Contract

01 Jun 2009

My company is entering into a contract for the use of software. I am intending that the software will be used by not only my company but also its subsidiaries. If there is a failure in the software and one of our subsidiaries suffers a loss, can it sue the software provider directly?

Generally, only a party to a contract can enforce that contract. However, this rule is subject to a number of exceptions, and the terms of the contract itself. Under the Contracts (Privity) Act 1982, if the contract contains a promise for the benefit of the subsidiaries, and the subsidiaries are sufficiently identified, a subsidiary will be able to enforce the contract as if they were a party to it (unless it can be shown that the promise was not intended to be enforceable by the subsidiary). The easiest way to ensure a contract is enforceable by a subsidiary is to insert a clear, unambiguous contracts privity clause into it before it is signed.

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Karen Ngan

Karen Ngan

Partner - Corporate & Commercial

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