What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?
Third parties can not bring claims directly against the parties to a contract. However, a contracting party may assign its contractual rights to a third party. Additionally, a second or subsequent owner of a building will in many circumstances be entitled to make claims for defects against the contractor in accordance with the original contract.
Unless a third party is expressly given a right under the contract, third parties cannot generally obtain rights under construction contracts and bring claims against the contractor in respect of delays or defects. If a contract is worded to give rights to a third party (which would be very rare in a construction contract), exclusions and limitations of liability in the contract will typically be given effect.
Collateral warranties by designers, sub-contractors or others are rarely used in Swedish projects. However, in project finance structures, which are common in the wind power industry and some other industries, direct agreements or other instruments giving rights to the lenders are commonly used.
The Contracts (Rights of Third Parties) Ordinance (Cap. 623) came into force on 1 January 2016 and enables persons who are not parties to a contract to enforce rights under that contract.
In Hong Kong, the use of collateral warranties is still at an early stage of development, although they are used by many private developer and have been used by Government bodies in large-scale, signature projects.
The doctrine of privity of contract means that a party who is not a party to a contract cannot take advantage of any rights under that contract. In addition, as per the answer to question 5, rights of third parties to claim in tort are limited as it is generally not possible to recover pure economic loss without a contractual relationship. As a result purchasers, funders and tenants enter into separate contracts with contractors called collateral warranties.
As an alternative to collateral warranties, since the introduction of the Contracts (Rights of Third Parties) Act 1999, non-parties have the ability to enforce specific rights under the contract. These rights are generally set out in a schedule to the main contract.
Contracts in the United States typically do not provide for third-party beneficiary rights. In the event that parties to a contract wish to give rights to third-parties, U.S. law requires that such intent be clearly expressed in the contract. Express third-party beneficiaries have the same rights to enforce the contractual promises in the contract as the original contracting parties.
Third-party rights can also be created incidentally in construction contracts. The potential for incidental third-party beneficiaries varies by state with most state courts holding that downstream contractors, subcontractors and material suppliers are not third-party beneficiaries to contracts between a general contract and an owner. Most courts have a strong presumption against incidental third-party rights, and expect any third-party rights to be expressly granted in the contract.
In practice no rights are granted to third parties. Thus, only when an initially as third party marked party becomes a regular party to a contract, only in such cases will its rights be respected by the other parties thereto.