Lesley Montague: 3rd party rights under Scots common regulation

The landscape of 3rd celebration rights in Scots legislation has adjusted significantly because the Deal (3rd Get together Rights) (Scotland) Act 2017 came into power. Having said that, that legislation is not retrospective and applies only to contracts entered into following on or immediately after 26 February 2018. This usually means that there are nevertheless residual contracts to which the common regulation will apply.

A single this kind of scenario, The Motor Lawn Edinburgh Minimal and Allenbuild Constrained v Bayne Stevenson Associates Constrained [2024] CSOH 13, sheds some light on the nuances of third bash legal rights beneath frequent regulation in the context of a assert for delivery of a collateral warranty under a design contract.

Being familiar with third party legal rights

At common law, 3rd get together legal rights are rights conferred by contracting events on a particular person who is not a party to the contract. They occur only where the parties to the contract intend to generate these kinds of rights, not wherever there is a just incidental advantage to a 3rd occasion. These types of legal rights are recognised beneath the prevalent regulation doctrine of jus quaesitum tertio.

In this modern case, the Court docket of Session examined whether a jus quaesitum tertio was founded in favour of the pursuer, The Motor Lawn Edinburgh Minimal, less than a building deal between two other parties, Allenbuild Minimal and Bayne Stevenson Associates Limited.

Important issues in dispute

The essential situation was whether or not the pursuer, The Engine Yard, could demand the execution and delivery of a collateral warranty from the defender, Bayne Stevenson, regardless of not getting a direct occasion to their deal of appointment.

The pursuer argued that due to the fact the appointment required the defender to develop a collateral warranty in its favour, the pursuer had a third party suitable giving it title and interest to sue the defender to implement this obligation directly.

The defender submitted that only the other celebration to the deal, Allenbuild Minimal, could enforce the obligations less than the appointment and that, in any party, the obligation to develop a warranty experienced prescribed mainly because there experienced been no written request for a person inside of 5 a long time from the date of the deal.

The parties’ intentions

The core concern for the Court docket was regardless of whether it was the contracting parties’ intention, discerned by considering the words and phrases made use of in the agreement, to protected a benefit for a third get together, or no matter if these types of profit was the incidental result of a stipulation conceived mainly for some other function.

Finally, the Court rejected the proposition that the deal made a jus quaesitum tertio in favour of the pursuer for two primary explanations: 1st, Allenbuild Minimal had its personal substantive interest in currently being capable to demand from customers the execution and supply of a collateral guarantee from the defender because this was required to fulfil its obligations beneath the primary setting up contract. Next, the contract was only 1 portion of a array of joined contractual legal rights and obligations, among different parties, and the implication of a jus quaesitum tertio could undermine the necessary construction of the contractual arrangements which these get-togethers experienced determined to place in spot.

The Court docket consequently rejected the proposition that the agreement conferred any jus quaesitum tertio on The Motor Yard, and discovered that Motor Garden had no proper to need the execution and shipping and delivery of a collateral warranty from Bayne Stevenson instantly.

Prescription and the obligation to make a collateral guarantee

In addition, the Court docket tackled no matter whether the right to sue for supply of the collateral guarantee had prescribed getting regard to the procedure of the five yr time period of beneficial prescription below area 6 of the Prescription and Limitation (Scotland) Act 1973.

The defender argued that its obligation to provide a warranty on ask for commenced when it signed the deal in May 2017. As no request was made within just 5 many years, the obligation experienced lapsed.

The pursuers argued that the obligation to produce a warranty only arose when a prepared desire was made for it. As the need was only built in August 2022 (staying five yrs and a few months right after the agreement was entered into), the defender’s obligation was induced at that position, and the 5-calendar year period of time of prescription only began then.

The Court docket discovered in favour of the defender. The defender could have been called on at any place from May 2017 to complete the obligation to execute and deliver a guarantee. This indicated that the underlying obligation existed from the outset of the deal. The language of the related clause of the appointment letter did not suggest that the obligation only became enforceable on the earning of a written ask for.

The defender’s obligation to execute and provide a warranty experienced for that reason subsisted from 22 May possibly 2017. No pertinent assert or acknowledgement obtaining been made in relation to it within a five-calendar year period, the obligation experienced accordingly approved.

Implications and long term factors

This determination will have useful implications for these involved in construction contracts executed just before the enactment of the Deal (3rd Party Legal rights) (Scotland) Act 2017. It would be wise to adhere to up on the delivery of any exceptional collateral warranties sooner somewhat than later and to bear in brain that any motion for enforcement may well not be versus the specialist or contractor who is to provide the guarantee, but towards the principal contractor who has committed to securing the shipping and delivery of a warranty package.

The judgment may well also impact the interpretation of 3rd occasion legal rights in contracts in contexts other than design.

Lesley Montague is a senior affiliate at Harper Macleod