S Vogenauer and J Kleinheisterkamp (eds),

Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC)

(Oxford University Press, forthcoming 2008)

[DRAFT, as of 14 November 2007 for internal use only]

Chapter 5: Content and Third Party Rights

Section 2: Third Party Rights

Comparative works on third party rights

Dold, Gilbert William Frederick, Stipulations for a Third Party: a Comparative Study
with Special Reference to Continental Law (1948)
Ktz, Hein, European Contract Law (1997) 245-262
- Rights of Third Parties: Third Party Beneficiaries and Assignment in A von Mehren
(ed), International Encyclopedia of Comparative Law, vol VII: Contracts in General,
ch 13 (1992) paras 1-57
Millner, MA, Ius Quaesitum Tertio: Comparison and Synthesis (1967) 16 ICLQ 446-
463
Palmer, Vernon Valentine, Contracts in Favour of Third Persons in Europe: First
Steps Toward Tomorrows Harmonization (2003) 11 ERPL 8-27
Perron, Edgar du, Contract and Third Parties in A Hartkamp et al (eds), Towards a
European Civil Code (2nd edn, 1998) 311-326
Sutherland, Philip, Third-Party Contracts in H MacQueen and R Zimmermann (eds),
European Contract Law: Scots and South African Perspectives (2006) 203-229
Vogenauer, Stefan, The Effects of Contracts on Third Parties: the Avant-projet de
rforme in a Comparative Perspective in J Cartwright et al (eds), Reforming the
French Law of Obligations: Comparative Observations on the Avant-projet de
rforme du droit des obligations et de la prescription (the Avant-projet Catala)
(2008) @-@
Zweigert, Konrad, and Hein Ktz, An Introduction to Comparative Law (3rd edn,
1998) 456-469

1
Introduction
$1$The subject-matter and scope of Section 5.2 of the PICC are narrower than its
heading suggests. The Section only covers contracts in favour of third parties (Art
5.2.1). A contract in favour of a third party (or contract for the benefit of a third
party1) is an agreement between two parties that one of them shall confer a benefit on
a third person and that the third shall acquire an original and independent right of
action against the party who promised to confer the benefit.2 Section 5.2 is not
concerned with other situations in which a person who is not a party to the original
contract or is not present during the formation of the contract may acquire a right.
$2$These other situations are not within the scope of Section 5.2 of the PICC. As
opposed to agency as understood by Section 2.2 of the PICC, a contract in favour of a
third party does not require that one of the persons present at the conclusion of the
contract acts with the authority (or at least apparent authority or subsequent
authorisation) to affect the legal relations of another person. As opposed to
assignment, dealt with in Section 9.1 of the PICC, the contract in favour of a third
party does not consist in the transfer of an existing right to a third person; the
beneficiary of a contract in favour of a third party rather acquires the right
immediately upon the conclusion of the contract between the two original parties.3 As
the right of the third party is not derived from that of another person, the situation is
also different from a trust.4 Furthermore, cases arising under Section 5.2 must be
distinguished from one partys undertaking that a third person will do something
for the other party. This scenario is frequently mentioned in the context of contracts in
favour of third parties5 although, as opposed to the latter, such an undertaking does
not benefit the third. Finally, Section 5.2 does not deal with the rights acquired by a
transfer of negotiable instruments which are usually governed by special rules
outside the PICC.6

1
See, eg, Law Commission, Privity of Contract: Contracts for the Benefit of Third Parties (Law Com
No 242, 1996).
2
For examples, see below, Art 5.2.1 paras 21-25.
3
See below, Art 5.2.1 paras 27, 31.
4
For the similarities in the triangular relationship and for the conceptual differences between third
party beneficiary contract and trust see GWF Dold, Stipulations for a Third Party: a Comparative
Study with Special Reference to Continental Law (1948) 11-12, 48.
5
See Art 1120 French Cc, Art 111 Swiss OR, 880 a Austrian Cc, Art 65 CLPRC (China).
6
(1999) Study L Doc @. For a similar exclusion, see Art 9.1.2(a).

2
$3$The evident rationale of Section 5.2 of the PICC is to further the autonomy of
the parties to the fullest extent.7 As a consequence, Section 5.2 permits the
conclusion of contracts in favour of third parties whenever the parties agree to do so.
A further consequence is that the parties can contract out of most of the provisions
contained in Section 5.2.8 But the general acceptance of contracts in favour of third
parties yields positive results beyond the promotion of party autonomy. It is desirable
from the point of view of moral contract theories because it ensures that promises and
agreements are enforced. From the perspective of the economic theory of law the
recognition of contracts in favour of third parties reduces the number of transactions
needed to vest a right in a third party: this result is achieved by a single transaction, as
opposed to the creation of a contractual right that is subsequently transferred to a third
party by way of assignment. The acknowledgement of such contracts thus saves costs,
increases efficiency and ultimately maximizes wealth.9 Overall, it promotes
international trade in providing the parties with a tool to facilitate their transactions
and to satisfy their commercial needs without imposing undue and formalistic
restrictions.
$4$The structure of Section 5.2 of the PICC is threefold. A first group of articles
deals with the creation of a third party right by way of contract. The basic rule in
Art 5.2.1 provides for the validity and enforceability of contracts in favour of third
parties and states the requirements for bringing a third party right into existence. A
further requirement is added in Art 5.2.2. A second group, Arts 5.2.3-5.2.5, defines the
rights and duties of the parties in the triangular relationship arising from a contract in
favour of a third. These provisions provide default rules for the conflicts of interest
typically arising between the three parties involved. Art 5.2.3 clarifies that the right of
the third party can also consist in the right to invoke a contractual provision excluding
or limiting the liability of the third party. Art 5.2.4 concerns the defences of the
promisor. Art 5.2.5 sets out the extent of the original parties power to modify or
revoke the third partys right. The Section is concluded by Art 5.2.6 which provides
that the third party may renounce the benefit conferred upon it.

7
See below, Art 5.2.1 para 7.
8
See Art 5.2.1(2) and Off Cmt to Art 5.2.1, p 142. See also (2000) Study L Misc @.
9
AN Hatzis, Rights and Obligations of Third Parties in B Bouckaert and G De Geest (eds),
Encyclopedia of Law and Economics, vol III (2000) 200, 201-204.

3
$5$Nothing should be inferred from the position of Section 5.2 in the context of the
PICC. The Section was introduced in the 2004 edition. Throughout the drafting
process it had been assumed that the provisions on contracts in favour of third parties
would form a separate chapter. That they were ultimately joined with the existing
Chapter 5 of the 1994 edition (Content) to form a new Chapter 5 on Content and
Third Party Rights is simply owed to the desire of the Drafting Group not to increase
the number of chapters in the 2004 edition.10
$6$No particular influences of national or supranational models on Section 5.2 of
the PICC can be identified. The CISG does not contain provisions on contracts for the
benefit of third parties, and, arguably, such contracts are outside its sphere of
application.11 But the rapporteur preparing Section 5.2 was an English lawyer
(Professor Furmston), and his position paper and early drafts coincided roughly with
the coming into force of the English Contracts (Rights of Third Parties) Act 1999. The
genesis of this Act and the debates surrounding it formed a constant backdrop to the
discussions leading up to Section 5.2.12 However, whilst some of the provisions
resemble each other,13 the PICC do by no means consistently follow the English
model.14

Article 5.2.1
(Contracts in favour of third parties)
(1) The parties (the promisor and the promisee) may confer by express or
implied agreement a right on a third party (the beneficiary).
(2) The existence and content of the beneficiarys right against the promisor are
determined by the agreement of the parties and are subject to any conditions or
other limitations under the agreement.

10
(2003) Study L WP 13, p 10.
11
BGH NJW 1998, 3205, 3206, CISG-online 343 (obiter); Usinor Industeel v Lecco Steel Products,
Inc, US Dist Ct (ND Ill), 28 March 2002, 2002 WL 655 540, CISG-online 696. For a slightly different
view see Schlechtriem/Schwenzer/Schlechtriem Art 2 para 22b.
12
See below, Art 5.2.2 para @.
13
eg Art 5.2.2 PICC and s 1(3) English Contracts (Rights of Third Parties) Act 1999, concerning the the
existence of the third party.
14
See, eg, below Art @ para @.

4
I. Introduction
$1$Art 5.2.1 contains the fundamental rules on contracts in favour of third parties. It
stipulates that the parties to a contract can validly agree to benefit a third party (paras
4-5 below), and that it is possible that the third party acquires a right from such an
agreement (paras 6-8 below). It thus contains an exception to the general principle of
relativity or privity of contract (para 3 below). The provision also specifies the
requirements which have to be met for the third partys right to come into existence
(paras 9-26 below). The second sub-section of Art 5.2.1 emphasises the extent to
which the content of this right is subject to the agreement of the parties (paras 31-35
below).
$2$In addition, Art 5.2.1 introduces a particular terminology for denominating the
parties in the triangular relationship. There are two original parties (the parties)
whose agreement contains the promise of one of them (the promisor) to the other
(the promisee) to benefit a third person (a third party). If the original parties also
agree to confer on the third party a right of action against the promisor the latter is
called the beneficiary.15 Whilst the terminology of promisor and promisee and its
translation into the other official languages16 correspond to terms used in other legal
systems,17 the clear distinction between a mere third party and a beneficiary is not
made with such clarity in domestic legislation.18

II. Relativity or privity of contracts

$3$Section 5.2 of the PICC rests on the assumption that, as a general rule, contracts
have legal effects only between the parties who participate in the conclusion of the
contract.19 This principle of relativity of contracts is but a manifestation of the
overarching idea of private autonomy. It is known to most legal systems, albeit with
15
In the other official languages: bnficiaire, Begnstigter, beneficiario.
16
Promettant and stipulant, Versprechender and Versprechensempfnger, promittente and
stipulante, promitente and estipulante.
17
See s 1(7) English Contracts (Rights of Third Parties) Act 1999; 301 Restatement 2nd Contracts
(USA); 331-335 German Cc; for French law F Terr et al, Droit civil: les obligations (9th edn,
2005) no 511. See also Art 6:110 PECL.
18
cf s 1(1) English Contracts (Rights of Third Parties) Act 1999; 302 Restatement 2nd Contracts
(USA); Terr et al (n Error: Reference source not found above) no 511 (French law); 328 German Cc.

5
slightly varying content and under different names, eg privity of contract20, relativit
des contrats, effet relatif des conventions21 or Relativitt des Schuld- oder
Vertragsverhltnisses.22 It is spelt out explicitly in some Civil codes in the French
tradition.23 The PICC only contain a general statement to this effect in the Official
Comment.24 The adoption of a corresponding black-letter rule,25 although strongly
supported by the members of the Working Group representing the Romanistic legal
systems, was rejected because it was feared that emphasizing the principle of
relativity too strongly might constitute an obstacle to the future development of the
law in this area.26

III. Validity of contracts in favour of third parties

$4$Art 5.2.1(1) states that all agreements conferring a right on a third party are, as a
rule, valid as between the original parties (The parties may confer). In a
supranational instrument such as the PICC there are good reasons for explicitly
spelling out this proposition, although it already seems to follow from the
fundamental principle of freedom of contract (Art 1.1), and it does not contradict the
principle of relativity which, strictly speaking, only denies that a contract can have
legal effects vis--vis a third party. But clarification is helpful since, in the past,
civilian systems took the position that a contract purporting to benefit a third would be
invalid as such (alteri stipulari nemo potest). As a result, neither the third party nor

19
Off Cmt to Art 5.2.1, p 142: Usually contracts are intended by the parties to create rights and
obligations between themselves. In such cases only the parties will acquire rights and duties under the
contract; see also, with serious qualification of the principle, Off Cmt 3 to Art 1.3, p 11.
20
See, eg, Law Commission (n Error: Reference source not found above).
21
See, eg, Terr et al (n Error: Reference source not found above) no 482.
22
See, eg, MKo/Kramer Introduction to 241 para 15.
23
Art 1165 French Cc, Art 1372(2) Italian Cc, Art 1257(1) Spanish Cc. See also 241(1) German Cc:
The effect of an obligation is that the creditor [ie only the creditor] is entitled to claim performance
from the debtor [ie only the debtor].
24
See n Error: Reference source not found above.
25
(2000) Study L Doc 66, draft Art 99.1: Subject to the provisions of this chapter, a contract creates
rights and duties only between the parties to the contract.
26
(2000) Study L Misc 22, paras 889-893, 896-900. See, at a later stage, (2001) Study L Doc 70,
draft Off Cmt to draft Art 1 which corresponds to the ultimately adopted Off Cmt to Art 5.2.1, p 142.

6
the parties themselves could acquire a right from it.27 Traces of this approach can still
be found in the texts of the French and Italian Civil codes. These regard the invalidity
of contracts in favour of third parties as the rule28 and permit such agreements only in
a few closely defined and exceptional cases: first, if the promisee has a pecuniary
interest in the promisors performance to the beneficiary,29 and, secondly, for a
specific type of contract, namely a gift made subject to a limit on the use to which the
gift is to be put (donatio sub modo).30 Under the PICC there is no such numerus
clausus of agreements that can be validly made for the benefit of third parties: in
principle, all types of commercial contracts can be concluded as contracts in favour
of a third party. In adopting this approach, Art 5.2.1(1) is in step with the gradual
abandonment of the maxim alteri stipulari nemo potest in civilian systems from the
late 19th century onwards. Today these systems recognize the general validity of
contracts in favour of third parties for all types of contracts regardless of a particular
pecuniary interest on the part of the promisee either by way of explicit legislation31 or,
as in France and Italy, by judicial practice deviating from the relevant provisions in
the Civil codes.32
$5$By stating that contracts in favour of a third party are not invalid as such, Art
5.2.1(1) does not exclude the possibility that such contracts can be invalid for other
reasons, such as a lack of identifiability of the third party (Art 5.2.2) or the grounds
of avoidance contained in Chapter 3 of the PICC. Like all other contracts under the
PICC, contracts for the benefit of a third party are usually not subject to formal

27
cf R Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (1996) 34-
45; H Ktz, Rights of Third Parties: Third Party Beneficiaries and Assignment in A von Mehren (ed),
International Encyclopedia of Comparative Law, vol VII: Contracts in General, ch 13 (1992) paras 4-
13; HKK/Vogenauer 328-335 paras 5-56.
28
Art 1119 French Cc.
29
See the first sentence of Art 1121 French Cc; 1411(1) Italian Cc.
30
See the first sentence of Art 1121 French Cc. Civilian systems regard gifts as contracts.
31
Art 112(2) Swiss OR; 328(1) German Cc: A contract may stipulate performance for the third party
; Art 72(1) AEPL Code. See also, implicitly, Art 1257(2) Spanish Cc (see n Error: Reference source
not found below); Art 64 CLPRC (China).
32
For France Cass civ 16 January 1888, DP 1888.1.77; Cass req 30 April 1888, DP 1888.1.291. For
Italy Cass 24 October 1956, n 3869, Giust civ Mass 1956, 1318. See now also Art 1171 APRDO with
an explanatory note stating that the point of this leading provision is to make available the possibility
of a stipulation for the benefit of a third party as a matter of principle.

7
requirements (Art 1.2). However, in some jurisdictions there might be mandatory
rules which impose special formalities (Art 1.4).33

IV. Conferral of a right on the third party

1. Power of the promisor and the promisee to create third party rights
$6$The PICC accept, as can be inferred from Art 5.2.1(2) (existence of the
beneficiarys right), that the promisor and the promisee can create a contractual
right in the third party. This power does not necessarily follow from the proposition
enunciated in Art 5.2.1(1), ie that contracts for the benefit of a third party are, as a
general rule, valid.34 It is perfectly possible for a legal system to hold that the
agreement purporting to benefit a third is valid as such and to acknowledge the
original parties reciprocal rights and duties arising from this agreement, but at the
same time to deny, at least in principle, that the third person acquires a right from it.
Indeed, this is precisely the consequence of the principle of relativity or privity of
contract,35 and it was the position of English law before the coming into force of the
Contracts (Rights of Third Parties) Act 1999.36 As opposed to this, Art 5.2.1(2)
emulates the solution now adopted in almost all major legal systems in the world,
both in the common law jurisdictions,37 including English law after the 1999 Act,38
and in the civilian systems, where the possibility that a right to sue is vested in the
third party is acknowledged whenever the validity of contracts for the benefit of third
33
This used to be discussed in civilian systems with respect to what may be called donee beneficiaries
(see para 27 below), but is now generally rejected, cf Terr et al (n Error: Reference source not found
above) no 530; Staudinger/Jagmann 328 paras 52-54; MKo/Gottwald 328 para 26.
34
See para 4 above.
35
See para 3 above.
36
Beswick v Beswick [1966] Ch 538, 553-554 per Lord Denning MR, CA; Beswick v Beswick [1968]
AC 58, 71 per Lord Reid, HL.
37
302(1), 304 Restatement 2nd Contracts (USA); ss 4, 8 New Zealand Contract (Privity) Act 1982.
The old privity rule still lives on in Australia, cf Trident General Insurance Co Ltd v McNiece Bros Pty
Ltd (1988) 165 CLR 107, 143 (High Court of Australia). However, the doctrine has been abolished by
legislation in some Australian States, cf T Ciro and V Goldwasser, The Enforcement of Commercial
Expectations in the Law of Privity and Compound Interest in I Davies (ed), Issues in International
Commercial Law (2005) 123, 131.
38
See s 1(1) of the English Contracts (Rights of Third Parties) Act 1999.

8
parties is recognised.39 The general admissibility of third party rights was beyond
dispute in the drafting process leading up to Art 5.2.1. The Working Party explicitly
started from the assumption that no-one wants to follow the [pre 1999 Act] English
example.40
$7$The rationale of the PICCs approach is essentially similar to the justification
given in all modern systems that have moved away from the old rule,41 namely the
autonomy of the parties, who, if they wish to create rights in a third party, should be
free to do so.42 Party autonomy is also recognised in the sense that the conferral of a
right upon a third party is admissible in all types of commercial contracts and not
excluded for certain kinds of agreements.
$8$Art 5.2.1 provides sufficient justification for the creation of a right in the third
party. The PICC themselves attach the power to create such a right to the agreement
of the original parties. As a result, no further theoretical or juridical justification or
enquiry into the nature or theoretical basis of the beneficiarys right is needed. It is
therefore possible to ignore earlier theories employed in domestic legal systems which
sought to provide such a justification by holding that the right arose despite the
relativity or privity of contract, and thus derived the beneficiarys right from a binding
unilateral promise of the promisor, from the doctrine of unjustified enrichment, from
an explicit or implicit assignment of the right by the promisee, or from some conduct
of the beneficiary (eg expressly or impliedly accepting an offer made by one or both
of the original parties, adhering to the original contract or ratifying the promisees
unauthorised conclusion of the contract).43

39
See Art 1257(2) Spanish Cc: If the contract contains a stipulation in favour of a third the latter can
enforce performance as long as he has informed the obligor of his acceptance before the agreement has
been revoked; Art 112 Swiss OR; 328 German CC; 881 Austrian Cc; Art 1411(2) Italian Cc; Art
6:253(1) Dutch Cc; Art 64 CLPRC (China). For the position in French law, see Cass req 30 April 1888,
DP 1888.1.291; Cass com 7 October 1997, D 1998 Somm 112, obs Delebecque. See also Art 6:110(1)
(1) PECL; Art 72(3)(1) AEPL Code.
40
(1999) Study L Doc 59, para 1.
41
See, eg, 302, 315 Restatement 2nd Contracts (USA).
42
Off Cmt to Art 5.2.1, p 142.
43
For an overview of these theories see Dold (n Error: Reference source not found above) 43-61, 76-
82; HKK/Vogenauer 328-335 paras 66-68.

9
2. Requirements for the conferral of a right on a third party
$9$The requirements for the acquisition of the beneficiarys right from a contract in
favour of a third party are set out in Arts 5.2.1 and 5.2.2. The PICC only require the
agreement of the original parties to this effect (paras 10-25 below) and that the third
party be identifiable with adequate certainty (Art 5.2.2). They do not stipulate any
further conditions (paras 27-28 below), although the parties are free to do so (para 29
below). The absence of any undue or overly burdensome requirements facilitates
the creation of a right in the beneficiary. It confirms that the drafters did not regard the
principle of relativity or privity of contracts44 as all-encompassing and the
possibility of creating a third party right as a mere exception which would have to be
kept within narrow confines. They rather wanted to emphasize the non-exceptional
character of third party rights. This was achieved by placing the rule contained in
Art 5.2.1 at the head of the Section on third party rights and by simultaneously
relegating the general principle of relativity from the draft black letter rules to the
Official Comment.45

(a) Agreement of the parties to confer a right on the third party

(1) Agreement conferring a right
$10$ Art 5.2.1 requires that the parties agree to confer a right, and not a mere
benefit on the third. The parties may of course validly make an agreement which
benefits a third person without agreeing to vest a right of action in the third. This,
however, would not be a contract in favour of a third party within the meaning of Art
5.2.1. The distinction between mere agreements to benefit a third on the one hand and
agreements to create a right in the third on the other hand is well established in
national systems,46 and it was frequently emphasised in the discussions of the
Working Party.47 It is therefore clearly not enough that the parties had the intention to
44
See para 3 above.
45
ibid [para 3 above].
46
The distinction is fully accepted in English law and also in German law where it is reflected in the
terminological contrast between genuine (echte) and spurious (unechte) contracts in favour of third
parties. It is less elaborated in French law, see J Bell et al, Principles of French Law (1998) 338, but see
Cass civ 20 December 1911, S 1914.1.297.
47
(1999) Study L Misc 21, paras 353, 358; (2000) Study L Misc 22, paras 909, 923; (2001) Study L
Misc 23, paras 405, 436. See also Off Cmt to Art 5.2.1, p 142: The mere fact that a third party will

10
benefit the third party, a phrase that is employed by the Official Comment at one
point48 and that is frequently used in domestic systems as well.49 Instead the black
letter rules of the PICC rightly avoid the language of intention to benefit, and the
remainder of the Official Comment and the first Illustration to Art 5.2.1 make it clear
that the proper test is indeed whether the parties have agreed to bring a right of the
third party against the promisor into existence.50

(2) Express or implied agreement

$11$The agreement of the parties to confer a right on the third person may be express
or implied, Art 5.2.1(1). The reference in the Official Comment to the parties
intention to benefit the third party is again not helpful.51 The repeated use of the term
implied intention52 is equally inaccurate. In many cases it is misleading to speak of
the intention of the parties since such an intention cannot be ascertained. Particularly
in the instances of implied agreement there is, if at all, a presumed or hypothetical
intention that is substituted, supplemented or constructed by the court or the tribunal.53
The proper test therefore is not whether there was the intention to confer a right on the
third party, but whether the parties have reached agreement to bestow a right of
action against the promisor upon the third. In fact it is this test that, despite the
rhetoric of intention to benefit, is used in most major legal systems.54
$12$An agreement to confer a right on the third party can be ascertained easily if the
contract contains an express statement to this effect. The situation is also clear if the

benefit from the performance of the contract does not in itself give that third party any rights under the
contract.
48
Off Cmt to Art 5.2.1, p 142, following Illustration 1 (emphasis added); see also (1999) Study L Doc
59, p 1.
49
See Ktz (n Error: Reference source not found above) paras 18-27.
50
See the passage of the Off Cmt cited in n Error: Reference source not found above.
51
Off Cmt to Art 5.2.1, p 142, following Illustration 1 (emphasis added) (see n Error: Reference source
not found above).
52
See Off Cmt to Art 5.2.1, pp 142-143.
53
Above, Art 4.8 para @.
54
See s 1(1) and (2) of the English Contracts (Rights of Third Parties) Act 1999 (n Error: Reference
source not found below); Colonial Discount Co v Avon Motors, Inc, 137 Conn 196, 75 A2d 507 (1950);
Art 6:110(1) PECL. See also (1999) Study L Misc 21, para 352; but for the somewhat muddled
thinking of the Working Group see also (2001) Study L Misc 23, paras 404-407.

11
parties expressly agree that no such right should arise from the contract.55 However,
such an express exclusion might be challenged if it were introduced as a standard term
into a contract which otherwise evidently purports to confer a right on a third party
and if the conclusion could therefore be regarded as a surprising term within the
meaning of Art 1.20.56 Be that as it may, the parties would be well advised to clarify
their position at the drafting stage by including an express statement as to whether
they intend the third party to acquire a right or not, and this is in fact usually done in
commercial contexts where parties act on legal advice.57
$13$In the absence of an express statement it has to be established whether the parties
have reached an implied agreement to create a right in the third person or not.58 The
possibility of an implied creation of third party rights is accepted in all legal systems
that recognize such rights,59 but the PICC stand out by explicitly mentioning it. There
are no presumptions to facilitate this task. The PICC do not know a rebuttable
presumption in favour of the third partys acquisition of a right if a contractual term
purports to confer a benefit on the third, as it is exists in the laws of England and New

55
Off Cmt to Art 5.2.1, p 144. See also (1999) Study L Misc 21, para 346.
56
This danger was recognized in (1999) Study L Misc 21, paras 346-347, albeit with respect to
mandatory domestic regimes on unfair contract terms.
57
As a consequence there is, at least in some jurisdictions, relatively little case law on third party rights
in commercial transactions, and the rapporteur to Section 5.2 of the PICC found it difficult to devise
Illustrations which were not taken from a family or consumer law context, see (2002) Study L
Misc 24, para 9; (2003) Study L Misc 25, para 397.
58
In (2000) Study L Misc 22, para 916 it was claimed that in a huge number of ICC awards
arbitrators had impliedly assumed rights benefiting a third party.
59
Law Commission (n Error: Reference source not found above) para 7.6 n 6 (England); 302(1)(b)
Restatement 2nd Contracts (USA); Terr et al (n Error: Reference source not found above) no 517
(France); MKo/Gottwald 328 para 32 (Germany).

12
Zealand60 and has been discussed in civilian systems.61 Neither is there a presumption
that the parties have agreed to create a right of the third merely because the
performance of the contract is mainly to his benefit, as it is known in Austrian law.62
On the other hand, it is not to be presumed that the parties did not agree to confer a
right on the third unless the circumstances clearly indicate otherwise. Finally, the
PICC do not provide for a presumption to the effect that the parties, in concluding a
specific type of contract, agreed to confer63 or not to confer64 a right on a third party,
as it is done, for instance, under German law.
$14$The existence of an implied agreement to confer a right on the third party rather
depends on the interpretation of the contractual terms which follows the general
rules on interpretation in Arts 4.1-4.8 and the criteria for the implication of obligations
enumerated in Art 5.1.2.65 The parties are therefore assumed to have agreed to confer
a right on the third party if this follows from the purpose of the contract, the practices

60
See s 4 of New Zealand Contracts (Privity) Act 1982 and, copying this model, s 1 English Contracts
(Rights of Third Parties) Act 1999:
(1) a person who is not party to a contract (a third party) may in his own right enforce a term
of the contract if (a) , or (b) subject to subsection (2), the term purports to confer a benefit on
him.
(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the
parties did not intend the term to be enforceable by the third party.
Applied in Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm), [2004] 1
Lloyds Rep 38 [21]-[23], [29]-[33]; Laemthong International Lines v Artis [2005] EWCA Civ 519,
[2005] 2 All ER (Comm) 167.
61
See HKK/Vogenauer 328-335 para 72 for discussions leading up to the German Cc; 1411(2)(1)
Italian Cc; 441(2) of the 1976 Civil code of the German Democratic Republic; Art 72(3) AEPL Code.
62
881(2)(2) Austrian Cc.
63
According to 330 German Cc, this is presumed for, first, contracts for life insurances or annuities in
favour of a third party, secondly, contracts for the gratuitous transfer of property on the condition that
the recipient performs an act for the benefit of a third party and, thirdly, contracts for the transfer of a
persons entire assets or an agricultural estate where the transferee, in order to buy off third persons,
agrees to make certain payments to them. Under contracts for the carriage of goods by land, sea and air
the consignee acquires a right against the carrier, 421, 407(3) German HGB.
64
According to 329 German Cc this is presumed for contracts where one party undertakes to pay the
other partys creditor without assuming the debt.
65
For the relationship between Art 5.1.2 and Chapter 4 of the PICC, see above, Art 5.1.2 para @. For
the applicability of the criteria mentioned in Art 5.1.2 in the context of contracts in favour of third
parties see (2001) Study L Misc 23, paras 399-400.

13
established between the parties, usages, good faith, fair dealing and reasonableness,
and all the other circumstances mentioned in Art 4.3.66 This has to be determined with
reference to the particular contract in question. All the terms of the specific contract
and all the circumstances of the individual case have to be taken into account.67 For
this reason, the Official Comments Illustrations to Art 5.2.1 have to be treated with
great care. Even very similar cases might have to be decided differently in the light of
all the contract terms and all the circumstances of the individual case.68

(3) Typical fact patterns

$15$Whether the parties have impliedly agreed to confer a right on the third party
always depends on the facts of the individual case (para 14 above). Nevertheless,
most jurisdictions have developed relatively consistent and predictable solutions for
recurring fact patterns. In these cases, it has regularly been held that, unless the
circumstances clearly indicate otherwise, it follows from the nature and the purpose of
the contract, the practices established between the parties, usages, good faith, fair
dealing, and reasonableness that the parties have or have not agreed to confer a
right on the third. These solutions do not amount to presumptions in the sense
discussed in para 13 above, but they can provide some guidance for the approach to
Art 5.2.1.
$16$No implied agreement to confer a right on the third party will usually be found
in cases where the parties did not even agree to benefit a third person, but the latter
nevertheless can expect to gain something from the performance of the contract, eg
where two parties agree that one of them will erect an expensive building on the
others land, and the adjoining piece of land of a third would be enhanced in value by
the performance of the contract.69 To let the third person, a purely incidental

66
For similar tests see 302(1)(b) Restatement 2nd Contracts (USA): the circumstances indicate that
the promisee intends to give the beneficiary the benefit of the promised performance; 328(2)
German Cc: In the absence of express stipulation it is to be deduced from the circumstances,
especially from the purpose of the contract, whether the third party shall acquire the right ; Art
6:110(1)(1) PECL: when such agreement is to be inferred from the purpose of the contract or the
circumstances of the case.
67
Off Cmt to Art 5.2.1, p 142. See also (2001) Study L Misc 23, paras 418, 435, 439.
68
(2000) Study L Misc @.
69
See also Illustration 1 to Art 5.2.1, p 142.

14
beneficiary,70 acquire a right to enforce the contract would normally be not only
contrary to the nature and the purpose of the contract, but also unreasonable (Art
5.1.2).71
$17$An implied agreement to create a right in a third party is normally not assumed if
the parties concur that the third should simply be authorised to receive performance
from one party on behalf of the other, eg if the buyer agrees, at the sellers request, to
pay the purchase price to the sellers bank rather than to the seller itself or if the seller
agrees to deliver the goods to the buyers order rather than to it personally (solutionis
causa adiectus).
$18$A letter of comfort or awareness (dclaration de patronage,
Patronatserklrung) by which a parent company agrees that it will make every effort
to ensure that its subsidiary will comply with the terms of a given contract72 does not
necessarily imply that in the event of the subsidiarys default its contractual partner
acquires a right of action against the parent company.73
$19$Some insurance contracts which, ultimately, have the purpose to benefit a third
party are commonly not framed in such a way as to bestow a right of action upon the
third, eg in the cases of general liability insurance or property developers and
builder-owners liability insurance. Here the third party can only bring an action in
tort against the person causing the bodily injury or property damage, but cannot assert
its claim directly against the insurer.74
$20$By inserting a jurisdiction clause75 or an arbitration clause the parties usually
do not agree to confer a right on a third party.
$21$An implied agreement to confer a right on the third party is usually held to
exist in contracts making provisions for the maintenance of dependants of the

70
For the terminology, see 302(2), 315 Restatement 2nd Contracts (USA).
71
The beneficiary will not be purely incidental, however, if the parties have an interest in protecting
it, and if its damage was not too remote and unforeseeable, see paras 24-25 below and B Nicholas, The
French Law of Contract (2nd edn, 1992) 190-192.
72
For the question whether comfort letters are legally binding contracts, see above, Preamble para @.
73
For comparative references see J Koch, Die Patronatserklrung (2005) 71-72 nn 303-308. But see
also DFT 12 January 1996, SJ 634, 636-637, assuming a stipulation in favour of a third on the
interpretation of the letter of comfort in a particular case.
74
For insurance contracts in favour of a third party, see paras 21-22 below.
75
For English law Andromeda Marine SA v OW Bunker & Trading A/S [2006] EWHC 777 (Comm),
[2006] 2 Lloyds Rep 319 per Morison J.

15
promisee. This is, for instance, the case if the parties to the transfer of a business, an
agricultural estate or another commercial item agree that the transferee will pay, upon
the transferors death, an annuity or a share of the profits to the latters spouse or
offspring.76 Partnership articles stipulating that after a partners death the remaining
partners shall be liable to pay an annuity or a share of the profits to a third person or
that the third shall be entitled to take the deceaseds place as a partner usually
constitute an implied agreement to confer a right upon the third.77 The contract
between an employer and an employee pension scheme regularly implies the
agreement that the named beneficiary is to acquire a right against the pension scheme
upon the death of the employee.78 The registration of company shares in the name of
an employee was also held to be a contract in favour of a third party.79 The most
important contract for the benefit of a third party, the contract of life insurance,80 is
usually made in domestic contexts, but the drafters of the PICC apparently assumed81
that it falls within the wide meaning given to the phrase commercial contracts in the
Preamble.82
$22$An implied agreement is regularly assumed to exist in some other types of
insurance contracts for the benefit of another person.83 In the commercial context,
the most important examples are the transport insurance in favour of the recipient of
the insured goods84 or of the person who owns the goods at the time they perish85 and

76
See Illustration 3 to Art 5.2.1. For national solutions see 330 German Cc (see n Error: Reference
source not found above) which has also been applied to the transfer of a business, cf RG JW 1905, 717.
On the facts of Beswick v Beswick [1968] AC 58, HL, the third party would acquire a right under s 1 of
the English Contracts (Rights of Third Parties) Act 1999, see Law Commission (n Error: Reference
source not found above) para 7.46.
77
For a comparative survey, see Ktz (n Error: Reference source not found above) para 32.
78
For German law see BAG NJW 1973, 963; BAG NJW 1973, 1947.
79
For Italian law see Cass 1 August 1994, n 7160, Giust civ 1995.I.761.
80
For a comparative survey, see Ktz (n Error: Reference source not found above) para 29.
81
See Illustration 1 to Art 5.2.2 and Illustration 1 to Art 5.2.4.
82
See above, Preamble para @.
83
See, explicitly, 75(1)(1), 179(2) Versicherungsvertragsgesetz (German Act on Insurance Contracts
of 5 May 1908). But see also para 19 above.
84
For French law see Cass civ 2 December 1891, DP 1892.1.161.
85
For French law see Cass civ 5 March 1888, DP 1888.1.365 and now Arts 112-1, 171-4 Code des
assurances (Insurance Code).

16
the accident insurance for the benefit of employees86 or for visitors of business
premises (visitor accident insurance). Motor insurance contracts create a right in the
third party incurring injury or loss from a traffic incident.87
$23$The parties to contracts for the carriage of goods usually agree that the
consignee shall be entitled to enforce in its own name against the carrier any rights
arising from the contract if the carrier is in breach.88 However, in this context, the
relevant international instruments take precedence: see Art 13(1) CMR, Art 16(4)
CIM, and Art 13 of the Warsaw Convention on the International Carriage by Air. A
bank guarantee arranged for the benefit of third parties, as in a letter of credit,
usually gives the beneficiaries a direct right against the issuing bank.89 Contracts for
the sale of land with a restrictive covenant in favour of owners of adjoining land have
been held to include the implied agreement that the neighbour acquires a right to
enforce the covenant.90 A contract with a hospital or a doctor concluded for the
private treatment of a dependant of the promisee usually implies the agreement that
the dependant shall acquire a right under it.91 In many systems such an agreement
would be regarded as a consumer contract, but as a contract for the supply of services
it would seem to be covered by the broad definition of commercial contracts in the
Preamble.
$24$Finally, in many jurisdictions an implied agreement to confer a right can be
assumed if a third party suffers damage from the breach of a contractual duty of
care owed by one party to the contract to the other party. This group of cases
straddles the borderline of contractual and tortious liability. It is controversial in most
legal systems, and there is no universal agreement as to whether such implications are
legitimate. In English law this is rejected,92 and the relevant cases are brought in tort.93
As opposed to this, it was held in Canada that the contract between a municipality and

86
See Illustration 2 to Art 5.2.1.
87
Art 6 of the European Convention on Compulsory Liability Insurance for Automobiles of 20 April
1959, European Treaty Series No 29 (http://conventions.coe.int/Treaty/en/Treaties/Word/029.doc).
88
See, eg, 421, 407(3) German HGB.
89
See 5-102(a)(3) and (10) UCC (USA).
90
BGH NJW 1975, 344 (Germany).
91
BGHZ 89, 263 (Germany).
92
s 1(2) of the English Contracts (Rights of Third Parties) Act 1999 requires, as a minimum, that the
contract contains a term that purports to confer a benefit on a third party.
93
See, eg, Smith v Eric S Bush [1990] 1 AC 831, HL; White v Jones [1995] 2 AC 207, HL.

17
a business responsible for clearing snow contains the implied agreement that a third
party who is injured because of inadequate performance is entitled to sue the
business.94 French law makes implications in contracts for the delivery of blood to be
used for the treatment of particular patients which are concluded between the patients
hospitals and institutions for the procurement of blood bottles: the parties are taken to
have agreed that the patient acquires a right to sue the procurer in contract if the blood
is defective.95 The French courts also held that a contract concluded between a
passenger and a carrier can be understood to confer a right against the carrier on those
dependants of a fatally injured passenger who have a legally recognised right to be
supported by the latter. Such dependants can sue for compensation for breach of the
obligation to carry the passenger safely.96 According to the Cour de cassation, a
participant in a training programme whose clothes are stolen from a cloakroom has a
contractual claim for breach of the obligation of supervision against the hotelier,
arising from the hire of a room to a training company.97 Swiss law recognizes a right
of the third party not only if it was the intention of the other parties, but also if it
accords to usage.98 German law assumes a right of the third to sue a contractual party
who was in breach of a contractual duty of care if the other contractual party has a
personal interest in the protection of the third and it was foreseeable that the third
might be endangered by the breach. Claims from such contracts with protective effect
for third parties (Vertrge mit Schutzwirkung fr Dritte) are now acknowledged as a
separate head of action, but they were originally founded on the implied agreement of
the original parties to the contract.99 The Italian Corte di Cassazione recognized
contratti con effetti protettivi a favore dei terzi for the benefit of children who were
injured by the doctors negligence when their mothers gave birth.100 In some
jurisdictions such implications are also made by statute. In the USA, the UCC

94
@@@
95
Cass civ 17 December 1954, D 1955.269, note R Rodire; TGI Paris 1 July 1991, JCP 1991.II.21762,
note M Harichaux.
96
Cass civ 6 December 1932 and 24 May 1933, S 1934.1.81, note P Esmein; recently restricted in Cass
civ 28 October 2003, D 2004.233, note P Delebecque.
97
Cass civ 13 October 1987, JCP 1987.IV.391. For a recent overview of the state of French law, see M
Grimaldi, Le contrat et le tiers in Libres propos sur les sources du droit: Mlanges en lhonneur de
Philippe Jestaz (2006) 163, 165-166, 169.
98
Art 112(2) Swiss OR.
99
RG 7 December 1911, RGZ 78, 239; BGHZ 28 January 1976, BGHZ 66, 51.

18
recognises that third parties who may be reasonably expected to be affected by the
goods of a sale or a lease can enforce the breach of an express or implied warranty of
a seller to a buyer or of a lessor to a lessee.101
$25$Under the PICC, it is equally possible to imply an agreement to confer a right
to sue for damages upon the third party in cases concerning the breach of a
contractual duty of care. However, the solution of the PICC is not straightforward.
The Working Party did not reach consensus on the issue.102 It is impossible to infer an
answer from the Official Comment with its inconclusive reference to an associated
claim in tort that will often come up in the context of Art 5.2.1103 a passage that
was inserted with the intention to leave it to the imagination of the reader whether the
availability of the tort claim might affect the application of the Principles.104 But one
of the Illustrations to Art 5.2.2 indicates that contracts which would be classified as
implied agreements or contracts with protective effect for the benefit of third
parties under many domestic systems are meant to confer right on third persons under
the PICC as well.105 The recognition of such claims is facilitated by the fact that the
right conferred on the beneficiary in the case of Art 5.2.1 includes the right to
damages (para 32 below). Perhaps most importantly, there will be a strong impulse to
extend the application of Art 5.2.1 to such cases in arbitration and litigation since the
PICC, once held to be applicable, will not provide the claimant with an action in tort
or any other suitable non-contractual remedy. Indeed, the absence of an appropriate
delictual claim for such cases was precisely the reason why French and German
courts assumed the existence of implied agreements on these fact patterns. Overall,
the scope of contractual liability under the PICC will therefore prove to be
100
Cass 22 November 1993, n 11503, Nuova giur civ comm 1994.I.690; 29 July 2004, n 14488, [2005]
Danno e responsabilit 380. See, however, against invoking this doctrine in a similar case, Cass 22
January 1999, n 589, [1999] Danno e responsabilit 294.
101
2-318, 2A-216 UCC, permitting considerable variation among the states; this will usually be
limited to personal injuries.
102
See (1999) Study L @ and, on the other hand, (2000) Study L Misc 22, para 894. Cf the
discussion whether implied agreement could be assumed in the French blood transfusion cases (para 24
above) in (2001) Study L Misc 23, paras 430, 432.
103
Off Cmt to Art 5.2.1, p 144.
104
(2003) Study L Misc 25, paras 429, 432.
105
See Illustration 2 to Art 5.2.2, as far as the friends of the shareholders (T2) are concerned. That the
problem in this case is not one of identifiability, but of implied agreement, was only seen by one
member of the Working Party, cf (2001) Study L Misc 23, para 452.

19
significantly wider than in some national systems. Any implication of an agreement
for the benefit of the other is, however, subject to the requirement of the identifiability
of the third party (Art 5.2.2). This ensures a minimum of foreseeability and helps to
limit the potential circle of beneficiaries substantially.106
$26$The last group of cases suggests that the solution of the PICC to admit the
creation of a third partys right by way of implied agreement confers broad
discretion on courts and arbitral tribunals. It may thus be said that the Working
Group did not achieve its objective of formulating guidelines which would help the
decision maker to reach clear and predictable results,107 but it is difficult to see how a
clearer test could have been devised whilst, at the same time, maintaining the degree
of flexibility needed in commercial transactions.

(b) No further requirements

$27$The PICC do not impose any further requirements for the acquisition of the right
by the third. Thus the nature of the relationship between the promisee and the
beneficiary and the motives of the promisee are immaterial. It is not necessary that
the promisee has a specific pecuniary or any other interest in the performance of the
promisors obligation towards the third party,108 and it does not matter whether the
promisee benefits the beneficiary gratuitously, solvendi causa or credendi causa, ie
whether the latter is a donee beneficiary or a creditor beneficiary.109 The precise
nature of the relationship between the promisee and the promisor is not relevant
either, and no special requirements are made as to the validity of this agreement.110
$28$Most importantly, no knowledge or action on the part of the third is required.
This is not spelt out explicitly in Art 5.2.1, but it can be inferred from Art 5.2.2. If
knowledge or action of the third were constitutive it would not be possible to confer a
right on a party who is not in existence at the time the contract is made. For the right
106
See below, Art 5.2.2 para 5.
107
(1999) Study L Doc 59, p 1.
108
For this requirement which is typically mentioned in the context of the validity of contracts in favour
of third parties, see para 4 above.
109
This distinction, still contained in the 1st Restatement Contracts, was abandoned in the Restatement
2nd Contracts (USA). It is also regarded as irrelevant in other jurisdictions, see eg, for French law,
Terr et al (n Error: Reference source not found above) no 530.
110
See para 4 above.

20
to come into existence, it is therefore not imperative that the third party be notified of
the agreement or has knowledge of it by other means, and no acceptance,
confirmation, assent or adhesion by the third party is needed either.111 This solution
differs from that of Dutch law112 and from that of other civilian systems in the past,113
but it is in line with current practice in most jurisdictions.114 Furthermore, no reliance
of the third party is required.115 The third partys acceptance116 or reliance only
matter for the question whether the right is immutable or not (Art 5.2.5). Unless
otherwise agreed, the beneficiarys right therefore comes into existence as soon as the
parties conclude their agreement.117 As a result, the beneficiary does not bear the risk
of the promisees insolvency: the right immediately ceases to be an asset of the
promisee, and the latters obligees cannot seize it.118 This will always be in the interest
of the beneficiary, and it also reflects the typical interests of the original parties.

(c) Party autonomy

$29$The parties can impose further requirements because, according to Art
5.2.1(2), the existence of the beneficiarys right is fully determined by the

111
Off Cmt to Art 5.2.6, p 148. This can also be inferred from Art 5.2.6 itself which would otherwise be
redundant.
112
Art 6:253(1) Dutch Cc requires acceptance of the third party, but this can be implied, HR 31 March
2006, NJ 2007, 20, eg by claiming performance, HR 19 March 1976, NJ 1976, 407 (for the old Dutch
Cc of 1838); the presumption of acceptance in Art 6:253(4) will usually not take effect in commercial
contexts. Acceptance of the third party seems to have constitutive effect under the wording of Art
1257(2) Spanish Cc (n Error: Reference source not found above), but Spanish writers are divided on
this issue, cf E Arroyo i Amayuelas, Third Parties in S van Erp and A Vaquer (eds), Introduction to
Spanish Patrimonial Law (2006) 123, 126.
113
HKK/Vogenauer 328-335 paras 79-82.
114
@@@; 306 Restatement 2nd Contracts (USA); a similar position can also be inferred from Art
6:110(2) PECL. For France see Cass com 23 February 1993 RTD civ 1994, 99, obs J Mestre and Cass
civ 19 December 2000, D 2001.3482, note Ardeeff; Art 1171-1(3) APRDO explicitly recognizes the
beneficiarys right to sue the promisor directly for performance. Art 72(3)(1) AEPL Code also spells
out that the third party acquires the right against the promisor at the making of the contract without his
acceptance being necessary.
115
For the discussion of this aspect in American contract law, see @@@.
116
As to the terminology, see below, Art 5.2.5 para @.
117
Off Cmt to Art 5.2.6, p 148.
118
This is also recognised in domestic systems, eg in France: Cass civ 16 January 1888, DP 1888.1.77;
@@@.

21
agreement of the parties and subject to any conditions or other limitations under the
agreement. The parties can, for instance, stipulate that the right only arises upon the
acceptance of the third party, after a certain lapse of time, upon performance of the
promisees obligation towards the promisor119 or upon another condition.120

(d) Burden of proof

$30$The third party making a claim against the promisor has to prove that the
original parties agreed to confer a right of action against the promisor upon it. If the
promisor argues that the parties have agreed to impose further requirements for the
creation of the right which have not been met (para 29 above) the burden of proof lies
on the promisor.

V. Content of the beneficiarys right

$31$ The beneficiarys right arising from the contract in its favour is directed against
the promisor: Art 5.2.1(2). A contract for the benefit of a third party does not confer
a right on the beneficiary against the promisee, not even implicitly.121 The right of the
beneficiary is not derived from that of the promisee. It arises independently from
the latter, and it vests exclusively in the beneficiary. The promisor cannot discharge
itself of its obligation by performing to the promisee.

1. Default rules
$32$Unless otherwise agreed, the content of the beneficiarys right is determined by
the default rules contained in Arts 5.2.1 and 5.2.3-5.2.5. According to them, the right
which came into existence immediately at the time of the conclusion of the contract
(para 27 above) exists until the promisor renders performance, ie without time
limitation. The right is primarily directed towards specific performance. But, as in

119
This possibility is explicitly foreseen in Art 73(1)(1) AEPL Code.
120
For a similar solution see 328(2) German Cc, according to which it depends on the agreement
whether the right shall arise forthwith or only under certain conditions.
121
This is also the case in French law: Cass req 6 June 1888, DP 1889.1.55; Cass com 25 March 1969,
Bull civ IV, no 118.

22
all major legal systems which acknowledge third party rights,122 the beneficiary can
also claim damages and all other contractual remedies, if applicable.123 The PICC
deliberately avoid the language of enforcement of the beneficiarys right in this
context because the Working Group feared that lawyers with a civilian background
might misunderstand the term as limiting the available remedies to performance in
natura.124 Using similar arguments, the Group rejected the suggestion to frame the
right of the beneficiary simply in terms of being entitled to request performance,
which would have corresponded to the language of the PECL.125
$33$The beneficiarys right comprises the right to invoke a clause excluding or
limiting the beneficiarys liability (Art 5.2.3), but it is subject to certain defences of
the promisor (Art 5.2.4). It is initially inchoate because the parties may modify or
revoke it until the beneficiary has declared the intention to take advantage of it or has
reasonably acted in reliance on it (Art 5.2.5). Subsequent to such an act the right is
perfected.

2. Party autonomy
$34$The parties enjoy broad powers to shape the content of the beneficiarys
right.126 According to Art 5.2.1(2), this content is determined by the agreement of the
parties, and they can impose any conditions or other limitations they wish. Arts
5.2.3-5.2.5 are default rules and can be contracted out or altered by the parties, see Art
1.5. The parties may therefore decide that the right is to be forfeited after the lapse of
a certain period of time. They can make it irrevocable from the outset, or they can
agree on the possibility of revoking it even after the beneficiary has accepted it.127

122
See, eg, s 1(5) English Contracts (Rights of Third Parties) Act 1999; Art 64 CLPRC (China); Art
73(1)(2) AEPL Code.
123
Off Cmt to Art 5.2.1, p 144.
124
(2001) Study L Doc 70, Reporters note after the final Illustration to draft Art 1; (2001) Study L
Misc 23, para 387.
125
(2003) Study L Misc 25, paras 408-413, 427. Cf Art 6:110(1)(1) PECL: A third party may require
performance and, in a similar vein, Art 72(1) AEPL Code.
126
Off Cmt to Art 5.2.1, p 144.
127
Off Cmt to Art 5.2.5, p 147. Cf, also, MJ Bonell UNIDROIT Principles 2004 The New Edition of
the Principles of International Commercial Contracts adopted by the International Institute for the
Unification of Private Law [2004] ULR 5, 22. For a similar solution see 328(2) German Cc,

23
$35$Conditions or other limitations can be made expressly and impliedly. A
beneficiary to a contract that contains an arbitration clause is entitled to rely on such
a clause, but at the same time confined to the means of enforcement agreed, so the
beneficiary has to bring its claim in arbitration.128 The beneficiarys right is also
subject to a court or jurisdiction clause agreed by the original parties.129 If the
parties do not intend to encompass a third party within the arbitration or jurisdiction
clause they should say so expressly.

VI. Rights of the promisee

$36$Section 5.2 of the PICC is silent on the rights of the promisee arising out of a
contract in favour of a third party. The parties are therefore advised to set out these
rights explicitly. They are also free to determine that the promisee should not derive
any rights from the contract at all (Art 1.1).130 However, unless otherwise agreed, the
promisee is entitled to sue the promisor to render performance to the beneficiary.
This was the view proposed by the Working Group,131 it corresponds to the typical
interests of the parties, and it is the solution adopted in most legal systems.132 The
right of the promisee co-exists with that of the beneficiary. Thus the promisee can

according to which it depends on the agreement whether any right shall be reserved to the contracting
parties to take away or modify the right of the third party without his consent.
128
Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm), [2004] 1 Lloyds Rep 38
[40]-[45], cf s 8 English Contracts (Rights of Third Parties) Act 1999; for references to German law see
Staudinger/Jagmann 328 para 238. But cf C Ambrose, When Can a Third Party Enforce an
Arbitration Clause? [2001] JBL 415.
129
See, with respect to the Brussels Convention, ECJ Case 201/82 Gerling v Amministrazione del
Tesoro dello Stato [1983] 2503 [20]; ECJ Case 71/83 Tilly Russ v NV Haven- & Vervoerbedrijf Nova
[1984] ECR 2417 [26] (concerning, however, a bill of lading); Staudinger/Jagmann 328 para 236
with references to German law.
130
Art 5.2.1(2) does not apply since it only provides for the content of the beneficiarys right.
131
(2000) Study L Misc 22, para 907; (2001) Study L Misc 23, paras 409-10.
132
335 German Cc; Art 112(1) Swiss OR; for French law see Cass civ 12 July 1956, D 1956.749 note
J Radouant, Cass civ 14 December 1999, D 2000 Somm 361 obs Delebecque and now Art 1171-4
APRDO; Art 6:256 Dutch Cc; s 4 English Contracts (Rights of Third Parties) Act 1999; for Spain see
Arroyo i Amayuelas (n Error: Reference source not found above) 127; see also PECL Art 6:110
Comment E (It goes without saying ). For further references, see Dold (n Error: Reference source
not found above) 62-63; H Ktz, European Contract Law (1997) 259-260.

24
exercise it as soon as the beneficiarys right comes into existence and as long as it
exists, even after it may have become irrevocable (Art 5.2.5). The promisee may also
claim damages if it incurs a loss because the promisor does not perform towards the
beneficiary.

VII. Invalidity of contracts to the detriment of third parties

$37$According to Art 5.2.1(1), the parties may only agree to confer a right on the
third party. They cannot validly agree to impose a duty on the third. This rule, a
straightforward application of the principle of relativity or privity of contract,133 is
universally accepted.134 It protects the autonomy of the third party, and is considered
to be so fundamental and self-evident that it is usually not spelt out in legislation.135 It
can also be inferred from Art 1.3 which provides that a contract is (only) binding
upon the parties.136
$38$However, the parties may confer a right that entails duties or burdens, eg the
duty to arbitrate under the contract in the case of conflict (para 35 above). This does
not infringe the autonomy of the third party because the latter is free to renounce the
conferral of the right (Art 5.2.6). Again, this is a solution advocated in all major legal
systems.137

Article 5.2.2
(Third party identifiable)
The beneficiary must be identifiable with adequate certainty by the contract but
need not be in existence at the time the contract is made.
133
See para 3 above.
134
See, eg, Law Commission (n Error: Reference source not found above) para 2.1 (England);
MKo/Gottwald 328 para 172 (Germany); @@@.
135
But see, for instance, Art 1165 French Cc.
136
See, also, (2000) Study L Misc 22, para 893. Crossref in Art 1.3
137
For German law see MKo/Kramer Introduction to 241 para 29; MKo/Gottwald 328 para 172-
174. For French law see Cass civ 1 December 1987, D 1989 Somm 233, obs Aubert. See also (1999)
Study L Misc @.

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Article 5.2.3
(Exclusion and limitation clauses)
The conferment of rights in the beneficiary includes the right to invoke a clause
in the contract which excludes or limits the liability of the beneficiary.

Article 5.2.4
(Defences)
The promisor may assert against the beneficiary all defences which the promisor
could assert against the promisee.

Article 5.2.5
(Revocation)
The parties may modify or revoke the rights conferred by the contract on the
beneficiary until the beneficiary has accepted them or reasonably acted in
reliance on them.

Article 5.2.6
(Renunciation)
The beneficiary may renounce a right conferred on it.

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