 I welcome members to the 10th meeting in 2017 of the Delegated Powers and a Law Reform Committee. I also welcome George Adam to the committee today in place of David Torrance, who has sent his apologies. I move now to agenda item 1, which is the Bankruptcy Scotland Act 2016. We will consider, in the first instance, the draft of Bankruptcy and Protected Trust Deeds Miscellaneous Amendments Scotland Regulations 2017. Members will recall that the committee considered the technical merits of this instrument at its meeting on 28 February 2017. The committee has also been designated as the lead committee for the instrument, and today we are invited to consider its policy merits. The instrument amends minor drafting errors in the Bankruptcy Scotland Regulations 2016 and the Protected Trust Deed Forms Scotland Regulations 2016, which were identified by our committee in November 2016. At that time, the Scottish Government agreed to correct the errors at the next legislative opportunity. Today, we are invited to consider this amending instrument. Today, we welcome Paul Wheelhouse, who is the Minister for Business, Innovation and Industry. Good morning and welcome minister. We also welcome Graham Fisher, head of branch 1, the constitutional and civil law division, the Scottish Government legal directorate, and we also welcome Carol Kirk, policy review team leader, the accountant in Bankruptcy. I would invite, if I may minister, to welcome you again and, if you would make an opening statement, please. Thank you very much, convener, and good morning everyone. The regulations before you today fulfil a commitment that I made to you at the committee meeting on the first November last year. At the meeting, I undertook to bring forward regulations that would amend drafting errors identified in Bankruptcy regulations put before this committee. Specifically, the errors drafted at the time, which include missing words and incorrect referencing, are contained in the Bankruptcy Scotland Regulations 2016 and the Protected Trust Deed Forms Scotland Regulations 2016 as part of an exercise to consolidate legislation following the Bankruptcy Scotland Act 2016. Those measures came into force on 30 November last year, and you may recall I fully acknowledged those errors at the time. As a temporary mitigation, we had taken steps to clarify those errors where appropriate to ensure that the legislation is clear for those who use it, including annotating forms available on the accountant and Bankruptcy's website with the correct information. However, it is important to put this right formally at this time. Those regulations therefore fixed the errors to ensure that the regulations are accurate. We have taken the opportunity, as I indicated in my letter to the committee, to mend other minor points that stakeholders had raised during the committee's scrutiny as well. I would like to thank the committee for taking the time to consider this instrument this morning, and we are, of course, happy to take any questions. Thank you very much, minister. Do members have any questions? There being none, I will now move to the debate at item 2, which is the consideration of the motion recommending approval of the instrument. I remind officials that they cannot participate in the formal debate on the motion, and I advise that in accordance with rule 10.6.3 of standing orders, the debate on the motion can last no longer than 90 minutes. I now invite the minister to move and speak to motion S5M-04390. I invite the committee members to take the opportunity to thank the Scottish Government for addressing those commitments so promptly. Minister, I am sure that you had a personal influence on that, no doubt, but none the less. I thank the team, but we are sorry that the errors took place in the first place, but we are glad to fix them early. We are very grateful for that consideration. Minister, I invite you formally, therefore, to respond to the debate or the lack of it. Thank you, convener. I thank the committee for its attention. I now ask the members to approve the motion, if they are all content so to do. The question is, motion S5M-04390, can we recommend that the draft bankruptcy and protected trustees miscellaneous amendment Scotland regulation 2017 be approved? Does the committee agree to the motion? Minister, can I thank you and your officials for attending the meeting today and briefly suspend the meeting now to allow you to leave and others to come forward? We will start again. The next item on our agenda is our second consideration of oral evidence on the contract third party rights Scotland Bill at stage 1. Today, we welcome, on our first panel, Ross Anderson from the Faculty of Advocates and John MacLeod, who is a lecturer in commercial law from the University of Glasgow, who is representing the Law Society of Scotland today. So, can I begin by inviting questions from members and I have the first question myself to which we now come? If I might ask you both please about, as you know, the Scottish rules on third party rights are currently based on the common law. The bill team and the Scottish law commission have argued that case law is unlikely to develop quickly enough to deal with the problems identified in the law and that statutory rules are needed. Do you agree? Let me begin to answer that question. The short answer is yes, we do agree. The reason for that is that the existing authority on the subject is a house of lords decision from 1920, which makes development of the law very difficult, unless a litigant is willing and able to take matters to the equivalent of the house of lords today, which is the UK Supreme Court. Thank you very much, Mr MacLeod. Do you have anything to add to that? Not a great deal, merely that, as the commission suggested in the report, there has been a bit of a tendency to choose English laws as a way of getting around the problems or to use other work grounds. Insofar as parties continue to do that, the core law relating to third party rights is not being used and, therefore, there is going to be very little opportunity for litigation even where there are parties with deep enough pockets to deal with the matter. I do not see any prospect of a Supreme Court case on those issues. Right, that is great. Thank you very much. We will move now to our next group of questions from Alison Harris. One of the main criticisms of relying on common law is that there is uncertainty about the scope of the law. Do you agree with that criticism and to what extent do you think that the law needs to be clarified in legislation? In short, I do agree with that criticism. I think that there is a lack of clarity on a number of levels. I think that the first difficulty is a lack of clarity as to what the law actually is. I think that there is a difficulty in understanding what—or a difficulty in interpreting what the existing case law requires in practice. The committee will be aware of the law commission's report on the confusion of ideas between creating a right and rendering it irrevocable, and, in practice, that causes innumerable difficulties. There is a lack of clarity in understanding what the law is and, therefore, a lack of clarity in providing solutions and practice. Given that the bill seeks to provide great clarity, do you think that the provisions in the bill are clear and resolve some of the uncertainty associated with the current law? In broad terms, yes. At this juncture, it might be most useful if, on the points of detail, I simply refer to some of the written comments that the faculty have made to the committee's consultation on particular points of detail. In broad terms, we welcome the bill and think that it is a positive development. We think that, as a matter of policy and achieving its aims, it is successful in doing that. Mr McLeod, is there anything that you would like to add? Largely, to echo those comments, in terms of accessibility of the law, there is value in those rules being set out in statute, because statutory material is often much easier to handle than the present position where you have to read a case in the 1920s and think about how a writer from the 17th century was commented on in that case. It is not accessible, and you can see that in the doubts expressed in the major texts that practitioners rely on in this area. On the core issue of the requirement that a writer be irrevocable in order to be created, the bill deals with that very clearly in section 1, so it is a massive step forward. I agree that there are some points of detail where perhaps the signalling within the bill might make the rules a little bit more accessible, but on the whole it is a vast step forward in terms of clarity and accessibility. On the other hand, are there any other areas of uncertainty that you or Mr Anderson would just like for the official report, as it were, to read into the official report that you would like to discuss, or are you happy with it? In relation to the current law, the main issue to my mind is twofold, but the two things have been tied together. Namely, whether a right needs to be irrevocable and fixed and changeable in order to be created causes problems at the outset because people are not sure what they need to do in order to create third-party rights, but it also has the potential to cause problems later on when they wonder if it is possible to vary it. They have questions about what steps they need to go through to change that. It is clear that things are much better, or would be much better, where the bill has to become law. Okay, thank you very much in that regard. We now move to the next group of questions. Mr McMillan, please. Thank you, convener. On that point, Mr McLeod, when you mentioned about the irrevocable, section 2 of the bill abolishes the irrevocability rule so that contracts granting third-party rights can be cancelled or modified. With what you said a few moments ago, do you support the abolition of the rule? Yes. It is important to bear in mind that the ability to revoke rights is restricted, so there are protections for the third parties later on in the bill. As a matter of general law, outside the third-party context, for instance, in Scotland I can make a binding promise to you, which is unilateral at that point. You have a right, but it is possible also for me to make that promise in such terms as to make it subject to revocation or modification in certain circumstances. What the bill does here is to move the law of third-party rights to bring it in line with the law that generally applies to voluntarily created rights in the law more broadly. Does it restore or improve the consistency and coherence of the law? Yes, I agree with everything that has been said. Although the rule in relation to constitution of a third-party right is abolished by section 2, the bill will not prevent parties from creating irrevocable rights, if that is what they so choose to do. What it does is to remove the tie of creation to irrevocability, which was the problem with the law. It addresses the problem without going too far. Do you think that the bill could be strengthened in that regard, or are you content with what the bill actually states? On that particular point, for our part, we are content with what the bill actually states. Certainly, the provisions in the bill set out in general terms the default position. Contracting parties are free to make express provisions to the contrary. Do you agree with that particular approach? We do, yes. The whole law of third-party rights to use that general expression is fundamentally based on party autonomy. The bill provides a framework for the parties to use, and it is really for the parties to decide whether to use it. There is no obligation to use the framework, but, insofar as the framework is engaged, it is then for the parties to formulate the rights that they wish to create. The only thing that I would like to add to that is that it is important to bear in mind that you cannot impose a third-party obligation using the bill. Anything that the third party gets is, in some sense, a windfall. All the contracting parties can do is give them something that they did not have before. Therefore, we are pretty relaxed about the contracting parties being able to restrict that and provided that the terms of potential modification are clear at the outset, we do not see problems with the power of modification. At the end of the whole process, whatever happens, the third parties are going to be no worse off than they were in the first place. Sections 4-6 of the bill stop the contracting parties modifying or cancelling a third-party right. Do those sections provide the right balance between the rights of contracting parties to change their minds and the rights of third parties? Yes, in short, it does. Those provisions mirror, to a large extent, the existing law, which is contained in section 1 of the requirements of writing Scotland Act in relation to situations in which reliance has been placed on rights that have been granted but have not complied with formalities. There is an element of continuity in those provisions. In addition, in any event, going back to the general principle of party autonomy, the parties, as I have already indicated, are free to contract out of those provisions themselves. As far as we are concerned, we are content with the correct balance that has been struck. Okay. Excellent. Many thanks. That is very clear. I am grateful to you for that. Now we move on to the next group of questions. Monica Lennon, please. Monica Lennon, thank you very much. Good morning. The policy memorandum states that the legislation will promote the greater use of Scots law, but understanding that people will remain free to use English law if they wish or if they prefer. Based on your experience, do you think that the proposed legislation will promote greater use of Scots law? I think so, yes, in short. It is always difficult to predict the future. Probably colleagues who are from the slitter's profession who will be giving evidence that in the next session we will be able to comment more specifically on any changes in practice that they can envisage in their sectors. The brief that I have from the law society is to talk in general terms, but we can look for instance at the legal writings counterparts Scotland act, which clarified a point of law where you could not make a case for arguing that the law was basically what the act provided anyway, but the evidence that the law society has received is that there has been an increase in usage just as a result of placing the law on a clear and a statutory basis. I think that it would increase solicitor's confidence in terms of advising clients to use Scots law because they can find all the rules in an easily accessible place. Also, the lack of flexibility that is the irrevocability rule certainly was perceived as creating and probably did create, meant that some parties had a strong incentive not to use Scots law because of that problem or not to use the most efficient and simple technique in Scots law. If you take those barriers away, it makes it easier for people to contract using Scots law. Therefore, one would expect that there will be an increase in use of Scots law for those reasons. Ross Anderson has the same question, but can you think of circumstances in which it would be preferable to use Scots law rather than the new legislation if it comes forward? Let me address the initial question first and then I will come to that supplementary point. I agree with what is being said. The general principle in relation to choice of law is party autonomy and freedom of choice. The parties are free to choose English law in the same way. Ultimately, they are free to choose German law, French law and the law of New York or anywhere else. If they have an arbitration clause, they can actually choose a non-state law. The key point in relation to the bill has been perhaps not so much to try and attract other people from around the world to come to choose Scots law but to ensure that those who would otherwise simply wish to use Scots law because they are businesses who are based here, the contracts will be performed here. Scots law provides the tools within itself to allow them to achieve what they wish to achieve without having to, in an artificial sense, use some foreign law, whether that is English law or any other law. The other point that is important to make is that, whereas sophisticated parties who have the benefit of sophisticated advice from perhaps some of those sitting behind me will always be able to come up with some sort of work around to any lacuna in the law, those who do not have the benefit of that advice at the moment are in a difficult position because the law is so unclear. One of the great advantages of the bill is that it sets out in modern language what the law actually is. The supplementary question that you asked in relation to English law, was it for particular examples? Forgive me, I have already. Yes, it was just to try and identify the circumstances in which people trying to access the law or lawyers would refer or use English law instead of Scots law. I think that if the bill is passed in substantially the form that it is in, I think that the incentive to do that simply to deal with the difficulties with third party rights will simply disappear. There may be other reasons why parties choose English law for a particular project because it is UK-wide and England at the end of the day is bigger than Scotland or for other reasons one simply is not aware about to do with the requirements of a funder or something else. Insofar at the moment, the sole incentive for choosing English law in a practical situation where one may want to ensure that one has enforceable third party rights, I think that one of the beneficial effects of the bill will be to remove that incentive. Mr Anderson, you briefly mentioned workarounds, particularly in the context of people who can perhaps afford more sophisticated advice. Will there continue to be an alliance on workarounds? I mean, are we going to see a shift away from using workarounds realistically? I think to adopt what John McLeod has already said, it's difficult to predict the future because to some extent where parties involved in say construction projects are used to taking for example collateral warranties, a standard document, there's a practice which is growing up around using those for some time they may continue to do so. But insofar as there are additional transaction costs and inconvenience from having to sign these additional documents, one would expect rational economic operators to change their practice. It's fair to say anecdotally from speaking to colleagues in the legal profession at least that they would envisage making use of the bill to avoid some of those workarounds. Beyond that, I think that it's difficult to say much. I think that you may hear later from Professor Beall from University of Warwick, who previously undertook some research in England after the 1999 act was introduced there to see what the lag time was where practice altered to reflect the remedies that were or the substantive content of the 1999 act. It sounds like you agree with the Scottish Law Commission that third-party rights are preferable to collateral warranties. Can I maybe just explain what are the problems with collateral warranties? Is it the cost? That's one of the difficulties. Wherever one has extra documents to sign at different times, particularly where the signatory of that document may only have come into existence some years after the initial project documents were concluded, there may simply be also the difficulty of getting people to sign up to them when there may not be a huge incentive in monetary terms to do so. It's general transaction costs and inconvenience, I think, is the easiest way to explain that. I think that that would go for other sectors that use different workarounds. Wherever you need an additional document or an additional step, there is a cost. Mr McLeod, is that a view that you would share if you wanted to? Absolutely, yes. It's better to do something directly than indirectly. Can I just bring in a supplementary there and note that the SLC has indicated that the bill will make it easier for business to avoid what it calls the black hole of non-liability, which currently reduces protection for company groups. Do you agree with that? Yes, absolutely. Would you like me to talk about what the black hole of liability is? I would, yes. I expand on that. An example might, for instance, be a construction project where one company within the group concludes a contract with contractors to do works for properties held by a number of other companies within that group. Unless you use collateral warranties or some other device to set up additional contractual rights, the issue is that if the contractor doesn't do the job properly and breaches the contract, the contractual right is held by the head company, the first company that concluded the contract, but the losses will be suffered by different legal persons, by other companies within that group. Therefore, you have a mismatch, if you like, between the person suffering the loss and the person with the right to enforce, but typically when you're suing for beach of contract, you are suing if you're seeking damages. You seek damages that reflect the loss that you have yourself suffered, not the losses that someone else has suffered. The black hole refers to the loss going somewhere that isn't covered by the contractual right. If you use the scheme, if you use third-party rights, but the new shiny exciting third-party rights that we have in this bill, then at the outset you would create rights in favour of all the companies within the groups with respect to their relevant properties, and that would enable them to enforce a claim for beach of contract and thus to recover their full damages. Basically, that's how it would work, and the right it would make things much easier. So, this would be progress then? Yes. I mean, you could do some of that already if you're willing to use the use quasi-term tertiary, but people will be more willing to use, or we hope people will be more willing to use the new approach, because once you take away an automatic irrevocability rule, you can create those rights but still leave it open to the main, to the initially instructing company to modify the contract with a contractor if that's appropriate. So you get the best of both worlds. The right to cover the damages, but also flexibility between the constructor and the head company in the group. I suppose one of the things we're seeking to establish is that we are striking the right balance here in the bill that has proposed, and we're, I suppose, seeking your endorsement that we are managing to achieve that. And again, you would think that we have struck the right balance? As Dr Anderson said, ultimately, this is all coming back to party autonomy. Almost every section is subject to the party's agreement, so in ultimate terms it's going to be for the parties themselves to strike the balance, but that's appropriate. If we believe in an economy that's driven by freely negotiated contracts, then the party's balance is the right balance unless you're in a specific situation where you have reason to doubt that. This is the general law, it's not consumer law, it's not Labour law, so there's no reason to try and fiddle with the balance between the parties. Okay, thank you. Anything you wish to add, Dr Anderson, are you happy? I don't have much to add. I endorse the balance that the bill seeks to strike, the only caveat to black hole liability, which I believe is as unpleasant as it sounds in practice, is that third party rights won't solve all issues of black hole liability. Because there will be situations where the parties have not envisaged something that will happen subsequently, the classic examples where one of the parties is restructured, whether voluntarily or involuntarily, a bank, for example. The contract, when it was concluded in year one, may not have made provision for that particular eventuality of a completely different party coming to hold the contractual rights. However, the bill can't achieve everything. Insofar as there's a problem with black hole liability in relation to third party rights, the bill will go some way to solving that. Notwithstanding what you just said, we are here to try and make as good a bill as we possibly can. Therefore, if you have suggestions that we might make or improvements that we might make, we are very pleased to hear from you now in that regard. Or, subsequently, if you have an elegant improvement to make to the bill as we see it, we will amend the bill at stage 2. We're very grateful for that opportunity to be clear, though. In what I've just said, I'm not seeking in any way to criticise the bill. It's really just an issue of as much as the bill can achieve under the law of third party rights. The point about black hole liability is that it's not just about third party rights, and there are other situations in which the bill could never achieve without opening up wider areas of the law with which it is not concerned. To re-emphasise that, as far as third party rights are concerned, I think that the bill does strike the right balance in seeking to address that particular problem. I think that what was said is correct. The other types of black hole situations are beyond the scope of the bill, and it would spoil the bill to try and deal with them here. I believe that Professor McQueen gave evidence that the Scottish Law Commission is considering the broader issues as part of another project. You would be best advised, I think, to wait for them to report on that matter and to deal with it once it's been properly considered. That's very helpful. Good morning. The Scottish Law Commission report refers to the new rules having the biggest impact in the construction industry. You've already given a couple of examples yourself. Industry, oil and gas, financial services, IT and pension sectors, are there any other sectors or industries where the legislation could be important? I don't have specific data to hand. I can seek it from the law society if you wish. That is general contract law. Any time when you have two parties agreeing and a third party that they want to be able to enforce, that could be useful. That could happen in a certain agricultural context, if you have a contractor, a state or a tenant farmer. The main examples that the commission gave are the main examples in which you tend to have a complex relationship with multi-party contracts. Is that why construction is such an easy example then? That's just to get it right in my one-head. There are so many subcontractors and everybody else involved there. Absolutely. Similarly with finance contracts, you have lots of parties with slightly different sets of interests, lots of different legal persons being used. You could have that in any number of contexts. What matters is to get the general principles correct. Do we think that the bill could benefit individuals as well? I know that I'm asking you to look in a crystal ball, but there probably could be a case where individuals could benefit from that as well, right? That is the example that the commission gave of pensions. That seems to be the core example. The commission gave another example, if I recall correctly, about a caregiver procuring services for somebody who is mentally impaired and therefore does not have active capacity. That is just off the top of my head, but there are a couple of examples of situations in which one person needs to contract on behalf of another. Those are the most obvious. For presentational purposes, one talks about sectors and the particular problems that arise in particular sectors. The construction industry is a good example to use because it is relatively easy to explain the different contractual matrices, but, in broad terms, the bill applies to all persons that are natural and legal, whatever context they are entering into contracts, and it would apply equally to a construction contract as it would to a domestic arrangement in relation to people buying a house and it being funded by a third party. That is one of the examples given in the commission's report. Certainly from my own experience practising before the courts, it is very often individuals who have not had the benefit of detailed or sophisticated advice, who have probably assumed that it should be quite easy to confer a third party right and perhaps to their cost have found out that they have not complied with quite the detail of Lord Dunedin's speech in the case that he referred to. For ordinary citizens, I think that there is a benefit to this bill in recording in simple and modern language what the law actually is. I hope that I am reassured, given that it will be impossible to envisage every situation to which this bill might apply. Therefore, it is important that we establish the general principles. I hope that, if I have understood you correctly, I am reassured that you believe that we are managing to do that in the bill as proposed. That is correct. Thank you. I have a couple more questions about arbitration. Do you have any comments on section 9 of the bill that allows arbitration agreements between contracting parties to operate in respect of third party rights? That was a matter that the faculty, when we responded, made some comments of detail in relation to drafting more than major points of principle. The issues that arise can be somewhat complex to explain. I am certainly happy to do so. The particular drafting issue that arises is found in section 93 of the bill. Rather than giving you a long explanation of why that arises, the easiest way to explain it may be simply to observe that the explanatory notes in relation to section 9 subsection 3 point out correctly that that provision is designed to deal with a situation—I think that it is paragraph 38 or so of the explanatory notes—that is designed to deal with a situation in which the third party does not have a substantive right under the contract, but may otherwise have a procedural right to invoke the arbitration agreement. The drafting point is a very short one, which is in subparagraph C, which relates to the use of the term third party right there. We have made reference to that in our written response, so that should be before the committee for more detailed deliberations. I will again, more broadly, to maybe stand back from the detail and look at the policy and what the section seeks to achieve. In broad terms, that is consistent with the international trend in relation to moving away from privacy for the purposes of arbitration. It confers the option on a third party who wishes to enforce a third party right and needs to enforce it. That party thereby becomes a party to the arbitration agreement and can enforce it. Similarly, if that party does enforce the arbitration agreement or seeks to sue the party who is due to render performance, the arbitration agreement can be invoked against the third party. That, again, is consistent with the international trend and, indeed, the Arbitration Scotland Act 2010, which the Parliament passed in accordance with the general international trend. Subject to the small drafting point in relation to section 9, section 3C, which we have referred to in our written evidence to the committee, we are again broadly in favour of the approach that is taken to the arbitration provisions. Okay, thank you very much. Is there a cloud or anything that you wish to add in that regard? Fine, great. Just finally, a question on the speed of law reform and from the evidence that we have received, it seems that some of the problems in Scott's law third party rights have been in existence since at least the second world war, possibly before. On that basis, do you think that there is an argument or would you adhere to the view that the pace of law reform in this area has been a little too slow? I think that you have to be quite careful in terms of striking a balance between trying to go fast and making sure that you get it right. It is true that the law reform in these areas has been slow. It is also true that, while suboptimal, the defects in the law have not crippled the Scottish economy. As such, therefore, I think that it is better for those involved in the law reform to take their time and to make sure that they have thought carefully about the full implications of what they are doing so that we do not end up having to return to the matter in 10 or 20 years' time. Particularly in terms of areas of law where we are dealing with big general principles, there is value in stability as well as in modernity. Therefore, I think that we should be careful to criticise those involved in the law reform for being too slow, because that will be liable to make them rush and then we just end up doing something that is quite slow twice rather than taking a long time to get it right. I broadly agree that I did, in preparation for coming to the committee, have occasion to look at some of the passages in Hansard when the 1999 act was passed in England. It is interesting to note that one of the justifications given by the Government at that juncture was to bring English law into line with what was perceived to be Scots law. The point about law reform more generally, as John McLeod has touched upon, is that it is important to get it right rather than to reform for the sake of reform. The other contemporary circumstance that is interesting is that it is really in the last 10 to 20 years that there has been considerable international development. That is to say collaborative work that has gone into international benchmark instruments, which has allowed bodies like the Scottish Law Commission to look in a quite focused way at particular aspects of Scottish contract law and to see how we measure up. Insofar as this Parliament is considering reforming the law, I would observe that it is not alone in that regard. One can look, for example, to France, where there is the famous We Read Book of the Code Seville, which has been in force for 200 years. In October of this year, it has had one of its most fundamental reforms all in the area of contract law. Scots law is not alone in looking at those matters right now. Again, in a broad sense, from the faculty's perspective, we welcome the fact that the Parliament is now seriously looking at the good work that the Scottish Law Commission has done in those focused areas. We would encourage the Parliament and its committee to do so. Thank you. Mr Anderson, just on that point, are you aware of any incidents or examples of other countries looking at the SLC and the recommendations from the SLC to this Parliament, so that they can potentially adopt the measures that are taking place in Scotland? In short, speaking from my own experience, I know, for example, that in relation to the UNEDWA principles of international commercial contracts, the UNEDWA is an international body based in Rome about the unification of private law. It is one of the standard benchmark instruments. Certainly, in the commentary on the third party rights principles, the last edition of that, that commentary made a quite interesting reference to the reforms that were being proposed. At that stage, it was the discussion paper that was produced by the Scottish Law Commission. We have been fortunate that the quality of the work that the Law Commission has been doing in recent years is such that it is internationally recognised for what it is doing. I think that whether the bill or the legislation itself will influence developments elsewhere is difficult to say. One always has local differences of approach to how one formulates legislation. The continental approach is normally to have much shorter, concise provisions, for example, but I think that the development that one sees in the Law Commission's work and in the bill is more of a collaborative one of developing in tandem with international consensus. Gentlemen, thank you very much for your evidence and particularly thank you for placing in your final comments the bill in the context of Napoleonic law and other law. We are very grateful to you both for taking the trouble to come through to our Parliament this morning. I wish you a safe journey home, but thank you again for your evidence. Having said that, if there is anything that occurs to you on your way home or subsequently that you might wish to add, please do let us know what that might be. I am feeling free to do so, but again, I am grateful for your time for your help this morning. I will suspend the meeting briefly to allow the witnesses to leave. I welcome our next panel to provide evidence on the contracts of our party rights, Scotland Bill, and they are representatives from legal firms. I welcome Kenneth Rose, who is a partner of CMS Cameron McKenna, LLP. I also welcome Karen Fountain, who is a partner at Brody's LLP. I also welcome Jonathan Gaskell, who is a legal director of DLA Piper, and Karen Manning, who is the senior associate at Burness Paul. I would now like to start questioning you, if I may, and the first question is about alternative approaches to statutory footing of common law. The bill team and the Scottish Law Commission have indicated that the case law is unlikely to develop quickly enough to deal with the problems identified in the law and that statutory rules are needed. Do you agree with the statement? Who would like to go first? I would say that it is. When you are advising a client, you cannot recommend that they take a course of action, which will become certain only if they follow it through to the Supreme Court. That is just not an incredible proposition. If you are trying to achieve, with confidence, a third party right and some flexibility within it, where we have a problem with the current law, you will tend to use a workaround. If you use a workaround, then, in the event of a dispute, there will not be case law on third party rights, there will not be case law on something else, so it simply will not develop. Lawyers tend to be quite miscoversed creatures. I suppose that we do not like to advise clients in areas of law that are not particularly certain. I think that this particular area of law, the common law, there is no recent case law, so there is a lot of uncertainty around that. I think that institutions do not like uncertainty, businesses do not like uncertainty. I think that this is one of the reasons why there is not a reliance in general terms, certainly in my sector, which is construction. There is not a reliance on third party rights at common law. For that reason, I think that this particular proposed bill is a good thing in that it codifies the existing law and it gives certainty. I think that businesses, individuals and people working within industry like certainty. Excellent. Does that express the view of you all, Mr Rose? I think that the challenge for Scots law as a whole is that, if you have a common law system, you are very dependent, as we have touched on that before, about people having inclination to take a case to court and that case being pursued right up to the Supreme Court. Given the size of our jurisdiction, there are challenges about how quickly that process can move the law. I speak as a corporate commercial lawyer here, rather than one that specialises in construction. A lot of those relationships are governed by usually English law but extraneous law quite often even within Scotland between two Scottish parties. That is nothing necessarily to do with third party rights as such. However, what that means is that there is even less potential for case law and common law to develop law. Approaching it through a legislative process and a step change—we are bearing in mind that it is almost 100 years since the last step on the change of third party rights—seems to me to be a logical way to approach things. I wholeheartedly agree with everything that has been said. I myself am also a construction expert and I have never come across the use of the GQT principle to confer third party rights on a person. Although that is construction-specific, I am pretty confident that that position is not an unusual one for lawyers in Scotland today, so it seems generally accepted that GQT is not fit for purpose. I thank you very much. That is clear and conclusive, which is also welcome. I now move to Alison Harris, who has questions. I was just really coming from my question similarly to what I did with the Law Society and Faculty of Advocates. I think that you really touched on it with relation to common law, so I am clear. If one of the main criticisms of relying on common law is that it does create uncertainty about the scope of the law, as legal practitioners, would you agree with this criticism? I am not sure, but I think that you possibly were agreeing with it, but to what extent do you think that it needs to be clarified in the legislation? I think that if we are talking about third party rights specifically, the case law got itself into a bit of confusion in the 1920s. There has not been the throughput of cases looking at the issue to resolve that. Had there been, we might not be in this position and it may have reintegrated itself into the general conceptual stream of contract law, but it has not. It has got itself into a bit of a dead end. The way to take it out most quickly and certainly, I think, would be to put it on a statutory footing. That seems to be the way people have gone in other jurisdictions. The draft legislation helpfully codifies the law and takes it back to the basic principle that people should be able to enter into whichever contractual and promissory rights they want, as long as they write it down. It is effectively taking it back to the run-sill moment, the contract should do what it says on the tin. At the moment, you cannot be confident that that is a case. You need to be confident. If it is important enough to draft a contract, it is important enough to be confident that it will work. There is a general practice of work around. That in itself is not a helpful situation because if you try to achieve something indirectly, rather than simply writing down X, Y and Z will be the case. If you try to achieve it in another way, it will usually have additional ramifications, which you do not necessarily want. One way of dealing with third-party rights and the types of contracts I deal with is to interpose a trust for the benefit of third parties. That is not always exactly what you want to achieve. It brings in fiduciary entitlements, which you may not wish to be there. It muddies up some of the conflict positions. It is much better to take it back to the original basic principles of party autonomy. Given that the bill seeks to provide greater clarity, do you think that the provisions in the bill are clear and that they resolve some of the uncertainty that is associated with current law? If there is anything that you want to discuss, now is the opportunity, but you are happy with that. Is there any legal reform that you have to guide it through a sensible mid-course on this? You are doing a step change and you are doing something quite fundamental, but that is not a reason not to do that change and to explore how it reacts. I think that when the 99 act in England came in, people did not quite know how they would react to that. I know that you are going to get evidence on that. You have to take a decision and get a sensible mid-course, something that is not overly complex. That is always in the eye of the beholder. For us, lawyers, what looks relatively simple can be quite complex to people who are not legal lawyers, but you have to take a sensible course. That looks to me, in my personal opinion, as a sensible course to take, which is relatively straightforward compared to what we have at the moment. Mr McMillan, could you like to ask your question? Good morning, panel. The provisions in the bill are set out in general terms the default position. The contracting parties are free to make express provisions to the contrary. Do you agree with that approach? I completely agree with that position. I think that it is important that we do not undermine the essential freedom of parties to contract in such a manner as they like, provided that they are not doing it in an illegal way, I suppose. The example that I raised in the Scottish Law Commission paper was the ability to raise defences. The counterparty that has been sued by the third party can raise any defence that it would have against the other party to the contract, provided that it is relevant to the claim by the third party. The point that I made in the SLC submission that was certainly in the construction industry, as far as collateral warranties are concerned, that would not be sufficient because you would generally want the ability to exclude any commercial issues between the contracting parties in so far as a third party claim is concerned. Those sorts of commercial issues would generally be relevant to the claim by the third party, but because market practice is to exclude them, certainly in collateral warranties, you would want to do a similar thing in third party rights, so you need that sort of basic reservation to do as you see fit, I guess, in the contract provided that it is sensible and it is not illegal, so I agree. I agree also. One of the areas that I commented on when we gave our initial submissions was that we felt that it was quite important that there was an ability to contract out of the right to rely provisions as regards amendments. I often deal with very long term contracts that they might run 10, 12 years, and the ability of the parties to make on-going finessing changes as they go is really very important. For some types of clause, it is just not viable for the parties to grant a third party a right where they cannot then amend the agreement if someone has relied on it. It cannot give rise to difficult questions of what is reliance if the provision is something like an exclusion of liability or an indemnity. There is a difficult question at what point did you rely? Is it at the point that you did the thing where something went wrong? Is it at the point that the claim arose? It is too uncertain. In those situations what you often want to do is to provide in the contract that any amendments simply require the consent of one person who perhaps represents a constituency and the others have to go with it. As long as it is clear on the face of it that that is the position, people should be able to contract for that. I think that the bill provides a good balance between flexibility on the one hand and certainty on the other. I think that the party autonomy is key and that there should be an ability to contract out of that flexibility to alter third party rights, for example, under sections 4 to 6 if the commercial circumstances require that. In section 2, the bill abolishes the irrevocability rule so that contracts granting third party rights can be cancelled or modified. Do you support the abolition of that rule? I think that I do. That is before everyone, but I think that I do. I think that it was unfortunate that, in the 1920 Carmichael case, the approach that was taken there, because I think that it may well apply to the equities of that particular case. The long-term effect of that was to make, contrary to what some of my colleagues have said, an inflexibility that has prevented or hindered the use of the GQT principle. Anything that makes it more flexible and gets back to the basic principle of two parties or two or more parties contracting with each other and volunteering an agree a set of obligations and rights, that makes our legal system more attractive and more usable and more user-friendly for individual parties. Section 4 to 6 of the bill stops the contracting parties modifying or cancelling a third party right. Do those sections provide the right balance between the rights of contracting parties to change their mind and the rights of third parties? Well, the legislation provides for scope for contracting parties to contract out of those reliance provisions provided it is made clear to the third party. I think that that ultimately will give sufficient flexibility. What it will likely mean is the development of standard forum clauses, which indicate which bits of the legislation will apply and which bits will be contracted out of. That should give everyone the certainty that they are getting the mix that they want. Okay. Anyone else? Okay, thank you. Thank you. Can I just declare an interest in this regard? John McLeod touched on aspects of agricultural law in one of his remarks. Since we have you in front of us, if you see how you see this bill having a bearing on the field of agricultural law, as I said earlier, we want to make the best law possible in where this Parliament has fallen short in earlier times has been in areas of agricultural law. Since you are in front of us, would you have anything to say with regard to that in as much as you, Karen Fountain, spoke about 10 to 12-year contracts dealing with that period? In agricultural law, many of those contracts go on for generations. Do you have any comments to make on that? A position of no expertise on agricultural law, but as the owner of a field with some interest, I would say that it takes the concept of contract law back to its original roots in the expression of intent and agreement, and that's a helpful tool. That should be a helpful tool across any industry being able to write down what you want to happen and to have it happen without having to comply with a particular technical requirement, which we might not naturally assume would be the case. In any field of industry, there is a tendency to disaggregate relationships and subcontract. I think that we do see that happening in agriculture. There is a lot of agribusiness and subcontracting on farms between different service providers. That seems to be a bit of a natural home for multi-party relationships where that could be a useful tool. Thank you very much. Do you have anyone else to venture into this area of law, or not necessarily? We have our areas of expertise, and it's difficult to stick outside them. We're indeed, and I perfectly well understand. Thank you very much. We now move to a group of questions from Monica Lennon. Monica, if you'd like to fire one. Thanks, convener. Good morning. We've already talked quite a bit about the practical problems with the current law, and you have heard me ask the previous panel about the proposition in the policy memorandum, which states that the legislation will promote the use of Scottish law. You all seem very on board with that, so I think that there's a united approach here. As legal practitioners, are you confident that you, yourselves and your colleagues will use the law? Can you think of a situation with a client where you would continue to use either English law or indeed other workarounds? I think that there's a specific point here around this particular reform, but there's also the sort of mood, what we call mood music around it all, around Scots law. Legal systems are in competition with each other, and I think that that's one of the things that has moved on, and I think that was touched on by the early set of evidence. Therefore, Scots law doesn't have has to win the right to be relevant to a particular agreement or situation, particularly when we're talking about contractual law. We can choose English law, we can choose Delaware law, we can choose New York law and all the rest of it. There's a lot of choices now, particularly in more significant commercial relationships, so it's important not just to specific reform, and we talked about the counterparts reform that's already happened and the other ones about requirements of writing and electronic signatures and things. It's the mood music of moving the legal system forward is very important in that context, and in the context of presenting Scots law as a modern form of law that people will readily use. I think that why it's important—I mean, I think that it isn't, and I think that I'd be a brave lawyer to sit in front of you and say the reason for using Scots law is we want more work for Scottish lawyers. That isn't really the point. The point here is that you want contracting parties any jurisdiction to be comfortable using the natural law of that jurisdiction. There are generally advantages on that. If you take the advantage of Scots law versus English law, which is the most obvious advantage, I would say that the cost and accessibility of Scots law are much greater, the costs are much less. If you're encouraging not necessarily intentionally, but by the fact of not having a modern legal system that's responsive to change, you encourage the mindset that we need to default to another legal system—English law, New York law, whatever it may be. There is a longer-term aspect of this. This is a step change in this one particular area, but I think that other changes need to happen as well. We need to be doing that on a progressive basis to present Scots law in a modern and progressive way, is my particular view of things. How do you encourage people to behave in that way and to go in that direction that you've set out? I think that we as practitioners need to be helped by a legislature and reform process within Scots law that supports that. If it looks like the legal system that we're representing is behind the times, then that is more difficult. I do go back—I have a bit more perspective on this in some respects—to what was happening in England before the 99 act. In those situations, some people sort of said it half jokingly, but it was true. People in England were quite compared to Scots law quite favourably with English law at that time, because we had to deduce quasi interstitial. That was an advantage, but that was levelled out and probably more than levelled out by what happened in 99 in English law. It's just a question of reacting to change and actually bringing law sensibly forward in steps to help. I'm probably focusing when I'm coming at it from larger commercial parties, but it does affect everyone. It's more relevant at that level. The choice is more easy to make. It's more easy for people to say, we will use English law and we'll go and disputes will be held. We'll be taken to the English courts or through some form of international arbitration or whatever it might be. However, there is a need to present Scots law as a viable alternative in those situations, so it's not just locked in to those non-commercial situations that perhaps it's more immediately relevant. Okay, let's open that to the rest of the panel. I've actually practised in England until I'm relatively recently. I've come back. One of the situations that would often arise if there was something that had a bit of a Scottish dimension, it would inexorably find its way to my desk in the same way that my Irish colleagues would inexorably get the Irish questions, and often people would come in and say, is it okay that they want to do that under Scots law? Will it work? Or is it going to be a problem? The more in a multi-jurisdictional situation, you could say, yes, that's fine. It has some differences, but it'll all come out broadly in the same place. Then you're taking the decision on which law should apply on more rational reasons around where do I want to enforce, where's the natural locus, rather than, well, yes, that would be fine, but we need to do this little bit here, and that's not going to work. Then it artificially skews the decision. If I don't think we have as much of an issue with that in the construction industry, Steven was generally accepted that if the construction project is in Scotland, the law will be Scotland, even without this third party rights act, and that's probably because we have a very established workaround in collateral warranties. I don't think that it's as relevant perhaps in the construction and engineering industry. Can I just pick up on the point that you just made, Karen Manning? If it is very established and people are very wedded to collateral warranties in your sector in construction, then is it going to be difficult to even get clients to set a move from that? I think it is. I think it is going to be a challenge. I mean, if you look at the position in England, I work on quite a lot of English projects south of the border, and the third party rights act down south isn't used very often. Third party rights aren't used as often as collateral warranties. Now we've had numerous discussions in our sector as to why that is, and I think there are a number of issues. I think there are issues south of the border with the act, and I'm glad to see that the third party rights bill here is different in some respects, which is positive. I think that there's just general change. It's difficult in anything, and when you have such an established approach where the standard position, the market norm, is that it will be a suite of collateral warranties that will create these third party rights, it's very difficult just to say, now we don't need those, instead we will have this statute. I think that it will be a challenge, but I don't think that it will be impossible, and I wholeheartedly support the bill, and I think that raising awareness on the bill if it is passed, and I suppose just getting parties to the construction parties comfortable with using something that might look different, but then being aware that it creates essentially the same protections is important and will be key. Broadly speaking, I don't want to put words in anyone's mouth, but is it your view that legal practitioners will make use of the legislation and that, over time, there will be a reduction in reliance on workarounds? I think that's right. I think that if you look at the experience of England and Professor Hugh Beale who's going to talk about that in due course, I think that it took quite a long time for practitioners and parties to take up use of the 1999 act. I mean, I do a lot of work in England as well, English-qualified as well as Scots-qualified. I find that the 1999 act is becoming a lot more prevalent and it is being used a lot more for certain types of third parties, such as in the context of a construction project, perches and tenants. I think the issue with the use of third party rights in England comes with their use in the context of funders, because funders typically want the ability to step into a building contract or appointments if the project reaches a distress situation. Because third party rights only confer rights, a contractor or consultant will also want the ability, will want the funder to effectively take over the payment obligations under the contracts, and it's not easy to do that using third party rights. Funders are very nervous about using third party rights still, but certainly I've been involved, for example, in large shopping centre projects where you've got dozens and dozens of tenants, and you might have 10 people involved in the construction of the project, and you end up with dozens and dozens of contract warranties. They are administrative nightmare for solicitors. They are management distraction, they incur unnecessary legal costs, and it's bad for the environment, frankly. The use of third party rights in the context of this sort of legislation is to be applauded and promoted, and certainly as a practitioner, if this bill were to be passed in the Parliament, I would encourage, I have no hesitation in recommending to clients that it should be used wherever it can. Just on your point, do you want to think at school? I'm wondering if the bill has enacted what can be done to speed things up, and is it going to be down to people like yourselves to be a strong advocate for it? I think it has to be practitioners that take this on board and recommend that I use it to clients. I think that the patricianess has to be in the driving seat, and as Karen mentioned, I think it's incumbent on us to raise the profile and to bring this legislation, if it's passed to people's attention, and recommend it's use. I mean, we have to be in the driving seat as far as I can say. Okay, okay, that's helpful. Just to return to a point that we raised last week with the Law Commission and the convener that we raised earlier about this black hole of non-liability. It does sound all rather scary, so the Scottish Law Commission has indicated that the bill will make it easier for businesses to avoid this black hole of non-liability, which reduces protection for company groups. Do you all agree with that position? I'll talk maybe first on this one. I mean, this is a big point, actually. I don't know what it should be called, a black hole or not, but the whole idea of recognising that you contract on a group basis quite often but you don't necessarily have all the group companies as parties to the agreement is a big one, actually. Something that deals more efficiently with allowing individual group companies rights under those kind of agreements is a good one, a good one commercially, I think it will help. It will help to simplify agreements rather than make them more complex because there are work-arounds around that, using agency and other routes, but I think that this is a big point, particularly as a corporate practitioner myself. A lot of the contracts that you enter into aren't just binary between supplier and recipient of those supplies. They can be very much around group contracting. New companies may come into a group, may be formed from scratch, may be acquired, may be disposed off, so anything that's flexible around that acknowledges the fact that other companies within that group can enforce rights in certain circumstances, as negotiated between the parties, is a good one and a flexible one. It does enable you to, as the faculty said, it won't necessarily resolve every problem because it's only going to resolve such problems as you're able to anticipate and legislate for, but there's a current category of obvious problems around group arrangements, which at least it will enable you to work with. While I've got you all here just a final question, because I think one of the challenges looking at this piece of work is difficult to quantify, to the extent to which all that is a problem and who is affecting, but giving my people here that work in construction across the finance sector, too. What sort of impact does this Black Coal of non-liability have on your clients? For me, the client, obviously, we have the very established workaround of collateral warranties, which covers the Black Coal issue. Where there are collateral warranties, there isn't as much of a problem, but certainly it's welcomed in the instances where perhaps there is provision for collateral warranties to be granted, but they don't materialise, which is relatively common. Alison Harris, if you'd like to ask your question now, please. I would like to ask about that. The Scottish Law Commission has indicated that the bill will benefit the financial services sector, for example in relation to pensions and insurance contracts. Do you agree with that view and are there any other areas of the financial services that you feel may also benefit? I think that financial products and financial services arrangements are often quite complicated. They tend to be multiple parties in them. Even from the internal mechanisms of organisations, it's a useful additional flexibility for their internal arrangements, for customer-facing products. Yes, you often have the position where the party who enters into a financial arrangement is doing so in part with the view to benefiting successors, family and so on, and having something else that you can use over and above probably the trust mechanism, which is a common workaround. It is helpful. The financial services sector has a lot of different aspects. A lot of the aspects that I would come across probably aren't so much customer-facing, but it's probably industry to industry. At the moment, I would say that a lot of our relationships at the commercial level in the financial services sector are not governed by Scots law, even between different Scottish entities. Anything that makes the Scottish legal system appear more flexible and more modern will mean that it's more likely to be used. How the direct benefit of that is probably back to the question of forum for any disputes and access to resolution. It's easier, clearly, if you use a local system rather than a system from somewhere else. It's not a very binary change. I don't think that this one change will make a massive amount of difference in that suggestion, but it's part of a sort of journey, if you like, in a process. Okay, thank you. Right, thank you very much. Everyone happy with that. Right, and finally, or not finally, but we'll move now to George Adam, who has questions on benefits for individuals. Yes, thank you, convener, and I asked the question of the previous panel, and although most of you are in construction, it's mainly to see that we've mentioned all the sectors that could benefit. How do you see it benefiting individuals, the bill, and how do you see the question of the previous panel as well? I think that the biggest benefit probably is that it takes the law back to the concept that if you want to write down that someone will benefit a third party in a particular way, you can do that without having to go through conceptual loopholes as to whether it's irrevocable or not irrevocable, and it should reinstate the concept of party autonomy, and if you're looking at the situation of private individuals and private contracts, they're often put together without the benefit of a lawyer or with limited advice. There may be family arrangements, people can have more confidence that what they've written down will work, and that's got to be a good thing. Anything that sets out the law in clear, understandable terms that individuals and businesses and anybody can understand is to be applauded. As we've said before, the bill strikes the right balance between protecting the rights of individuals and the rights of counterparties. It's clear that it's easily understandable and that's ideal position really to achieve. Can I just ask a totally random supplementary question here? Mr Rose, you mentioned twice that New York law, and it was mentioned in the previous panel as well. Is there a particular reason why you mentioned New York law? New York law, as I haven't got the statistics, I suspect, is one of the most widely used legal systems in the world in New York law. New York law and English law would be the two most recognised international, they're not international really, but they're used internationally, internationally recognised commercial legal systems for large funding, commercial contracts, commercial arrangements. I wouldn't overemphasise the use of New York law in the context of Scotland, but it still is used. It's very much more relevant to international situations, but there may not be a natural legal system. You've got to pick a legal system among a number of legal systems. New York law is probably the most obvious US system and is probably the centre of legal activity in the US. That's why I picked that one. New York law and English law are probably the two most obvious in that category, and Scotland law wouldn't be in that category. It is occasionally used internationally, but it's not a jurisdiction that, for a variety of reasons, would be seen in that same way as those other ones. Can I just ask a question in arbitration? The previous panel had quite specific comments on section 9, which allows arbitration agreements between contracting parties to operate in respect of third-party rights. Do you have any specific comments on arbitration, particularly section 9? It's a good idea. Ultimately, if you've introduced a third party to your contract, what you don't then want to be introducing is the possibility for different dispute resolution mechanisms. If something goes wrong, it will often go wrong in a complicated way. The parties to the contract will be involved in a dispute, potentially, as well as the third party. You don't want to be in a situation where you've potentially got different forums for dealing with it. If you've chosen arbitration, you really want to know that you can pull everything into the same arbitration, both for confidentiality and cost and case management reasons. Is that a view universally shared by you all? Right, thank you very much. Finally, a question on the speed of law reform and from the evidence that we've received, it seems that some of the problems in Scotland's law of third-party rights have been in existence since the Second World War. On that basis, do you think that there is an argument that the pace of law reform in this area has been too slow? You've heard the question before. What do you think? Expectations are changed. People expect the law to change now. I mean, in a lot of ways, most lawyers linked someone earlier, very conservative, we don't necessarily want. Change means that it's less predictable, but I think that expectations have changed. I mean, I think that a common law system based on case law will progress slowly if there are not very many cases in those areas. I think that that's part of the reason that this is a very finite point of law and it hasn't progressed very fast. I don't think that the Scottish legal system as a whole should be beating itself up about its lack of reform, but I think that the right way to address this is for the Law Commission to have looked at this and to develop modern legislation on the long lines that they have done, and that seems to be the right thing to do. Thank you. Any other? The bones of the system are fine. What emerges over time are periodic friction points, where things are either not moved fast enough or they've moved too fast in the wrong direction, and it's addressing those ones in a measured way. That's probably the best approach, but it's best done in the round with careful consideration and looking at, because I agree with Kenny that it is a competitive business for which is the right legal system to choose, and so it's important to keep an eye on what everybody else is doing, because that is a question you're asked if an international organisation is coming to Scotland in replicating its business model. It'll get out all its old contracts, whether they were written under New York law, English law or French law, and say, can we be confident that we can do exactly the same thing, because that's what they want to do. They're replicating their business models, so you want to look at what you can do elsewhere and make sure that you're allowing people the right tools. Excellent. If there's nothing further, any of you wish to add, I would like to thank Kenneth Rose, Karen Fountain, Jonathan Gaskell and Karen Manning for giving up their time to come and give evidence to this committee today. We're very grateful to you for doing so, and as I said previously, if there's anything that occurs to you subsequently, if you would like to let us know, make us aware, and we will of course be very grateful of any further views that you may have or advice that you think that you can give us. In the meantime, I wish you a safe journey home and a snowy day, and thank you again for coming to help us today. Thank you very much. I now suspend this meeting just for a moment. A final witness before us today is Professor Hugh Beall from the University of Warwick. Professor Beall has reviewed the effectiveness of the equivalent legislation in England and Wales, and therefore brings an interesting perspective to today's evidence. Professor Beall, can I welcome you to our Scottish Parliament? Thank you very much for taking the trouble to come and talk to us today. Can I begin by questioning you myself? After that, we'll move to other members of the committee. Could you possibly explain the background to the 1999 act and the reasons why it was introduced in England and Wales? It is an honour to be invited to come and talk to the committee. The background, of course, is that in England we had no use quasi-term tertio. You simply could not acquire rights under a contract to which you were not a party. Sometimes you get very simple cases, and that goes to the question that we just had about the benefit to individuals. We got very simple cases where people just did not realise that there was a problem. A committee might have heard of an English case called Besick and Besick, which was a simple case where a man owned a coal business. He wanted to retire and sell it to his nephew, who couldn't afford to pay cash, so the agreement was that the nephew would pay his uncle the princely sum of £6.10 shillings a week for the rest of the uncle's life, and thereafter £5 a week to his aunt, the widow. The nephew stopped paying after the uncle's death, and it was held that the widow simply acquired no rights under the contract because she was not a party to it. I suspect that the answer might have been different in Scott's law because it may have been arguable that she had some kind of right. You can see that people get into difficulties because they simply did not realise that there was a problem. The House of Lords was able, in that case, to find a solution because, although she had no rights as a widow, the aunt was also the administrator of her late husband's estate. In her capacity as administrator, she was able to get an order of specific performance, our equivalent of specific implement, against her nephew, ordering him to pay her £5 a week in her other capacity as widow. It all ended up happily ever after, except that they had to go to the House of Lords to achieve that. That is the sort of situation. At the other end of the spectrum, of course, we have been talking mainly so far about contracts that are made between very sophisticated parties with legal advice. English law developed many work-arounds, ways of achieving third-party rights, but it involved a lot of difficulty in many cases, and the devices were not always reliable. So there had been a long term move to try to get our law changed. Indeed, the Law Reform Committee recommended back in 1937 that the Doctrine and Privacy of Contracts should be abolished. I believe legislation was actually beginning to go through Parliament when the Second World War broke out and nothing was done thereafter. For many years, judges in particular called on Parliament to do something and, even at one stage, threatened to do it themselves if Parliament would not get on with it. As you will know, the matter was referred to the Law Commission. The 1999 act, I think, was trying to meet a long-standing complaint that English law was seriously defective, much more defective than Scots law is at the moment. Have I understood you correctly in saying that this is a problem identified before the Second World War, and that it took until 1999 to resolve it? Correct, convener. It is embarrassing, I am afraid, but that is what happened. Right. Anyone in my committee got anything that they wish to ask Professor Beale in that regard, or not? No, I take it. Thank you for that introductory comment. Can I now ask Mr Adam to ask his question on the impact of the 1999 act? Professor Beale, you carried out the review of the operation of the 1999 act in 2010. Can you explain how you went through that, what you went through and the conclusions that you made from that? Thank you. I am afraid that it was a very informal review because it is very difficult to establish what use is being made of legislation. I think that Jill Clark made the same point last week to you that it is very difficult to put figures on anything because you would have to do an enormous survey of every law firm to ask how many clients have ever asked for a contract, which is to benefit third parties and so on. Although, in theory, it could be done, it would be extremely time consuming and costly, and you might run into problems about client confidentiality as well. All that I did, I am afraid, at the request of my colleague Andrew Burroughs, who was actually the law commissioner responsible for producing the report from the law commission and seeing the legislation through it. He asked me to do a 10-year review of the act, and it seemed sensible to try and find out to what extent the act was being used. I simply contacted people that I had had dealings with while I was at the law commission and asked for their opinions. I got a certain amount of useful information, but it is very difficult. Let me start, for example, with construction law. You have been told about the use of collateral warranties, and you have been told about the problems of the black hole. When I looked at the standard forms of building contracts, because I am sure that you know that we have the joint contracts tribunal standard forms of building contracts, which are rather equivalent to the Scottish forms, what I found was that these are now being redrafted, so that there is provision either for the client to demand that the contractor gives collateral warranties, of the thing that you have been discussing already, or that the contractor agrees that third-party rights will come into existence. It is there on paper. What we do not know is how often they use the collateral warranty approach and how often they use the third-party rights approach, and whether, indeed, sometimes they go for both at the same time, which would be theoretically possible. The actual practical use of it is quite hard to establish, but, in other areas, I am told that it is very much used. Let me just give you a couple of examples. One of the big problems has been trying to protect third parties from potential liability in tort. Let us suppose that you have a contract between company A and company B, and company B is afraid that perhaps its individual officers or its employees might be sued by company A if something goes wrong. They want to exclude the liability of those officers. That was possible to do through rather elaborate schemes, either using agency or bias circles of indemnities, but now it is very easy, and I am told that it is very common simply to provide in contracts that one party shall have no right of action against named individuals. Another context where you get very much the same sort of thing happening is where you have contracts that are effectively made on behalf of a group of companies. You might, for example, contract for services to be provided, and you want to make sure that people in the different groups within the companies who may actually be the providers of the services because the work may be subcontracted out to other members of the group to make sure that they are protected. That says that it was conferring a negative benefit, protection, on a third party. Equally, you may want to confer positive benefits. For example, there might be indemnities, which would be offered to officers or employees of the company, or indemnities to other members of the same group of companies. That is all much easier now, and I am told that it is done fairly regularly, although I am afraid that I cannot give you chapter and verse in the sense that my inquiries were simply answered by, we do that regularly. In some cases, you said that you do collateral warranties and third-party indemnities or third-party law. Is that peculiar to construction? I think that collateral warranties are most used in construction, but I suspect that they have probably been used in other fields. For example, last week, we were discussing the oil and gas industry, where you get again this problem of multiple actors. I am afraid that I cannot tell you whether collateral warranties are used or were used in that sort of situation. I am pretty sure that third-party rights probably are being used in that situation, where the contract is subject to English law. I get the distinct impression from the first woman who is in the construction industry that the vibe and feel seem to be that we will work round it anyway. I have a question that I asked last week. Will some of the big corporate entities that are some of the legal firms continue with their workabouts anyway? I am sure that that is right. As one of the previous witnesses said, lawyers tend to be rather conservative and stick with the things that they know, and some clients are rather conservative and like the piece of paper that they have always had. However, what I have discovered is that more and more of the standard forms are allowing third-party rights as an alternative to collateral warranties, and I suspect that that would not be happening if there were no take-up. I suspect that some people are using third-party rights, but we do not have any litigation on it, and it is very difficult to establish figures. Whether they use both at the same time, I have no idea—that was just my guess that they might. However, the forms actually provide for one or the other, and I would imagine that that is more usual. I have been interested in what you have said so far. The Scottish Law Commission report indicates that there are a few cases on the 99 act, and that there has been a lot of academic criticism of the act. I wonder whether you could expand on the reasons for the lack of case law and the academic criticism of the act, and some of the reasons why lawyers are excluding the application of the act from commercial contracts. I think that the criticism of the act, if I may start from that point of view, is that it ignores a doctrine that, fortunately, you have never been cursed with—a doctrine of consideration. In English law, there are two reasons for saying that somebody who is not a party to the contract cannot sue on it. One is that if you have a contract between A and B where A makes a promise that they will do something for C, the promise is made to B, so why should C be able to sue on it? That is one reason. The other reason is that, in English law, for there to be a contract, there has to be some kind of exchange. In other words, B has to be providing something in exchange for what A is promising. Of course, normally speaking, it is B who is providing that, not the third party C. Most of the academic criticism has been simply that the reforms ignore the problem of consideration. I have to say that most of us—many of us, at least—don't agree with that. There is always a contract for good consideration between A and B. The fact that C is not providing any consideration if the party is intended to confer rights on C seems to me to be irrelevant. In any event, it is something that would not arise under Scots law since you have no doctrine of consideration and be grateful for it. It is not something that—well, I would not preserve it if it were my world. That is just to get that clarity. In the last week's session, which I think that you may have been listening to or at least have read and reported, the law commission also indicated that the use of the 99 act has been slow. Do you agree with that view? Well, there has not been very much litigation on it. There have been a number of cases, but as Professor McQueen said last week, it is very hard to know whether that is because everything is so clear that there is no problem or everybody is so scared of it that they do not want to litigate over it. My impression is that there have not been any major problems so far and that people are actually coming round to using the act. I can give you other instances, for example, in the area of IT. Very often, a contract for IT will be made between the IT provider and one company in a group, but the services should be provided to all the other companies in the group. Now, I am told that is very common. I have not seen any litigation or anything like that arising from that sort of situation, which makes me hope at least that it is all relatively clear. Of course, the problem only arises if something goes seriously wrong with the contracts anyway, and it may just be by good fortune that nothing has yet gone wrong, but I am not aware of any major problems being thrown up by litigation and I am not aware of any other major problems with the act. Just out of curiosity, from the previous two panels, I posed a question about the policy memorandum as hoping that there would be a shift to using Scots law. You have heard a number of legal practitioners today. Are you quite confident that that shift would happen in time, or do you think that there still would be a reliance and a preference to use English law, other law or collateral warranties? I have certainly heard that sometimes English law is being used when Scots law would be more natural to use simply because of this third party rights issue, but it is only anecdotal evidence and how frequent that is, I do not know. However, it seems to me that it can only help the position of Scots law if it is kept up-to-date. I am not a Scots lawyer, but my reading of the Law Commission's discussion paper and report is that there are quite serious problems at the moment, particularly problems of uncertainty, and it can do no harm and can only do good to get rid of those. It seems to me that the bill does a very good job of that. Are there any general lessons that could be learned from the implementation of the 1999 act? Do you think that there are any ways in which the Scottish legal establishment could ensure that the uptake of the new rules happen more quickly than seems to have occurred in England and Wales? I find that hard to answer. It is a very good question, if I may say so, but it is a very difficult one to answer because one does not really know whether the uptake has been slow or what one might expect. I was told immediately after the act was passed that the only effect of this is that we are going to go through our bank of standard forms and everyone will have a clause saying that the contracts rights of third parties shall not apply. Most standard form contracts still contain that clause, but they also go on to say that they accept the following specific provisions where they want to create third party rights. That is what is happening. It is very interesting that they are making the position absolutely clear by excluding the operation of the act, but with very specific rights in favour of third parties. After 10 years, I found that this was beginning to happen. I was relatively relieved. I am not sure that 10 years is a very long time in terms of uptake by practitioners for the reasons that were given earlier. Practitioners having found a device that works tend to stick with it, even if it is inconvenient. There is no doubt that the collateral warranty business in construction, for example, is inconvenient for all the reasons that were explained by other witnesses that you may have to chase around after the event to issue collateral warranties to new purchasers or tenants of the building and so on, whereas it could all be done at once. Forgive me, but I am not quite sure that 10 years or even longer now does demonstrate a very slow uptake. It is gradual, but I think probably the answer to your first question was what could the Government do. In England, there was maybe a greater need for education of legal practitioners than there would be here in Scotland simply because here I think the legal community is so much smaller and probably more cohesive. I imagine that everybody knows what is going on, whereas that is not always true in England and Wales. Okay, thank you. What is your general view of the bill before this Parliament? Based on your experience of the 1999 act, do you think that the bill will improve the law on third-party rights in Scotland? Thank you. Definitely an improvement. Yes, absolutely. I mean, I would support the bill wholeheartedly. The only slight points that I noted to myself as I re-read it on the train coming up yesterday was that in some places I think the bill is more sophisticated than I would have made it. English lawyers are rather crude compared to Scots lawyers. For example, some of the provisions about when the right remains revocable, even though the parties did not say that it was going to be revocable, is a very neatly graduated system. We just have a simpler system of saying that once you have relied on it, or once it has been accepted, it cannot be changed unless there is a provision in the contract allowing that. It is a cruder system that we have adopted, but there is nothing wrong with having a sophisticated system providing it is clear and understood. By and large, the bill is pretty clear. I am sure that everybody can make slight tweaks of improvement, but I think that it is a very good bill. Are there any areas where the 1999 act provides a better solution to the problem of third-party rights than the bill? Or, alternatively, are there any areas where the bill is an improvement on the 1999 act? That is very difficult. Despite the differences in wording, the difference in substance is very small. Just occasionally, I thought that I prefer the English wording because it is a little bit clearer. Actually, the principle one is just in the opening provision about the contract being, if I may read clause 11A, a person who is not a party to a contract acquires a third-party right under it where the contract contains an undertaking that one or more of the contracting parties will do or not do something for the person's benefit. From the explanatory notes, I gather that that is meant to be read as saying that the contract, i.e. in most cases the document, will say that this is for the benefit or indicate that this is for the benefit of the person. However, I am not quite clear as to whether one might say, well, here is a provision which does in fact benefit somebody, although they are not mentioned in the contract. It is that sort of level of minor wording. Otherwise, I think that the bill does an excellent job. I do not see any major differences. There are one or two differences. For example, in England, we have prevented a third party from relying on the unfair contract terms act if you have a situation where party A promises the third party that it will take reasonable care and then limits its liability, for example, limiting its liability for having done bad work to repairing or replacing the work. That might fall within section 16-1b, I hope—I am sorry—of the unfair—this is the Scottish section of the act, and I am never quite sure of my numbers—of the unfair contract terms act. In England, we simply said that that sort of term cannot be challenged by a third party. It is six of one and half a dozen of the other. My initial reaction was that I think I would have preferred the English solution, but it is arguable either way. I do not care to second-guess what Professor McQueen and his colleagues have recommended. They are very good lawyers and I have no reason to doubt their judgment. I appreciate your answers. Thank you indeed. I am notwithstanding your deference to Professor McQueen, which we shared. Are there, since we are endeavouring to make absolutely the best law we can and since your review of the 1999 act and some of the shortcomings that you have acknowledged and pointed out, are there any errors or mistakes that you see us potentially making because we want to produce the best bill that we possibly can self-evidently? Thank you, convener. No, I certainly would not say that there are any mistakes. There are one or two places where I think possibly the drafting could be a little bit clarified, but they are very much at the level of detailed drafting. I think that it would be better to feed in suggestions in writing later on, if I may. It is very much just a question of how easy it is for somebody to read the act and understand what it is saying. That is always a problem in legislation. I am sure that you are aware, for example, of the Consumer Rights Act, which was passed in 2015, which was supposed to make the law much more accessible to consumers. I find it very hard to read and afraid. It is not an easy task. We will leave the Consumer Rights Act to one side at the moment, but we would, nonetheless, be grateful if you would like to correspond with us in any area where you think we could benefit from your experience and wisdom. I now want to ask Mr McMillan to give us his question, please. Okay, thank you. Good afternoon. Do you agree with the general policy in the bill that the rules should normally be default in nature, so that can be contracted out of? Thank you. Yes, I do, absolutely. I think that it is very important that the rules should be default rules in both directions so that the parties should be able to reserve the right to vary or to even to cancel the third party's rights, but, on the other hand, should be able to create rights that cannot be cancelled, because although I do not have any concrete examples from real life, I think that there may be situations where the third party needs to know from the outset that this is a totally irrevocable and unvariable right, so that it can then plan its own affairs. For example, if it is to have a right under an insurance policy taken out by another company in the group, it should not have to worry about whether it has relied on it or not. It should simply be able to say, that is irrevocable, that is fine. I think that it is very important that the rules should be default in both directions. Of course, it is just possible that sometimes a contract involving third party rights might be made in favour of a consumer. Then, of course, the unfair terms in consumer contracts legislation, now part of the Consumer Rights Act, would cut in. If it were a clause that seemed to be unfair allowing the third party to have their rights taken away, that could be challenged there. My only concern, really, I suppose, is that the clauses that allow a party to vary the third party rights might not always be understood by someone who is not a consumer but is rather consumer-like the very small business. That is part of a much broader problem that you could not possibly tackle in this bill about the need to protect very small businesses. I still believe, as the joint report of the English and Scottish law commissions back in 2005 recommended, that we actually do need some legislation to protect very small businesses from unfair terms, which does not exist at the moment, but that is a much more general problem. I think that the answer to your question is that it is absolutely right that there should only be default rules. Can I just ask you for a point of clarification, please? Your answer there, you stated, is not a consumer but is consumer-like. I am not a lawyer. For example, we have had quite a lot of problems in England and I believe also north of the border with corner shops making contracts, for example, to lease a photocopier so that customers can go into the shop and make photocopies and so on. Some of the terms of those leases have been very harsh, but because they are not technically consumers, because they are making the contract for the purposes of the business, they are not protected by the unfair terms directive or the legislation that implements it, but yet they have no better understanding of what they are doing and no greater bargaining power, as it were, than an individual consumer would. That is what I mean by consumer-like, as it were. They are so small that they in effect do not have any expertise and they are probably making relatively low-value contracts, so they are not really able to go and take legal advice each time because the cost is disproportionate. That is what I mean by consumer-like. I hope that that is clear enough. It is. Thank you for that. The expression is regarding sections 4 to 6 of the bill. They stop the contracting parties modifying or cancelling a third party right hand based on your experience of the operation of the legislation in England and Wales. Do those sections provide the right balance between the rights of contracting parties to change their mind and the rights of third parties? Yes. I think that they achieve a very sophisticated balance. This is the area where our provision is a little bit cruder. I think that it is possibly easier to understand but it is certainly not as sophisticated. Whether you care to be sophisticated or clearer but cruder, it is a matter of judgment. That was one of the areas that I put pencil marks against in the train. By the time I had got to Carlisle, I had realised that there was nothing wrong with the bill at all. It is just that my approach is slightly different, so I would support them. In terms of your colleagues, have you had any discussions with other professors and legal professors about the Scottish bill to gauge their opinion as to whether they feel as if the bill was positive? I am afraid that I have to declare an interest. I spent last night having dinner and then staying with Professor McQueen, so I have been thoroughly... I am afraid that I have not heard recently from any professor other than Professor McQueen, so I... Okay, no problem. Thank you very much. Professor McQueen got the razor for your pencil manual? We will assume that you have had the bill fully explained to you in that regard. I will take you back to Mr McMillan's question. A moment ago, when you spoke about the need for the protection of small businesses, following the 2005 joint review, was that something that would more elegantly fit into another piece of legislation or be a piece of legislation in itself? Really, what I am asking is, since you have generously undertaken to correspond with us in terms of the improvements that we might make, would you also add a note as to why that should be addressed from a perspective? If you would like to discuss that just a little further at the moment and put that on the record, why that needs to be addressed. Well, thank you, convener. It's simply that whenever you have, as it were, default rules, which can therefore be varied by the parties, and you have a situation where a contract appears to confer a benefit on the third party but yet is subject to a variation clause of some kind, there is always the danger that the third party will observe the good bits and not be aware of the clauses which cut down their rights. It seems to me that that is a danger that exists for small businesses in particular because small businesses are not likely to read and understand the contracts that they are signing or they are even less likely than larger businesses. It's just part of a general problem. It's not a problem that I think could be addressed in this bill at all. It's part of a more general problem. That's my only concern, which I wanted to express in response to Mr McMillan's question because he was asking me, did I think that it was right that they should be default rights? My answer is absolutely I do, but I hope that contracts will be drafted in such a way as to make it quite clear to the third party when their rights are actually subject to variation. As I said, that's a bigger question. I don't think it's something that could really be very sensibly dealt with in this bill. It would be possible to say that every clause allowing variation shall be prominent or something like that, but it would be rather odd to try to do that in this piece of legislation alone. No, I wasn't really suggesting that, nonetheless. Thank you for your considerate view on that. Can I just take you now to a question on arbitration and section nine on the bill and what's your view on it, which allows arbitration agreements between contracting parties to operate in respect of a third party? I'm afraid, convener, that I have to apologise to the committee that I have not got any information about the actual application of that section. I'm not aware of it giving rise to problems. It seems to me to be a perfectly sensible arrangement, but it was all drafted, as I'm sure you know, after the Law Commission had produced its report. I was a little bit involved as a consultant at the stage of the Law Commission report, but I wasn't involved in the discussion of arbitration, and I don't have any information about its use. I'm not aware of any problems, but that's as far as I can go, I'm afraid. Right, thank you very much. Just a final question on the speed of law reform and your answer to my initial question rather gave the game away that you perhaps think the speed of law reform has been a little too slow. Have you anything further that you would like to add in that regard and how we should proceed from here? Well, I think that it's now time to put this bill through. I think that it would be a much more creditable record than we have in England, where we started in 1937 and didn't achieve anything until 1999. It's true that it's arguable that you've had problems since 1920, but I think that in reality the problems have only emerged much more recently. It seems to me that there's nothing to be ashamed of, that it's taken a few years to get things done, but I do believe that now is the time to bring Scots law up to date, as it were. We have, to some extent, copied you. Now, maybe you're going to follow us, but you're very much following a model that, in one form or another, has been adopted in many jurisdictions. I think that it's an excellent proposal, and I would support it wholeheartedly. Well, thank you very much for those supportive comments. We are hugely indebted to you for coming today to give us evidence on this subject, so I thank you for doing so and wish you a safe journey home. It's been a privilege and a pleasure. I look forward to receiving your further reflections on what we've discussed and, indeed, any reflections on anything else that we haven't discussed that you think would be relevant to enhancing this bill. Thank you very much. I now suspend this meeting briefly to allow Professor Bill and others to leave. We now move to agenda item 4, instrument subject to negative procedure, and no points have been raised by our legal advisers on the instruments before us today, which are the non-domestic rates district heating relief Scotland regulations 2017, SSI 2017, number 61, or the protection of seals designation of haul-out sites Scotland amendment order 2017, SSI 2017, number 63, or on the representation of the people absent voting at local government elections Scotland amendment regulations 2017, SSI 2017, number 64, or on the local governments Scotland act 2004 remuneration amendment regulations 2017, SSI 2017, number 6, or on the first tier tribunal for Scotland housing and property chamber procedure amendment regulations 2017, SSI 2017, number 68, or on the first tier tribunal for Scotland tax chamber procedure regulations 2017, SSI 2017, number 69, and, since no points have been raised by our legal advisers on these instruments, is the committee content with these instruments? Excellent. Thank you very much. I now move this meeting into private, if I may.