APPENDIX
This Appendix contains both evidence to support the conclusions made in the report and the detail of certain DCFR provisions. The numbering used is the same as that used in the report.
5. THE DCFR: BENEFICIAL ASPECTS FROM A SCOTS PERSPECTIVE
5.1 Simplified and Modernised Terminology
Existing Scots breach of contract terminology is opaque and in need of modernisation. Many of the relevant terms begin with the letter 'r'. The party in breach who indicates through his conduct that he or she no longer intends to be bound by the contract "repudiates" the contract. Repudiation by party A gives rise to innocent party B's right to "rescind." Another term, "resile" is used to describe the right of a contracting party to withdraw from a contract, for example, where the contract was conditional and that condition has not been purified. All three terms: repudiate, rescind, and resile, are often confused.
The equivalent terminology used in the DCFR is preferable. A material breach on the part of one contracting party is described as "fundamental non-performance." 51 The innocent party, faced with fundamental non-performance, has the right to "terminate" the contract. 52 There is no specific equivalent of "resile," and perhaps a non-technical term such as "withdraw" might be used. These terms are more transparent than the Scottish equivalents.
Latin terms are also used in Scots law and often misunderstood. An example is the name given to the Scots concept of third party rights in contract: jus quaesitum tertio. Another example is the term used to describe the situation where one party steps in to administer the affairs of another without authority of the absent person: negotiorum gestio. The equivalent terms in the DCFR: stipulation in favour of a third party 53 and benevolent intervention in another's affairs, are highly preferable. 54
5.2 Concepts which show a high degree of similarity to Scots law
5.2.1 Third party right/ jus quaesitum tertio
The DCFR stipulation in favour of a third party is similar to, but more extensive than, the Scots jus quaesitum tertio, (" JQT"). 55 As is the case in Scots law, under the DCFR contracting parties can confer a benefit on a third party who is not yet in existence, such as an unborn child or an unincorporated company. This aspect can be practically useful.
Whereas parts of JQT are subject to doubt, equivalent aspects of the DCFR are clear. An example is the ability of a third party to make use of a limitation or exclusion clause. A third party has access to such a benefit under the DCFR, 56 whereas Scots law on this point is unclear. The DCFR provisions are beneficial: protections offered by exclusion or limitation clauses can be extended to parties other than the contracting parties. This is useful particularly in business contexts involving multiple actors, such as construction situations.
Another defect of Scots law not found in the DCFR relates to the legal basis of the third party right. In Scots law the relationship between JQT and promise is unclear, and has led to difficulties in identifying remedies available to the third party. The DCFR is clear on this point: the third party has the same rights and remedies as though he were the addressee of a unilateral promise. 57 He therefore has access to specific implement or an action for damages for breach. 58 In Scots law the third party's right to claim damages is subject to doubt. 59
One fundamental flaw of JQT is not present in the DCFR. The Scottish third party must prove that his right has been made irrevocable before that right is properly constituted. Arguably, this particular aspect makes JQT unpopular in Scotland, and has led to its infrequent use in practice. The version contained in the DCFR has no such requirement.
Whereas the DCFR contains a mechanism for rejection by the third party of the benefit, 60 Scots law contains no such mechanism. The DCFR formulation is preferable in this respect, leading to greater certainty.
5.2.2 Unilateral Promise
Both the DCFR and Scots law, in contrast to English law, contain an enforceable unilateral promise. The formulations under the DCFR and Scots law are similar: the promise or undertaking is binding on the party giving it if it is intended to be legally binding without acceptance. 61 In both Scots law and in the DCFR the addressee of the promise may enforce the promise using specific implement/performance or claim damages for breach of the promise.
5.2.3 Specific Implement (specific performance)
The DCFR can be aligned with Scots law and with the civilian legal systems in Europe in that the innocent party's primary remedy for breach of contract is specific enforcement of the contract rather than damages. By contrast, the primary remedy in English law is damages. The version of the remedy which appears in the DCFR shows a high degree of similarity to Scots law. As is the case in most European systems, the DCFR contains categories in which specific performance is not available. These categories are not markedly different from those existing in Scots law.
5.3 Regulation of areas which are largely unregulated in Scots law
The DCFR contains both general rules on services and specific rules applicable to specific types of service contracts, namely construction; processing; storage; design; information and advice; and treatment. 62
The DCFR rules on services are likely to be of greatest use to consumers and small businesses. 63 Large businesses in Scotland are unlikely to abandon the existing standard forms, negotiated and concluded through solicitors. Thus, the role of the DCFR rules may be in providing a "fall-back" regime.
Of particular interest to consumers are the rules within the DCFR on processing and storage. 64 The definition of "processing" would include, for example, items left with a repairer or photographs left with a developer. 65 "Storage" would include storage of household goods in "lock-ups" or cars left in a secure parking areas whilst owners are on holiday. 66 These contracts are commonly entered into by consumers, and yet they are almost unregulated. Important issues, such as the duty of skill and care owed by the business are subject to doubt. This issue is clarified in the DCFR. 67
Although, on the whole, the regimes governing services contracts in the DCFR are attractive, certain factors require further consideration. The rules encourage communication of information between the parties. The duties are extensive, for example, the service provider is under both pre-contractual and contractual duties to warn the client if the service provider becomes aware of a risk that the service requested may not achieve the result stated or envisaged by the client. 68 Such duties to warn, not currently part of Scots law, might prove unpopular with businesses because of their tendency to increase time and transaction costs. Chapter 7 on Information and advice would impact upon professionals such as solicitors and estate agents. This chapter would require to be carefully scrutinised to check that its terms are consistent with existing professional codes of conduct.
5.4 Parts of the DCFR which resemble un-enacted recommendations of the SLC
Scots law contains an anomaly as a result of the case, White & Carter Councils v McGregor.69 Where contracting party A indicates, shortly after formation of the contract, that he no longer requires performance by B, B is nevertheless entitled to continue to perform. This is, of course, economically wasteful. Under the DCFR, party B would not be entitled to perform if he could have made a reasonable substitute transaction or if performance would be unreasonable in the circumstances. 70 This provision is almost identical to the recommendation (and concomitant clause of the bill) contained in the SLC Report on Remedies for Breach of Contract, 71 published in 1999.
Another example lies in the field of penalty clauses. Contracts commonly include liquidate damages clauses, in terms of which a specific sum is payable on breach whether or not that sum is greater or less than the actual loss suffered. These clauses are only enforceable in Scots law if they represent a genuine pre-estimate of loss. If they are not, they are classed as a penalty, and are unenforceable. Currently in Scots law, there is no mechanism which would allow a court to reduce an excessive penalty to an acceptable level. The DCFR gives to the court such a power where the penalty is "grossly excessive." 72 This power is welcome because it allows the court more closely to reflect the intentions of the parties. It is better to apply a penalty rather than no penalty at all.
There is a high degree of similarity between the terms of the DCFR on penalty clauses and the recommendation (and concomitant clause of the bill) contained in the SLC Report on Penalty Clauses, 73 published in 1999. Under the SLC recommendation the court would be entitled to amend the penalty where it is "manifestly excessive." 74 Under the DCFR equivalent provision, the court can amend the penalty where it is "grossly excessive". As a weaker formulation of an SLC recommendation, the terms of the DCFR are likely to be acceptable from a Scots perspective.
6. THE DCFR FROM THE PERSPECTIVE OF THE CONSUMER
6.2 Marketing and pre-contractual duties
The Marketing and pre-contractual duties fall into four headings: information duties; duty to prevent input errors; negotiation and confidentiality duties; and unsolicited goods and services. 75
Duties are imposed in B2B and B2C situations in relation to formation by electronic means. 76 Businesses must provide information about the technical steps which must be followed in order to conclude the contract; whether or not a contract document will be filed by the business and whether it will be accessible; the technical means for identifying and correcting input errors before the other party makes or accepts an offer; the languages offered for the conclusion of the contract; and any contract terms used. 77
The information duties in the DCFR applicable only in B2C contexts (see 6.2 above) apply where the business is marketing goods or services to consumers, 78 where the consumer is at a disadvantage, because of the technical medium used, physical distance between business and consumer or nature of the transaction, 79 and where the business initiates direct and immediate distance communication. 80
The extent of the information to be provided by a business in a B2C situation where the contract is concluded at a distance is extensive, including information about the main characteristics of the goods or services, the price including delivery charge, taxes and other costs, the address and identity of the business with which the consumer is transacting, the terms of the contract, the rights and obligations of both contracting parties, and any available redress procedures, as may be appropriate in the particular case. 81 All such information must be confirmed in textual form on a durable medium. 82 This constitutes a significant administrative burden for businesses.
6.3 Non-discrimination
The DCFR provisions on non-discrimination are comprehensive, extending to harassment, including conduct of a sexual nature. 83 They are also balanced, discrimination being potentially justified by a legitimate aim. 84 The victim also benefits from a reversed burden of proof, the party who has allegedly committed the discrimination being obliged to prove that no discrimination has occurred. 85
7. THE DCFR FROM THE PERSPECTIVE OF BUSINESSES
7.4 Marketing and pre-contractual duties
Details of the content of these duties are provided at 6.2 above.
7.5 The grant to the courts of powers to amend contract terms
The DCFR gives to the court power to amend contract terms in cases of change of circumstances, or what is known in Scots law as frustration of contract. In terms of this principle, where a contract is so fundamentally affected by unexpected circumstances that it no longer constitutes, in practical effect, the contract the parties concluded, those parties can be released from their contractual obligations. The point at which the parties are released may be arbitrary (triggered, for example, by war or civil unrest). The parties may be left in an unfair situation, e.g. one party having paid part of the price but having received nothing in return. The powers currently available to a Scottish court in this situation are so limited that they are, arguably, ineffectual. 86 The court is limited to ordering the return of benefits from one party to the other. Where party A has carried out services which have resulted in no transfer of a tangible benefit to party B, A has no remedy. The parties are left in an inequitable situation.
The DCFR provisions allow a court to vary the contract to make it reasonable and equitable in the new circumstances 87 and to terminate the obligation at a date and on terms to be determined by the court. 88 The powers are limited: the change of circumstances must be "exceptional" and the power to vary may only be utilised where it would be "manifestly unjust" to hold that party to the contract. 89 The solution is a balanced one, which causes no significant concerns to Scots lawyers.
Other provisions in the DCFR allow the courts to vary the price under a contract. 90 Certain of the powers are uncontroversial, for example, where a third party originally appointed by the contract to determine the price either cannot or will not do so, 91 or where the price was to be determined by reference to an external factor which no longer exists. 92 More controversial powers enable a court to set a reasonable price or substitute a reasonable price for a grossly unreasonable price. 93 This differs little from the, as yet unused, power of Scots courts to reopen extortionate credit bargains. 94 In conclusion therefore, the DCFR provisions are acceptable to Scots lawyers.
7.6 Rules on Interpretation of Contracts
Over the course of the last twenty years, the rules on interpretation of contract have developed significantly, largely as a result of ground-breaking speeches of Lord Hoffmann in the House of Lords. 95 Despite these developments, Scots and English law remain out-of-step with the rest of Europe. Both systems exclude reference to the parties' negotiations prior to conclusion of the contract and the parties' conduct after conclusion of the contract as part of the court's interpretative process. Both types of evidence are admissible under the DCFR. 96