The Contract Rights of Third Parties Act (CROTPA) Malaysia is a relatively new piece of legislation aimed at clarifying the rights of third parties in a contractual arrangement. This act is an important development in Malaysian contract law and has far-reaching implications for businesses, especially those that deal with suppliers, contractors, and clients.

The CROTPA Malaysia became effective on 1st January 2018. Before that, parties to a contract in Malaysia had complete discretion in deciding whether or not to confer contractual rights on a third party. The third party had no legal standing to sue for breach of the contract, even if the contract had direct benefits for them. This act changes the long-standing common law position, which held that only parties to a contract can enforce its terms.

The CROTPA Malaysia applies to all contracts, whether they are written or oral, express or implied. It expressly provides that a third party can enforce a term of a contract if that term expressly confers a benefit on that third party. This means that parties to a contract can now confer rights on third parties to enforce the terms of the agreement. The act also allows parties to exclude or limit the rights of third parties under the contract.

The benefits of the CROTPA Malaysia for third-party beneficiaries are clear. They are now better protected by the law, and their rights are enforceable. This means that if a third party has a direct interest in the performance of a contract, they can rely on the terms of the contract to obtain redress if they suffer loss or damage as a result of a breach. It also creates greater certainty in commercial arrangements, as third parties can now rely on the terms of a contract to which they are a beneficiary.

For businesses, the CROTPA Malaysia creates some new challenges. They need to assess the impact of the act on their contractual arrangements. They may need to consider including specific provisions in contracts to expressly confer rights on third parties or to exclude or limit those rights under the Act. They also need to ensure that they are aware of their obligations under the Act, particularly in relation to the notification requirements for third parties.

In conclusion, the CROTPA Malaysia is an important development in Malaysian contract law. It provides greater certainty to third parties, and it clarifies the rights and obligations of contracting parties in relation to third parties. While it creates new challenges for businesses, it also provides opportunities for them to create more effective and balanced contractual arrangements. For those who do business in Malaysia, it is essential to take note of the CROTPA Malaysia and to understand its implications for your business.