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Contracts (Rights of Third Parties) Ordinance and the Construction Industry

15 February 2016

The new Contracts (Rights of Third Parties) Ordinance, Cap. 623 (the "Ordinance") took effect from 1 January 2016 in Hong Kong.

The Ordinance makes important changes to Hong Kong's contract law that will allow contracting parties to agree that third parties may enforce the terms of the contract. These reforms mark a significant change to the common law "privity of contract" doctrine, introducing helpful flexibility that will assist contracting parties in achieving their commercial objectives, in particular with respect to more complex commercial arrangements.

Every contract agreed under Hong Kong law from 1 January 2016 (whether a new contract or an amendment to an existing contract) should take the Ordinance into account – whether by expressly excluding the Ordinance or by drafting carefully to achieve your desired effect. Failure to be clear on this issue may mean that third parties cannot enforce terms as the contracting parties intend or give rise to situations in which a third party may enforce terms of contract where one or both parties do not intend this to be the case.

Our previous overview of the Ordinance and its history, including the development of the privity doctrine, can be found here. This update will focus on implications for the construction industry.

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