The Bill aims to modernise, clarify and reform aspects of Scots contract law – specifically the law governing contract formation and some of the remedies that are available when contracts are breached. In addition, given the law of contract is largely based on common law, the Bill aims to bring some of the law into one place, to make it more accessible. However, the legal framework proposed by the Bill is only a default position and therefore businesses and individuals can still agree to depart from the legislation.
Formation of Contracts – Part 1 of the Bill
Part 1 seeks to codify the existing law regarding contract formation through an offer and its acceptance. It defines what constitutes a valid offer and acceptance, when an offer can be rejected, when an offer or acceptance can be withdrawn and when an offer is automatically cancelled.
Some of the key provisions are summarised below:
- An offer is defined as a proposal made to another person that contains sufficiently definite terms to form a contract and indicates the intention of the offeror to be bound if the offer is accepted.
- An offer can be accepted by way of a statement or by way of conduct if it indicates assent to the offer. Silence or inactivity is not itself an acceptance of an offer.
- As long as parties are agreed on the necessary content, there can be a contract even if the parties continue to negotiate other matters.
- If the offeror dies or is otherwise incapacitated after an offer is made but before it is accepted, the offer automatically terminates.
- If the offer has no time limit for acceptance, the offer must be accepted within a "reasonable" time after the offer was made.
One of the key changes in the Bill is the abolition of the "postal rule". At present, if an acceptance to an offer is sent by post, it is deemed effective as soon as it is posted, even if the delivery of the acceptance is delayed or lost. This is an outdated position in light of the fact that most contracts are now concluded by way of electronic communications. As such, the Bill states that offers and acceptances are only valid when they are received by the recipient. In the case of an electronic notification, it is deemed to have been received "when it becomes available to be accessed by the person".
Remedies for Breach of Contract – Part 2 of the Bill
The Bill does not seek to address all of the remedies that are available for breach of contract. Instead, Part 2 concentrates on the following remedies:
- Mutuality of contract: At present, it is felt that there is uncertainty as to whether a person who is already in breach of contract could still enforce their rights against the other party. The Bill seeks to clarify the position by stating that even if Party A is in breach of the contract, it does not automatically stop Party A from making a claim against Party B for something Party B did before Party A's breach (so long as Party B did not withhold performance because of Party A's breach).
- Rescission for breach of contract: A party may rescind a contract as a result of a serious breach. However, when a contract is lawfully terminated for a breach, the current law provides no clear right to recover benefits already transferred, for example advance payments or goods delivered. The Bill states that where Party A has terminated a contract for Party B's breach, Party A should be put back into the position they were in prior to the breach. Therefore, any money paid must be repaid and goods delivered must be returned.
- Contributory negligence: It is uncertain whether contributory negligence is available as a defence to claims for damages based on breach of contract. The Bill therefore introduces a form of contributory negligence as a defence for all claims of damages for breach of contract. The extent of any reduction due to contributory negligence would be decided by the court as to what is appropriate in the circumstances of each case.
It is clear that some of the proposed changes achieve the objectives of the Bill by clarifying and modernising the law. However, it is important to note that the Bill does not address all aspects of contract law; some areas will continue to be subject to common law rules. For that reason, there are some questions over whether the aim of making the law on contract more accessible is actually met. It is also likely that there will be a need for judicial interpretation in relation to many of the proposed provisions which, unless they are changed meaningfully, could mean years of confusion and differing approaches until relative certainty from higher courts is delivered. Given the proposed new rules are default, rather than mandatory, parties will also need to understand what they may be opting out of when entering into a contract.
It is important to note that the Bill is currently at Stage 1 of the parliamentary process and, as it progresses, significant amendments may be made. We will continue to monitor developments closely and update on progress.
