• The Contracts (Rights of Third Parties) Bill, 2014 proposes to change Cayman contract law
  • March 6, 2014 | Authors: Daniel Loeb; Gary Smith
  • Law Firm: Loeb Smith & Brady - George Town Office
  • Currently, under common law, a person must be party to a contract in order to be able to enforce the provisions of that contract. This applies even where the parties to the contract clearly intended that a person who is not party to such contract be given rights under the contract. The Contracts (Rights of Third Parties) Bill 2014, when passed into law, will enable the parties to a contract which gives persons who are not direct parties to that contract the ability to enforce rights expressly granted to them in the contract.

    The Contracts (Rights of Third Parties) Bill 2014 provides for the right of a third party to enforce a contractual term, provided that the contract specifically provides in writing that he or she may. However a term of a contract purporting to confer a benefit on a third party will not in itself be sufficient to enable the third party to enforce the term. Only terms which are expressed in writing in the contract to be capable of enforcement by the relevant third party will be so enforceable.

    In the investment funds context, the new law is expected to be particularly beneficial in dealing with indemnity and exculpation provisions of limited partnership agreements and shareholders agreements which commonly seek to benefit a wider class of persons than the parties to the agreement itself (e.g. investment manager, each of its affiliates, and each officer, director, employee, agent, stockholder, partner or member thereof). The new law should remove the need for separate agreements to deal with indemnity and exculpation provisions.