When a deal becomes a deal: What Scotland’s new Contract Law means for Northern Isles businesses

For businesses and community organisations across Orkney and Shetland, agreements are often made across distance: by email, over the phone, between Scottish mainland suppliers, island customers and partners further afield. That makes clarity about when a contract is actually formed, whose terms apply and what happens if things go wrong especially important.

It is important to stress at the outset that Scots law is different from English law. Within the UK, of course, it is very common for businesses in Scotland to enter into agreements with organisations based elsewhere. In that context, it is worth being aware that there are some distinctions and think about how you set up your agreements.

The Contract (Formation and Remedies) (Scotland) Act 2026 represents the most significant statutory intervention in Scots Contract Law for many years. The legislation, which received Royal Assent on 14 April 2026, is evolutionary rather than revolutionary: it codifies existing Scots common law rather than replacing it.

Purpose and structure of the Act

The legislation is divided into two main areas: contract formation and contractual remedies. Its principal aim is to make Scots Contract Law more accessible and commercially practical while preserving the autonomy of contracting parties.

Most of the Act’s key provisions operate only as default rules, meaning parties remain free to contract out of them.

Part 1: Contract formation – key reforms

One of the most significant aspects of the Act is the statutory treatment of offer and acceptance. Generally, a contract is only formed and becomes binding when an offer to enter into a contract has been accepted. Sometimes, however, disputes arise about whether and when an offer has been accepted.

Under English law, acceptance communicated by post generally becomes effective when the letter is posted rather than when received. However, there had historically been a degree of uncertainty around this in Scots law. The Act now addresses this uncertainty and adopts a receipt-based approach for Scotland, which means acceptance only takes effect when it reaches the offeror. This reflects the realities of modern electronic commerce and creates a clearer and more predictable rule, but it contrasts with the position down south.

“Battle of the forms”

Another example of this is the “battle of the forms” issue, where parties exchange their own competing standard terms. English courts usually apply the “last shot” doctrine, treating the final set of terms sent before performance as those which govern the contract. The new legislation adopts a more pragmatic approach in Scotland, however, allowing courts to conclude that a contract already exists, even where standard terms conflict or where parties are still negotiating some terms. The test is whether the agreement contains the essential characteristics of the contract type, as well as sufficient content to be legally workable. This reflects the flexible and commercially focused character of Scots law, but it might also lead to some uncertainty about what the terms of the contract actually are – or even whether a contract has been agreed or not.

Consideration

It’s worth noting that gratuitous promises will still be enforceable in Scotland, provided any required formalities are satisfied. This is again in contrast to English law, and it calls for care to be taken when making promises to customers or clients in Scotland.

Part 2: Remedies and mutuality

The Act also modernises aspects of contractual remedies. It seeks to clarify and rationalise the law relating to:

• mutuality, where both parties are in breach;
• restitution following breach or failure of contract;
• valuation of performance where contractual pricing is absent or incomplete; and
• withholding of performance in response to breach.

There is no change to the default position in Scots common law, where enforcement of the contract is the primary remedy for breach, as opposed to damages. This too differs from English law.

A key Scots principle is “mutuality”, by which a party in material breach of contract may lose the right to insist on performance by the other party. The Act now expressly recognises circumstances where a party may legitimately suspend or retain performance in the face of a breach of contract by the counterparty.

Where a contract fails or is terminated, the Act also clarifies when and how benefits transferred under the contract should be returned or accounted for. This is particularly relevant in scenarios involving partial performance, prepayments or staged delivery models. Further, the Act provides clearer guidance on valuation where contractual terms are incomplete or absent, reducing reliance on judicial assessment. This is designed to improve predictability where parties carry on without fully specified pricing structures.

What does this mean in practice?

The Contract (Formation and Remedies) (Scotland) Act 2026 has a number of practical implications that are worth being aware of. Scotland continues to prioritise contractual substance over technicalities.

While many commercial principles remain aligned between Scotland and England, differences continue to matter in areas such as contract formation and variation, gratuitous obligations, pre-contractual negotiations, standard form contracts and remedies following breach or repudiation.

If doing business with customers or clients in England or elsewhere, it is worth being aware that the law is different south of the border. Specifically, it is always worth paying close attention to things like governing law and jurisdiction clauses.

How we can help

If you have any queries relating to the topics discussed in this article, or require assistance with a cross-border matter, please contact Fraser Geddes or a member of our team here.