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Lord Meston: I am sure the Committee is grateful to the noble Lord, Lord Howie of Troon, for bringing forward these amendments which, as he said, are prompted by the Construction Industry Council, whose very interesting observations some of us, including, I suspect, the noble Lord, saw only yesterday. All of us would have preferred to have seen them at an earlier stage, perhaps before Second Reading. However, the noble Lord raises the important question of the impact of this Bill on construction contracts.

It should be said that the Bill before the Committee, as was made clear at Second Reading, is hardly rushed legislation. It has been some 50 years in the offing and comes to Parliament via the Law Commission, to which, as I understand it, the construction industry, among

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many others, made representations. As I read and reread the Law Commission's report in the light of the observations of the Construction Industry Council, it clearly acknowledged the impact of the proposed law reform on the complex network of contracts which typically arise in the construction situations to which the noble Lord referred.

For the most part, I think the answer will be that the construction industry, among others in the future, will have to depend on well drafted and sometimes better drafted contracts. Having said that, although I do not accept that there is particular force in the proposal to amend Clause 1 beyond the suggestion I have already made that better drafted contracts may well be required, there is some force in the proposal in Amendment No. 2 to amend Clause 2. However, as far as concerns Clause 1, I do not believe that the solution will be found in leaving out subsection (1)(b), which has to be read with Clause 1(2), which I notice the noble Lord's amendment does not seek to delete.

The Lord Chancellor: The noble Lord, Lord Howie of Troon, has not really moved Amendment No. 1 in the sense that, if accepted, it would be of wholly general effect. He has claimed that the Government have not sufficiently attended to the special nature of contracts in the construction industry. I do not accept that. The noble Lord's Amendments Nos. 1 and 2 are of wholly general effect and go much further than to protect the supposed interests of the construction industry.

Amendment No. 1 seeks to leave out Clause 1(1)(b). The Bill certainly could have been more restrictive if it had provided for third party rights only when the contracting parties had provided in express terms that they should be entitled to enforce the terms in question. However, the Bill desires third party enforceability to cover cases where, properly construed, the contract intended a term to confer a benefit on the third party. Thus Clause 1(1)(b) provides:

    "subject to subsection (2), the term purports to confer a benefit on him".
The Bill did not, however, stop there because Clause 1(2) was added which, as the noble Lord, Lord Meston, pointed out, the noble Lord's amendment fails to elide. Clause 1(2) provides that,

    "Sub-section (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".
So essentially the combined effect of sub-paragraph (b) and subsection (2) is a rebuttable presumption in favour of there being an enforceable third party right where a contractual term purports to confer a benefit on a third party, but the presumption is rebutted where on a proper construction of the contract the parties did not intend to confer a right of enforcement on the third party.

Perhaps I may give a simple illustration of how the Bill, if amended in the way the noble Lord proposes, would work an injustice. An uncle transfers his business to his nephew who promises in return that, after the uncle's death, he will pay an annuity to an expressly named aunt. In such a situation, the uncle and nephew may not have included an express provision that the

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aunt's rights would be enforceable. But I agree with the Law Commission's view that the nephew would be unable to satisfy a burden of persuading that those were not intended to be enforceable. It would be unfortunate if the third party right should be unenforceable in cases of this description--and there could be many--just because the parties had not thought to refer expressly to enforceability. On that basis I invite the noble Lord to withdraw his amendment.

Lord Howie of Troon: I thank my noble and learned friend for his comments, and I especially thank the noble Lord, Lord Meston, for his.

I did not suggest removing subsection (2) as it seemed to me fairly obvious that if subsection (1)(b) were removed, subsection (2) would also be removed. I did not want to hammer the provisions too hard into the ground.

I was interested in the comments about uncles, aunts and nephews. They illustrate my point. They are a long way from the complications of the construction industry and relate merely to the complications within a family.

However, I understand the weaknesses of the amendment. I tabled it in order to place this debate at the beginning of our deliberations. I am happy to withdraw it, although we may soon need to return to a provision that is not too dissimilar. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Clause 2 [Variation and cancellation of contract]:

Lord Howie of Troon moved Amendment No. 2:

Page 2, line 32, at end insert (", or
(c) that his consent is being unreasonably withheld.").

The noble Lord said: This amendment relates to the kind of situation in the construction industry where a contract has to be varied due to unforseen circumstances such as I described earlier. A third party might intervene in such a way as to prevent the work being carried on and cause it to be held up for an undue length of time. All I suggest is that we should add the words,

    "that his consent is being unreasonably withheld".
I beg to move.

The Lord Chancellor: We cannot accept this amendment. The essence of the Bill is that it should give effect to the parties' intentions to confer on third parties such enforceable rights as they choose. They may choose to confer none at all. If they do choose to confer enforceable rights, they may specify by their contract the point at which the third party rights cannot be varied without the third party's consent. The Bill, however, sets out in Clauses 2(1)(a), (b) and (c) the crystallisation points which will apply if they are not specified in the contract. It also provides assistance where there is no practicable way in which they can obtain the consent of the third party to a variation to their contract which they desire to make, either because they cannot find the third party (Clause 2(4)(a)), or because he is mentally incapable of giving his consent (Clause 2(4)(b)).

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What the proposed amendment would achieve would be to give the court in all circumstances a power to hold that, despite crystallisation, the third party was unreasonably withholding his consent to a variation. It is not the policy of the Bill, absent an express provision in the contract, to dictate that the intended beneficiary will not be entitled to withhold his consent if that were held to be unreasonable by a court. Such a provision would in effect be conferred if the discretionary power now proposed were conferred on the court. It is Clause 2(3) which provides protection for the primary contracting parties, under which express terms of the contract can specify either the circumstances in which the contract can be cancelled or varied without the consent of the third party, or that the contract can vary the crystallisation circumstances which would otherwise apply under Clause 2(1)(a) to (c).

A provision of the kind the noble Lord proposes could lead to endless litigation as the reasonableness of a third party's refusal to agree to literally any variation of the contract affecting his entitlement. I therefore invite the noble Lord to withdraw his amendment.

Lord Williams of Elvel: For those of us who are not lawyers, will my noble and learned friend give the Committee a definition of the word "crystallisation" that he has used on a number of occasions?

The Lord Chancellor: I used the expression "crystallisation circumstances" in an attempt to assist the Committee. Plainly, I have not done so. If the noble Lord examines Clause 2(1) of the Bill he will see that,

    "Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not without his consent cancel the contract, or vary it in such a way as to extinguish, or alter his entitlement under, that right, if",
the circumstances set out in either sub-paragraph (a), (b) or (c) exist. Any of those three sets of circumstances are the crystallisation circumstances to which I refer.

Lord Howie of Troon: I thank my noble and learned friend for that lengthy, detailed and crystal clear explanation of the position.

I was greatly attracted by one of his remarks when he explained that my amendment, inoffensive as it appears to me, might lead to endless litigation. This is the first time that I have ever heard a lawyer complaining about the possibilities of endless litigation. It gives me a certain amount of delight.

I shall study my noble and learned friend's reply carefully tomorrow, and possibly for two or three days thereafter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Defences etc. available to promisor]:

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