Exploring Third Party Rights under Scots Common Law: Insights from Harper Macleod Senior Associate Lesley Montague
The recent case of The Engine Yard Edinburgh Limited and Allenbuild Limited v Bayne Stevenson Associates Limited [2024] CSOH 13 has shed light on the complexities of third party rights under Scots common law. In this case, the Court of Session examined the nuances of third party rights in the context of a claim for delivery of a collateral warranty under a construction contract.
The key issue in dispute was whether the pursuer, The Engine Yard, had the right to demand the execution and delivery of a collateral warranty from the defender, Bayne Stevenson, despite not being a direct party to their contract of appointment. The Court ultimately rejected the proposition that the contract created a third party right in favor of The Engine Yard, citing the contracting parties’ intentions and the essential structure of the contractual arrangements.
Additionally, the Court addressed the issue of prescription and the obligation to produce a collateral warranty. The defender argued that its obligation had lapsed due to the five-year period of positive prescription, while the pursuers argued that the obligation only arose upon a written demand being made. The Court found in favor of the defender, stating that the obligation had subsisted from the outset of the contract and had prescribed due to the lack of relevant claim or acknowledgement within the five-year period.
This decision has practical implications for those involved in construction contracts executed before the enactment of the Contract (Third Party Rights) (Scotland) Act 2017. It highlights the importance of following up on the delivery of collateral warranties and understanding that enforcement actions may need to be taken against the main contractor rather than the party directly responsible for delivering the warranty.
Overall, this case provides valuable insights into third party rights under Scots common law and may impact the interpretation of such rights in contracts beyond the construction industry.