On 28 March 2014, the Scottish Law Commission (“SLC”) published a discussion paper on third party contract rights in Scotland.
In England, third party rights have been enshrined in legislation since 1999 with the introduction of the Contracts (Rights of Third Parties) Act 1999 (the “1999 Act”).
In Scotland, third party rights are governed by the common law doctrine of ius quaesitum tertio (“IQT”), first mentioned in Stair’s Institutions published in 1681. This doctrine allows a third party who is not party to a contract to obtain and enforce rights under that contract. It is necessary to identify the third party in the contract by name, as a member of a class or as answering to a particular description. It is also necessary to show that the contracting parties intended to benefit the third party, and that the right must be ‘irrevocable’.
The current third party rights procedure in Scotland is used very infrequently and has been described as “historic and inflexible”, with collateral warranties, or English law contacts remaining the preferred option.
The discussion paper’s proposals largely replicate the 1999 Act. The main issue with IQT is that the right granted to the third party must be irrevocable – i.e. once the right is created, the parties cannot vary or cancel it. In contrast, the 1999 Act allows parties to expressly agree a clause allowing them to vary or rescind the contract without the consent of the third party.
Introducing the paper, the lead Scottish Law Commissioner Professor Hector MacQueen stated “Scots law in this vital area has, as one practitioner put it to us, been stuck in the 17th century for far too long. There is a real demand to bring it completely up-to-date, in the interests of both business and private individuals. I think that our suggestions will, if accepted and implemented, go a long way to satisfying that demand.”
The SLC’s consultation is open until 20 June 2014. Those interested in responding should click here.