Commission recommends updating of contract law

The Law Reform Commission has recommended that contract law be updated to allow third parties to enforce contracts arranged between two other parties.

The proposed new legislation could lead to a reduction in legal costs associated with the drawing up of contracts in construction and civil engineering projects, the commission has said.

Under current legislation, "privity of contract" means that only a person who negotiated a contract is allowed to enforce it, even if another person will benefit from that contract.

In a report to be launched tonight by Minister for Enterprise, Trade and Employment Micheál Martin, the commission recommends that the privity of contract rule should be changed to allow a person for whose benefit the work is commissioned to enforce the contract.

In practical terms, the changes would means that if a woman commissions building work on her home for the benefit of her son, and the builder fails to complete the work, her son would be able to enforce the contract.

The move would also help to simplify contracts for construction and civil engineering projects that involve large numbers of contractors and sub-contractors, the commission said.

It would allow one contractor to enforce a term of a contract against another contractor who, for example, had held up part of a project.

The proposed new legislation is intended to benefit consumers and business people, the commission said, and would include the freedom for parties to opt-out.

The report on Privity of Contract and Third Party Rights also recommended that the legislation should allow third parties to be identified in contracts.

Ray Byrne, director of research with the Law Reform Commission said the rationale behind the privity rule was developed in the 19th century when contracts were purely a matter between two parties.

"That was fine in relatively simple times, now life is more complicated," he said.

He said that in Ireland, the privity rule is being circumvented by complicated standard form agreements.

It has been established in Britain that its removal in 1999, led to a 40 per cent reduction in legal costs associated with building projects, he said.

"A lot of other countries we do business with would have introduced this form of legislation many years ago," he said.

The report includes a draft Contract Law (Privity of Contract and Third Party Rights) Bill 2008.

The Minister is expected to give the Government's initial response to the legislation this evening.