Legal Briefing

Scots and English contract law: false friends?

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Scotland | 01 July 2010

Those learning a language will be familiar with the problem: a word in the foreign language looks and sounds similar to a word in a person’s mother tongue but, it turns out, has a completely different meaning. They are false friends. Take the French ‘actuellement’, which actually means ‘at the moment’. As in language, so in law. When an English lawyer refers to a number of parties being ‘jointly’ liable to make payment, the presumption is that each is liable for the full amount (albeit that there is only one obligation, so performance by one will discharge the other). In Scots law, joint liability means that each party is presumed to be liable only for a proportion of the total amount due.

In many areas, Scots and English contract law are identical. Sometimes they even share leading authorities. A Scottish dispute regarding the remoteness of damages will inevitably refer to Hadley & anor v Baxendale & ors [1854], or Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009]; an English dispute about an indemnity clause might well refer to Smith v UMB Chrysler or, as it is often known in England, Smith v South Wales Switchgear [1978]. Some concepts of English law, such as undue influence, anticipatory breach and the remedy of rescission for breach of contract have been imported into Scots law from English, and usefully so. However, the fact remains that Scots law is a separate jurisdiction with a separate law. English decisions are persuasive only and even in those areas where the law at first glance appears identical, there may be differences. It is not just that claimants are known as ‘pursuers’ and defendants as ‘defenders’.

This article sets out some of the key areas of difference of which practitioners should be aware, focusing on remedies for breach of contract, as well as highlighting some of the many other divergences.

Remedies for breach of contract

One of the most significant, and practically important, differences between English and Scots contract law arises when looking at the remedies available to the innocent party in cases of breach.

Scots law

In Scots law, a party is entitled as a matter of legal right to an order compelling performance (known as specific implement). Of course, there are categories of case in which specific implement will be refused. Examples include contracts that depend on a highly personal relationship (such as partnership or employment), circumstances in which performance has become impossible, or where performance could reasonably be obtained from another source, such as a contract for the sale of goods that are reasonably available on the open market. There is a residual discretion to refuse implement, but that will be exercised only in exceptional cases. In Scotland, therefore, the innocent party is able to choose, as of right, between damages and specific implement.

English law

English law begins from the opposite standpoint. Although damages are available as of right, specific performance – as an equitable remedy – was historically available only where damages were an inadequate remedy. It seems that the law is more liberal now and will grant specific performance in a broader range of cases than before. Therefore, the practical outcome in Scottish and English cases will be the same on many, but not all, occasions. Sometimes the differences in positions of the two legal systems will produce opposite results.

Different results: keep-open clauses

Attempts by landlords to enforce keep-open clauses in commercial leases are the best example. In several cases towards the end of the last century and the beginning of the present one, Scottish courts granted orders of specific implement to compel tenants to continue to trade from leased premises, in fulfilment of their obligations under a keep-open clause. In Retail Park Investments Ltd v The Royal Bank of Scotland plc [1996], for example, the tenants had undertaken to take, use and occupy the leased premises for the purpose of use as bank offices, and to keep them open for business during all normal business hours throughout the whole period of the lease. The Inner House of the Court of Session granted the landlords an order compelling the tenants to do exactly that. To the argument that this was an insufficiently certain obligation to enforce by means of a court order, the court’s response, broadly, was that commercial parties had undertaken to do this and had been complying with the obligation for nearly 20 years by the time the dispute arose. It was therefore sufficiently certain to enforce.

In English law, by contrast, landlords in those circumstances are able only to seek damages for breach. Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] provides a good example of this. Lord Hoffmann confirmed the settled rule that a mandatory injunction would not be granted if it required a defendant to carry on a business, for such an order would require too much court supervision. The order would, by definition, be imprecise and the remedies available to enforce compliance with the order would potentially be oppressive.

In the important case of Highland & Universal Properties Ltd v Safeway Properties Ltd [2000], the Inner House of the Court of Session was specifically asked to follow the English approach. It refused. Scots law was clear and if the law was required to change, that was a matter for Parliament and not the courts. The Lord President (Rodger) noted that recent experience of Scottish courts granting orders for specific implement in such circumstances did not suggest that defenders had any real difficulty complying with their terms, and neither had granting them led to the heavy and expensive litigation that the House of Lords had feared would result.

Rescission for material breach

Rescission as a remedy for breach is an English import. However, Scots law is not bedevilled by the difficulties of classifying a term as a condition or a warranty, or as some innominate term (as was recognised in Hongkong Fir Shipping [1962] at 70), nor by questions of whether there has been a failure of consideration. Instead, the question is whether there has been a material breach of contract. A material breach will justify rescission by the innocent party.

Other differences

There are many other differences, too, as would be expected of separate legal systems. To highlight but a few:

  • Scots law does not require consideration for a contract to be formed. The point is significant, too, when considering whether an existing contract has been varied.
  • Scots law recognises a concept of ‘unilateral promise’, by which a party can bind itself to an obligation without any need for acceptance.
  • Scots law recognises third party rights at common law (via a concept known as jus quaesitum tertio) and so the relevant rules differ from those under the Contracts (Rights of Third Parties) Act 1999.
  • In place of the English law of estoppel(s), Scotland has a distinctive law of ‘personal bar’, which can prevent a party from relying on a right in certain circumstances.
  • Prescription rules differ. In Scotland, most contractual claims will prescribe after five years (an important exception being obligations that relate to land). This is shorter than the comparable limit in England, where the typical time limit for a contractual claim is the expiry of six years from the date when the cause of action accrued (Limitation Act 1980).
  • The stock phrase ‘subject to contract’ may not have the same effect when used in a Scottish context as it does in an English one: Stobo Ltd v Morrisons (Gowns) Ltd [1949].

Applicable law and Jurisdiction

The above differences prompt the question: when will a contract be governed by Scots law and a Scottish court have jurisdiction? Parties are, of course, free to agree these matters in their contracts, but if they have not then the law provides default rules. In respect of a contract concluded after 17 December 2009, the applicable law will be determined by the Rome I Regulation (Regulation EC 593/2008). Jurisdiction is governed by the Civil Jurisdiction and Judgments Act 1982 (the 1982 Act). For example, in the absence of provision otherwise, a contract for the sale of goods concluded today will be governed by the law of the country in which the seller has its habitual residence (Rome I Regulation, Article 4). The ‘normal’ rule in respect of jurisdiction is that persons will be sued in that part of the UK in which they are domiciled. There are particular rules for the domicile of corporations. A corporation is domiciled in Scotland if it has its seat in the UK and:

  1. it has its registered office or some other official address in Scotland;
  2. its central management and control is exercised in Scotland; or
  3. it has a place of business in Scotland (s42 1982 Act).

There are also grounds of special jurisdiction. In respect of contracts, jurisdiction can also be established ‘in the courts for the place of performance of the obligation in question’. The recent JS Swan (Printing) Ltd v Kall Kwik UK Ltd [2009] demonstrates what this requires. To make out this ground of special jurisdiction and sue the defender outside of its domicile, the pursuer must identify the contractual obligation on which it seeks to rely and demonstrate that it required to be performed exclusively within the jurisdiction in which it is sought to establish special jurisdiction. In other words, the obligor had no choice but to perform in that jurisdiction. This narrow test means that in most cases it is likely to be safer to rely on the primary ground of jurisdiction, namely the domicile of the defender.