Contract law should be updated to allow third parties to enforce contracts arranged between two other parties, according to the Law Reform Commission.

The report on contract law and third party rights, published today, proposes new legislation that could lead to a reduction in legal costs for the drawing up of contracts for building and civil engineering work.

Current 'privity of contract' legislation means that only those who negotiated the contract can enforce it. Under this legislation, even if a person is mentioned in the contract - and the contract was intentionally for their benefit - this "third party" cannot rely on or enforce the terms of that contract.

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In its Report, the Commission has recommended that, subject to certain limitations,

the privity of contract rule should be changed so that a third party who the contracting parties clearly intended to benefit from their agreement would be able to rely on and enforce the agreement if it is not carried out properly.

The Commission recommends that a more general rule giving rights of enforcement to third parties should be put in place. The Commission's overall view is that the proposed legislative scheme should be facilitative and not prescriptive. It is therefore intended to benefit contracting parties and third parties, whether they are consumers or business people, but parties remain free to opt-out of the scheme.

The move would also help to simplify contracts for construction and civil engineering projects that involve large numbers of contractors and sub-contractors: allowing for one contractor to enforce the terms of a contract against another.

The Minister for Enterprise, Trade and Employment, Micheál Martin is expected to give the Governments official response to the report this evening.

(VB/JM)