Same: interpretation

In last year’s Supreme Court case Lloyds TSB Foundation for Scotland v Lloyds Banking Group PLC ([2013] UKSC 3), the court did not distinguish between Scots law and English law when interpreting a Deed of Covenant.

This deed obliged Lloyds to pay the Foundation a portion of its group profit on an annual basis. After the deed was signed, a European Regulation came into force, which compelled Lloyds to include negative goodwill in its accounts. According to expert evidence this was an unforeseeable and unthinkable development. The question for the Supreme Court was whether negative goodwill should be included in calculating the amount due to the Foundation.

The Supreme Court held that the proper approach was to interpret the parties' original intentions in a contextual and purposive manner, and then to evaluate how the wording of the deed best operated in the changed, unforeseen, circumstances. By interpreting the deed in the legal and accounting context which existed when it was agreed, they concluded that goodwill should not be included in the accounts. The wording of the deed worked naturally by excluding the negative goodwill, which gave effect to the original intentions of the parties.

While this case shows that the rules of contractual interpretation in both jurisdictions are much the same, it should not be presumed that other rules and principles of contract law are the same under both legal systems. Instead, as we now outline, it should be noted that there are some striking differences between the two.

Different: rectification

Rectification of a contract is often included as an alternative in an action of contractual interpretation. If a party's interpretation is not favoured, it can still succeed if the court considers that the proper interpretation means the document does not accurately express the parties’ common intention, and should be rectified accordingly. Unlike in England, this remedy arises from a statute in Scotland – the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985.

A recent Scottish case has clarified the requirements for rectification in Scotland. In Patersons of Greenoakhill Limited v Biffa Waste Services Limited ([2013] CSOH 18) Lord Hodge (now in the Supreme Court) held that:

  • there must be an existing agreement between the parties showing their continuing common intention;
  • a party’s subjective understanding was not relevant if not communicated;
  • a party's conduct post-contract might be relevant; and
  • the parties' solicitors’ communications and conduct would also be examined.

Although the basis for the remedy is different in Scotland, it was held that there was still a “stiff hurdle” to be overcome with regard to the quality of evidence required.

Different: remedies - performance

Another important distinction between the two jurisdictions relates to the remedies that are available to the aggrieved party when there has been a breach of contract. In Scotland, the innocent party can choose between accepting the other party's repudiation of the contract and claiming damages, or refusing to do so and seeking specific implement, which is an order compelling performance.

Such an order can usefully be sought where there is a “keep open” clause in a commercial lease to compel the tenant to continue trading. Further, it was confirmed recently in the Inner House (Appeal Court) decision in AMA (New Town) Limited v Law and others ([2013] CSIH 61) that where a contract for the sale of heritable property was complete, but the purchaser had not yet paid the price, the seller could seek to implement the missives and sue for payment. This was so even though the usual approach was to accept the breach of the purchaser and claim damages. The seller could only be compelled to resort to damages if implement was impossible or, in exceptional circumstances, disproportionate and unreasonable.

Different: prescription

Finally, but significantly, the time limit for raising an action is different in each jurisdiction.

In England, claimants normally have six years to bring an action for breach of contract, in accordance with the Limitation Act 1980 (as amended). In Scotland, the rules are contained in the Prescription and Limitation (Scotland) Act 1973 (as amended), which provides that such actions must generally be raised within five years.

As claims will prescribe first in Scotland, it is imperative that practitioners are aware of the difference between the two jurisdictions and raise actions within the correct time period. Putting this into context, it may be that some claims arising out of the financial crisis are already time barred in Scotland, but may still be actionable in England.


Given the differences in general contract law, when faced with a contract that is governed by Scots law, we recommend that you seek specialist Scots law advice. We have briefly mentioned a few areas of significance but there are many others. Scots law will apply to a contract if parties have elected for it to be the governing law of the contract, or, if the contract is silent on the issue of governing law, where a court decides that the applicable law is Scots law.