CD&P: New Legislation Will Enhance Jurisdiction

April 13, 2016

Doyle-DavidNew legislation governing contracts will significantly help the Island’s commercial sector and enhance the attractiveness of the jurisdiction in both the funds and insurance space, according to some Bermuda attorneys.

Elizabeth Denman, a Director in the Corporate department at Conyers Dill & Pearman, said The Contracts [Rights of Third Parties] Act, 2016 [PDF], had been lobbied for by the private equity finance and insurance industries in particular.

She said it also brought Bermuda into line with other domiciles with similar legislation.

“The Act is important from an indemnification perspective,” said Ms Denman. “People not specifically party to a contract may now be entitled to benefit from and enforce the terms of the contract, subject to certain restrictions.

“The Act will be of significant interest to investment managers, investment funds, third party service providers and delegates who traditionally may not be parties to an agreement, but may be impacted by its specific terms and provisions. In particular, the Act should help in the area of indemnification.”

David J. Doyle [pictured], a Director at Conyers, said the Act should also be important to Bermuda’s insurance and reinsurance companies as, amongst other things, it “removes uncertainty about the legal enforceability of so-called ‘cut-through’ clauses or endorsements in insurance and reinsurance contracts which parties have wanted to use in Bermuda over the years”.

He said that under the new legislation, there must be express contracting into the legislation – parties must opt in – whereas the legislation in other jurisdictions works the other way and applies unless there is a contracting out.

“Thus, parties will need to take particular care in drafting the wording of such clauses” he said.

He cautioned that such clauses, like any contract, will be subject to the normal fraudulent preference and transactions at an undervalue rules applying at the time the cut through clause is entered into.

“Provided the transaction is a bona fide commercial transaction for proper consideration, between solvent parties, there is now little danger of the common law rules of privity applying to upset the operation and enforceability of cut through clauses,” added Mr Doyle.

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