Contract (Third Party Rights) (Scotland) Act 2017 – What Is Changing?

What is this Act all about?

Sometimes, the parties to a contract intend that a third party (for example, another company or an individual) will be entitled to certain rights under that contract, even though they are not a party to the contract itself. Scottish law dealing with such rights was based on case law. The absence of a clear set of rules meant that the law was ambiguous and inflexible.

The Act replaces the old regime with a new statutory set of rules, which provides greater certainty as to how third party rights can be created and enforced.

Will the Act apply to all existing contracts?

No. The Act will come into force on 26 February 2018.

The new rules will apply automatically to all contracts which are formed on or after this date.

They will not automatically apply to contracts created before that date. But it's open to contracting parties to agree otherwise by putting something to that effect in a pre-existing contract.

The new Scottish third party rights regime is similar to, but differs in certain key respects from, the English regime, particularly as regards cancelling or modifying third party rights. Specific wording will be required for Scots law contracts to reflect these differences.

When might I want to rely on the Act?

The Act will make it much easier for businesses to contract for goods and services on a group-wide basis under Scots law, simplifying contracts and reducing uncertainty around enforcement. One company will be able to enter into a contract that will benefit other companies within its group, rather than each company within the group ha ke its own agreement with the supplier.

It will also bring benefits for consumers in relation to, for example, the enforcement of insurance policies, by allowing beneficiaries to make a claim under a policy even if they are not a direct party to the insurance contract (for example, family members under a family travel insurance policy).

That sounds good. Can I amend my existing contracts so that the new rules apply?

Yes if all the parties to the contract agree to do that. You don't need to refer to the Act specifically as long as its conditions for creating a third party right are met.

What's required to create a third-party right under the Act?

A contract does not need to expressly refer to the Act create a third-party right. But three conditions must be met:

The contract must contain an undertaking that one or more of the parties will do (or not do) something for the...