HNW Lending Ltd v Lawrence

[2025] EWHC 908 (Ch)

HNW was claiming possession of a property and monies  advanced to Ms Lawrence pursuant to a Loan Agreement in the sum of £1.5 million. Ms Lawrence sought to strike out the claim in that HNW has no standing to bring the claim because HNW has no enforceable rights against Ms Lawence under the Charge and the Loan Agreement. Paragraph 26.7 of the Loan Agreement, stated that:

“The Borrower and Lender agree 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 express term of this Loan Agreement and any term implied under it pursuant to the Contracts (Rights of Third Parties) Act 1999.”

Prior to the Act coming into force, the general rule was that only a party to a contract could enforce its terms, even if the contract, if performed, would have conferred a benefit upon that party. The Act changed this and enabled third parties, in certain cases, to enforce terms in contracts made in their favour. Section 1 provides as follows:

“(1) Subject to the provisions of this Act, 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—

• the contract expressly provides that he may, or
• 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.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.

(5) For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance, and other relief shall apply accordingly).”

So, the third party must be expressly identified in the contract and, so it was thought, the provision must confer a benefit on the third party. Here, the judge noted that clause 26.7 appeared to have been drafted with the 1999 Act in mind and with the intention of conferring on HNW equivalent rights to those of the lender, enabling HNW to enforce obligations owed to and benefitting the lender.

Ms Lawrence argued that HNW did not have the right to bring a claim under the Act, as the benefit had not been expressly conferred onto them in the loan agreement. The judge disagreed, noting that section 1(1)(a) of the Act was not limited to the enforcement by a third party of a term purporting to benefit the third party, since this type of term was specifically addressed in section 1(1)(b). The intention was that the lender’s agent would be able to enforce its obligations in the same way as the lender. It was sufficient that the contract expressly provided that the third party may enforce the term. That is what Clause 26.7 did in relation to all the express and implied terms of the Loan Agreement. Alternatively, Clause 26.7 was effective pursuant to section 1(1)(b) to confer on HNW the benefit of the covenants and rights of enforcement owed to the lender because that is also what Clause 26.7 purports to do. Clause 26.7 expressly provided that “HNW Lending Limited may take the benefit of and specifically enforce each expressed term of this loan agreement and any term implied under it”.

Adopting this approach, i.e., construing Clause 26.7 as legally effective, was in line with the principle that the courts should endeavour, if possible, to give effect to the parties’ contractual provisions. Indeed, there has been little caselaw about the Act, one reason being that parties have the option when entering into a contract to specifically exclude the Act in its entirely, something they regularly do.   

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