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Rights of Third Parties
New Rules for Contracts
The Contracts (Rights of Third Parties) Act 1999 goes some way to remove some of the significant problems which have plagued software houses who have had difficulties trying to impose their licence conditions on eventual purchasers.
Under English law, and particularly under the doctrine of 'privity of contract', somebody who is not party to a contract is not able to enforce it.
A software house is not party to the contract between the software shop, or re-seller and the eventual end user, and the end user is not bound under that contract to the software house.
The act now gives rights to third parties where their rights are recognised in the contract.
The Act applies to contracts entered into after May 2000. There are provisions which both allow third parties to be given rights, and also allow arrangements to exclude such rights. It is probably the case that almost any set of standard terms and conditions which sets out to control on going relationships between companies will need to be reviewed in the light of the Act.
The world of Internet in particular has a huge variety of relationships. Frequently, a project can only be implemented by the involvement of several different parties. In the past, such parties where they have not been directly connected by contract have from time to time lost out. The new Act will provide many opportunities to improve, and possibly substantially improve, the ways in which such arrangements are managed.
Escrow arrangements are also often required in the software industry. English law has always struggled with these contracts, but the Act should, again, make a big difference.
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