Review of Contract Law Report on Third Party Rights
report
(SCOTLAW COM No 245)
Review of Contract Law Report on Third Party Rights
Laid before the Scottish Parliament by the Scottish Ministers
under section 3(2) of the Law Commissions Act 1965
July 2016
SCOT LAW COM No 245 SG/2016/98
The Scottish Law Commission was set up by section 2 of the Law Commissions Act 1965 (as amended) for the purpose of promoting the reform of the law of Scotland. The Commissioners are:
The Honourable Lord Pentland, Chairman Caroline Drummond David Johnston QC Professor Hector L MacQueen Dr Andrew J M Steven.
The Chief Executive of the Commission is Malcolm McMillan. Its offices are at 140 Causewayside, Edinburgh EH9 1PR.
Tel: 0131 668 2131 Email: [email protected]
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ISBN: 978-0-9935529-3-9
Produced for the Scottish Law Commission by APS Group Scotland, 21 Tennant Street, Edinburgh EH6 5NA.
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SCOTTISH LAW COMMISSION
Item No 2 of our Ninth Programme of Law Reform
Review of Contract Law
Report on Third Party Rights
To: Michael Matheson MSP, Cabinet Secretary for Justice
We have the honour to submit to the Scottish Ministers our Report on Third Party Rights.
(Signed) PAUL B CULLEN, Chairman
C S DRUMMOND
D E L JOHNSTON
HECTOR L MACQUEEN
ANDREW J M STEVEN
Malcolm McMillan, Chief Executive 9 May 2016
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Contents
Click on any of the headings below to go to the relevant page
Contents.................................................................................................................... v
Abbreviations........................................................................................................... viii
Chapter 1 INTRODUCTION ............................................................................................. 1
Scottish Law Commissions review of contract law ........................................................ 1
What are third-party rights in contract?.......................................................................... 2
Comparative material .................................................................................................... 3
Examples of third-party rights in practice....................................................................... 5
Company groups ....................................................................................................... 7
Construction projects and collateral warranties.......................................................... 9
Other uses of third-party rights legislation................................................................ 12
Structure and summary of the Report.......................................................................... 14
General approach taken by the draft Bill .................................................................. 14
Summary of recommended reforms ........................................................................ 15
Legislative competence and relationship with specific rules ........................................ 17
Effect of recommendations on specific third-party rights rules ................................. 17
Employment contracts ............................................................................................. 18
Business and Regulatory Impact Assessment (BRIA) ............................................... 22
Acknowledgements ..................................................................................................... 22
Chapter 2 SUMMARY OF CURRENT LAW.................................................................... 23
Third-party rights in Scots law ..................................................................................... 23
Origins..................................................................................................................... 23
Identification of the third party ..................................................................................... 24
Contracting parties intention to create third-party rights.............................................. 25
No requirement of third party acceptance.................................................................... 27
The requirement of irrevocability ................................................................................. 28
Revocation of a third-party right: conditionality ............................................................ 31
Reconciling Carmichael with Love and Kelly ............................................................... 34
Third partys rejection or refusal of the right or benefit ................................................. 37
Effect of invalidity, unenforceability or frustration of the contract on the third party ...... 37
Third party remedies ................................................................................................... 38
Chapter 3 TERMINOLOGY ............................................................................................ 39
The parties .................................................................................................................. 40
Rights or benefits? ...................................................................................................... 41
Juristic characterisation of the third-party right? .......................................................... 44
Enforcement or invocation of the third-party right ........................................................ 45
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Chapter 4 FORMATION: IDENTIFICATION AND INTENTION....................................... 47
Identification of the third party ..................................................................................... 47
(i) Third party not yet in existence ...................................................................... 49
(ii) Third party in existence but not a member of the class in question ................ 49
(iii) Third party identified other than by or from the contract ................................. 50
Intention of contracting parties to confer a right ........................................................... 51
Should a third-party right taking the form of an exclusion of liability be competent?..... 54
No need for third partys acceptance ........................................................................... 55
Two kinds of case?...................................................................................................... 55
Is formal writing necessary? ........................................................................................ 57
Conditional obligations ................................................................................................ 58
Chapter 5 IRREVOCABILITY ......................................................................................... 60
Abolition of irrevocability as a requirement of constitution............................................ 60
May a third-party right become uncancellable or unmodifiable? .................................. 61
Fulfilment of conditions and other terms .................................................................. 61
Registration of the contract...................................................................................... 66
Declarations of irrevocability by the contracting parties ........................................... 67
Reliance and personal bar....................................................................................... 68
Assignation of the third-party right ........................................................................... 75
Third partys acceptance ......................................................................................... 77
Other issues ............................................................................................................ 77
Chapter 6 RENUNCIATION, REMEDIES AND DEFENCES .........................................
