Delegated Powers and Law Reform Committee

Meeting date: Tuesday, June 27, 2017

Official Report 434KB pdf

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Contract (Third Party Rights) (Scotland) Bill: Stage 2

Agenda item 2 is stage 2 proceedings on the Contract (Third Party Rights) (Scotland) Bill. I welcome to the meeting Annabelle Ewing, the Minister for Community Safety and Legal Affairs—good morning, minister—and from the Scottish Government, Catriona Marshall, solicitor, legal directorate; and Jill Clark, bill team leader, civil law reform unit.

For the purposes of stage 2, members should have copies of the bill, the marshalled list and the groupings of amendments.

Sections 1 to 8 agreed to.

Section 9—Arbitration

Amendment 1, in the name of the minister, is grouped with amendment 2.

I have set out previously that it would be a matter of concern if the bill’s provisions were not readily understood. The committee is aware of the concerns that were raised by the Faculty of Advocates in respect of section 9, and my officials met a representative from the faculty to discuss those concerns and section 9 in general.

A number of the points that were raised in those discussions go beyond third-party rights into possible wider changes to the law of arbitration. Such changes were not part of the recommendations of the Scottish Law Commission that underpin the bill and, unlike those recommendations, have not been consulted on. I therefore do not consider the bill to be the right vehicle for addressing all the points that were raised by the Faculty of Advocates. However, to the extent that the points raised by the faculty expose a certain amount of confusion about what section 9(3) is intended to achieve, there is merit in amending it to clarify the intended relationship between section 1 and section 9.

The bill is intended to allow contracting parties to give third parties a right to resolve disputes by arbitration, even if the dispute arises from outside the contract—for example, personal injury claims that arise under the law of delict. The essentials necessary for the creation of such a procedural third-party right to arbitrate are the same as for any third-party right and are set out in section 1.

Section 1 is the legal basis for a third-party right to arbitrate, as it is for any other kind of third-party right. However, without further provision, a third party would be unable to enforce that right because, under the Arbitration (Scotland) Act 2010, only a person who is a party to an arbitration agreement can go to arbitration. Section 9 is a technical fix to overcome that obstacle. It allows someone with a third-party right to arbitrate to be treated as a party to the relevant arbitration agreement.

Section 9 is what is often called a deeming provision. It provides for someone who is not a party to an arbitration agreement to be deemed to be a party. It is a common drafting device. Exactly the same approach to the issue of allowing third parties to arbitrate is taken in section 8 of the Contracts (Rights of Third Parties) Act 1999, which applies to England and Wales.

Amendment 1 is intended to make it explicit in section 9(3)(c) that the third-party right is to enforce the undertaking to arbitrate. That should remove any doubt that the third-party right referred to in that subsection must be a third-party right arising under section 1.

Amendment 2 is consequential on amendment 1.

I move amendment 1.

As no colleague has a comment, is there anything that you want to say in winding up, minister?

No. I have explained our position. Thank you.

Amendment 1 agreed to.

Amendment 2 moved—[Annabelle Ewing]—and agreed to.

Amendment 3, in the name of the minister, is grouped with amendments 4, 5 and 7.

We have had an opportunity to reflect on the view offered by Professor Vogenauer on section 10 and also the Law Society of Scotland’s evidence to the Scottish Government that the provision is superfluous. We have concluded that section 10(1) is not needed.

Section 10(1) provides for the third party to renounce their right and confirms that the effect of such renunciation is extinction of the right. It is simply a statement of what is already a matter of general principle. However, section 10(2) remains in point, as it provides that where a third party raises a court action it is not to be taken as a renunciation of the right to submit the same dispute to arbitration.

Amendment 5 will leave out section 10, while amendment 3 will move what is presently section 10(2) to sit within the wider arbitration provisions under section 9.

Amendments 4 and 7 simply remove cross-references to section 10.

I move amendment 3.

As no member has a comment to make, do you have anything to add in winding up, minister?

No. Thank you.

Amendment 3 agreed to.

Amendment 4 moved—[Annabelle Ewing]—and agreed to.

Section 9, as amended, agreed to.

Section 10—Renunciation of third-party right

Amendment 5 moved—[Annabelle Ewing]—and agreed to.

Section 11 agreed to.

Section 12—Abolition of common-law rule: jus quaesitum tertio

Amendment 6, in the name of the minister, is in a group on its own.

10:15  

In written evidence to the committee, Shepherd and Wedderburn raised the very valid issue of how the bill would impact on contingent or conditional third-party rights that have not yet crystallised at the point at which the bill’s provisions are commenced. It was not the intention that the bill should impact adversely on those rights. The amendment to section 12(1) addresses that point.

In that regard, it is important to point out that, because section 13 allows contracting parties to choose to apply the bill’s third-party rights rules to pre-commencement undertakings, a single undertaking could give rise to a common-law and a statutory third-party right. That is why amendment 6 adds new subsections (1A) and (1B) to section 12.

The purpose of new subsection (1A) is to ensure that if a pre-commencement contract gives rise to a statutory third-party right, any parallel common-law right becomes unenforceable. That is to avoid the confusion that could result from a third party simultaneously having a common-law and a statutory third-party right.

Linked to that, new subsection (1B) will prevent a third party from being able to assign a statutory third-party right to enforce an undertaking—which means that someone else can enforce it—and then be able to enforce it themselves through a revived common-law right.

I move amendment 6.

Thank you for that clarification.

I see that members have no comments to make. I presume that you have nothing further to add, minister.

No.

Amendment 6 agreed to.

Section 12, as amended, agreed to.

Section 13—Application

Amendment 7 moved—[Annabelle Ewing]—and agreed to.

Section 13, as amended, agreed to.

Sections 14 and 15 agreed to.

Long title agreed to.

That ends stage 2 consideration of the bill. I thank the minister and her colleagues for coming to the meeting and delivering the stage 2 process.

Thank you.

10:17 Meeting suspended.  

10:18 On resuming—