The facts
The case is (1) Engine Yard Edinburgh Ltd and (2) Allenbuild Ltd v Bayne Stevenson Associates Ltd [2024] CSOH 13, and concerned the development of a project called The Engine Yard, in Edinburgh.
Before delving into the facts, it is helpful to understand the contractual structure:
Bayne Stevenson's Appointment was entered into on 14 April and 22 May 2017. Clause 6.1 of the Appointment concerned the provision of Collateral Warranties:
"The Engineer shall promptly execute in a self proving manner and deliver a Collateral Warranty in the form annexed or in such other form as the Contractor reasonably requires within 7 days of a written request in favour of the Employer and/or any lessee and/or purchaser and/or provider of finance for the Project…"
Allenbuild requested that Bayne Stevenson provide a Collateral Warranty on 25 August 2022. This followed the discovery in 2020 of issues affecting the property which Allenbuild contended were the result of a failure by Bayne Stevenson to exercise reasonable skill and care in the performance of its services. Bayne Stevenson declined to provide the requested warranties.
Engine Yard's case
Although Engine Yard was not a party to the Bayne Stevenson Appointment, it sought to argue that a ius quaesitum tertio (third party right) was created by the Appointment, such that Engine Yard may itself demand the execution and delivery of a Collateral Warranty from Bayne Stevenson.
This was squarely rejected by the Court. While Lord Sandison was prepared to acknowledge that Engine Yard had an acute interest in the proper performance by Bayne Stevenson of its contractual functions, the parties had created a contractual framework under which such interest could be accommodated. The implication of a ius quaesitum tertio would undermine the essential structure of the arrangements which the parties had put in place.
Lord Sandison also noted that the conferral of rights on a stranger to the contract is now governed by the Contract (Third Party Rights) (Scotland) Act 2017 – and the 1999 English equivalent – the issue only arose in this case because the Appointment pre-dated the coming into force of the Act.
Time bar
The other issue which the Court was asked to decide was whether the obligation on Bayne Stevenson to provide Collateral Warranties had become time barred.
In Scotland the law on time bar is set out in the Prescription and Limitation (Scotland) Act 1973. Section 6 of the 1973 Act provides that contractual obligations will be extinguished if, after the appropriate date, they subsist for a continuous period of 5 years without a relevant claim being made.
The question, therefore, was whether this 5 year prescriptive period commenced on 22 May 2017 (the date of the Appointment) or 25 August 2022 (the date of Allenbuild's request for the warranty).
Lord Sandison found that Bayne Stevenson's obligation to provide a Collateral Warranty subsisted as soon as the Appointment was concluded. Allenbuild could have enforced the obligation on Bayne Stevenson to execute and deliver the Collateral Warranty at any time after the Appointment was entered into – it did not have to wait until the occurrence of an extraneous event before being entitled to do so. This was supported by the fact that Allenbuild could not call for performance of an obligation to provide a warranty if that obligation was not already in subsistence. The requirement in Clause 6 of the Appointment that the warranty be provided within 7 days of a written request was held to be a stipulation concerned with the performance of the obligation, rather than it substance.
Accordingly, the 5 year prescriptive period commenced when the Appointment was entered into in May 2017. By August 2022, when Allenbuild requested provision of a warranty, Bayne Stevenson's obligation to provide one had already prescribed (been extinguished).
Implications
If the right to request Collateral Warranties can become time barred within 5 years (or 6/12 years in England) from the date the underlying contract has been entered into, beneficiaries of such warranties should ensure that requests are made early.
Do not assume that because a Collateral Warranty (if executed) confers rights on a beneficiary for a defined period following completion of works, that a warranty can be requested any time during that period. This case puts paid to that idea.
Parties should also be alive to this issue on large scale projects, where works may be ongoing for an extended period of time: do not wait until completion of the works or sale of the development to get warranties in place. This should be done sooner, rather than later, even if the warranties subsequently need to be assigned to any incoming purchaser or funder. In order to accommodate this risk, developers should carefully consider any restrictions on the assignability of warranties.
If you have any questions about collateral warranties or the time limits for requesting warranties or making claims under warranties, speak to Katherine Doran or your usual contact at DWF.
