Key takeaway
In HNW Lending Ltd v Lawrence [2025] EWHC 908 (Ch), the High Court decided that third party contract enforcement is possible where a contract expressly states that a third party may enforce its terms, even where the contract does not confer a benefit on the non-party. This decision marks a significant departure from the common law doctrine of privity of contract and the established interpretation of the Contracts (Rights of Third Parties) Act 1999.
What were the key facts of HNW v Lawrence?
HNW Lending Ltd is an authorised peer-to-peer lender and acted as security agent in relation to a loan arranged for the lender, which was the contracting party with Ms Lawrence, the borrower. Ms Lawrence, an experienced property developer, sought the loan to refinance existing facilities used for property development and entered into an agreement with the lender, which appointed HNW as its security agent.
When Ms Lawrence defaulted on the repayment of the loans asper the Agreement, HNW sought possession of the property and payment of £3.5million with interest. Ms Lawrence argued that HNW had no standing to enforce the terms of the contract because it was not a party to the Agreement and there was no benefit conferred on it as a third party.
Ms Lawrence based her arguments on the judgment of HNW v Mark, where the court dismissed HNW’s claim on the basis that HNW was not a party to the contract, and because all benefits in the contract were conferred on the lender, not the security agent, hence HNW had nothing enforceable under the Contracts Act.
Third party enforcement rights under the Contracts Act
The Contracts Act provides in section 1(1) that “a person who is not a party to a contract (a third party) may in his own right enforce a term of the contract if:
a) the contract expressly provides that he may,or
b) subject to subsection (2), the term purports to confer a benefit on him.”
Hence, in standard practice, it meant that third parties could enforce contractual terms when they proved that the contractual term purports to confer a benefit on them. Failure to successfully argue so amounted to the dismissal of HNW’s claim in HNW v Mark.
High Court decision on third party contract enforcement
For the first time, the Court interpreted the scope of section 1(1)(a) of the Contracts Act, arguing that it enables a third party to enforce the terms of the contract if the contract expressly provides so, even if there is no benefit conferred on the third party. The Court reasoned that there is limited case law on the scope of the provision of section 1(1)(a) of the Act and that it should not be limited to the enforcement by a third party of a term purporting to confer a benefit on them, as it was deliberately addressed by section 1(1)(b) of the Act.
Furthermore, the Court relied on clause 26.7 of the Agreement, which stated that “while HNW Lending Limited is not a party to this loan agreement, HNW Lending Limited may take the benefit of and specifically enforce each expressed term of this loan agreement and any term implied under it”. The Court ruled that this clause is sufficient and expressly provides that HNW may enforce the terms, as per the interpretation of section 1(1)(a) of the Act 1999.
Moreover, the Court found clause 26.7 of the Agreement effective pursuant to section 1(1)(b) of the Act, because it conferred on HNW the lender’s benefit of all the express and implied terms of the Agreement. Hence, it dismissed Ms Lawrence's claim that HNW had no standing. However, as the Court acknowledged that its conclusion is different from HHJ Dight’s in HNW v Mark, it permitted Ms Lawrence to appeal.
What does HNW v Lawrence mean for third party contract enforcement in practice?
This decision marks a significant shift in the court’s willingness to accept third parties' rights to enforce contractual terms and reaffirms the court’s inclination to uphold express terms agreed by the parties.
A broader interpretation of section 1(1)(a) of the Contracts Act allows third parties to enforce contractual terms if expressly permitted to do so per the contract, even in circumstances where the contract does not purport to confer a benefit on them.
For the peer-to-peer lending market, it means that careful drafting of contract clauses is necessary to expressly allow third party rights enforcement (read more on our guide to good contract drafting) or expressly note some terms of the contract as unenforceable by anon-party, in order to negate the contractual intention that could give rise to enforceable rights under the Contracts Act. However, caution is advised when drafting contracts to avoid onerous clauses in terms and conditions.
Please contact the Dispute Resolution team at Barnes Law for advice on third party contract enforcement.
Authored by Barnes Law Managing Partner, Yulia Barnes.
