Contract formation: so long postal acceptance?

United KingdomScotland

As part of its work on the reform of contract law in Scotland, the Scottish Law Commission (the “SLC”) has launched a consultation seeking views on a working draft of the Contract (Formation) (Scotland) Bill (the “Bill”) which will modernise and codify the law of formation of contracts. The SLC is seeking comments on the Bill before finalising and publishing it alongside a final report in Spring 2018.

Background

The formation of contracts under Scots law has been subject to much review and criticism. The lack of direct Scottish authority and the difficulty in reforming the postal acceptance rule have been two major factors in the proposal for the codification of this area of law. Following responses to the SLC’s Discussion Paper on Formation of Contract (the “Discussion Paper”), the SLC decided on policy to reform the current law and has published an informal consultation on the working draft of the Bill.

The Bill

Several of the Bill’s main provisions are set out below:

  • Abolition of the postal acceptance rule: put forward in the Discussion Paper and supported unanimously by consultees, the Bill provides for the abolition of this outdated rule.
  • Notification and when it takes effect: important in the context of electronic communication, the Bill specifies that a notification from one party takes effect on “reaching” the other party. For electronic communications, “reaching” means when it becomes available to be accessed by the person where it is reasonable to expect that the person is able to access it without “undue delay”.
  • Revocation of an offer: the Bill provides that an offer may be revoked unless there has been notification of acceptance by the offeree that agreement has been reached. The Bill does not impose any specific rule on time limits in this regard.
  • Material change of circumstances resulting in the lapse of an offer: the Bill provides some clarification on an area not currently settled in Scots law. If, after an offer is made, there is a material change of circumstances, then the offer lapses and can no longer be accepted. However, it is not entirely clear how this clause will operate (or whether it will apply) where corporate entities are involved. This area is likely to receive considerable feedback during the consultation.
  • Conclusion of contract by unnotified acts: the Bill provides that a contract can be concluded on the offeree beginning to perform certain acts, without the offeror particularly being aware, where the parties have established such a practice between themselves.
  • Counter-offer: the Bill makes clear that where a notification is given by the offeree which provides: (i) additional terms to those of the original offer; (ii) terms different from the original offer; (iii) and/or omission of terms from the original offer, such notification amounts to a rejection of the original offer and a notification of a counter-offer.

Comment

The Bill aims to provide clarification and align law of formation of contract with modern common practice, moving away from archaic rules and implementing provisions to reflect today’s wide range of modern communication methods. With the Bill published as a working draft, it remains malleable with its final content to be determined following the responses the SLC receives to the consultation. Interested parties can respond to the consultation here (under the heading “Formation of Contract”).