Opinion: Lorna Richardson
The SLC Discussion Paper on Remedies for Breach of Contract seeks to encourage continued performance rather than termination of a contract. Would it achieve a better balance than the present law?
On 10 July the Scottish Law Commission published its Discussion Paper on Remedies for Breach of Contract. It encompasses self-help and judicial remedies, together with transferred loss situations (commonly referred to as the “legal black hole”) and contributory negligence.
To say that some of the issues considered are thorny is an understatement. What remedies should be available on a breach of contract, and how they should operate, is a complex issue. The Commission states that it has focused on the contract being performed as agreed, with the parties working together to resolve disputes, rather than having to go to court or rescind the contract.
So to what extent do the possible reforms discussed further that end?
Many remedies already available to the party faced with a breach do encourage contractual performance – for instance, the self-help remedy of withholding performance pending performance of the counterpart obligations under the contract. Specific implement and interdict also promote performance of contractual obligations, whether positive or negative.
The ability to rescind for material breach, or anticipatory breach, on the other hand, brings future performance to an end. Neither of these requires court action. However, both are only available where there has been a serious breach or anticipated breach of contract.
The Commission seeks views on many possible reforms. In some places it seeks to clarify the law, or make changes to the vocabulary used in order to make the law easier to understand. In other areas more substantive changes are suggested.
Some additional remedies have been proposed, which seek to preserve the contract following breach: price reduction; a right for the creditor to require cure (similar to consumers seeking repair or replacement goods in terms of the Consumer Rights Act 2015). A further possibility is giving the party in breach a right to cure their defective performance.
One wonders whether a remedy of price reduction is necessary when the creditor can currently seek damages and in many cases retain the price where it has not yet been paid. A creditor’s right to seek cure could, however, be a useful additional remedy, particularly given doubt as to the availability of specific implement where performance is defective, and the fact that it will not be granted where the dispute concerns goods readily available in the market.
At the opposite end of the spectrum is the debtor’s right to cure. The Commission notes that, with certain specific exceptions, there is no general requirement on the creditor to notify the debtor of defective performance and allow time to cure the defect before rescinding the contract. While floating the possibility, it considers such a right shifts the focus too far in favour of the debtor.
Some proposals would not further the objective of contractual performance. The Commission seeks views on whether persistent non-material breaches should allow rescission. This could be a useful remedy. A further suggestion is that a creditor be able to respond to indications that the debtor is unwilling or unable to perform their obligations as they fall due, by seeking an adequate assurance of performance, and to rescind if this is not received within a reasonable time.
Another reform suggested is that where a creditor has not yet performed and it is clear that the debtor is unwilling to receive performance, the creditor can proceed with performance and seek payment, unless they could have made a reasonable substitute transaction without significant effort or expense; or performance would be unreasonable in the circumstances. Adding these qualifications to recovery of the contract price does not seek to uphold the contract, but does seek to balance the parties’ interests.
While the Commission’s stated intention is that the law should encourage contracts to be performed, and some of the possible reforms would achieve that, others do not. This is unsurprising. A balance must be sought between the parties’ interests. Where there has been a serious breach or persistent breaches of contract, the creditor may no longer have faith in the debtor’s willingness or ability to perform. The law must, and does, recognise that. The possible reforms set out by the Commission also do so. Additional remedies, whether to allow continued performance or rescission, provide the creditor with more options on how to respond to a breach or anticipated breach. That is surely a good thing.
For a fuller version see Journal online: bit.ly/2f8Wepo