Contractual rights of third parties

It used to be the case that you could only sue on a contract if you were a party to it.  This doctrine – privity of contract – has been significantly reformed by the Contracts (Rights of Third Parties) Act 1999. The Act applies to contracts entered into on or after 11 May 2000 and to contracts entered into before then if the contract so provides.

A third party will be able to enforce a term of contract if either (a) the contract expressly provides for this or (b) the term confers a benefit on the third party (unless it is clear that the parties to the contract did not intend that the third party should be able to enforce it).

For people entitled to shares of receipts or profits from films, television programmes and other media products this may be important.  Contracts for services are often made with poorly capitalised companies who assign the benefit of those contracts to the financiers of the relevant product.  For example, the producer of an independent television film may agree to pay its director a percentage of net receipts.  The benefit of the director’s contract is assigned to the broadcaster as part of the financing arrangements.  If the assignment contains an undertaking by the broadcaster to assume responsibility for payments to third parties, the director could force the broadcaster to pay his or her profit share even though the director has no direct contractual relationship with the broadcaster.  From the broadcaster’s point of view wording should be included to avoid the risk of having to pay twice if the production company becomes insolvent.

The terms which can be enforced are not limited to financial terms and may therefore cover the right to receive credits, or the approval rights which are frequently included in contracts in the entertainment industries.

Bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.