I bring you glad tidings of a new post by Glenn West on Weil’s Global Private Equity Watch blog. It’s entitled On Naval Ramming Bows and Contractual Boilerplate—Are Standard “No Third-Party Beneficiary” Clauses Always a Good Thing?
To whet your appetite, I present you the key bits:
Glenn reminds us of the limited utility of no-third-party-beneficiary provisions:
While most contracts contain an express provision that negates any intent by the contracting parties to benefit any third party, the absence of a “no third-party beneficiary” provision does not create any presumption that there is an actual intent to benefit a nonparty; and that is so even when the parties know that their performance of the contract will in fact benefit a third party. Instead, what the law requires to permit a nonparty to enforce a contract between the actual named parties to a contract is a clear expression of intent in that contract creating rights in favor of that nonparty. The concept that someone can be an implied third-party beneficiary is overstated and largely a myth.
Including a no-third-party-beneficiary provision can help you avoid a fight with someone claiming to be an intended third-party beneficiary. But beware of unintended consequences:
Carefully determine which provisions of your contract are actually intended to benefit and be enforceable by a nonparty (typically affiliates in the private equity context) and carve those provisions out from the standard “no third-party beneficiary” provision, else you may find yourself trying to explain how the “no third-party beneficiary” provision does not trump the otherwise clear intent to benefit nonparty affiliates.
By the way, with Glenn you get some erudition with the contracts stuff. The Battle of Lissa! 1866! By contrast, I’m clearly something of an unrepentant vulgarian. *sniff*