 Rwyf yn dysgu ei chyfnodd, iawn i'w fwy o gynnwys yn 2017 o'r Ddelegateur, Llyfrgell Llyfrgell Fyllwgwydd. I apologise that I was received this morning from Stuart McMillan, but we welcome George Adam in his place, and we are grateful to you for coming. I am moving to agenda item 1, which is instruments subject to negative procedure No points have been raised by our legal advisers on non-domestic rating evaluation of Utilities Scotland amendment order 2017 SSI 2017 number 42 or on the act of sederant fees of solicitors in the court of session and sheriff court amendment pursuers office 2017 SSI 2017 number 53 or on the shellfish restrictions on taking by unlicensed fishing boats Scotland order 2017 SSI 2017 number 57 or on the personal injuries NHS charges amounts Scotland amendment regulations 2017 SSI 2017 number 58 or on national health service payments and remission of charges miscellaneous amendments Scotland regulations 2017 SSI 2017 number 59 or on the non-domestic rates renewable energy generation relief Scotland amendment regulations 2017 SSI 2017 number 60 so is the committee content with these instruments thank you which takes us to add into item 2 which is instruments not subject to any parliamentary procedure and again no points have been raised by our legal advisers on the final instrument before us today which is the act of sederant rules of the court of session 1994 and ordinary cause rules 1993 amendment pursuers offers 2017 SSI 2017 number 52 so is the committee also content with this instrument many thanks now move to agenda item 3 which is a contract third party rights Scotland bill and the the item in the agenda is the consideration of evidence on the contract third party rights Scotland bill at stage 1 and this is our first evidence session on the bill so it's my great pleasure this morning to welcome Graham Cromby and Hector McQueen from the Scottish law commission and Katrina Marshall and Jill Clark from the Scottish Government welcome to our committee and we will now move if we may two questions from our committee and if I can just identify where I put the questions I will ask the first one which is to you all to discuss common law to statutory footing and in general terms what is the rationale for moving from a common law position to a statutory footing in this bill if I start I think the Scottish law commission submission of written evidence to the committee helpfully sets out the benefits of the move from the common law to placing the law on a statutory footing and I'm sure Professor McQueen will be able to elaborate on that and we did of course consider this issue ahead of settling on our preferred policy approach and it seemed to us that the law is uncertain and is not fit for purpose at the moment because it has been left to develop in this way and so court decisions have resulted in a reluctance to use the existing law and in turn this means that there's very little if any opportunity for the courts to resolve the current issues with the law so and that's why in our policy memorandum when we considered alternative approaches we thought probably the only alternative was to leave the courts to improve the law through judicial reform but the outcome of that could not be guaranteed and on past experience it could take a very very long time for it to actually reform the law in this way so placing the law on a statutory footing seemed the only effective way of making the necessary reforms. Anyone else got anything they'd like to add on that? I think the main thing that one can say is that common law is based on the judge's decisions and the judge's decisions depend on someone putting a question to them for a decision and occasionally judges don't get things absolutely right and in this particular instance that happened in 1920 in the House of Lords but it sometimes takes time to realise where and how it is wrong and I think if you look back at the history of it people certainly realised by the immediate post-war period that this decision was unhelpful but it has in modern commercial conditions, current commercial conditions become particularly obviously unsuitable as a basis for legal development here and the problem is that you would have to go all the way to the top of the judicial tree i.e. the Supreme Court and in order to do that you've got to find a litigant who's prepared to pay because the litigant who loses pays for everything so understandably I think solicitors and their advocates are very reluctant to advise our clients to take a chance on these things unless it's absolutely cast iron guaranteed result so legislation is I think the only way in which you can actually meet the difficulties that exist right now we might get a case in 100 years that meets the difficulties of the 22nd century but meanwhile the people of the 21st will just have to struggle on unless we pass this legislation so I think that's the major reason for shifting from common law to statute in this area it has to be said that in many ways the the statute expresses what is the existing common law just with this particular wrinkle from 1920 removed and ironed out would you be kind enough just to cite the particular case to read it into the record so that yes the basis on which we are proceeding and the reasons right the case in question is called Carmichael against Carmichael's executrix and it's in the 1920 session cases house of lords and up to this point I'm confident but I think it's page 191 195 sorry excellent page 195 where it's found wanting right and when you said it became apparent in the post-war era I presume you meant the second world war yes yes notwithstanding the fact that this was yeah I think that's right and the case in question actually arose out of an air accident in the first world war which is an interesting story in itself but it's not relevant to today's proceedings okay right is there anything else anyone else would like to contribute to the initial question before we move on to follow the question thank you very much for clearly defining that then now move to Alice and Harris has got two or three questions good morning you know I appreciate that there are current areas of uncertainty about the scope of the law but could you maybe explain what is the level of uncertainty in the current law I think I will defer to Hector probably a fair bit on this but there are quite a few areas I mean Hector's already mentioned that a lot of the bill actually restates what people think the law is just now but the think is probably the uncertain bit so we think that you can have third party rights for someone perhaps who isn't in existence at the moment they've yet to be born or the company is yet to be conformed it formed but that's not absolutely certain and it's those uncertainties and similar similar ones that the bill is addressing and then it's also rectifying the issue about irrevocability which is the main difficulty with the current law that makes it the most problematic I think Hector into you yeah I mean the the other sort of aspect of the common law as I said earlier is that if you don't get a judicial decision you don't necessarily get an absolutely clear rule so quite a number of the sections particularly the remedies and defences parts are there because they answer questions which have been asked in writings on the subject but never answered because no case presenting the question squarely has come before the the courts so one of the problems with the common law is there are gaps and you can say well in principle it ought to be this but having a legal rule stated in statutes creates obviously much more certainty and on one or two aspects notably the defences we cast it in slightly narrower terms than most of the the books did we talk about how the defence must be relevant to the third party right and in our written paper we give the example of the case is it example one in our in our numbered sets of examples in the in the written evidence where the contract from which the third party right sprang was illegal at the particular time wouldn't be now it was illegal but the illegality in question did not apply to the third party right so there was nothing illegal about giving benefits to members of to the families I beg your pardon of the members of this particular association so it's example two thank you again Graeme I'm not doing too well in my numbers this morning but the that's the sort of thing that you need a case raising the issue directly to get it clearly resolved and this is what we have tried to provide a clear and certain rule on this particular point okay well thank you for for that answer but you know just in order to help me further you know could you maybe expand on some specific areas of uncertainty I know you did mention remedies but I was thinking about what remedies are available to third parties in the current law you mentioned defences but you know to which or to what degree you know for defences to well what is there for carrying out a contract such as error and misrepresentation how does that apply to third party right so the third thing that comes to mind is the time limits for being a claim under third party right could you expand on that for me please yeah sure the shall I take the remedies point first the the uncertainty the very specific uncertainty is about whether a third party can claim damages if the performance that is rendered to that third party is defective in some way there's been almost no case law actually raising that point and in principle it should be clear that the third party does indeed have such a right but text writers have cast doubt in it thanks to various 19th century cases which they say are relevant others say myself included they are not relevant but there's that degree of dispute and doubt as to what the law is and hence the wish to be clear and to give what is basically a principled answer if I breach my contract with you you are entitled to damages likewise a fewer third party to a contract between Graham and me you would be entitled to damages if our performance was not up to the level you are reasonably expected from the the way in which we'd expressed your third party right so that's the remedies thing when you talk about error and misrepresentation that is where you start getting into the possible defences that would be available now the question of error and misrepresentation would start I think as between the two contracting parties and one of them in entering the contract might make a representation to the other which brings the other into the contract and that representation turns out to be untrue and that's the misrepresentation and there's an error on the part of the person who is so to speak the victim now in law in general law of contract that would make the contract void or voidable again some degree of uncertainty in that particular area question for the third party right which springs from that contract is it exactly void or voidable in the same way as the the main contract does the voidness of the main contract impact on the third party but I think in general the answer is probably yes but what we need is a clear position that says the misrepresentation impacts as much on the third party right as it does on the the basic contract as between the original contracting parties and it may well be that it doesn't apply the third party knows nothing of any misrepresentation the third party is merely receiving a benefit and the misrepresentation was not about the third party right in the first place so why should it affect the third party right if that's what the parties contracted parties intended then the third party right is really independent if you will of the contract in that sort of sense so what we are saying in the provision on defences tries to allow for that kind of analysis to be made by the courts and then the time limit I think that must be section is it 11 or 12 of the of the bill section 11 yeah the prescription what we noticed in the course of our work was that the prescription and limitation act 1973 has a long list of the obligations to which its prescriptive period applies but there is no specific mention of third party rights and we could see that was a possible gap that somewhere some clever lawyer might say well there's no prescription in relation to a third party's right the third party can claim anytime indefinitely into the future and again in principle we didn't think that was correct the correct principle is that five years basically is the period that a party has got to bring a claim so the provision in section 11 is to make it clear and it also has this slightly retrospective element because we want it to be clear for the laws it has been as well in this particular area so these are the sorts of specifics if you like of the unclarity and it's often about what the law as yet does not say but now will say that we are driving out here thank you thank you very much fresh mcqueen anyone else want to contribute to those questions right thank you very much now move to a colleague david torrance who's got a few questions please david thank you convener and good morning everybody i'd like to focus on the revocability rule can you expand on the problems with the current revocability rule and why it would be useful for contacts granting third party rights to be cancelled or modified i mean again i think hector will have more to say on this but i mean the the case that hector spoke about the Carmichael case that kind of set the set the bar which said you know once you've given someone a third party right you cannot take it away you cannot cancel it you cannot modify it and that seems to be a complete nonsense when you think that the two main parties to a contract can obviously at any time decide to cancel or modify their obligations but you can't do it with a third party and so that has created a significant inflexibility in the law and that that is the thing that i think most people shy away from our existing law and third party rights because of their concerns about that and it's it just doesn't allow the flexibility that you need in today's kind of commercial um legal transactions or indeed personal legal transactions um hector yes i mean i think that's the essential key what we received from the legal profession uh that led us into investigating this topic in the commission was a message that the use quasi to interco was perceived as inflexible because of the irrevocability rule you had created a right which you couldn't change and this was unacceptable particularly from a commercial point of view because obviously circumstances change things move on and you may want to cancel the right altogether more typically perhaps you might want to adjust it slightly in order to meet new circumstances less resource available it's even conceivable you might want to modify in favour of the third party and increase the benefit that it's going to get but you can't do that if you've created an effective third party right at least you can't do it without the the third party's consent which will not necessarily be forthcoming without cost shall we say so we're trying to create a regime which is flexible instead of inflexible but which nonetheless lets third the third party's right crystallise at certain points in time so that they cannot any longer at that point be changed and that's essentially what sections four to six do they set out the circumstances in which the third party right crystallises and can no longer be changed so what we're really trying to do is remove irrevocability as a precondition and instead make it a consequence of the agreement plus certain other things having happened in three different sets of circumstances set out in sections four to six of the of the bill thank you for that do you think the bill provides the right balance between the rights of the contracting parties to change their minds and the rights of the third parties I think it does the I think it's the starting point has to be that it's the contracting parties who create the situation in the first place and I think it's not unreasonable shall we say to allow them to remain in control of it up to the points which are set down in sections four to six so if if if they make their third party right conditional on something as an example two in our our written evidence well when that condition is fulfilled and the the third party right hasn't been changed anyway then it's enforceable that seems fairly straightforward the section five deals with the situation where the third party right is either unconditional I could be enforced immediately or it's what we call technically futures to take place payment let's say is to take place on a date in the future we'll have to wait until the 30th of march and then the right is enforceable but if the contracting parties notify the third party at that today that that right will exist and be enforceable on the 31st of march then again they can't change their mind and why should they be able to change their mind they've not they've notified this person they've made this person think I'm going to get that right on the or payment or whatever it is on the 30th of march and then the final one and the longest one is where you have a right that may be conditional in in some sense it's going forward into the future but the third party as we put it relies or another way of putting might be to change its position on the basis well I'm going to get this third party right eventually and what we would say there to start with is of course that the third party isn't entitled to rely because this right is not yet fulfilled the conditions on which it comes into existence are not going to yet be fulfilled but if the third party's reliance is known to the contracting parties and they don't stop at the acquiesce in the in the technical language of the law or if the reliance is reasonably foreseeable despite its condition the the the rights conditionality then that right becomes irrevocable provided that provided that there was reliance which was damaging to the third party and if the contract is now cancelled or changed there will be further damage to the third party now we try to give an instance of that in our example six with our dear daughter Tara who is being paid for in her expensive course in the United States by the firm of partners of which her parent is a member and what we try to use that example to show is first of all there is the reliance before the cancellation she spends money flying to the United States okay the partners want to cancel the right or because the firm is no longer making as they see it enough money if they are allowed to pull out not only will she have as it were wasted her money in flying over to the States but she'll also lose out on the opportunity of completing her degree study in in the United States so there'll be an adverse consequence as the bill puts it going on afterwards so it's a twin headed thing it's quite a tough test to pass we've borrowed it from other legislation on which there's been relatively little case law over the last 20 years either because the statute is wonderfully clear and so no one needs to get into dispute or because the hurdle is actually quite high for the the the party who has relied to actually cross and get a successful claim in I personally think it's more of the former because although it's quite long it is actually quite clear if you take it step by step and work your way through the requirements so we do provide for third party protection in circumstances where it was clearly fairer to the third party to say yes you now have an irrevocable right and before that time we give the contracting parties freedom to change the situation to meet their own requirements first so I'm content that we've got a balance thank you for that answer going back to sections four and six could you explain in more detail how the exceptions in section four and six of a bill will stop the contracting parties what define or canceling a third party right and operating the practice well I think the again we've given some examples in the the written evidence I think perhaps the particularly good one for section four is the example two now this is a nice illustration of a conditional third party right which is what section four is intended to apply to run you through the example you've got the professional association formed by contract it was really at the time this case was decided in effect a trade union that's where the illegality came from under the laws it stood at the time of this particular case that I mentioned earlier now what the contract between the members says that the association provide benefits to the families of members who become unable to work through death or illness I think in the original case they refer to insanity I don't think we would do that today but that was in fact what happened the member in this particular case became insane or fell insane and his spouse claimed the benefits provided for in the contract now the point there for section this is an example of a conditional obligation third party has no rights until a certain event occurs that is the death illness of the member to whom she happened to be married the right crystallizes at that point she's entitled to it even though the the rules of the association allowed the association to change the rules because it's an association of members it's a voluntary association they can change the rules that apply but they couldn't change the rule in relation to the particular person the particular family member who was making the claim at a time when the rules hadn't been changed okay so she gets the benefit the association may think oh my goodness this is actually very expensive we better change the rules that we give them a little bit less or you might say this is absolutely miserable we might want to change the rules to give them more or whatever they could do whatever they liked but so far as this particular individual this particular pursuer was concerned they were committed she had an irrevocable right at that point and we think that's the the correct analysis of that particular fact scenario so that's section four I mean would you like me to give another example or I should be sufficient right okay and I think I gave the example already for section six with the lovely Tara in example example six and the handout which tries to take you through the different stages of reliance by the third party that will produce the effect that in fairness she ought to be allowed this right even though the conditions of it are not yet completely fulfilled thank you okay right moving at you finished David thank you much practical problem for the current law monarchy if you'd like to give that a blast please thank you very good morning I think in your answer to the first question you helpfully set out the rationale for this and that the current situation isn't fit for purpose so in the policy memorandum you've indicated that the legislation will promote the use of scots law and I think you've touched on that earlier that your investigation shows that lawyers in scotland are applying English law to Scottish contracts do you have any sort of feel for the extent to which that is is happening are you able to quantify it in any way I don't think we can quantify it I think there's a lot of anecdotal evidence and there's been a lot of articles written recently about third party rights because of the where we are with the report in the bill and they all refer to the 1999 act in England and Wales being used instead as a kind of workaround so we think that it's probably used quite regularly but we couldn't actually quantify it and that's what one of the workarounds I think at the moment the other is in other in certain sectors to use something called collateral warranties and so the law doesn't work as it stands so scots lawyers are looking at ways of you know other ways of making making things fit for their purpose okay I wonder then if can you maybe explain a bit further why that is is a negative consequence you know why these workarounds and why applying English law is a negative well because we don't want our scots law to be fit for purpose and to be used and we want it to be used in the courts we want it to facilitate transactions we don't want it to be a hindrance to people that they have to you know if you've trained in scots law I suppose the last thing you want to do is go and have to apply a different jurisdiction's law to to something that is a an essentially Scottish transaction I don't know Hector if you've got more to add to that it's certainly not anything against use of English law or indeed English law generally it's more a case really of I think if scots law is not doing the job it's really up to Scottish lawyers Scottish Parliament the Scottish courts were possible to do something about it and I think if if one leaves law in a state that nobody uses it there's something amiss you know this is just part of the mechanics of society if you like and people will remain free to use English law if they prefer it and they may do so but it's a pity if the legal system isn't working for those who work and live in it and one of my colleagues in the commission a few years ago gave a useful metaphor I think which is this is like the plumbing you know this is the world we live in this is a society this is the country we live in we have a legal system which is different but it's not necessarily the best legal system in the world and there are some bits of it that aren't working so well and so just as you wouldn't leave deficiencies in your plumbing for too long at least once you knew about them so you adjust legal system in order to meet the requirements of today and I mean you know fitness for purpose is a bit of a cliche but it is actually a very important point for a legal system it ought to work for those who are living under it I just wanted to get a sense that are people missing out because of the current limitations and also for the legal profession are there are there practical difficulties in terms of being able to apply the law if the Scottish law is inadequate after you're having to apply English law does that present difficulties for the profession Solicitors are always very good at finding solutions workarounds and I think I mean to me the major thing in this is if you've got a client who is you know sufficiently well healed to be able to afford the Rolls Royce service then the solicitors will produce results that work and you know they will bear liability for that sometimes of very large sums indeed my concern in some ways is more with the kind of people who can't afford that sort of bespoke service and to my way of thinking that it's rather important that the law and its sort of default mode which we talk about a bit in our written evidence on the page one should give a satisfactory outcome to people like that so that the case in the example the lady who's husband is sick I mean she's had no opportunity to find workarounds in some sense the provision by the association is her life belt if you will and it's what's important is that the law should produce a result that gets her the benefit that she was intended to have all the time but under the current law she might well be in difficulty because the right wasn't irrevocable from the outset in fact it was always irrevocable because the association could always cancel the the provision in question so I think that's you know where your default rule has to be a good working rule because not everyone is in a position to get to workarounds to achieve what it is that the third party rank could give them. Sticking with workarounds then are you able to explain in a bit more detail how collateral warranties will work in practice and why is that an improvement? Yeah well it's all right if I we have a diagram in our report which in order to stay within the eight pages of your written evidence submission we didn't include but we could happily send it along to the the committee what this diagram shows is the bewildering maze that can emerge usually at the end of construction projects and the story there is that whatever the contractual framework and the usual contractual framework will have a funder who is providing the money who has a contract with a developer and the developer has a contract with a builder and the also probably a contract with professional advisors architects engineers and so on and the main contractor will have sub contracts with suppliers and people who are doing bits and pieces of the work on the great project and out there in the distant future is a prospect that you will have someone who will actually buy this development or perhaps more typically enter into leases whether it's commercial residential or whatever and basically the point is that collateral warranties are provided by the people who are doing the work the professionals the designers the main contractor the subcontractors the suppliers and they're issued in favour of for example the funder who is way up at the top of the contractual tree or for this future purchaser or lessy of the development in question so that gives a good example in fact of the non-existent or unknown third party at the time of contracting so what normally happens is that the project is completed tenants are identified and so on and the process of going out and getting collateral warranties begins it's completely separate from and subsequent to if you like the successful completion of the project and we've been given graphic stories by solicitors very often it's the young solicitors who are sent out into the pouring rain to go and knock on doors and get people to sign these collateral warranties and sometimes people don't want to sign and there are lots of difficulties and the particular major difficulty is where of course the person you want to sign the warranty has gone out of business or has been taken over by someone else or you know the infinite range of possibilities so it is a bit of a nightmare in just purely practical terms and our thinking is that much of this could be removed if parties wrote into the contracts which are still the sort of frame the spine of the thing third party rights in favour of funders in favour of purchasers in favour of tenants and so on and it would be there from the start and you wouldn't have to have this extraordinarily cumbersome and difficult process at the end but again we're not abolishing collateral warranties does that provide any safeguard you touched on you know if things happen people go out of business does that provide any extra safeguard not really no not against the going out of business there might be some sort of protection against the party that's taken over because the takeover might involve carrying on the the liabilities of the previous business and so on or you can resurrect the previous business in order to make it liable on liabilities are you able to explain just maybe for my benefit what you mean by the black hole of non liability in relation to company groups do you want me to try that one in jail yes yes well it's a metaphor obviously a black hole which was first used by a judge in about i think 1980 or so in a Scottish case it's a Scottish invention and the idea is essentially that a party suffers a loss as a result of a breach of contract to which however that person suffering the loss is not a party and the basic principle starting principle in contract law is that you can only sue for a loss sue for damages for a loss if you are the victim of that loss it's fairly obvious general principle i think probably right across the law so if the loss happens to fall on a third person tough that's the basic that's where there's a black hole so you might have a situation in other words where if we've got a contract between a and b a breaks a contract b has no loss and the third person instead has the loss now how do such situations arise i can see you want me to say construction is again the classic example so and it will typically involve groups of companies so a and b a is a contractor to do work repair maintain build whatever it might be for b is a member of a company group and during the course of the project the course of this repair and maintenance contract let's say b for entirely unconnected reasons transfers the ownership of the property in question to another company in the group okay so that when the breach works out in loss the third person the person whom the property was transferred is the one who suffers a loss but has no contract the person who has a contract has suffered no loss does that make the position clear now what you can do with third party rights is providing contract a and b that the other companies in the group will be entitled to enforce this contract that's quite a common solution as i understand it but it does raise the difficulties which we've touched on about companies that don't exist and so on and so forth but most of the time that doesn't happen you know at the time the contract was made they haven't thought about third party rights at all a and b are just carrying on and then the company group takes a decision to move the property from b to c might even wind up b who knows now we don't think our bill provides an answer to that scenario okay it provides a solution which people could use at the time of drafting the contract but if they haven't thought of it and there isn't a provision then our bill doesn't apply our bill only applies to provisions in favour of third parties so there's a black hole of non liability but we are addressing that further question of the black hole in a discussion paper which is currently in draft and out with an advisory group of solicitors because we have some ideas as to how the problem might be solved but i think we've premature for me to go into the detail of that and it might cloud the issue as to this particular bill but we have the problem in mind and the idea of the black hole is simply that it's surely not quite right that someone should be able to breach a contract and escape liability because the liability the loss is being suffered by someone else for reasons which are of nothing whatsoever to do with the contract position okay so we might bring you back another bill in two or three years watch this space well all that said are there any other problems that we should be aware of any other practical issues that have come up from your investigation i think the major issue was the arbitration issue which we didn't identify initially but it became clear really in the course of considering the consultation that we'd received consultation responses that there was an issue which we then proceeded to address with fairly extensive consultation with the arbitration community in scotland which is not large but is quite good and it seemed to us that there was a need to make a provision there and that is what we have done in the relevant section of the the bill thank you thank you very much monica i appreciate my questions um george if you would like to thank you good morning you've already given us examples of how construction may be a beneficiary in all this but obviously there's oil and gas financial services it and pension sectors are down in the report as areas that would actually benefit from this as well can you expand on what the benefits are for these sectors and how it will make a difference for them i think it's mainly because of the the complexity of their kind of contract structure you know there's lots of subcontracting and lots of people who subcontract to subcontractors and so lots of third party rights are created in that way and that they probably have the most to benefit i mean as well as particular sectors there's also i suppose certain company structures will find this very beneficial and that's the the kind of group company structure that Hector's already spoken about where there's a group of companies and there's the main company contracts for something but if they haven't given third party rights to the rest of the companies in their group then they may not be able to benefit from you know something that went wrong so there's large sectors and i think that the structure of the company as well would find it beneficial to add anything it could maybe add one or two things i mean you mentioned a number of specific sectors perhaps the oil and gas one is the one in which we've gathered most information and the position in the north sea and as jills rightly said you have there too massively complicated structures of operation lots and lots of subcontractors and of course very high levels of risk as we saw very clearly all these years ago with Piper Alpha but these are on-going things all the time and basically what what happens in the north sea contracts is there's provision for indemnity crossing indemnities knock for knock arrangements between the parties and this is really designed for overall efficiency and third party rights are created third party rights to these indemnities are created in in in the north sea but a fairly critical point is that these contracts are all made under English law um you have to say that from the point of view of uh scots law the north sea was a missed opportunity the north sea oil industry was a missed opportunity and if you read the contracts that you see there you see they are subject to English law and you see that they invoke the contracts rights of third parties act 1999 to establish these third party indemnity agreements so there was lost business there and cases have tended to come into the Scottish courts only when you have extreme scenarios where the contracts don't apply which was in fact what happened with the great Piper Alpha litigation at the beginning of this century that did go into the Scottish courts because it was outside the all the liabilities we were talking about lay outside the scope of the contracts altogether so i think that's a very good illustration of the fact that third party rights are used the problem that we have i think in scotland is that people don't think our third party rights system is going to going to do the business i think so far as financial sector pensions are a good example you can think of the the for instance the process of nominating a person to take your pension in the event of your death in service and so on that's a third party right insurance is an example of third party rights as well where i take out a life assurance policy in favour of my spouse or my children motor insurance policies where i take out a policy which covers other drivers of the vehicle which i'm insuring and so on so there's plenty of them in fact i exercise a third party right in a sense myself last summer when i was allowed to drive my father's car when he wasn't feeling very well and being careful lawyer i checked his policy and it did say other drivers with his permission and he kindly permitted me from his prostrate position to drive him to hospital so these are important examples i think of third party rights that are created by contracts right now very rarely tested in court as to the application of our scots law rules but in the key example for me is the North Sea oil where the contracts are all under English law and refer to the 99 act for the third party rights can i follow up on something you said earlier on you said that some of the companies that or sorry some of the individuals that have been involved in this if you had a open checkbook you could effectively get the work around get the business that you get the answer that you wanted it's construction not an example of this where you do have so many subcontractors where there might be smaller companies that don't have that access to legal information dealing with larger companies so this is probably a perfect example where this would probably help out smaller businesses like that i'm getting this right just so i can get it right yes no i think that is right provided that we're talking about these companies being in the position of third parties claiming rights against others it does give them some protection and i think it will be always the case that if you are a a small organisation in business that you will be under pressure and and this this bill doesn't attempt to alleviate that pressure in any direct sense but there may well be circumstances in which smaller organisations will be able to make use of these provisions in terms of rights for themselves but it will depend on contracts that are perhaps not being drawn in great depth or detail as distinct from the very sort of souped up versions that you will get if you are a big contractor say you'll have also probably standard forms and so on that you can use i might just say perhaps that there is a with regard to the collateral warranty scenario there is a draft contract available from the scottish building contracts committee which incorporates provisions of collateral warranty in the main contract and couches it in terms of the third party right i went to a conference of the scottish building contract committee last november i think it was and i asked about the use of this did they know whether or not people were actually using that and they didn't know because it's not the job of the committee to know how its forms are used they just put the forms out there and it's up to people then to use them but the anecdotal evidence which came back in that occasion was that collateral warranties were generally used because the funders preferred them and the funders this is what the funders know this is what was established in legal practice in england in the 1990s as a way around their lack at that time of the third party rights and the 1999 act didn't change the minds of funders we'll just go on doing what we're doing was the attitude and that applied equally to projects in scotland this is what we know and we think it works and that's fair enough are there any other sectors other than the ones that i've mentioned that this legislation could help or be beneficial for i don't think there's any sector that i would say definitely could never benefit any person any sector which uses contracts and has any sort of complexity in its arrangements may well find that this bill provides an answer it's very much a facility i would say and it's it's if you like part of what will be necessary afterwards the aftersales service as we call it in the commission is to promote it to lawyers and to others scottish buildings contract committee is one prime example and say this is what this does this is what it could do for you and i certainly see that as part of the the job of the the scottish law commission we've made this thing to be used and we certainly don't want it to lie on the shelf as it were once it's through the legislative process okay thank you thank you so much George and just on that point i mean how will this bill affect the use of collateral warranties in future at all all all i can really say is that solicitors by and large hate collateral warranties i hope i've heard solicitors by and large hate collateral warranties because they're awkward and difficult things to gather in and you're usually talking in any major project about a very large number of these things it's not just as in our simple diagram in the report three or four collateral warranties or maybe scores of collateral warranties or even more in a major commercial development so it's disliked from that point of view there's a sort of time consuming and perhaps almost sometimes self-defeating element in in in in the collection but what the solicitors will have to do i think if they want to eliminate the collateral warranty is point to our bill as providing an efficient solution and persuade the funders and the developers and so on that this is actually a viable alternative and to some extent that will again be part of our job as the commission and i would hope others too who support the bill to make the case and say this is this would be a better solution to this particular problem okay thank you very much can i just take you back to english statutory rules and other jurisdictions and they've been in existence since 1999 statutory rules and third party rights can you provide further information on the impact of this legislation i know you spoke about the the north sea oil industry do you have other examples i think unfortunately there isn't a lot of research or analysis out there about how effective the 1999 act has been in changing the way that people are treating third party rights and there's been some articles written and they certainly all talk about there being a change i think it's been a fairly slow change and there's still the issue about collateral warranties being familiar for people so they stick with what they know and there's also a lot of evidence out there through various articles that you know scots lawyers are using the 1999 act and i suppose the one difference is that our starting points are different so when the 1999 act came into force in england and wales they didn't have third party rights before that so it was quite a fundamental change in their law that's not going to be the case here in scotland we had third party rights they just didn't work very well or they're not working very well so this wouldn't be such a significant step for people it would just be an improvement to what there is so you would imagine that there might be a greater readiness to throw themselves into third party rights and use them more than they experienced down in england and wales but it seems to be that they are being used and people are getting more familiar with them but there are still other options that people are using as well perhaps another example would be helpful which again is in our reports one of the things we discovered was that network rail in its contracts with the railway companies what i think they call them station access agreements and track access agreements these all provide for third party rights in favour of in south of the border the the UK government and north of the border for Scottish ministers to enforce these contracts why did that happen and the answer is of course that network rails predecessor rail track which may be a name that conjures up certain images round about two thousand one two was it i can't remember the the the year crashed and burned network rail replaced it but what the crashing and burning of rail track exposed was how are we going to get these agreements keep them going so the 99 act south of the border was a huge boon and all you had to do was write in that's the UK government has third party rights to enforce these contracts against the the railway companies and the contracts can then go on regardless of what happens to network rail this new company in Scotland there was a slight difficulty because whereas in the english context you'd simply say they have the rights under the 1999 act in scotland the contract had to refer to usequizetum tertio and say it's all irrevocable very distinguished law firm worked very very hard to produce a clause when we have this bill in place it will be very simple to simply refer to it under its statute short title and say the the scottish government the scottish ministers have have these rights as far as experience in england is concerned i think you're speaking with professor hubeel next week who has really carried out the only piece of research that i know of as to the actual use of the english act that was published about 2010 and it's very interesting because he covers a wide range of examples and his his research was based on contacting friends and other contacts in the legal profession and asking them how do you use the 99 act and he was surprised to find that use of it was increasing gently you know lawyers don't like to do anything in a great rush gently things were moving forward and our own research is in scotland tended to confirm that but we don't expect an instant transformation and in particular in the construction context as i say i think the key there is really the attitude of funders funders don't want change to the arrangements that seem to work and that will probably be a dominant factor for some time to come thank you um you touched just a little on arbitration would you want to expand on the need for scottish arbitration legislation to deal expressly with third party rights would you like to discuss that further yeah shall i give that one a cojail um yes well the the starting point is for scotland the arbitration act of 2010 which is a very successful act of this parliament modernised arbitration designed to bring business into scotland and it is being used slowly gently but there is plenty of evidence that that the the act is successful what the act doesn't do however is make provision for third parties to have rights to join arbitrations or to invoke arbitration closet in a sense it's not surprising that that should be so but what the english did in 1999 was to include a provision ultimately in their act because they had been approached by the arbitration community in london and said this act would be more useful already if it included provisions about arbitration in it and essentially what happened in england because it's all really took place after the law commission there had reported on this and decided they couldn't do anything what happened there was that the relevant commissioner um worked together with arbitration industry um to produce solutions to two problems which we can take it that the arbitration community thought were real issues or potential issues for arbitration now we try to give um some examples of this in our um in our handout or in our submission um example four is the first case and is relatively easy case really um what it recognises is what what the relevant provision recognises in the 99 act and it also similarly in our present bill is a situation where the contracting parties create a third party right let's say to payment or performance of some kind supply of goods or whatever it might be but they make that third party right dependent on enforcement by arbitration it will usually be in some sort of general clause in the contract all disputes are rising from this contract or this agreement will be subject to arbitration people want to avoid the courts and the law allows them to to do that why arbitration clauses and the question really is given that the arbitration act in england as in scotland doesn't allow third parties to join how can that clause work and so the solution that was provided for in the english act is provided for in in our bill is that where you have a third party right a substantive third party right as we sometimes call it subject to arbitral enforcement that is the enforcement it's perfectly consistent with the policy of third party rights to say third party rights can be conditional if the conditional is arbitral enforcement then that third party should be allowed to submit any dispute or claim it has to an arbitration okay so i think that's an easy example i hope it's an easy example there's no real difficulty about that the second case is more tricky in essence this is about claims by or against the third party which lie outside the contract altogether okay again perhaps the simplest way is through the example on on on the handouts example five which was suggested to us let me add by the family law arbitration group scotland which is a body of family law practitioners who want to promote the use of arbitration in family disputes i think largely again in the interests of less well off clients and in particular the case that was put to us is cohabitants who've entered into what are called pre-purchase agreements they have definitely decided they do not want to get married or enter a civil partnership if that is what they just wish to cohabit but they wish to buy a house together that's the scenario perfectly common further to be arbitration provision apparently in such transactions are called pre-purchase agreements and the point really is that if the relationship breaks up breaks down the parties will resolve the dispute about the proceeds of the sale of the house by way of arbitration rather than going through the court great advantage to privacy arbitration is essentially a private process what happens in court is a public process so there are certain win-wins the scenario which we developed out of that particular case was one based on actually my own personal experience not as a party but as a seller to persons who couldn't afford the price without the assistance the financial assistance of a relative and so when we transferred our house to those people we also included in the title the third party relative who had funded or supported the acquisition of the property so they became a joint owner with the happy couple and of course what could happen it didn't happen in in our case but what could happen is that you have a breakdown of the relationship and the third party the relative is involved with me but their involvement is not based on anything that's said in the contract the contract the pre-purchase agreement doesn't say anything about them but what they have is an independent right of property they share in the property that belongs to these now two disputing persons and so what the the second provision in arbitration allows is a person who is asserting a right which is relevant to a dispute which is otherwise being arbitrated between other parties the cohabitants in this case to join that arbitration and have their claim considered in that context why do this well the basic point is this that if if as under the present law the funding relative can't join the arbitration because there are a third party to it they have to go to court in order to establish and there is a risk in that scenario that the arbitration will decide one thing about how the proceeds of the sale of the house are to be distributed and the court will decide another it makes sense for all issues relative to this to be considered in one forum in one tribunal and the obvious forum is the arbitration so what we're providing there is for a third party to be able to join an arbitration between two others even though they don't have a third party right in a substantive sense that's available in our first example but their dispute their claim is nonetheless relevant to the matter that is being arbitrated between the the arbitrating parties so what i understand from the English experience was that no one could figure an example of this sort and there has never been a case decided under it in England we are quite proud of this example that we have thought of because it does actually seem to us to be a real example it's a scenario we know could occur and we know that arbitration is being used particularly between cohabitants as a way of resolving disputes when their relationship breaks down and we know that there are these third party funders who frequently take title along with their cohabitants and the relationship breakdown may involve them as well as we try to say in our hypothetical example on the submission the written submission so we think we've advanced one step beyond where the English were in recognition here is a practical example of where this provision might work or be useful and we'll just have to see how that goes once it's out there given your fair tell mind would there be areas in agricultural law and scots law particularly regard to limited partnerships where arbitration might be used there to settle any number of imaginable and unimaginable difficulties that would arise I think the agricultural sector is an area where undoubtedly arbitration is used and can be very effective in its use I haven't been able to think of an example which might involve a third party in that sense in other words the arbitration would just simply take place under the 2010 act in Scotland and presumably there are provisions in the agricultural holdings act I think aren't there are statutory arbitrations but completely sure about that okay thank you very much finally can I just ask if about the policy memorandum which states that the bill will encourage greater use of scots law which is similar to one of the intended objectives of the legal writings counterparts and deliveries scotland act 2015 and we're just wondering if the delivery of indeed that counterparts and delivery the legal writings act has led to the greater use of scots law as has trailed and promised at the time short answer probably yes we did do a kind of survey of probably the bigger legal firms in Scotland ones that were likely to have you know lots of departments that deal with lots of property leases commercial transactions and they asked around within their own organisations and we we got back very generally very positive comments about that piece of legislation and the sorts of comments where you know it makes it's made the decision to use scots law easier and certainly for international transactions and for things that were tight on time it's it has been a boon so yes I think it wasn't a kind of formal statistical analytical follow-up on that act which really has only been enforced now for 18 months so it's still relatively early days but broadly speaking I think yes there has been an uptake and an improvement and people think that that will continue so we'd be hopeful that this bill would have the same sort of impact and there by benefit um the Scottish legal paternity so to speak in in that regard in terms of bringing work to scots law yes excellent well thank you very much um are any other questions that anyone wishes to add to ask when we have this distinguished panel in front of us um or not um right well can I close by thanking you all for taking the time to come and talk to us today and give us your very elegant evidence for which we are very grateful um and we will be in further touch I dare say but in the meantime thank you very much for taking the trouble to come and be with us today thank you I'll suspend the meeting just for a second to allow our witnesses to depart and just remember that we are going so we now move on to agenda item four which is seat belts on school transport Scotland bill and the consideration of the delegated powers within the seat belts on school transport Scotland bill and this bill confers one power to make subordinate legislation upon the Scottish ministers it suggested that we could be content with this power um so can I invite the committee to agree that it is content with the one power in the bill and to prepare a stage one report in this regard content thanks very much now move the meeting back into private