Scottish Law Commission report on review of contract law

The reforms proposed by the Scottish Law Commission are mostly a set of default rules in so far as parties may choose by agreement to provide otherwise.  This seems to be a sensible and helpful approach.  Default rules provide a useful starting point for negotiations.  They are efficient in so far as they can be relied upon for common situations which should reduce transaction costs and enable parties to focus on where they may want to make alternative provision.  They also provide legal certainty which is vital in this area of the law.

The report was published in March 2018, over 6 years ago now.  At the time of publication there had been relatively recent case law which informed a number of the recommendations made in the report.  Some specific areas are discussed in some detail below, but it would be helpful to know whether at a general level you consider that there have been changes which are material to the recommendations made in the report.

The SLC produced a Business and Regulatory Impact Assessment (BRIA).  BRIAs are intended to estimate the costs, benefits and risks of any proposed legislation that impact the public, private or third sectors.  The only calculated costs in the BRIA relate to training which will have been worked out on the appropriate costs for 2018.

Section 17 of the United Nations Convention on the Rights of the Child (Incorporation) (Scotland) Act 2024 provides that Ministers must prepare and publish a Child Rights and Wellbeing Impact Assessment (CRWIA) in relation to a Bill that Scottish Ministers intend to introduce.  A CRWIA is a process, tool and report which is used to identify, research, analyse and record the anticipated impact of, among other things, a legislative provision.

The recommendation that there should be a statutory statement of the law on formation of contract was well supported.  But as part of their policy consideration, the SLC noted that some respondents had raised concerns that “it might contribute to a potentially damaging perception that Scots law had diverged in some non-obvious way from English law.”

The SLC considered that “our detailed recommendations for substantive law reform are limited.  The major change relates to the law on postal acceptances, which we believe will bring the law into line with general legal practice on both sides of the border.  In addition, we propose legislative clarification of the law on electronic communication in contract formation.  The clarification is consistent with existing principles of Scots and English law.”

The statutory statement on formation of contract includes an ‘accessibility rule’ in respect of electronic communication. As set out in the explanatory note to the draft Bill, “[t]he provision focuses on the accessibility to the addressee as the test of legal effectiveness, in order to avoid some of the technical difficulties that may arise from the nature of electronic communications (for example, delays and failures in the transmission of emails between servers)”.

The issue of the ‘battle of the forms’, where parties believe a contract to be concluded but do so on the basis of their own standard terms and conditions, has not been included in the statutory statement beyond the general principle set out in section 2 of the SLC's draft Bill.

The SLC recommended that there should be an exception in relation to the acceptance of general offers, in the circumstances where a contract is formed once the offeree begins to perform certain acts.  An example given was a notice in a private car park advising that a charge would be levied for parking there (the offer) and someone parking there (acceptance).

At present Scots (and English) law would see these as invitations to treat, so that it is the customer responding to the statement who makes the offer and the business whose stock or capacity is potentially affected which may then accept or decline that offer.

The report does not propose legislative reform or a statutory statement of the law on interpretation on the basis that the uncertainty in the law in the courts has since been broadly resolved through 2 cases in the UK Supreme Court.

Retention is a “self-help” remedy which is based on the idea of obligations in a contract being interdependent or reciprocal, so if one party does not perform then the other party need not perform. In its report the SLC considered it best to leave further clarification of the law on retention to the courts and practitioners.

Recission means the termination or cancellation of a contract which has been rescinded. The SLC considered that the current law on the matter is unclear.  There was strong support for this proposed reform which is provided for at section 18 of the SLC draft Bill and introduces a new remedy which is intended to address the economic imbalance which may be caused when a partly performed contract is subject to rescission.

A recent decision by the Judicial Committee of the Privy Council in Primeo Fund v Bank of Bermuda (Cayman) Ltd (“Primeo”) concerned claims of breach of contractual duties in the context of fraud, including whether the statutory defence of contributory negligence applied to a claim in contract.

The significance of the decision lies with the Cayman Islands’ statutory provision – which was the subject of analysis in the case – being closely modelled on the rule applicable in section 1(1) of the Law Reform (Contributory Negligence) Act 1945. Section 22 of the SLC’s draft Bill provides that the defence of contributory negligence applies to all claims of damages for breach of contract.  This is achieved by amending the 1945 Act.

No further reforms are recommended in respect of “anticipated breach” (the SLC’s preferred term for what is often known as “anticipatory breach”).

“Anticipated breach” describes conduct by a debtor that will justify the creditor in exercising remedies available on breach even though the time for the debtor’s performance has not yet arrived.

On the basis that gain-based damages are apparently not available in Scotland, the SLC sought views on reasonable fee awards and accounts of profit.  Whilst there was some support for the former it was felt that reform was not needed as there was no significant support for legislation and consultees tended to take the view that such an award could already be made if an appropriate case arose, or the law was capable of being developed by the courts.  On the latter there was no clear support.  Consequently, reforms in this area were not recommended – further developments in the courts were to be awaited.

The SLC concluded that to provide a satisfactory solution would require a significant piece of work and that would not be possible at that time.

The UK Supreme Court case is Cavendish Square Holding and ParkingEye Ltd [2015] UKSC 67.