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Guidance on Third Party Rights in Commercial Contracts

In a decision which clarified the position of third parties to commercial contracts, the High Court has blocked proposals to adjudicate a £4 million dispute concerning alleged flaws in the chilled water cooling system serving a new bank data hall.

Barclays plc had engaged consulting engineers to provide design services in relation to the project. The cooling system was said to be unstable and another company within the Barclays group – Barclays Bank plc (Barclays) – had purported to submit the dispute to adjudication although it was not itself a party to the contract.

It was agreed that Barclays had a direct interest in the project and was an ‘affiliate’ within the meaning of the contract. However, the engineers successfully argued that, on a true construction of the contract, Barclays had no freestanding right to enforce the adjudication provisions contained therein.

Arguments that Barclays could derive such a right from the terms of the Contracts (Rights of Third Parties) Act 1999 were also rejected. In the circumstances, the Court found that Barclays was not entitled to launch adjudication proceedings and that the adjudicator already appointed had no jurisdiction to determine the dispute.