Commercial Contracts in Scotland

Reducing the risk to business operations

To maintain its daily operations, every organisation must enter into a variety of commercial contracts. To reduce the risk to business operations in relation to such contracts, it is critical that these are clear, precise and legally binding so businesses minimise commercial risk.

In Scotland, commercial contracts (although there are some exceptions) do not require to be in writing and there does not require to be any form of consideration. Nonetheless it is advisable that contracts are documented in writing due to the practical difficulties that an unwritten contract can cause with regard to commercial operation and enforcement and litigation in the event of a dispute.

Be aware

If a signatory does not have the requisite capacity to bind a party, the contract will not be legally binding and it is therefore important to check that the parties have the proper capacity to enter into a contract.

For example, in Scotland, if a director signs a document in the presence of a witness, the company will be bound to the terms of the agreement.

Sales and marketing agreements

In Scotland and the UK, there are some commercial sales contracts that are regulated, e.g. the engagement of agents. These regulations give protection to commercial agents with regard to such terms as termination, limitations on post-termination restrictions, compensation or indemnity following termination. There are also competition laws relevant to distribution and franchise agreements.

Compliance and enforcement

Execution of the commercial contract is not the end of the process as there needs to be ongoing monitoring and communication between the parties to ensure the contract is operating properly and the terms are being correctly implemented. Breach of contract occurs when one of the parties has failed to perform its obligations under the terms of the contract.

Key components of a valid contract in Scotland

Designations i.e. the names and addresses of the parties.

Defined terms e.g. a definition of the “Services” to be provided or “Products” to be supplied.

The price or charges to be paid as well as the payment terms and interest provisions.

Delivery obligations and the transfer of risk and title, where relevant.

Length/duration of the contract.

Termination events e.g. material breach and the consequences of termination.

Limitations on liability, for example, in Scotland, it is impossible to exclude liability for death, personal injury or death but financial limits on liability can be enforced provided they are reasonable.

Warranties and indemnities with regard to the actions (or omissions) of the parties.

Obligations of confidentiality to ensure the protection of commercially sensitive information.

Audit rights in relation to certain obligations e.g. royalties/commissions or quality criteria.

Governing law for the contract e.g. Scots law and the jurisdiction and forum for disputes e.g. internal escalation for processes, the courts (Scottish), arbitration or mediation etc.

Rights of assignation e.g. can either party assign its rights and/or obligations to a third party.

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Our Real Estate team won the Property Team of the Year Award at the British Legal Awards in 2018.
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