The Contracts (Rights of Third Parties) Act 1999 came into force on 11 November.

It will only apply to contracts entered into during the first six months after implementation if these contracts provide for it to do so.

Thereafter, it will be of general application.

In allowing the enforcement by third parties of contracts made for their benefit, notwithstanding their failure to give consideration, the Act overturns a century-old principle of the common law and brings the law of England and Wales into line with most of our EU partners.In the 10th edition of Chitty on Contracts (1876) the editor wrote: 'It is clearly settled that a mere stranger to the consideration cannot enforce performance of the contract by an action in his own name, although he be the party avowedly intended to be benefited thereby.' This rule could give rise to injustice and complexity, as was illustrated by Beswick v Beswick [1967] 2 ALL ER 1197.

An uncle agreed the sale of his business to his nephew in return for a promise that the latter would pay £5 per week to the uncle's widow following his death.

When he defaulted, the widow was unable to sue in her personal capacity and had to proceed as administratrix of her husband's estate to recover the loss it had sustained.Lord Reid threatened judicial reappraisal of the third party rule if parliamentary action on the (first) report of the Law Commission recommending its abolition were delayed.

But a change in the law only happened following the Law Commission's report of July 1996.Provisions of the ActA third party may sue to enforce a contractual term if the contract expressly says he can, or if it purports to confer a benefit upon him and on a proper construction of the contract the parties intended that he should be able to do so.

Under s 1, he will have the same remedies as would have been available to him if he had been a party to the contract.Where the parties' intentions are unclear it will be for the court to construe the contract and rule accordingly.

The third party must be expressly identified, whether by name, by description, or as a member of a class.

The third party need not be in existence at the date of the contract.

Take a contract between an employer and unions, expressly enforceable by the workers, to provide benefits for them.

It could not be argued that incoming employees after the date of the contract were not entitled to benefit under it.

The Act applies to contracts providing for the third party to enjoy the benefit of terms excluding or restricting liability.

This should simplify building and development contracts by removing the need for series of collateral warranties and contracts.Variation and rescissionThe new rights given by s 1 would be nugatory if the contracting parties were able, without reference t o the third party, to vary or rescind the contract to extinguish his rights.

Section 2 provides that in the absence of an express term so enabling, this cannot be done without the consent of the third party if he has 'communicated his assent' to the contract to the promisor, or if the latter is aware that the third party has relied on the term, or should reasonably have foreseen that he would do so in circumstances where he has in fact done so.The contract itself may provide for other circumstances in which the third party's consent to its rescission or variation is required.

The third party may 'communicate his consent' by words or conduct but if he chooses to do so in writing, it should be noted that 'communication' is incomplete until the missive is received by the promisor.

Section 2 also provides for the court to dispense with the third party's consent (subject to the imposition of such conditions, for example as to compensation, as may be thought fit) where there is dispute as to whether or not he actually relied on the term, or has disappeared, or has become mentally incapable.Third party sues: promisor defendsWhere the promisor is sued by the third party, he may rely on any defence or set-off arising from or in connection with the contract and relevant to the term on which the third party relies which would have been available to him had proceedings been brought by the promisee.

If an express term of the contract provides the promisor with a particular defence against the promisee, then he may rely upon it in proceedings brought by the third party.The Act makes no reference in this context to counterclaims.

As a counterclaim available to the promisor against the promisee might well arise from circumstances wholly extraneous to the contract, it would be anomalous for the third party's rights to be denied in such a case.However, if the promisor has a counterclaim against the third party, which he could have raised had the third party been a contracting party, then he may rely upon it in addition to any defence or set-off available only against the third party, as opposed to the promisee.

An example would be if the third party obtained the contractual benefit as the result of a misrepresentation to the promisor of which the promisee is ignorant or wholly innocent.Although the contract may provide for the promisor's armoury of defences, set-offs and counterclaims to be limited by an express term to that effect, the Act does not permit the contracting parties to extend their scope.

To allow the third party to be met by a counterclaim of relevance only to the promisee would have the effect of imposing a contractual burden on the third party when the Act contemplates only contracts for his benefit.

It remains the case that only in the context of land law (for example, restrictive covenants and the Landlord and Tenant (Covenants) Act 1995) can the contracting parties impose a burden upon a stranger to their contract.Section 3 provides that a third party is not, by virtue of s1, to be placed in a better position than if he had been a party to the contract himself.

If, as such a party, he would not for whatever reason have been able to enforce the term (including, in particular, a term to exclude or restrict liability) then he may not enforce it under s 1.

Obvious examples would include where the benefit to be given would have been illegal under the contract or where the third party lacks contractual capacity.Section 4 makes it clear that s 1 is not to operate so as to limit any contractual remedies of the promisee.

As a breach of a relevant term could expose the promisor to actions by both the promisee and the third party, s.5 sets out to protect him from double jeopardy.

It provides that any award to a third party may be reduced by the court or arbitral tribunal to such extent as is thought appropriate if the promisee has already recovered a sum equivalent to either the third party's loss or the expense incurred by the promisee in making good to him the default of the promisor.ExclusionsThe Act will not change the existing law on who can enforce negotiable instruments.

It excludes certain contracts for the carriage of goods and it excludes contracts already covered by the Carriage of Goods by Sea Act 1992.Section 7 deals with supplementary provisions.

These include limitation and the interface between the 1999 Act and the Arbitration Act 1996.

It is also provided that the third party may not rely on the Unfair Contracts Terms Act 1977 to contest the validity of a term excluding or limiting the promisor's liability to the third party for negligently causing loss or damage, other than for personal injury or death.