Introduction

In the recent case of The Engine Yard Edinburgh Ltd and Another against Bayne Stevenson Associates Ltd ([2024] CSOH 13), the Scottish Court of Session addressed pivotal issues surrounding the concept of ius quaesitum tertio and the application of prescriptive periods under the Prescription and Limitation (Scotland) Act 1973. The dispute arose from contractual obligations related to the execution and delivery of a collateral warranty within a commercial building project in Edinburgh.

The plaintiffs, The Engine Yard Edinburgh Limited and Allenbuild Limited, sought declaratory relief to affirm that a right to require a collateral warranty had been established in their favor. Bayne Stevenson Associates Ltd, the defendant, contended that such a right either did not exist or had been extinguished by prescription.

Summary of the Judgment

Lord Sandison presided over the case, delivering a judgment that ultimately favored the defendant, Bayne Stevenson Associates Ltd. The court concluded that:

• No ius quaesitum tertio was created in favor of the first pursuer, thereby negating their right to demand a collateral warranty directly.
• The defendant's obligation to execute and deliver the collateral warranty had been extinguished by the operation of prescription under the Prescription and Limitation (Scotland) Act 1973.
• The plaintiffs failed to establish the existence of a third-party right or to adequately challenge the prescriptive argument presented by the defendant.

Analysis

Precedents Cited

The judgment extensively referenced established legal authorities to underpin its findings:

• Gloag on Contract (2nd Edition): Emphasized the principle of privity of contract and the conditions under which third-party rights may be recognized.
• Stair Memorial Encyclopaedia, Volume 15: Provided insights into the general rules governing third-party rights and their limitations.
• MccIntosh Limited v Balfour Beatty Group Limited [2006] CSOH 197: Clarified the circumstances under which third-party rights are enforceable in Scotland.
• Neilson v Stewart 1991 SC (HL) 22: Addressed the nature of contractual obligations and their enforceability upon demand.

Legal Reasoning

The court meticulously examined the contractual arrangements between the parties, focusing on the appointment letter's clauses, particularly clause 6.1, which pertained to the delivery of a collateral warranty. The central legal issues revolved around:

• Privity of Contract: The default legal principle that a contract cannot confer rights or impose obligations on any person except the parties to it.
• Ius Quaesitum Tertio: The concept of a third-party right arising from a contract, which allows a non-party to enforce certain terms.
• Prescription: The statutory limitation period after which a legal right to bring a claim is extinguished.

The plaintiffs argued that a ius quaesitum tertio was intended to benefit the first pursuer directly, allowing them to claim damages or enforce the warranty. However, the court found that the contractual language did not expressly confer such rights and that the mere inclusion of the first pursuer's name did not suffice to establish enforceable third-party rights.

Regarding prescription, the court held that the defendant's obligation to provide the warranty had not been actionable until a written request was made in August 2022, which was within the five-year period stipulated by the Prescription and Limitation (Scotland) Act 1973. Consequently, the prior lack of a request did not trigger prescription, but since the responsibility to deliver the warranty was not acknowledged or claimed within the prescribed period after the request, the obligation had indeed prescribed.

Impact

This judgment has significant implications for:

• Third-Party Rights: Reinforces the stringent requirements for establishing third-party rights in Scottish contract law, emphasizing the necessity of clear contractual intent.
• Prescription Periods: Clarifies the application of prescriptive periods concerning conditional obligations, highlighting that obligations subject to conditions are not considered extinguished until those conditions are triggered and the subsequent prescriptive period lapses.
• Contractual Structures: Underscores the importance of explicit terminations and the limitations of inferring third-party rights from indirect contractual relationships.

Future contractual agreements will likely incorporate more precise language to either expressly include or exclude third-party rights, mitigating similar disputes.

Complex Concepts Simplified

Ius Quaesitum Tertio

Ius quaesitum tertio refers to a legal right granted to a third party, not originally a party to the contract, allowing them to enforce certain terms of that contract. In this case, the plaintiffs sought such a right to enforce the delivery of a collateral warranty directly.

Prescription

Prescription in Scottish law refers to the limitation period after which a right to bring a legal action is extinguished. The Prescription and Limitation (Scotland) Act 1973 sets out these periods, with five years being the standard period for contractual obligations unless specified otherwise.

Privity of Contract

Privity of contract is a foundational principle stating that only the parties involved in a contract can enforce its terms or be bound by its obligations. Third parties generally do not have rights or obligations under the contract unless specific provisions allow for it.

Conclusion

The judgment in The Engine Yard Edinburgh Ltd and Another against Bayne Stevenson Associates Ltd underscores the criticality of clear contractual language when intending to confer rights upon third parties. It reaffirms the stringent application of the privity of contract principle and the importance of adhering to statutory prescription periods to maintain the enforceability of contractual obligations. Parties engaging in commercial agreements must meticulously structure their contracts to anticipate and address potential third-party interests and ensure that all rights and obligations are explicitly articulated to prevent similar legal disputes.