SHORT TITLE, COMMENCEMENT AND EXTENT (Hansard, 1 November 1999)

§ 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 29 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 to the 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 the rules relating to damages". 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 30 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.

§ Mr. Hawkins
I greatly welcome the Minister's helpful clarification. I am grateful to him for meeting a delegation of leaders of the construction industry which I took to see him a few weeks ago. He made it clear then that he was prepared to clarify these points so that we could rely on what has been said in future cases, in line with the Pepper v. Hart decision, and I am grateful to him.
The industry has continuing concerns but is prepared to accept the Minister's helpful clarification. The Opposition echo what the Minister said about the value of the Law Commission's work, and we made it clear in Committee and on Second Reading that we greatly welcome the Bill, which is a helpful, and perhaps overdue, change in the law. As the Minister has clarified matters specifically to help the construction industry, I can do no other than welcome what he has said.

§ Mr. Burnett
I am grateful to the Minister for clarifying the provisions on variations. I am grateful also to the Law Commission for its excellent work and for promoting this Bill, which we support and will not impede.