Enforcing third party rights – is a benefit under the contract always necessary?

HNW Lending Ltd v Lawrence [2025] EWHC 908 (Ch)

The question

Will the courts limit their interpretation of s.1(1)(a) of the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A) only to the enforcement of a term purporting to benefit that third party?

The key takeaway

A third party may enforce the terms of a contract pursuant to s.1(1)(a) of C(RTP)A if it is expressly provided that the third party may so enforce, even in circumstances where no benefit is conferred on the third party.

The background

HNW Lending (HNW), an FCA authorised peer-to-peer lender, acted as a security agent to facilitate a loan of £1.52m from various undisclosed lenders to Ms Lawrence, a property developer. The loan was secured by charges against properties owned by Lawrence, including a first charge registered against a property in Epsom (the Property).

On expiry of the term of the loan, HNW sought possession of the Property and claimed for payment of outstanding sums due under the loan agreement. Lawrence sought to strike out HNW's claim, alleging that HNW lacked standing to bring a claim as it was neither a party to the agreement, nor did the agreement confer any benefit to HNW as required by the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A).

The agreement stated that it was made between Lawrence and “the Lender (acting by HNW Lending Limited (as Security Agent)”. The lender was not named in the agreement but was identified in the schedule by the number “1” and was described as “a person … who lends money through HNW Lending Limited who has granted permission for ‘HNW Lending Limited to act as their Security Agent in entering into and administering this loan to the Borrower.”

On the key issue of whether HNW had standing to bring the claim under the loan agreement, the court considered clause 26.7 of the agreement:

"the Borrower and Lender agree that, while HNW Lending Limited is not a party to this Loan Agreement, HNW Lending Limited may take the benefit of and specifically enforce each express term of this Loan Agreement and any term implied under it pursuant to the Contracts (Rights of Third Parties) Act 1999." [emphasis added]

The decision

The critical issue for the court concerned the interpretation of C(RTP)A, s.1(1)(a):

“1. Right of third party to enforce contractual term

(1) Subject to the provisions of this Act, a person who is not a party to a contract (a 'third party') may in his own right enforce a term of the contract if

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.”

The court noted that:

• clause 26.7 appears to have been drafted with C(RTP)A in mind and with the intention of conferring on HNW equivalent rights to those of the lender, enabling HNW to enforce obligations owed to and benefitting the lender;
• there is little case law on the scope of C(RTP)A, s.1(1);
• the example given in Chitty on Contracts (35th Edition) on s.1(1)(a), of one contracting party (A) promising to the other (B) to pay £1,000 to a third party (C) and the contract going on to provide that C is to be entitled to enforce the term containing this promise, was materially different from what the parties appear to have had in mind in the present case which on its facts contained no promise made by Lawrence to the lender to pay anything to, or otherwise benefit, HNW.

In its judgment, the court concluded that s.1(1)(a) was not limited to the enforcement by a third party of a term purporting to benefit them – this was specifically addressed by section 1(1)(b). Therefore, it was sufficient that the agreement expressly provided that a third party may enforce the term, which in this case was satisfied by clause 26.7 of the loan agreement. Alternatively, clause 26.7 was effective pursuant to section 1(1)(b) to effectively confer the lender's benefit of all the express and implied terms of the agreement on HNW because it expressly provided that “HNW Lending Limited may take the benefit of and specifically enforce each expressed term of this loan agreement and any term implied under it”.

The court added that its construction of clause 26.7 gave effect to the parties’ contractual provisions, whereas Lawrence's position would have rendered part of them "otiose".

Note that permission to appeal (and a stay of the enforcement of HNW's claim) was granted as the court acknowledged it had reached a different conclusion to a previous county court decision relied on by Lawrence. In that case, the judge held that the terms of a different loan agreement on materially the same terms could not be enforced by HNW.

Why is this important?

This decision provides a rare authority on the scope of C(RTP)A, s.1(1), giving a broader interpretation of the section than in the example provided in Chitty on Contracts, a resource often relied on by transactional lawyers in the absence of legal authority. The decision reaffirms the court’s willingness to, whenever possible, give effect to the express terms agreed to by the parties.

Any practical tips?

Take into account that where there is express wording permitting it to do so, a third party may be able to enforce the contract in circumstances where they do not receive a direct benefit from it. Consider expressly providing that some terms or all of them are unenforceable by a non-party, negating the contractual intention necessary to create an enforceable right under C(RTP)A.

Ensure that all parties to the contract, and any relevant third parties, are clearly defined, to avoid confusion – particularly in arrangements where agents / intermediaries are involved.