New Regime For The Contractual Rights Of Third Parties In Scotland

Third party rights are conferred by contracting parties on a person who is not a party to the contract concerned.

Such rights have long been recognised as capable of being created in Scots Law in certain circumstances under the general or common law, known as jus quaesitum tertio.

The Scottish Law Commission announced proposals for the reform and updating of the current law on third party rights, in 2016. The Commission recommended the creation of an updated statutory regime for third party rights, to replace the common law rules. The outcome of the review is new legislation creating such a statutory regime: the Contract (Third Party Rights) (Scotland) Act 2017.

Introduction

It has been a general principle of Scots law that there are circumstances in which a contract entered into directly between parties can contain rights that are enforceable by a third party who is not one of the parties to the contract. This concept is so well established under Scots law that it bears a Latin name - the jus quaesitum tertio (JQT). However, not only are the rules at common law for creation of such rights poorly understood, they have generally been regarded as inflexible and archaic, and long overdue for reform.

As part of its wider consideration of contract law in Scotland, the Scottish Law Commission undertook a review of this area of the law, in response to concerns that Scots law was falling behind international, and particularly European, reform in this area. Jurisdictions which historically did not recognise third party rights, such as England and Wales, have legislated to introduce them; and those jurisdictions which did recognise them, such as France, have updated and clarified their rules.

The outcome of this review is the Contract (Third Party Rights) (Scotland) Act 2017 which will come into force on 26 February 2018. The Act replaces and abolishes the existing common law JQT rules regarding the creation and enforcement of contractual rights in favour of persons other than the parties to the contract.

Third Party Rights

Classic examples of where contracts have been used to create benefit for third parties are:

life assurance, where benefits are payable to someone other than the policyholder; family holidays booked with a tour operator, where only one member of the family is a party to the contract; the rights of conditional beneficiaries under a company pension scheme, such as the spouse, on the pension scheme member's death; and the rights of a...