At some point in the nineteenth century American and English common law took divergent paths on the question of whether or not a third party could take action to enforce a contract of which he or she was named as a beneficiary even though not a party to the contract. Case law in the United States developed such a doctrine based on earlier cases whereas in England the importance of privity in the enforcement of a contract became the major concern, although the strictness of the rule was mitigated by the use of the concept of one party to a contract holding certain rights in trust for a third party.

The law in England, Wales and Northern Ireland has now been amended by the Contracts (Right of Third Parties) Act 1999. This brings the law in these jurisdictions much closer to that in the United States. The Act provides that, subject to certain express exceptions, where a contract expressly provides for a third party to enforce it or where a contract purports to confer a benefit on a third party and does not appear to deny him or her the right to enforce it, then such a third party will have the right to enforce the contract. In order to take advantage of this right, the third party must be identified by the contract by name, as a member of a class or as answering a particular description. However, there is no need for the third party to have been in existence at the time the contract was made. Contracts to which the new law does not apply include contracts on bills of exchange, contracts imposing obligations on workers and most aspects of contracts for carriage of goods by various means of transport. Provision is also made to protect a promissor from double liability to its contract partner and the third party beneficiary. Provisions are also made to limit the rights of the parties to a contract from rescinding or varying that contract if there is a third party beneficiary to that contract.

The new law will apply to all contracts entered into on or after May 11, 2000 and any contracts made between November 11, 1999 and May 10, 2000 where the parties expressly state that the new law will apply.

The law clearly has a number of important applications to contracts relating to intellectual property, particularly where one party is in effect acting as an intermediary, for example in a sublicense where the original licensor may become a third party beneficiary without necessarily becoming a party to the sub-license contract, in cases of sales of copies of software where a "shrink wrap" license is involved where lack of privity between the licensor and the purchaser who bought a copy of software from a retailer has hitherto been a problem and in cases where one party may have the right to disclose the confidential information of another to third parties, for example for evaluation, and there have been problems as to how the originator of the information could take action if any of the third parties misused the information.