28 Oct 2019

Contracts, third parties and the right to redress


In this Court of Appeal case, the Appellants succeeded in bringing a claim under the Contracts (Rights of Third Parties) Act 1999 (the “Act”), even though they were neither aware of, nor named in, the contract in question.

The claim related to a failed (and fraudulent) property investment scheme. The Appellants transferred funds to a newly incorporated company. The Defendant bank, in breach of its contract with that company, failed to keep the Appellants' funds in a segregated client account and wrongly paid them out.

Whilst the Appellants sued in various causes of action, it is noteworthy that their claim under the Act succeeded.

The Court clarified the operation of the Act:

  • To bring a claim under the Act, a party must be sufficiently identified as within a “class” (pursuant to section 1(3) of the Act) by reference to those individuals who transferred money to a specifically segregated client account. In reaching this conclusion, the Court confirmed the need to construe the contract as a whole by reference to the admissible factual matrix;
  • While acknowledging it might be 'serendipitous' for the Claimants to benefit from a contract they knew nothing about, the Court concluded that knowledge was not a requirement of the Act either at the time the contract was entered into or after; and
  • Because this was a claim for breach of contract and not in negligence (or misrepresentation) there was no requirement for reliance, nor for the Claimants to show what would have happened to their money but for the breach. The SAAMCO principle1 was not engaged.

Stephenson Harwood comment

If you do not want third parties to benefit from contractual claims, express wording should be included excluding the operation of the Act.

Conversely, if (as here) a negligence claim will not succeed, consider whether there is any scope to bring a claim under the Act.


1 South Australia Asset Management Corporation v. York Montague Ltd [1997] A.C. 191 which provides that a negligent adviser of information is only liable for foreseeable financial consequences of the information provided being wrong, and not for the financial consequences of the advisee deciding to take a specific course of action.



Ben Sigler

Ben Sigler

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Harriet Campbell

Harriet Campbell
Senior knowledge development lawyer

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