Contract (Scotland) Bill (Hansard, 11 March 1997)

§ Lord Mackay of Drumadoon
My Lords, I beg to move that this Bill be now read a second time.
In January last year, the Scottish Law Commission published a report entitled Three Bad Rules in Contract Law. It recommended the abolition of the following rules: first, that a buyer of heritable property cannot recover damages for certain types of breach of contract unless the house is returned to the seller; secondly, that contract terms agreed between the buyer and seller of a house—for example, that the central heating system would be in working order—are superseded by the subsequent conveyance or deed transferring title into the name of the purchaser unless specific steps are taken to contract out of that rule; and thirdly, that where a contract appears to have been embodied entirely in writing, extrinsic evidence is not admissible for the purpose of proving additional terms.
The commission argued in its report that those three rules were having inequitable results and that the uncertainty surrounding them had led to a substantial body of conflicting case law. The Contract (Scotland) Bill now before us seeks to implement the recommendations of the Scottish Law Commission and we hope it will thus clarify and simplify the law. When the draft proposals for legislation were published, they were widely welcomed and they have the support of, among others, the Law Society of Scotland and the CBI (Scotland). When the Bill was before another place, it received unanimous approval from all sides.
It may be helpful if I explain briefly what the existing rules are and how their abolition under the provisions of the Bill will reform and improve the law.
245 Under Clause 1, the present rule on extrinsic evidence which restricts proof of additional contract terms will be replaced. Clause 1 thus reforms the law of evidence rather than any substantive law. For example, it does not affect any rules for the constitution or formal validity of a contract.
Some concern has been expressed that this clause would remove the current degree of certainty as regards written contracts. The Scottish Law Commission considered, however, that the provision of a rebuttable presumption combines the advantage of certainty with the means of avoiding possible injustice. Clause 1 does not have the effect of adding additional clauses to a contract or allowing parties to add clauses to a contract after it has been signed. It simply affects how parties prove whether an additional clause formed part of the original contract.
Clause 2 abolishes the existing rule of law on supersession. The effect of that rule is that, regardless of the intentions of the parties, a contract is entirely superseded by the execution or delivery and acceptance of a conveyance or other formal deed in implement of the contract. Perhaps a most common example of the operation of the supersession rule is to be found where missives have been agreed for the sale of heritable property. The Scottish Law Commission was of the opinion that freely negotiated provisions, for example, as to the condition of the property should be enforceable even after the delivery by the seller to the purchaser of the disposition conveying title to the property to the name of the purchaser. Under the present law, however, such provisions agreed in missives may not survive the delivery of the conveyance and the genuine intentions of the parties may thus be frustrated. In recent years, much unnecessary litigation has been caused as a result of the rule.
The new provisions will mean that, unless the parties agree otherwise, a contract will only be superseded by the execution of a formal deed to the extent to which the terms of that formal deed in fact implement the contract. Any unimplemented or unfulfilled term of the contract will remain outstanding and in force unless the parties have agreed a specific agreement to the contrary effect.
Finally, Clause 3 abolishes the present rule that in cases other than those coming under the Sale of Goods Act a buyer who claims there has been a breach of contract by a seller is not entitled to retain the property in question and claim for damages. The most common and invidious application of this rule is in relation to house sales, where the Scottish Law Commission considered that it was unreasonable to expect a buyer to reconvey a house to the seller before being able to raise an action for damages.
Under the new provision, a house buyer will be able to retain the property when suing for damages for a breach of contract. The Scottish Law Commission recommended that the assessment of those damages should be left to the general law of damages rather than allowing the purchaser to claim a monetary sum based on the value of the subjects being worth less than that 246 which had been paid for them. Such a rule would add to the complexity of the clause and would, it is believed, introduce an unnecessary anomaly into the law.
The new rule will affect the sale of land or houses or incorporeal moveable property, such as shares, but not, I stress, goods defined in the Sale of Goods Act, to which the rule did not apply. The law will thus be consistent for all property.
I believe that the provisions contained in the Bill may be of a technical, legal nature. However, they are uncontroversial. They represent much needed simplification and clarification of the law of Scotland, which I believe will be welcomed by lawyers throughout Scotland, by the business community and by private members of society who may have occasion to purchase and sell a domestic property. Accordingly, I commend the Bill to the House.

§ Lord Mackie of Benshie
My Lords, I apologise to the noble and learned Lord for those sotto voce remarks, which were entirely complimentary. I meant to say that this is such a good Bill that there is no need to explain it. I realise, however, that for the record it has to be mentioned.
This is a good Bill. It must be an enormous pleasure for the noble and learned Lord the Lord Advocate to put forward a Bill which is full of virtue, unlike most of the Conservative Government's Bills with which I am sure he struggles greatly. The Law Commission recommended the abolition of those three bad clauses. The Bill strengthens the Scottish system of contract even further and improves the superiority of Scots law as against English law. It is wholly to be commended.
For myself, my education has been much improved. I knew what "intrinsic" meant, and now I know what "extrinsic" means. I commend the Bill to the House.

§ Lord Macaulay of Bragar
My Lords, from this side of the House we welcome the Bill in so far as it attempts, as the noble and learned Lord the Lord Advocate said, to simplify the law. I was quite ready to take it on that basis and follow what the noble Lord, Lord Mackie of Benshie said. But having listened to the noble and learned Lord explain the Bill for five minutes, it seems to me that we are again walking into a lawyer's paradise. I do not condemn the Bill in any way. The Law Commission has done its job. We shall just have to see how this measure works out in due course in relation to the matters which it covers.
Having heard the explanation of the noble and learned Lord the Lord Advocate of what the Bill is all about, I have now—only in the past three or four minutes, to be honest—acquired some grave reservations whether it will simplify the law or whether the lawyers will be 247 back in the field again. Whether it is a level playing field, as we discussed last night, is another matter. We do not of course oppose the Bill.

The Earl of Balfour
My Lords, perhaps I may ask just one question. I am not well versed in these procedures, but it seems that in Clause 3 the buyer of property is protected. But what happens if the buyer decides at the last minute not to buy the property? That could be quite a serious problem. I wonder whether my noble and learned friend can give an answer in that respect.

§ Lord Mackay of Drumadoon
My Lords, I am grateful to the noble Lord, Lord Mackie, for his enthusiastic welcome for the Bill. I am happy to learn that I did not require to speak for some 50 minutes to explain the Bill's virtues to the noble Lord, as I endeavoured to do not so long ago in relation to another equally virtuous Bill.
I regret that anything that I may have said caused the noble Lord, Lord Macaulay, to think that this Bill in some way creates an additional paradise for the legal profession. That was not the intention of the Law Commission, I am sure. It has certainly not been the view of those who have read the Law Commission's report and seen the draft Bill that was attached to it. I hope that the reservations that have recently come upon him will prove to be as without foundation as some other reservations that he has expressed within the past 24 hours.
My noble friend Lord Balfour raised the issue of what happens when the buyer of property changes his mind at the last minute. Clause 3 is not intended to change the law in that respect. If the buyer has entered into a contract, he is under certain contractual obligations in the same way as is the seller. He cannot just walk away from the contract on a whim. He is entitled to do so only if the defender is in breach of contract, as sometimes happens—for example, if he is not in a position to deliver a valid title to the property. So his rights in that respect are not varied. This Bill gives him certain additional rights which he currently does not have. It is on that basis that the Law Commission thought that it would be of assistance to the population of Scotland to have the law amended in the way set out in Clause 3. I hope that provides an answer to my noble friend's point. I again commend the Bill to the House.

§ Lord Carmichael of Kelvingrove
My Lords, before the noble and learned Lord sits down, I wonder whether he can help me. I am slightly confused. The point raised by the noble Earl, Lord Balfour, raised a question in my mind. Suppose that someone apparently enters into a contract to buy a house and then decides not to continue and runs away from it—perhaps he has even paid over part of the money. If someone is in the position of believing that he has sold a house or property and the purchaser refuses to complete at the last minute, it probably means that the person trying to sell the property has been involved in 248 extra finance. Falling from the last Bill, that person may not be able to raise enough money to afford legal aid unless he can obtain a double mortgage.
There is something in this point although I am not quite sure what it is. I feel that the noble Earl, Lord Balfour, for whom I have every respect in the way that he trawls through Scottish legislation, has got hold of a point. Would the noble and learned Lord the Lord Advocate either try to answer my jumbled question, or write and let me know the position?

§ Lord Mackay of Drumadoon
My Lords, I shall endeavour to clarify the position at this stage. Clause 3 provides: Any rule of law which precludes the buyer in a contract of sale of property from obtaining damages for breach ….unless the buyer rejects the property and rescinds the contract shall cease to have effect. If there is a situation whereby there is a contract for purchase and sale of a house and, for whatever reason, the house is not in the condition required by the contract, nevertheless the purchaser can go ahead with the contract and sue for any damage he has suffered. If, on the other hand, the buyer wishes to walk away from the contract, he would be entitled to do so, provided that the seller was in breach of contract. The law on that has not changed. In the case of a fire or an explosion that destroys the property, the law is not altered from its present state. If there have been payments in advance, they may not be refundable. Everything would depend on the circumstances of the specific case.
The clause sets aside the current rule so that if the buyer bought the property and it was not in the condition in which he was entitled to receive it in terms of his contract, he could nevertheless retain the property and sue for damages. That is not a right he currently has and is a right he would only attain when the Bill becomes law.
I hope that answers the point raised by the noble Lord, Lord Carmichael. If not, he will no doubt draw that matter to my attention and we can discuss it informally or engage in correspondence if that would be of assistance to him.
On Question, Bill read a second time, and committed to a Committee of the Whole House.