Nothing can remain unchanged forever. The law is no different, and so thinks the Scottish Law Commission (SLC), as the SLC has been considering a number of changes to Scots contract law. Scots lawyers have been complaining that certain aspects of Scots law are archaic and uncompetitive in the global marketplace. Accordingly, the SLC have identified two areas of contract law which are ripe for reform:-
- execution of documents in counterpart; and
- third party rights.
Execution of documents in counterpart: English law (and other jurisdictions) allows parties to sign different versions of the same contract at different locations and, upon exchange of the different copies, a binding contract is created. Copies can also be delivered electronically and this avoids the need, which currently exists under Scots law, to physically sign the same contract either at the same time and place (or consecutively, but with time delay in actually creating the contract). This has long been a bone of contention for Scottish commercial lawyers and often leads to expressions of disbelief from foreign lawyers in cross-border transactions.
The SLC has recognised that this issue places Scots law at a disadvantage and, after consultation, the Legal Writings (Counterpart and Delivery) (Scotland) Bill was introduced into the Scottish Parliament in 2014 in order to bring Scots law broadly into line with England. The Bill will allow signature of documents in counterpart and permit electronic delivery. The mechanics will likely lead to some changes in the usual signing process and styles of signing documents for contracts, but is likely to be welcomed by commercial lawyers and clients.
Third Party Rights: Since 1999, English lawyers have benefitted from the Contracts (Rights of Third Parties) Act which allows English contracts to bestow rights on third parties who were not actually signatories to the relevant agreement itself. Scots law has a similar concept, the Ius Quaesitum Tertio. But due to its vagaries, uncertainties and perceived unwieldiness, Scots lawyers have been reluctant to use it as a means to bestow rights on third parties, and instead have been known to change the law of the agreement to English law to avoid dubiety and uncertainty around enforcement.
In March 2014, the SLC started a discussion paper on Third Party Rights with a view to making recommendations to ensure that Scots law has a coherent third party rights law and which is more aligned with modern commercial practice.
Where are we with the changes? The SLC are at different stages in the legislative process for each of these proposed legal reforms. The 2014 Bill will likely proceed to the statute book in late 2014 or early 2015, whilst the third party rights proposal is only at SLC discussion paper stage.
What are the benefits? If these provisions are implemented, what are the principal benefits:-
- competitiveness - Scots law will be compatible and competitive with other legal jurisdictions and modern commercial practice;
- flexibility - as transactions could be completed both remotely and electronically; and
- certainty – the current uncertainty around the enforceability of third party rights will be removed and Scots law will have a modern and fit-for-purpose third party rights regime.
Conclusion Any reform which addresses perceived weaknesses and uncertainties in Scots law regarding contractual formation and enforceability of rights must be welcomed. Scots law needs to be seen as modern and commercially viable and as an immediately accessible option to clients and lawyers doing business in Scotland. In an increasingly global marketplace, we should not be disadvantaged by inflexibility in approach or uncertainty of law and these reforms are long overdue.
