Contract (Third Party Rights) (Scotland) Act 2017
On 26 February 2018 the Contract (Third Party Rights) (Scotland) Act 2017 (“the Act”) comes into force in Scotland.
While it remains to be seen how the Act will be used in commercial practice, the Scottish Law Commission in its discussion paper on third-party rights in contract considered there were a number of potential scenarios where third-party rights might be used such as granting rights in favour of company groups (e.g. group companies obtaining third-party rights in relation to a group wide IT supply contract), the sharing of intellectual property licence rights within company groups and as an alternative to collateral warranties in the construction industry.
It is also likely that commercial contracts will where appropriate now include clauses that expressly exclude the operation of the Act where that is the intention.
- The Act is capable of applying to contracts constituted on or after 26 February 2018. The Act is also capable of applying to amendments made on or after 26 February 2018 to contracts constituted before that date.
- The Act enables the parties to a contract to create rights in favour of a person who is not a party to the contract.
- The third-party rights can be created in favour of a particular person named in the contract or a person falling with a description of persons (and this could include persons not yet in existence).
- A third-party right is an undertaking that a contracting party will do or not do something for the benefit of a third-party who is not a party to the contract. This can include an undertaking to indemnify a person, an undertaking not to hold a person liable in a matter or an undertaking not to enforce in whole or in part a persons liability in a matter.
- A third-party right can be conditional on something happening or not happening.
- The person who has the third-party right has the same remedies available to them as if they had been a party to the contract which creates the third-party right. The same defences are available against the third-party as would have been available had they been party to the contract which creates the third-party right.
- The common law rule of jus quaesitum tertio is abolished in relation to contracts constituted on or after 26 February 2018.
A copy of the Act can be found at the attached link: