The central purpose of the bill is to allow someone who is not a party to a contract to sue for breach of a term as if he were a party to the original contract. The bill will apply only if the parties expressly agree to confer a benefit on an identified third party, or if a term 鈥減urports to confer a benefit鈥� on a third party.
Whether a term 鈥減urports to confer a benefit鈥� will remain uncertain for some time. So, except where the parties expressly agree to confer a benefit, the consultant should use the wording recommended by the RIBA in the Standard Form of Agreement for the Appointment of an Architect (SFA/99, condition 7.6): 鈥淔or the avoidance of doubt nothing in this agreement shall confer or purport to confer on any third party any benefit or the right to enforce any term of this agreement.鈥� The Association of Consulting Engineers has recommended similar wording.
The bill is of general application and applies to all contracts familiar to the industry, except for employment contracts. It applies to written and oral contracts, irrespective of formality.
A contract concluded at a meeting or by correspondence would be covered just as much as a 50-page deed of appointment.
From the consultant鈥檚 point of view, the client is most likely to want to confer the benefit of the appointment on the usual beneficiaries of collateral warranties, such as purchasers, tenants and funders. Clients could do this simply by identifying the class of beneficiary (for example, 鈥渇irst purchaser鈥� or 鈥渇irst tenants鈥�) and expressly stating that the beneficiary may enforce the terms of the appointment.
Consultants need to be careful here.
Currently, it is common for collateral warranties to contain limitations such as a net contribution clause, an exclusion of loss of profit and a limit on the number of permitted assignments. Such limitations are much less common in the original appointment itself. There are good reasons for distinguishing between the client and purchasers/tenants when considering limitations of this kind, the main one being the need to limit the proliferation of obligations in favour of unknown parties.
The consultant should agree a term that expressly states that these third parties鈥� rights are subject to the various limitation clauses referred to above.
- The rights of third parties legislation extends consultants鈥� liabilities
- This may include other members of the construction team
- The scope of indemnity clauses may be increased
This will be permitted by clause 3(3)(a).
Where the consultant has expressly agreed to confer third party rights, it should modify the RIBA鈥檚 wording so that it applies except in so far as the parties have expressly agreed that a third party may enforce a term.
This should avoid the possibility of a court holding that a particular term purports to confer a benefit on a specific person or a 鈥渕ember of a class鈥�
Consider the following: Under SFA/99, the architect is obliged to co-operate with and provide information to other members of the team, which may include the project manager.
In the ACE conditions, there is a similar obligation on the engineer to co-operate with the lead consultant. Do these provisions purport to confer a benefit on the project manager or lead consultant so as to allow them, as well as the client, to sue the consultant direct?
What about an obligation requiring the consultant to liaise with or supply information to third parties beyond the project team, such as adjoining landowners or occupiers? If the courts hold that such terms purport to confer benefits on the third parties mentioned, the consultant could be exposed to claims for breach of these particular terms. The consultant鈥檚 risk would therefore be extended.
Another example is the indemnity clause that some clients still insist on. Many indemnities are expressed generally. For example: 鈥淭he consultant agrees to indemnify the client in respect of any liabilities, etc, arising from performance of the services.鈥� The act would not apply because no third party is identified. But what about indemnifying the client against 鈥渓iabilities to neighbouring landowners or occupiers resulting from an act of the consultant鈥�? Here a class is identified, but does the clause purport to confer a right on the neighbouring landowners?
I doubt it, but until the courts give guidance it would be prudent for consultants to adopt the wording recommended by their institutes.
Postscript
Martin White is an associate director of Richard Rogers Partnership and a barrister.
