27 February 2018

The Contract (Third-Party Rights) (Scotland) Act 2017 (the “2017 Act”) was passed by the Scottish Parliament on 21 September 2017 and received Royal Assent on the 30th October 2017. The Act came fully into force on 26 February 2018.

JQT doctrine

Third party rights are created where a contracting party undertakes, in a contract, to do or not do something for that third party’s benefit. Prior to 26 February 2018, in Scotland, third party rights have been governed by the common law doctrine of jus quaesitum tertio (“JQT”). Under this doctrine, for a third party right to be created, the contract must:

• identify the third party;
• show that the contracting parties intend to create third party rights; and
• provide a benefit to a third party which cannot be revoked or altered.

The JQT doctrine is widely viewed as being rather inflexible as it is difficult to amend or terminate a third party right once it has been created. With effect from 26 February, the 2017 Act abolished the JQT doctrine and brought Scottish contract law on third party rights more into line with English law, adopting a similar approach.

What are the key changes?

The key reforms contained within the Act are as follows:

• JQT has been abolished;
• third party rights can be modified and/ or extinguished;
• the third party does not need to be in existence at the time the contract is entered into;
• third parties can renounce any rights conferred upon them;
• third parties can access arbitration in certain circumstances;
• all legal remedies for any breach under contract which the original contracting party would be entitled to, are available to the third party; and
• contracting parties have available to them all relevant defences to that third party’s claim which they would have had against any other contracting party.

Whilst these reforms automatically apply to all contracts entered into on or after 26 February 2018, the 2017 Act is not retrospective, therefore in the majority of cases, there will be no immediate impact on contracts entered into before that date.

What Next?

As is current practice under English Law; steps should be taken when drafting under English contracts to ensure that third party rights are not unwillingly created. The simple way in which to avoid this may be by the inclusion of a new clause in Scots law contracts to specifically exclude the 2017 Act.

In addition, organisations should consider reviewing their existing contracts to ensure there are no implications for them.

If you would like more information on this or to discuss any queries please contact Jeremy Glen, Partner jsg@bto.co.uk T: 0141 221 8012.