Whether a chain of contract rebuts a presumption of intention to benefit a third party depends on whether there is a tradition of such chain of contracts in the relevant industry.
- A contractual letter of indemnity (LOI1) is given by receivers of sugar (D) to the charterers of the ship (T) carrying the sugar which included under clause 3, a promise by D to indemnify the charterers against the loss caused, if the ship was arrested in connection with the delivery of the cargo
- The charterers gave a letter of indemnity (LOI2) to the ship owners (C)
- The ship was arrested by a bank for non-payment in connection to its cargo
- C sought to enforce clause 3 in LOI1 between D and T against D under the s1(1)(b) Contracts (Right of Third Parties) Act 1999
Does the chain of contracts between C, T and D rebut the right of C to enforce the contract?
Held (Court of Appeal)
- C was entitled to enforce clause 3 against D
- LOI1 purports to benefit C under s1(1)(b) Contracts (Right of Third Parties) Act 1999
Chains of contracts
- In the Law Commission Report, it was stated that in chains of contracts in the construction industry, a subcontractor normally would not be found liable to the employer under s1(1)(b) 1999 Act as the commercial background in construction means that contracts are unlikely to cut across parties
- However, this does not mean that s1(1)(b) 1999 Act is rebutted whenever there is a chain of contracts in any other industry
- We say nothing about the position on chains of charterparties but there is no tradition of chain letters of indemnity