Ship Contracts (Rights of Third Parties) Act 1999

Ship Contracts (Rights of Third Parties) Act 1999

Ship Contracts (Rights of Third Parties) Act 1999 came into effect on 11 May 2000. The statute provides that a Third Party (Shipbroker) is entitled to enforce a contractual provision in his or her own name where either the contract contains an Express Term to that effect or where the contract purports to confer a benefit on a third party unless, in the latter case, it is clear on a true construction of the contract that the contracting parties did not intend the Third Party to have a personal right to enforce such benefit.

In both cases the right of enforcement is dependent on the third party being expressly identified in the contract by name, class or description. There is, however, one proviso in relation to contracts for the carriage of goods by sea. In such a context the statutory right to enforce a contractual provision is not intended to confer positive rights on a third party, its effect being expressly restricted to enabling a third party to avail himself of an exclusion or limitation of liability provision in such a contract.

The first limb of the new statutory enforceability test would appear to provide an alternative solution to the use of a Himalaya clause. Thus, in the typical situation covered by such a clause, the agency device is specifically designed to extend the protection afforded by the provisions of the carriage contract to cover a third party while performing the obligations envisaged by the contract.

Such third parties are invariably identified by description. The direct relief provided by the new statutory remedy might be expected in time to supplant the more cumbersome agency device in the Himalaya clause, although the Act specifically preserves existing common law remedies. Much will depend on the relative effectiveness in practice of the new statutory provisions.

One possible defect of the new legislation in this context is the retention of the right of the original parties to vary or rescind the contract without the consent of the third-party beneficiary. The exercise of such a right of revision, which could effectively remove the protection otherwise afforded to the third party, is, however, subject to certain qualifications.

The parties to the contract cannot vary or rescind the contract without the third party’s consent once the third party has communicated to the promisor his assent to the provisions in the contract to his benefit, or where he has relied on such provisions and the promisor is either aware of such reliance or could reasonably be expected to have foreseen it.

All three potential bars presume that the third party is aware of the contractual provision in his favour when he either accepts or acts in reliance on it. Indeed, the Law Commission in its report advocating the legislation expressly states that ‘Reliance on a promise, in our view, means “conduct induced by the belief (or expectation) that the promise will be performed or at least, that one is legally entitled to performance of the promise”.’ The only problem is that, in many cases, the Stevedore or Sub-Contractor may be unaware of the Himalaya Clause in the Bill of Lading (B/L)  at the time when he performs what would otherwise be an act of reliance.

Would the absence of intentional reliance in this context defeat the object of the legislation? In practice it may have little significance since any variation in the terms of the contract requires the agreement of both of the original contracting parties and a carrier is unlikely to consent to such a change if it would leave him exposed to an indemnity claim by the third party.

So in Scruttons v Midland Silicones the carrier, in engaging stevedores to discharge the cargo, had contracted to provide them with the same protection as was afforded to the carrier in the bill of lading. On falling victim to the privity rule, and being held liable for the full value of the damaged cargo, the stevedores were subsequently able to recoup their loss from the carrier as damages for breach of contract.