Finally, Third Party Rights in Contracts for Scotland?

Following the Scottish Government’s commitment to third party rights in contracts in their 2016/17 legislative programme, a Contract (Third Party Rights) (Scotland) Bill (the “Bill”) was introduced to the Scottish Parliament on 1 February 2017. The Bill proposes to give statutory rights to third parties in contracts governed by Scots law, replacing the jus quaesitum tertio common law doctrine.

History to the Bill

The Bill implements recommendations from the Scottish Law Commission’s Report on Third Party Rights in Contract (the “Report”). The Report suggested that a comprehensive statute replace the current common law on third party rights in Scotland. The introduction of the Bill marks the demise of the jus quaesitum tertio doctrine which has been a feature of Scots law for centuries.

The introduction of the Bill has been welcomed and praised by many in the legal sector. The current jus quaesitum tertio drafting style has been widely reported as being out of date and inflexible for modern commercial contracts. The inflexibility of the current rights mean that once they are created they are difficult to amend or revoke; which is not commercially clever or efficient.

In England and Wales, the common law was overturned in 1999 by the Contracts (Rights of Third Parties) Act (the “English Act”). The provisions under the English Act have also proved to be attractive to parties in Scotland, when given the option to elect to make some provisions subject to English law. For example, group companies who want to avoid using third party rights in Scotland when dealing with group loss.

See our previous articles on Law Now for more detail of the history of the Bill here and here.

Proposals

Generally, the Bill is largely similar to the English Act which will ensure some consistency between the jurisdictions. The key proposals of the Bill include:

• The abolishment of jus quaesitum tertio;
• The creation of rights for inpiduals or groups who are not party to a contract;
• The ability for the rights to be amended or revoked in certain circumstances;
• The provision of remedies to the third party; and
• Opportunities to go to arbitration in order to resolve disputes.

Comments

It is important for Scots law to remain modern and relevant in the commercial landscape. It could be argued that the wide usage of the Latin name is enough to indicate that the law is well overdue reform. Placing the law on a statutory footing will undoubtedly bring clarity to the current law of third party rights, particularly in relation to if and when rights can be revoked, and the remedies available.

However, it will be important to understand the effect of the law and how rights are created in order to avoid any rights occurring unintentionally. It may be useful for all in-house teams to review their current standard form contracts in order to ensure they will operate successfully under the new law.
If you would like any further information on the Bill or any advice on reviewing your contracts, please contact us.

Co-authored by Katherine McInnes, trainee solicitor.