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Mr. Lock: I can confirm to the hon. Member for Torridge and West Devon (Mr. Burnett) that it is the Government's understanding that new clause 1--and, indeed, the whole Bill--will not affect the operation of collateral warranties. It will be up to the parties themselves whether they choose to enter into collateral warranties or rely on the terms of the Bill. Indeed, under the terms of the Bill, the original parties to the contract will be able to specify the extent to which, if at all, the contract will apply to third parties and can, if they choose, contract out of the third party rights in their entirety. In those circumstances, it is correct to say that the provisions of any collateral warranty will take precedence over any rights under the Bill.

I am grateful for the kind words from the hon. Members for Torridge and West Devon and for Surrey Heath (Mr. Hawkins), and I concur with what the latter said about the position of our previous chambers. I also welcome the appointment of my hon. Friend the Member for Liverpool, Wavertree (Jane Kennedy) to prove that the Lord Chancellor's Department is neither an all-boys club nor entirely a lawyers club.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 2

Northern Ireland


'.--(1) In its application to Northern Ireland, this Act has effect with the modifications specified in subsections (2) and (3).


(2) In section 6(2), for "section 14 of the Companies Act 1985" there is substituted "Article 25 of the Companies (Northern Ireland) Order 1986".
(3) In section 7, for subsection (3) there is substituted--

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"(3) In Articles 4(a) and 15 of the Limitation (Northern Ireland) Order 1989, the references to an action founded on a simple contract and an action upon an instrument under seal shall respectively include references to an action brought in reliance on section 1 relating to a simple contract and an action brought in reliance on that section relating to a contract under seal.".
(4) In the Law Reform (Husband and Wife) (Northern Ireland) Act 1964, the following provisions are hereby repealed--
(a) section 5, and
(b) in section 6, in subsection (1)(a), the words "in the case of section 4" and "and in the case of section 5 the contracting party" and, in subsection (3), the words "or section 5".'.--[Mr. Lock.]

Brought up, and read the First time.

3.45 pm

Mr. Lock: I beg to move, That the clause be read a Second time.

Madam Speaker: With this, it will be convenient to discuss Government amendment No. 3.

Mr. Lock: In 1998, the Law Reform Advisory Committee for Northern Ireland issued a report which recommended for Northern Ireland reforms similar to those contained in the Bill. As contract law in Northern Ireland has traditionally paralleled that in England and Wales, it was originally the Government's intention to implement the Law Reform Advisory Committee's recommendations by extending the Bill directly to Northern Ireland. However, as the prospect of devolution grew ever closer, it was decided that, as contract law will fall within the transferred area of competence, the reforms should be a matter for decision by the Northern Ireland Executive and Assembly. Regrettably, however, the Assembly is not yet up and running, and the Government have decided that this valuable piece of law reform should therefore be extended directly to Northern Ireland.

Amendment No. 3 directly extends the provisions of the Bill to Northern Ireland, subject to the consequential amendments that are contained in the new clause.

Subsections (1), (2) and (3) of the new clause make minor consequential amendments to clauses 6 and 7 of the Bill, so that the references to legislation will apply to the equivalent statutory provisions in Northern Ireland.

Subsection (4) of the new clause repeals section 5 of the Law Reform (Husband and Wife) (Northern Ireland) Act 1964, which has no direct equivalent in England and Wales. That section modifies the rule of privity of contract in respect of contracts that expressly confer a right on the spouse or child of the contracting parties. As the Bill before us makes comprehensive provision for third-party beneficiaries under a contract, there will no longer be any need for that provision on the Northern Ireland statute book when the Bill receives Royal Assent.

Subsection (4) also makes a minor consequential amendment to section 6 of the Law Reform (Husband and Wife) (Northern Ireland) Act 1964, which takes account of the repeal of section 5 of that Act.

Mr. Burnett: I shall not delay the House long. In the absence of any Member of Parliament from the Province, I simply ask whether full consultation has taken place with the legal and other professional bodies in the

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Province, and have they raised any objections, or any points requiring clarification, concerning the Bill's impact on the Province?

Mr. Hawkins: I, too, can be brief. I was simply worried about what the Minister said in his covering letter to me, when he raised the question of uncertainty over the Northern Ireland Assembly. The future of Northern Ireland is in all our thoughts, for reasons much more serious than the contents of the Bill. I wonder whether the Minister might say a word or two about what he meant by the uncertainty over the Northern Ireland Assembly. I also associate myself with the concerns raised by the hon. Member for Torridge and West Devon.

Mr. Lock: In answer to the hon. Member for Torridge and West Devon, yes, there has been consultation, and yes, as I said, these provisions arose from a report of the Law Reform Advisory Committee for Northern Ireland published last year and, as far as I am aware, no substantive objections have been made to the extension of the rights in the Bill--which is a Law Commission Bill--to Northern Ireland.

In answer to the hon. Member for Surrey Heath, I do not feel that it would help the delicate position in Northern Ireland to say anything further at the Dispatch Box this afternoon about the relationship between Britain and Northern Ireland, save that I do not feel that it is right that, given that these rights will be of value to people in Northern Ireland, we should hold up their implementation while other political events continue elsewhere.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Clause 6

Exceptions

Mr. Lock: I beg to move amendment No. 2, in page 5, line 4, after '2', insert 'or 3'.

Amendment No. 2 adds part B of schedule 3 to the Carriage by Air Acts (Application of Provisions) Order 1967 to the list of international transport conventions in subsection (8) of clause 6. Contracts that are subject to the rules of the conventions in this list are excluded from the effects of the Bill because we do not believe that we should interfere where other legislation deals expressly with the question of third-party rights. This schedule, which was inserted after the Law Commission had published its report and which was therefore not in the original Bill, is concerned with the regulation of the international carriage of cargo by air.

Amendment agreed to.

Clause 7

Supplementary provisions relating to third party


Amendment made: No. 1, in page 5, line 18, leave out subsection (4).--[Mr. Lock.]

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Clause 8

Short title, commencement and extent


Amendment made: No. 3, in page 5, line 41, leave out subsection (4) and insert--
'(4) This Act extends as follows--
(a) section (Northern Ireland) extends to Northern Ireland only;
(b) the remaining provisions extend to England and Wales and Northern Ireland only.'.--[Mr. Lock.]
Order for Third Reading read.

Motion made, and Question proposed, That the Bill be now read the Third time.--[Mrs. McGuire.]

3.51 pm

Mr. Lock: This welcome Bill is the result of another excellent piece of work by the Law Commission and has met with support from all sides, both in another place and in this House. I should like to express my gratitude to the Law Commission for all its work on this Bill, and to all the organisations and individuals who have contributed to the development of our policy, including all those who have taken part in the debates during the Bill's passage through this House and in another place. I am particularly grateful to Professor Andrew Burrows for his continued help after the Law Commission's Report was published in 1996.

Although this is a short Bill, it is immensely technical in character. Virtually every word reflects a careful policy decision by the Law Commission, for which the Government are grateful. This important Bill reforms the common law rule of privity of contract, under which a person can take action to enforce a contract only if he is a party to it.

It might be helpful if I gave a brief example of the benefits of the Bill. Let us assume that a couple are getting married. A relative goes to a shop where a wedding list is kept, buys them a three-piece suite as a wedding present and arranges to have it delivered directly to them. It is made clear in the discussions with the furniture shop that holds the list that the suite is a gift for the couple. Under the rule of privity of contract, the couple would not have any recourse against the shop because they were not parties to the contract. Any action against the shop for breach of contract would have to be taken by the relative who was one of the original contracting parties.

The Bill provides that a third party will have the right to enforce a term of a contract, both where the contract expressly provides that he should and where the contract purports to confer a benefit on him, provided that it does not appear that it was not the parties' intention that the term should be enforceable by the third party. In my example, the Bill would allow the couple who received the suite as a wedding present, and who are third-party beneficiaries of the contract between the relative and the shop, to take action directly against the shop for any breach of contract.

In view of the questions that were asked on Second Reading and in Committee, I should stress that whether the Bill applies to a particular contract will depend on the express or implied intentions of the original contracting parties. I must also stress the need for clear and careful drafting of contracts so that the intentions of the

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contracting parties are obvious. I am grateful to the hon. Member for Surrey Heath (Mr. Hawkins) who made a similar point on Second Reading.

We have also been asked whether the Bill should state that it binds the Crown, so that where the Crown is the promisor it may be sued by a third party. The Bill does not impose any obligation or restraint on the Crown. It is simply an enabling measure for the benefit of parties to contracts, to make it possible for them to give third parties enforceable rights by agreement. The language of "binding the Crown" is inappropriate here. It is the Crown Proceedings Act 1947 that enables proceedings in contract to be brought against the Crown, whether they are brought by the promisee or by a third party.

The construction industry has shown a keen interest in the Bill, both through the hon. Member for Surrey Heath in this House, and in the other place. I was grateful tothe hon. Gentleman for the opportunity to meet representatives of the Construction Confederation to hear their concerns. Having heard those concerns, I hope that it may be helpful if I explain the policy behind two of the Bill's clauses.

First, the intention of clause 1(5) is that all the remedies available to a person bringing a claim for breach of contract should be available to a third party seeking to enforce his rights under the Bill, and that the normal rules relating to damages, injunctions, specific performance and other relief should apply accordingly. It has been suggested that we should amend the Bill so that it specifies that the rules on foreseeability in damages claims should apply. If the Bill listed only one of the rules on damages, it could cast doubt on the application of the other rules on damages, such as the duty to mitigate loss.

Nor is a comprehensive listing necessary because the clause refers to


That means all the rules that the courts have deemed necessary to regulate the assessment of damages. It would be inconsistent with our aim to try to set out all the common law rules that could apply and to freeze the statute in time in the face of a developing common law. Our intention is that the Bill should avoid that by setting out the principles of fundamental change which it makes to the law without descending to the level of unnecessary detail.

The other issue on which I have promised to provide further explanation is concerned with the use of the term "variation" in clause 2. The clause will affect provisions in construction contracts which allow the items of work under a contract to be varied as the construction proceeds, so as to accommodate changing circumstances. The construction industry's concern, which I accept is legitimate, arises because the Bill uses the word "variation" in its strict and correct legal meaning--a variation of the terms of an agreement by further

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agreement between the parties to the original agreement. But when the construction industry uses the term it often refers to alterations to the work done within the terms of the original agreement and without varying its terms.

The usual situation is a contract which allows one of the parties to change the specifications of work unilaterally, subject to a change in the amount to be paid. The Law Commission was aware of the way in which the construction industry used the term when it produced its report, and made it clear that such changes to work specifications would not be covered by the restrictions in clause 2, even if they were described in the industry as variations to the work. The point is dealt with at paragraph 9.37 of the Law Commission's report, with which I agree.

As clause 2 does not apply to variations of work rather than of the terms of contract, the third party's rights will be subject to any provisions in the contract which allow what has been built to be varied unilaterally. If the hon. Member for Surrey Heath has been persuaded that the Law Commission was not correct, I may respond, with the leave of the House, to any concern that he may raise.

I am grateful to the hon. Members for Surrey Heath and for Torridge and West Devon (Mr. Burnett) for their constructive and helpful approach to this valuable law reform measure. I commend the Bill to the House.


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