Court Grants Third-Party Authority to Enforce Lender's Loan Agreement Terms
HNW Lending Ltd v Lawrence: A Significant Ruling for Peer-to-Peer Lending
In a landmark decision, the High Court has ruled that a third party can enforce contractual terms under the Contracts (Rights of Third Parties) Act 1999, even if they are not directly benefiting from the contract. This ruling, in the case HNW Lending Ltd v Lawrence [2025] EWHC 908 (Ch), has far-reaching implications for the peer-to-peer lending sector.
The case involved a claim for possession of a property by HNW, a peer-to-peer lender, in reliance on a loan agreement and charge against the property. Under the loan agreement, £1.5 million had been advanced by the lender to Ms Lawrence. The loan agreement had been arranged by HNW, who was referred to in the loan agreement as a 'Security Agent'.
Clause 26.7 of the loan agreement stated that HNW may take the benefit of and specifically enforce each express term of the loan agreement and any term implied under it pursuant to the Contracts (Rights of Third Parties) Act 1999. Ms Lawrence, however, denied that HNW had standing to sue on the basis that it had no enforceable rights under the loan agreement and charge.
The High Court found in favour of HNW, concluding that clause 26.7 of the loan agreement appeared to have been drafted with the Act in mind and with the intention of conferring on HNW equivalent rights to those of the lender. The Court's approach to the construction of clause 26.7 was consistent with the principle to give effect to contractual provisions where possible.
This ruling means that in the peer-to-peer lending sector, non-parties such as security agents or third-party lenders can enforce loan agreements if the contract expressly grants them enforcement rights. This expands the practical scope of the 1999 Act, making contractual rights more readily enforceable by third parties designated within the contract, even if those third parties do not directly benefit from the contract provisions.
The decision underscores the importance of careful and clear contractual drafting to specify third-party enforcement rights explicitly to avoid disputes. Parties to contracts should carefully consider whether third parties should have enforcement rights and include express wording to the contrary if they are not intended.
This ruling is significant as it confirms that third-party enforcement rights under the Act depend on express contractual provisions, not necessarily on the third party benefiting from the contract. It also clarifies that section 1(1)(a) of the Act is not restricted to cases where a contract term benefits the third party; instead, it suffices that the contract clearly states the third party's right to enforce its terms.
In summary, the HNW Lending Ltd v Lawrence case confirms that third-party enforcement rights under the Act depend on express contractual provisions, not necessarily on the third party benefiting from the contract. It also emphasises the importance of clear and explicit contractual drafting to specify third-party enforcement rights in peer-to-peer lending arrangements. This facilitates enforcement and recovery actions by non-party investors or security agents, strengthening lenders' positions and clarifying rights of enforcement outside the direct contracting parties.
This decision aligns with the principle of upholding the parties' intentions as expressed in their contract and promotes certainty and flexibility in third-party rights within complex financing arrangements such as peer-to-peer loans. The decision will be particularly relevant to parties in the peer-to-peer lending sector, and it remains to be seen whether there will be any further developments on this issue.
The ruling in HNW Lending Ltd v Lawrence has significant implications for the finance and business sectors, especially the peer-to-peer lending sector, as it allows non-parties such as security agents or third-party lenders to enforce loan agreements if the contract expressly grants them enforcement rights.
This decision underscores the importance of clear and explicit contractual drafting in financial agreements to specify third-party enforcement rights, ensuring that lenders can take necessary enforcement actions and creating clarity around rights of enforcement outside the direct contracting parties.
