Third party rights in Scotland - change at last?

What are third party rights?

Third party rights are rights conferred by contracting parties upon a person who is not a party to the contract. Such rights have long been recognised in Scots law under the common law doctrine of jus quaesitum tertio, meaning 'the third party has acquired a right'.

In order to be established under the current law the contract must:

• identify the third party;
• show an intention of the contracting parties to confer a benefit; and
• provide a benefit which is unalterable and irrevocable.

It is this last requirement which is the major cause of concern here, as it means that the third party right cannot be altered or cancelled in response to changing circumstances. This has meant that the Scottish approach has often been considered too restrictive to be of practical value and is therefore rarely used.

Why are they important?

In the context of group companies for example third party rights can be of particular use. They can permit each group company which has suffered loss due to the failure of a supplier to have an enforceable claim, notwithstanding that they are not a party to the contract.

However, under the current Scots law position, it is unlikely that such third party rights would be given and as such only the entity with the direct contractual relationship would be able to bring such a claim. In fact, such is the polarisation in this field, some Scots law governed contracts will instead contain a third party rights clause governed by English law which makes reference to the much more flexible 'Contracts (Rights of Third Parties) Act 1999'.

What does the proposed bill provide?

The key reforms of the draft bill are:

1. abolishment of jus quaesitum tertio; and

2. the creation of third party rights which may be cancelled or modified.

If implemented the bill would provide a clear and modern approach to third party rights which will bring Scotland in line with many other jurisdictions.

The lead Commissioner for the project, Professor Hector MacQueen, said: The common law in this area has been notoriously difficult to state and clearly out of line with current business and social needs. This reform should bring the Scots law up to at least the highest modern standards in the area and, we hope, a bit beyond that too.[1]

The full report together with the draft bill can be viewed on the SLC website here.