The essence of the privity of contract rule means that only the parties to a contract can enforce it.

In an attempt to relax certain aspects of a rule that is at times artificial, various jurisdictions have implemented statutes providing for third party rights, including Hong Kong. The Contracts (Rights of Third Parties) Ordinance, Cap.622 is expected to come into force on 1st January 2016 and will enable a third party to enforce his rights in a more straightforward manner.

A third party can enforce a contract either where it is expressly provided so (section 4(1)(a) of Cap.623) or where it purports to do so (section 4(1)(b) of Cap.623).

Section 6 of Cap.623 makes it clear that the contracting parties may not, without the third party’s consent, by agreement vary or rescind the third party’s rights so that the third party’s right is altered or extinguished.
In England, the default position in the commercial world has been to exclude such third party rights. However, there are some areas where the Contracts (Rights of Third Parties) Act 1999 has not been excluded in its entirety, such as in the context of M&A transactions.

For example, where a seller agrees not to compete but fails to abide by the restrictive covenant, this may mean that the buyer’s group of companies may suffer losses. It is therefore common for contracts governed by English law to make use of the rights under the Contracts (Rights of Third Parties) Act 1999 to directly enforce restrictive covenants.

The aforementioned example demonstrates that whilst the default commercial position in the UK is to exclude the Contracts (Rights of Third Parties) Act 1999, there should always be a careful consideration of the context and circumstances of each contract before the parties choose to adopt such default position.

Background

Section 81(4) of the Ordinance states that “[t]he leave of the Court is required for any appeal from a decision of the Court under article 34 of the UNCITRAL Model Law, given effect to by subsection (1).” The “Court” refers to the Court of First Instance (hereinafter, “CFI”).

Robotunits Pty Ltd v Juergen Karl Mennel (2015) VSC 268 is a case from the Supreme Court of Victoria concerning disputes arising from shareholders agreements.

In Beijing Tong Gang Da Sheng Trade Co Ltd v Allen & Overy [2015] 3 HKLRD 247, the Court of Appeal maintained the lower court decision that a litigation funding agreement and assignment of a cause of action were champertous.

The disciplinary inquiry in question was held in relation to a medical practitioner (“W”) in public. The initial sentence for a warning letter to be served on W was substituted by an order that W’s name be removed from the General Register for a period of 1 month after the Council was alerted by the media that W did not have a clear record. In the written decision given by the Council on the same day, the Council stated that they would expect legal representatives of a defendant to be frank with the Council in respect of the defendant’s disciplinary record in the future.

Background

The Contracts (Rights of Third Parties) Ordinance, Cap. 623 (hereinafter, “the Ordinance”) is expected to come into force on 1st January 2016.

There are two aspects to the doctrine of privity of contract, and it is the second aspect (that is, a party who is not a party to the contract cannot acquire and enforce rights under the contract) that the Ordinance seeks to address.