Scots contract law changes await Royal Assent after clearing Holyrood hurdle

The Contract (Formation and Remedies) (Scotland) Bill passed its third stage unopposed at Holyrood earlier this week, meaning it now just awaits Royal Assent before becoming law – and should overcome that hurdle despite the expected dissolution of the Scottish Parliament in April, ahead of the May elections.

The Bill was introduced in October last year in the wake of the Scottish Law Commission’s 2018 report (262-page / 3MB PDF) on Scots law of contract. It looked at formation, interpretation, remedies, and penalty clauses, and looked to consolidate some areas to make it more accessible – with a statutory statement of contract formation law but with limited other substantive changes.

The biggest change is the abolition of the common law ‘postal acceptance’ rule, which regarded a contract acceptance sent by post as taking effect when sent, rather than when delivered.

David Woods, a litigation expert with Pinsent Masons in Glasgow, said the bill would make contract law in Scotland more coherent and accessible, rather than fundamentally altering of its basic principles.

“These changes mean that businesses will gain a more predictable framework for assessing when a contract has been formed, which is especially important for modern, fast-paced contracting such as over email,” he said.

“As statutory rules can be contracted out of, organisations may wish to adjust templates to either adopt or exclude the new framework intentionally, while solicitors may wish to reconsider any strategies around shared fault which could reduce damages awards.

“Organisations should take the opportunity before royal assent to review their internal contracting procedures, staff training, remedies clauses, and any reliance on retention mechanisms that may be impacted.”

The changes came after a recent consultation process confirmed there was demand for reform, and highlighted uncertainty in areas such as retention – which was included despite the Scottish Law Commission having made no recommendations in that area in their 2018 report.

Along with the abolition of postal acceptance, the bill brings certain areas into statute, including the definition of when a contract is formed and the agreement on essential factors, and modernises the law around attempts to reach an addressee to reflect electronic communication methods.

It also reflects the SLC recommendations around when a party in breach of contract may enforce rights arising from the other party’s own breaches, and new rules on benefit returns and valuation.