Fri 15 Apr 2016

Dealing with a breach of contract in Scotland

If a party to a contract ends up in a position where the other party is in breach of that contract, they (the 'innocent party') will want to consider the various remedies which could be available to them as a result of this.  Those used to dealing with contracts governed by English law should be aware that there are some differences in the remedies which are available under Scots law for breach of contract.

The first thing to consider is the importance given to the principle known as mutuality of obligations under Scots contract law.  The point of this principle is that both parties are required to perform their obligations under the contract so, if one party is in breach of contract, they will not necessarily be able to insist on performance by the other party to the contract unless they first rectify their own breach.  Assuming that the innocent party is not in breach of contract, what can they do in response to the other party's breach?

'Self-help' remedies

The first step which an innocent party may want to consider would be whether any 'self-help' remedies (ie, remedies which would allow them to take action without taking the matter to court) would be suitable for them

One option of this type which is available under Scots' law is the remedy of retention.  This would entitle the innocent party to withhold performance of their obligations under the contract until the party who is in breach performs their obligations.

An alternative approach would be to exercise the remedy of rescission under which the innocent party can bring the contract to an end so that they are relieved of their obligations under it.   Although this remedy appears to be an import from English law, it does not operate in quite the same way.  In particular, rather than classifying terms as warranties or conditions, it is necessary to instead to look at whether the breach of contract can be classified as a material breach.  When exercising the remedy of rescission, it is also common for an innocent party to raise a claim for damages.

It might also be possible that a contract has been registered so as to allow steps to be take to enforce rights under it without the necessity of going to court.  This can be the case when it has been registered in the Books of Council and Session in Scotland for what is know as preservation and execution. 

Going to court

If 'self-help' remedies are not suitable, the innocent party might want to raise a court action.  There are also some important difference in relation to remedies granted by a court in Scotland.

One key point is the difference in approach to granting remedies.  In Scotland the remedy of damages does not have the same primacy and it ask the court to grant an order which requires the party in breach to carry out their obligations under the contract (which is known as an order for specific implement). 

In addition, it is possible in some cases to achieve orders for interim interdicts (ie, temporary orders to prevent a party doing something and come into force whilst an action is ongoing akin to an English interim injunction).  In Scotland it can also be possible for these orders to be obtained without the party against whom they are sought being given any notice.  However, in order to offer some warning that this type of order is being sought, it is possible to lodge documents (know as caveats) with the Scottish courts which would provide notice of some temporary orders sought and result in the court fixing a hearing, at which both parties can appear, before considering whether to grant any temporary orders.

As a final point, it is important also to be aware of the different rules which govern when a timebar will arise meaning that a party loses their right to claim for a breach of contract.  In Scotland an action for breach of contract will need to be raised within five years from the date of the breach, which is less time than may be available for raising a similar claim in England.

We would be happy to help with any case regarding a breach of contract.  If you need assistance you can contact your usual Morton Fraser contact or a member of the commercial litigation team.


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