The Government has announced over the weekend that the Contracts (Rights of Third Parties) Ordinance will come into force on 1 January 2016!
As explained in our earlier newsletter, a third party may enforce a term under a contract if (i) the contract expressly provides that the third party may do so; or (ii) the term purports to confer a benefit on such third party. Whilst employment contracts are exempted from the Ordinance, the exemption is only limited to the enforcement of a term in the employment contract by a third party against an employee. In addition, other employment related documents including independent contractor agreements, settlement agreements, standalone confidentiality agreements, and standalone restrictive covenant agreements will all be covered by the Ordinance.
Therefore, for contracts to be signed on or after 1 January 2016, companies should review their contracts/terms and conditions to see if there are any terms which purport to confer a benefit on third parties who might be able to enforce such terms against the companies under the Ordinance. If so, companies should consider updating their contracts/terms and conditions to include an express clause providing that the Ordinance does not apply to the contract or those terms and conditions if they wish to opt out from the application of the Ordinance. Companies can also consider if clauses can be inserted to give them additional rights such as enforcing a right by a group company.
For application of this new Ordinance on other contracts, please refer to our legal alert:
“Doctrine of Privy of Contract Reform – Contract (Right of Third Parties) Ordinance”