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Contract law in light of the Draft Common Frame of Reference (DCFR)

Commissioner
Professor Hector MacQueen

Team members
Charles Garland, Project Manager
Stephen Bailey, Legal Assistant

This is a large project, on which we are producing papers on different topics.  It is included in our Eighth Programme of Law Reform as a long-term project.  Our primary focus is on the domestic law, which we are tackling topic by topic.  In addition, as explained more fully below, we are taking into consideration a number of recent European initiatives. 

SLC DISCUSSION PAPERS

So far we have published three discussion papers and a report:

We are currently preparing a discussion paper on remedies for breach of contract, which we hope to publish later in 2014.  It will include a consideration of penalty clauses (see below).

Interpretation of Contract

In our discussion paper we give a detailed exposition of the current Scots law on interpretation, suggesting that while the law has developed to some extent in the direction of recommendations made in an earlier report by the SLC (Report on Interpretation in Private Law (Scot Law Com No 160, 1997), it is still uncertain and unsettled in important respects.  As interpretation is of crucial importance for legal practitioners, particularly in the commercial field, and plays a significant role in the Scottish economy, we suggest that the current law would benefit from review and reform.  The consultation period closed in May 2011.  We have not yet published a report.

Formation of Contract

Our discussion paper includes an examination of the postal acceptance rule, the "battle of the forms", and the law and practice relating to "execution in counterpart".  The last of these issues, which relates to the way in which contracts agreed between parties may be signed other than at a traditional "all parties" signing session, is an area of law which - we are told - is currently unsatisfactory, especially in comparison with English law and practice.    

We decided to prepare, in the first instance, a Report and draft bill limited to execution in counterpart; we will report on other matters relating to formation at a later stage.  We consulted widely on the proposed legislation, and a draft bill was discussed at a seminar at the University of Edinburgh on 29 November 2012.  We subsequently published a further draft which is designed to be read in conjunction with an article by Paul Hally of Shepherd & Wedderburn in the Journal of the Law Society of Scotland.  We are very grateful for all comments.  (Separately, the Land Registration etc. (Scotland) Act 2012also makes important provisions in this area.  In implementation of its provisions on electronic documents, Registers of Scotland have consulted on draft Regulations which will prescribe, amongst other things, the type of electronic signature which can be used, and our response to that consultation is here.  The Regulations (SSI 2014/41 (c4)) were made on 19 February 2014, coming into force on 22 March 2014.)

Following the publication of our Report on Execution in Counterpart, the Scottish Government has confirmed that it intends to bring forward a bill in the current session.  On 28 February 2014 Fergus Ewing MSP gave the Government's initial response to our Report.  This response confirms the intention to bring forward legislation and argues that the Delegated Powers and Law Reform Committee of the Scottish Parliament is the appropriate one to take the lead.

Third Party Rights

Our Discussion Paper was published on 28 March 2014.  The paper outlines the current law of third party rights in Scots law and considers why reform may be necessary.  We address the nature of third party rights and discuss the appropriate terminology for use in any proposed reform.  We then deal with (i) the requirements of the identification of the third party and the intention of the contracting parties, (ii) the issue of irrevocability, and (iii) the relationship between the proposed general rule on third party rights and specific third party rights recognised elsewhere in the law.  The final chapter offers an overview of what a system incorporating the proposed reforms would look like.  (Regrefully, the page numbers listed in the right hand column in the contents pages are incorrect, but the paragraph references are reliable.)  The consultation period runs until 20 June 2014. 

Penalty Clauses

We intend to consider penalty clauses in our discussion paper on remedies for breach of contract.  The Scottish Government consulted on a draft Penalty Clauses (Scotland) Bill in July 2010.  It is very closely based on the draft legislation appended to the Scottish Law Commission’s Report on Penalty Clauses (Scot Law Com No 171; 1999).  The Commission was included as a consultee and submitted a response to the Scottish Government.  In the light of all of the responses to the consultation the Government has decided that further work is needed.  The work which we have done in response to the consultation persuades us that there is still merit in pressing for reform.

Previous reviews of the law of contract by the SLC

The Commission has previously carried out a number of reviews of contract law.  Most recently, a number of (unimplemented) Reports were published in the 1990s:

DCFR, CESL AND OTHER EUROPEAN INITIATIVES

A stimulus for our review of the law of contract is the publication in 2009 of the Draft Common Frame of Reference (DCFR).  The DCFR sets out a contemporary statement of contract law in clear English and is based on comparative research from across the European Union.  It offers a new and valuable opportunity to review some of the topics on which we have already worked and to examine the law in other related areas (as we describe below).  There is more information on the DCFR in chapter 1 of each of our recent discussion papers.

Much work has continued on European contract law since the DCFR's publication in 2009.  Notable developments include the following:

1.  In July 2010 the European Commission published a Green Paper on policy options for progress towards a European contract law for consumers and business.  This led to a call for evidence put out by the UK Ministry of Justice.  The Scottish Government joined the call for evidence; the Scottish Law Commission’s response was sent on 19 November 2010.  We also responded directly to the European Commission's Green Paper consultation on 27 January 2011.  After this response was sent, we learned of the Ministry of Justice's response which takes a somewhat different approach (and barely recognises the existence of Scots law).

2.  In May 2011 the European Commission published a Feasibility Study proposing draft rules for a European contract law, on which background information is available at the European Commission's website.  Comments were invited (with a deadline of 1 July 2011) to a number of specific questions.  Our response is here.  A final set of draft rules were published by the European Commission in September 2011.

3. In October 2011 the European Commission published its proposals for a Regulation to which is annexed a Common European Sales Law (or CESL).  In anticipation of this, the UK Government instructed the Law Commission and us in May 2011 to provide joint advice.  The instruction letters from MoJ and DBIS set out the terms of reference.  Our joint advice (with summary) was published on 10 November 2011.  (A list of links to the key documents and background materials referred to in the advice can be found here.)  With the support of the Scottish Government the UK Government issued a consultation document on this topic; the UK response is available via the same link along with an Impact Assessment.  More recently, in September 2013 the Legal Affairs Committee (JURI) of the European Parliament passed a number of amendments to the proposed CESL, the broad thrust of which was to make the instrument apply only to cross-border distance and online sales contracts and supplies of digital content rather than to such sales and supplies in general; on 26 February 2014 the European Parliament adopted a legislative resolution on the CESL.

For more information on the contract law project, please contact charles.garland@scotlawcom.gsi.gov.uk.

Latest news

23.03.12

Contract formation for the electronic age

Are the rules of Scots contract law adequate? Could they be improved? Our newDiscussion Paper on Formation of Contract (DP 154) seeks to address these questions...  Read more...


10.11.11

Advice on European sales law

Following a reference from the Ministry of Justice and the Department for Business, Innovation and Skills, we have published joint advice with the Law Commission on the European Commission's proposed Regulation on a Common European Sales Law  Read more...


4.04.11

Lord Hope on the role of the judge in developing contract law

A talk which Lord Hope of Craighead gave last autumn to a contract law conference in Jersey, entitled The Role of the Judge in developing Contract Law, has recently been published  Read more...


4.04.11

After the event: subsequent conduct and interpretation

See further DP No 147 Chapter 4, paragraph 4.17, Chapter 5, paragraph 5.21 and Question 8, paragraph 7.18

Lord Hodge's opinion in Quantum Claims Compensation Specialists Ltd v Wren Insurance Services [2011] CSOH 61 provides valuable Scottish guidance on the position of subsequent conduct  Read more...


16.03.11 

Possible Supreme Court challenge to entire agreement clauses? 

See further DP No 147 Chapter 3, paragraph 3.17, especially footnote 21 

We note a recent decision of the Court of Appeal in England and Wales, Axa Sun Life Services plc v Campbell Martin Ltd & Others [2011] EWCA Civ 133, 18 February 2011, which concerns the construction of a contract  Read more…


16.03.11 

Lord Hodge's survey of interpretation principles, mixed with a little rectification… 

See further DP No 147 Chapter 5, especially paragraphs 5.13-5.16 

Lord Hodge was called upon to interpret the provisions of a commercial agreement in Macintyre House Limited v Maritsan Developments Limited [2011] CSOH 45, 4 March 2011  Read more…


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