can normally only enforce a contract if he is a party to it. The Bill is currently scheduled for a second reading in the House of Assembly.
The Bill, if adopted, would allow, subject to certain exceptions, a third party to enforce contractual terms in its own right where:
- 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 Bill will modernise Bermuda's current legal position on third party rights and bring Bermuda in line with a number of jurisdictions which have legislation that permits contracting parties to include third party rights in the provision of contracts. This makes for a convenient regime for a third party to be able to directly enforce rights provided to it under a contract without having to be party to the contract or enter into additional documentation.
The "opt in" regime, whereby enforcement of a third party right can only be achieved when the contract expressly so provides, gives contracting parties flexibility to choose whether the proposed legislation will apply. If parties to a contract do not expressly provide that third parties may enforce contractual terms, the common law doctrine of privity of contract will continue to apply to that specific contract.
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