Privity of contract

In Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP [2013] EWCA Civ 367 the Court of Appeal overturned the lower court’s decision in relation to the Contracts (Rights of Third Parties) Act 1999, s.1 and s.8. In so doing it held that s.1(6) of the 1999 Act established no distinction between a right of action and a contractual defence. The right to take the benefit of an exclusion clause might be subject to a term providing for the arbitration of any disputes. The application of s.8(1) was such that the parties to the contract positively intended that third parties would be bound to the result of arbitration proceedings even if they had not initiated the proceedings in order to secure a benefit apparently conferred upon the third party by the contract. Very clear language was required, however, to bring about the result that for a third party to avail herself of an exclusion clause in a contract between other parties was, in turn, subject to an arbitration clause in this contract.

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