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The Contract (Third Party Rights) (Scotland) Act 2017 (the ‘Act’) was passed by the Scottish Parliament last year and reforms third party contract rights in Scotland for the first time in over 100 years. Jennifer Antonelli and Graeme Bruce of CMS Cameron McKenna Nabarro Olswang LLP examine the impact for insolvency practitioners.
The Contract (Third Party Rights) (Scotland) Act 2017 (the ‘Act’) was passed by the Scottish Parliament on 21 September 2017. The Act received Royal Assent on 30 October 2017, and came into effect on 26 February 2018.
The Act implements the recommendations of the Scottish Law Commission and follows input from experts at committee stage at the Scottish Parliament. The Act codifies and removes uncommercial restrictions from the existing Scots common law principle of ‘jus quaesitum tertio’ (‘JQT Principle’) to allow parties to a contract to confer a right or immunity from liability on a person/entity who is not a party to the contract (a ‘third party').
To a great extent the Act brings Scots Law into alignment with English law, but with some extra sophistication.
The key points of the Act are:
The law is not retrospective. Where an insolvency practitioner enters into a contract after the Act came into force they can simply choose to exclude the Act by including a clause in the contract that no third party has any rights under it (as is routine in English law contracts). This will be prudent to avoid any implication that such a right has been created, where this is not intended.
Although insolvency practitioner contracts will contain the exclusion of personal liability wording and absence of warranties/indemnities, it would be sensible to also specifically exclude third party rights to avoid any future third party action against either the insolvent entity or the insolvency practitioner.
In other cases, insolvency practitioners may wish to take advantage of the new law. For example, where there are contracts between other parties which are relevant to the insolvency, the insolvency practitioner should consider whether any rights or obligations can be enforced on behalf of the insolvent entity (as a third party) in order to maximise recoveries to the estate. In addition, relying on the Act may be helpful in relation to a situation where there is a dispute in connection with a group of companies and it is unclear which group company needs to have the benefit of a settlement of that dispute.
Insolvency practitioners will need to be aware of the terms of the Act in the course of any review of existing contracts (which are dated after the Act came into force) and also in the drafting of any new contracts to which the insolvent entity and/or the insolvency practitioner are to be a party.
First published in the ICAS Insolvency and restructuring news - February 2018.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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