Scottish Court of Session Decisions

You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> THE ENGINE YARD EDINBURGH LTD AND ANOTHER AGAINST BAYNE STEVENSON ASSOCIATES LTD [2024] ScotCS CSOH_13 (13 February 2024)
URL: http://www.bailii.org/scot/cases/ScotCS/2024/2024_CSOH_13.html
Cite as: [2024] CSOH 13, [2024] ScotCS CSOH_13

[New search] [Printable PDF version] [Help]

OUTER HOUSE, COURT OF SESSION

[2024] CSOH 13

CA75/22

OPINION OF LORD SANDISON

In the cause

(FIRST) THE ENGINE YARD EDINBURGH LIMITED; and (SECOND) ALLENBUILD

LIMITED

Pursuers

against

BAYNE STEVENSON ASSOCIATES LIMITED

Defender

Pursuers: D Thomson KC et Manson; DLA Piper Scotland LLP

Defender: MacColl KC; Brodies LLP

13 February 2024

Introduction

[1]

In this commercial action the pursuers seek declarator that a ius quaesitum tertio in

favour of the first pursuer was created by a contract between the second pursuer and the

defender, to the extent that the first pursuer may demand the execution and delivery of a

collateral warranty by the defender in its favour. The pursuers also sue for the delivery of

the collateral warranty, and the first pursuer sues for payment to it of sums said to be due

in respect of the defender's allegedly defective performance of the contract. The matter

came before the court for a debate on the relevancy of the parties' pleadings.

Relevant statutory provisions

[2]

The Prescription and Limitation (Scotland) Act 1973 as amended provides:

"6.-- Extinction of obligations by prescriptive periods of five years.

(1)

If, after the appropriate date, an obligation to which this section applies

has subsisted for a continuous period of five years--

(a) without any relevant claim having been made in relation to the

obligation, and

(b) without the subsistence of the obligation having been relevantly

acknowledged,

then as from the expiration of that period the obligation shall be extinguished:

...

15 Interpretation of Part I.

(2)

In this Part of this Act, unless the context otherwise requires, any reference to

an obligation or to a right includes a reference to the right or, as the case may

be, to the obligation (if any), correlative thereto.

...

Schedule 1

OBLIGATIONS AFFECTED BY PRESCRIPTIVE PERIODS OF FIVE YEARS

UNDER SECTION 6

Subject to paragraph 2 below, section 6 of this Act applies--

...

(g) to any obligation arising from, or by reason of any breach of, a contract or

promise, not being an obligation falling within any other provision of this

paragraph."

Background

[3]

On 8 March 2017 the second pursuer entered into a contract with Places for People

Developments Limited ("PPDL") in which it was appointed as the design and build

contractor for a building project known as The Engine Yard Edinburgh. On 8 September

2017 the first pursuer, which is a special purpose vehicle formed in connection with the

project and which owns the land upon which it was built, entered into a contract with PPDL

in terms of which PPDL agreed to manage the project on its behalf. Both pursuers are

wholly owned subsidiaries of PPDL.

[4]

By letter of appointment executed by the defender and the second pursuer on

14 April and 22 May 2017 respectively the defender (then known as Scott Bennett Associates

(Group 1) Limited) was appointed as the structural engineer for the project. The first

pursuer was not a party to the letter, which provided inter alia as follows:

"This letter sets out the terms of your appointment as Structural Engineer in

connection with the project on the site at The Engine Yard, Leith, Edinburgh.

WHEREAS

The Engine Yard Edinburgh Ltd (`the Employer') is desirous of obtaining

the construction of 344 flats, Gym and Edinburgh Masonic Club. (`the Project')

The Employer has issued to Allenbuild Ltd (`the Contractor') his requirements

for the Project (`the Employer's Requirements')

The Contractor has submitted proposals to the Employer for carrying out

the Project (`the Contractor's Proposals')

The Employer has employed the Contractor to complete the design for

the Project and carry out and complete the construction of the Project under an

agreement [described in the schedule of information annexed to this agreement.]

and dated (`the Contractor Agreement')

The Contractor wishes to appoint Scott Bennett Associates (`the Engineer')

as its Structural Engineer for the Project and the Engineer has agreed to accept such

appointment upon and subject to the terms set out in this letter (`the Appointment').

[...]

1.2 The Engineer is familiar with the Contractor Agreement [described in the

schedule of information annexed to this agreement]. and accepts that it has

full knowledge and understanding of the Contractor Agreement insofar as it

is material to the Engineer's duties and obligations under the Appointment.

[...]

2.1 The Engineer shall provide:

2.1.1 the services set out in Schedule A (annexed) taken from the ACE

Agreement 3: Design and Construct 2009 Edition, Second Revision

Civil/Structural Engineering Consultant Appointed by Design and

Construct Contractor, Part G(f) Schedule of Services and as further

defined within the `DM02 Consultant Design Interface and Responsibility

Schedule' for the whole of the Project and all external works and

drainage.

2.1.2 an analysis of the ground conditions report in relation to all matters of

structural and civil engineering design including ground contamination

and any statutory requirements, co-ordinate and arrange for provision

of a remediation strategy to the satisfaction of the Local Authority

Environmental Health Office/SEPA/The Planning Officer/The NHBC,

or any other bodies that are required to approve the remediation strategy

in order for the contractor to discharge their duties under the contract.

(together `the Services').

[...]

3.1 The Engineer:-

3.1.1 warrants that it has exercised and will exercise in the performance of

its duties and obligations under the Appointment all the reasonable skill

and care to be expected of a qualified and competent structural engineer

undertaking such duties and obligations on developments of a similar

size, cost and complexity to the Project. This warranty includes and

extends to all work done in connection with the Project prior to the

date of the Appointment whether or not such work was done pursuant

to instruction from the Contractor or from any other person and not

withstanding that such work has been paid for by any other person;

[...]

3.1.3 shall use all reasonable skill and care to see that the design of all elements

of the Project for which it has a responsibility complies with the Building

Warrant and other applicable statutory and regulatory requirements;

3.1.4 acknowledges that the Employer and the Contractor shall be deemed

to have relied on its skill and care in respect of the performance of its

professional services under the Appointment;

[...]

6.1 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 written request in favour of

the Employer and/or any lessee and/or purchaser and/or provider of finance

for the Project acquiring from the Employer an interest in or charge over the

Project Development or any part of the Project. `self proving manner' shall

mean the execution of a document in accordance with the Requirements of

Writing (Scotland) Act 1995 so as to confer upon the document signed in such

a manner the benefit of the presumption as to validity.

6.2 Execution and delivery of the Collateral Warranties in accordance with

clause 6.1 shall be a condition precedent to payment of the Fee or any

instalment thereof pursuant to clause 8.

[...]

10.1 The Contractor shall be entitled at any time by service in writing on reasonable

notice to terminate the Engineer's employment under the Appointment. Such

termination shall not determine the operation of clauses 4, 5, or 6 above which

shall continue to apply but only insofar as they relate to duties falling due for

performance prior to the date of termination"

[5]

No form of collateral warranty was in fact annexed to the letter as envisaged by

clause 6.1. The second pursuer made a written request to the defender for the provision of

a collateral warranty on 25 August 2022, but no such warranty has been delivered to either

pursuer. The pursuers allege that the defender breached its duty to exercise an appropriate

standard of skill and care in the performance of its functions under the appointment letter

in September 2017 and that issues consequent upon that breach of duty became apparent

in February 2020, requiring remedial works to be carried out between September 2020 and

January 2021 at considerable cost, which would not have been incurred had the defender

fulfilled the duties incumbent upon it.

[6]

The defender contends that the first pursuer has no title or interest to sue for the

delivery of the collateral warranty mentioned in clause 6.1 of the appointment letter, or for

damages for alleged breach of the defender's obligations in terms of the letter. It maintains

that no ius quaesitum tertio was created by the letter. It argues that any right which the

second pursuer had to require delivery of the collateral warranty (or, if it ever existed, any

such right which was enjoyed by the first pursuer) has been extinguished by operation of

prescription.

Defender's submissions

[7]

Senior counsel for the defender moved the court to assoilzie it from the conclusion

of the summons seeking delivery of the collateral warranty and to dismiss the remaining

conclusions.

[8]

Any right to require delivery of a collateral warranty had been extinguished by

operation of prescription. In terms of clause 6.1 of the appointment letter between the

second pursuer and the defender, the former had the right as from the date of conclusion

of the contract, being 22 May 2017, to require the defender to execute and deliver up to

it a collateral warranty in favour of, inter alios, the first pursuer. On the pursuers' own

averments, no relevant claim for implement of the second pursuer's such right was

made within the period of 5 years after the date that it came into existence. In these

circumstances, any right which the second pursuer had to require execution and delivery of

the collateral warranty by the defender had been extinguished by operation of prescription,

in terms of sections 6(1) and 15(2) of, and paragraph 1(g) of Schedule 1 to, the Prescription

and Limitation (Scotland) Act 1973. If there ever had been a ius quaesitum tertio enjoyed by

the first pursuer directly to demand delivery to it of the collateral warranty, the same logic

applied and the same result ensued. The defender should, therefore, be assoilzied from the

relative conclusion of the summons.

[9]

Further, the pursuers had also failed to set forth any relevant case in support of the

conclusions of the summons founded on the assertion of the existence of a ius quaesitum tertio

in favour of the first pursuer entitling it to sue the defender for delivery up of a collateral

warranty.

[10]

The contractual structure that had been put in place pointed squarely away from

there having been any intention on the part of the parties to the contract to create any

directly enforceable rights under the contract in favour of the first pursuer (cf Gloag on

Contract (2

Edition), p235ff). Here, the first pursuer was in a contractual relationship with

PPDL, with contractual rights and obligations flowing therefrom. Separately, the second

pursuer and the defender were in a distinct contractual relationship. There was no direct

contractual relationship between the first pursuer and the defender. There was not even a

direct contractual relationship (or at least one that was condescended upon) between the

first pursuer and the second pursuer. That was the deliberate structure that the various

parties had agreed to put in place to regulate their affairs. In these circumstances, the

general rule of privity of contract pointed squarely away from there being any enforceable

right on the part of the first pursuer against the defender.

[11]

The structure that had been agreed was not to be undermined by the implication

and imposition of any ius quaesitum tertio. Reference was made to the Stair Memorial

Encyclopaedia, Volume 15, paragraph 836 and to Laurence McIntosh Limited v Balfour Beatty

Group Limited [2006] CSOH 197 at [35]ff. There was nothing in the appointment letter to

indicate any intention on the part of the second pursuer and the defender to create directly

enforceable rights by way of a ius quaesitum tertio enforceable by the first pursuer against

the defender. There was nothing in the letter to preclude it being terminated by agreement

between the second pursuer and the defender (cf Gloag on Contract (2

Edition), p235).

[12]

Clause 3.1.4 of the letter was not, in terms of its language or purpose, intended

to give rise to any directly enforceable right on the part of the first pursuer against the

defender. As its language made plain, this was merely an acknowledgement that the

first and second pursuers had relied upon the defender's skill and care in respect of the

performance of its functions. The purpose of such a provision was not to give rise to a right

on the part of the first pursuer (which was not a party to the letter) to sue the defender if the

latter failed to act to the required standard. Were this to have been the goal of the parties,

there would have been be no reason for it to have been done in what was, even on the

pursuers' analysis, an opaque fashion, when it could have been done clearly and directly

(either by way of the first pursuer being a party to the letter or by way of the grant of a

collateral warranty - an approach which was, of course, provided for by the letter). Rather,

the purpose of this provision was to preclude the defender, if sued by the second pursuer

for any losses arising from breach of its obligation to act with reasonable skill and care, from

seeking to argue that any loss incurred was not recoverable for want of reliance on the part

of either pursuer.

[13]

Moreover, there was nothing in the terms of clause 6.1 of the letter (or, indeed,

elsewhere in it) to suggest that there was any intention to confer upon the first pursuer

a directly enforceable right to seek and obtain a collateral warranty from the defender.

Clause 6.1 entitled the second pursuer to call upon the defender to deliver up to the second

pursuer a collateral warranty in favour of a party specified by the second pursuer. It was a

matter for the second pursuer when or whether it then passed that collateral warranty on to

the party in whose favour it had been written - that would, no doubt, be an issue regulated

by the contractual (or other) relationship which subsisted between the second pursuer and

such other party. However, clause 6.1 did not provide any direct right in the hands of the

first pursuer (or, indeed, any of the other potential parties in whose favour a collateral

warranty might have been called for under clause 6.1) to demand that a collateral warranty

be provided to it directly by the defender. For all of these reasons, the pursuers' case

concerning a ius quaesitum tertio, as set forth in its first conclusion, was irrelevant and should

be dismissed.

[14]

There being no relevant case setting up the existence of a ius quaesitum tertio in favour

of the first pursuer, there was no basis upon which the first pursuer could relevantly seek

damages by way of reparation from the defender. The loss in respect of which reparation

is sought was loss suffered by the second pursuer. Prima facie, the first pursuer had no title

to sue for such losses and the relative conclusion fell to be dismissed.

Pursuers' submissions

[15]

On behalf of the pursuers, senior counsel moved the court to repel the defender's

pleas relating to the first pursuer's title to sue, to the claimed irrelevance of the averments

in support of the existence of a ius quaesitum tertio, to the absence of any duty on the part of

the defender to make reparation to the first pursuer, and to the supposed extinguishment

by prescription of any obligation to deliver a collateral warranty. Counsel noted that the

prescription issue was of the greatest importance in the debate, since the pursuers' case

would fall if that issue was determined against them.

[16]

However, both that issue and the question of the first pursuer's ius quaesitum tertio

should be resolved in favour of the pursuers. Firstly, the obligation to execute and deliver

the collateral warranty had not been extinguished by the operation of prescription. On a

proper construction of clause 6.1 of the appointment letter, the obligation incumbent on the

defender did not crystallise until a written request was made. On the pursuers' averments,

the action was raised within the quinquennium running from the date of that written

request on 25 August 2022. Secondly, the pursuers had a relevant basis upon which to

contend that a ius quaesitum tertio was intended to be created and conferred upon the first

pursuer in relation to the delivery of a collateral warranty under clause 6 of the letter. The

terms of clause 6 were of benefit only to the first pursuer when it came to the creation of a

collateral warranty. Dealing with these matters in more detail:

[17]

The obligation to deliver the collateral warranty arose out of clause 6.1 of the letter.

There was no dispute that the short negative prescription applied to the obligation in

question. The enquiry should be concerned with the time at which the obligation in

question became enforceable on a proper construction of the letter: Johnston,

Prescription and Limitation (2

Edition) at 4.07. A proper construction of clause 6.1 required

to give effect to the natural and ordinary meaning of the words which had been used. Those

words were clear and unambiguous in identifying a "written request" as the trigger which

operated to crystallise the obligation to deliver. The situation was analogous to that of a

loan repayable on demand; in that case, maintained senior counsel (but without citing any

supportive authority) the obligation to repay the loan only came into existence when the

relative demand was made.

[18]

This conclusion that this was the proper construction of clause 6.1 was reinforced by

the fact that the clause comprehended a set of circumstances in which the pursuers could

identify unilaterally a form of wording for the warranty and issue a request for the same:

"......deliver a Collateral Warranty in the form annexed or in such other form as the

[pursuers] reasonably requires". The defender would not know the form of warranty to

issue if it was not first given a request or demand. Absent a request the defender would

be left unsure as to the performance required of it and the nature of its obligation: what

form of warranty should it anticipate that the pursuers might require? The defender would

not know the content which should be given to the special form of warranty if the pursuers

had not requested any. This all served to underscore the criticality of the request or demand

in constituting the obligation to make delivery. Accordingly, the natural and ordinary

meaning of the words adopted in the contract plainly confirmed that the relevant

prescriptive period was initiated upon the making of the written request. On the pursuers'

pleadings the written request was made on 25 August 2022, which was well within the

quinquennium.

[19]

There was nothing surprising or unusual about that interpretation and the state

of affairs which it would produce. At all events and regardless of the court's view on any

question of balance or commerciality, it was obliged to give effect to the words which had

been used where there was no ambiguity: Scanmudring AS v James Fisher MFE Ltd

[2019] CSIH 10, 2019 SLT 295 per Lord Menzies at [81]. There was no ambiguity here. Even if it

was relevant to attach weight to considerations of fairness and balance when considering

the meaning and effect of the clause, there would still be nothing problematic about the

conclusion that prescription of the obligation to deliver ran from the date of the request.

That was because the general law in this context operated such as to ensure that the

defender would not be left with a perpetual prospective liability under the putative

warranty. The defender enjoyed the protection that time-bar would operate in relation

to the obligations to which the collateral warranty granted access: British Overseas Bank

Nominees Ltd v Stewart Milne Group Ltd [2019] CSIH 47, 2020 SC 24. Indeed, the defender

invoked this very argument in its defences ie that the damages claim which the pursuers

wanted to make under the warranty not yet received had prescribed. The defender's right

to seek to defend the underlying damages claim drawing on the scheme of prescription

would remain unaffected by the fact that a demand for a warranty could still be made many

years after the completion of the works. Accordingly, there was nothing objectionable about

prescription starting to run on the obligation to issue the warranty from the date of the

demand. The timing of the delivery of the warranty was neutral when it came to the

question of substantive time-bar on the underlying damages claim. As the obligation sued

upon did not crystallise until the written request was made, it followed that the correlative

right to receive the demanded warranty did not exist until the same was done: section 15(2)

of the Prescription and Limitation (Scotland) Act 1973. Once such a demand was made,

the right (created by the demand) would be susceptible to extinction, by operation of

prescription, as being the right correlative to the obligation to deliver the demanded

warranty. It was erroneous and unsound in law to characterise the right to make the

demand in the first place as the right correlative to the defender's obligation to execute

and deliver a warranty, once a demand was made of the defender. For these reasons, the

defender's plea in relation to prescription of the right to demand delivery of the warranty

should be repelled and its related averments excluded from probation.

[20]

In relation to the defender's challenge to the existence of a ius quaesitum tertio, it

was limited to the claimed absence of an intention on the part of the second pursuer and

defender when contracting to confer rights upon the first pursuer to obtain delivery of a

collateral warranty under clause 6.1. The primary beneficiary of that clause was the first

pursuer. That benefit was not merely incidental to the fulfilment of the terms of the letter

as between the parties to it. The first pursuer was identified by name in the clause and

was the person who would come to enjoy the benefits of the contemplated warranty. By

contrast, the second pursuer would not derive any benefit from receipt of a warranty drawn

in favour of the first pursuer. Its practical interest in the creation of the collateral warranty

was non-existent or negligible: cf Gloag on Contract (2

Edition) at 236. Clause 6.1 did not

specify that only the second pursuer could demand delivery of a collateral warranty from

the defender. The first pursuer had the substantial interest in the fulfilment of the obligation

to deliver the warranty: cf McBryde, The Law of Contract in Scotland (3rd Edition) at 10-10.

That brought the present case into the class of "obvious" cases where a benefit was intended

to be conferred on a third party. The first pursuer not only had an interest in clause 6.1, but

the primary and substantive interest in the obligations created by the clause. The parties

plainly intended to confer upon the first pursuer the right to seek delivery of the collateral

warranty.

[21]

The factors identified by the defender should not determine conclusively the absence

of a ius quaesitum tertio. First, the fact that a particular contractual structure was created did

not, in and of itself, determine the absence of a ius quaesitum tertio. If the relevant intention

could be identified from the terms of the contract and position of the parties then the

existence of a particular contractual structure between certain parties should not override

the intention to confer rights. Any "general" rule which might be said to arise from a

structure which involves provision for the grant of collateral warranties (see, for example,

Stair Memorial Encyclopaedia of the Laws of Scotland, Volume 15, paragraph 836) was, rather,

dependent upon it being shown (i) that the employer had merely an interest in the

sub-contract (for the reasons already given that was not the case here); and (ii) that the

parties to the sub-contract had no intention of conferring benefit upon the employer. This

second criterion also was not satisfied in the present case standing the combined effect of

clauses 3.1.4 and 6.1 of the letter, viewed in the context of its whole terms. Second, if it was

correct that the terms of clause 6.1 strongly indicated an intention that the first pursuer was

to enjoy rights and recourse therefrom then, in fact, that served manifestly to reinforce the

conclusion that a ius quaesitum tertio was intended in terms of the clause. Third, whilst it is

true that there was no express provision precluding termination of the letter by the second

pursuer or defender, the first pursuer would, on the pursuers' analysis, be entitled to object

and would have title to do so insofar as any termination was going to affect the position

in relation to clause 6. The first pursuer would have title and interest to seek interdict

preventing termination given its interest in performance of the obligations in that clause.

The defender's pleas as to the absence of a ius quaesitum tertio should be repelled and its

relative averments excluded from probation.

Decision

Ius quaesitum tertio

[22]

The contractual conferral of rights on a stranger to the contract is now governed by

the Contract (Third Party Rights) (Scotland) Act 2017. However, the contract in issue in the

present case was concluded before that Act came into force, and the question of what rights

it may have conferred upon the first pursuer is one that falls to be determined by the

application of the common law.

[23]

The core question in that context is whether it was the intention of the contracting

parties, discerned by considering the words used in their contract in the context in which

they were used, to secure a benefit for a third party, or whether any such benefit was rather

the incidental result of a stipulation conceived primarily for some other purpose? Unless the

substantive intention was to secure a benefit for a third party, the normal or default position

of privity of contract applies.

[24]

The primary focus in the present case is on clause 6.1 of the appointment letter. In

essence, it requires the defender to execute and deliver a collateral warranty in favour of the

first pursuer or of a member of one or other identified groups which might come to have

an interest in the project. Prima facie, that clause might be thought to indicate an intention

to confer a substantive benefit on the first pursuer or the others indicated, it not being

immediately obvious what interest of its own the second pursuer would have in securing

the execution and delivery of such a warranty to the first pursuer or any other member

of the identified groups. However, it is clear from the contract which PPDL had already

entered into with the second pursuer in connection with the project (and which thus formed

part of the relevant background against which the terms of the appointment letter fall to be

considered) that the second pursuer had obliged itself to procure, if so required, warranties

from any party in such form as might reasonably be approved by PPDL for its own benefit

or that of any funders, tenants or purchasers of the development. Although the terms of that

contract were not referred to in the course of the debate before me, they were incorporated

into the Summons by the pursuers, who also produced the contract to the court. Once one is

aware of that obligation which the second pursuer had previously undertaken to PPDL, it

becomes apparent that it had its own substantive reason for stipulating as it did with the

defender - namely, to ensure that it was not at risk of breaching its obligation to PPDL and

incurring such liability as might flow therefrom.

[25]

The defender acknowledged, by clause 3.1.4 of the appointment letter, that both

pursuers should be regarded as having relied on its skill and care in respect of the

performance of its professional services under the appointment. The explanation advanced

by the defender for the presence of that clause in the contract appeared to me to be

unconvincing, and I am prepared to regard it as an adminicle strengthening the conclusion

that, in making the arrangements which they did, the second pursuer and the defender

were plainly conscious of the acute interest which the first pursuer would have in the proper

performance by the defender of its contractual functions. However, while acknowledging

that that interest was recognised by the parties to the appointment letter, one must ask

oneself the further question of what their contract reveals as to how they intended it to be

accommodated.

[26]

In that connection, the defender argued at a fairly abstract level that the fact that a

particular and distinct contractual structure had been set up amongst the various parties

involved in the Engine Yard project strongly militated against the suggestion that the parties

to the appointment letter between the second pursuer and the defender ought to be taken to

have intended to confer a ius quaesitum tertio on the first pursuer. It is certainly true that, as

a matter of generality, it may be the purpose of contractual and sub-contractual structures

to prevent the creation of direct legal relationships except between contracting parties (see

McBryde at paragraph 10-11 and Laurence McIntosh Limited). However, such a generality

must, as always, yield to the specific arrangements under consideration, and is not in itself

capable of excluding the conclusion that the creation of a ius quaesitum tertio was objectively

intended by parties to a particular contract, even if that contract is but one part of a greater

set.

[27]

Turning from the abstract to the particular, it has already been noted that the second

pursuer had previously undertaken an obligation to PPDL to procure warranties for the

benefit of it and others from any party involved in the project. To that may be added the

fact that PPDL undertook the same obligation to the first pursuer in the contract entered into

between them. It is further worthy of note that in both the contract between PPDL and the

second pursuer and that between PPDL and the first pursuer (both of which were governed

by English law) the parties expressly excluded the provisions of the Contracts (Rights of

Third Parties) Act 1999, being the English legislation dealing with the issue of third party

rights, and for good measure stipulated expressly that those contracts were not to confer

any rights on third parties. While that contractual structure still leaves some unanswered

pertinent questions, a group of contracts providing for a chain of obligations to procure

warranties, in which two expressly exclude the conferral of third party rights and the last

makes no mention of the subject, forms an awkward background into which to imply a

ius quaesitum tertio, all the while being assured that one is not upsetting whatever balance

it was that the parties were intending to strike by what they actually set down in their

contractual arrangements.

[28]

Some reference was made in argument, again somewhat faintly, to the impact of the

second pursuer's right to terminate the defender's appointment by giving reasonable notice

under clause 10.1 on the question of the existence of a putative ius quaesitum tertio, it being

commonly accepted that the existence of a right to terminate a contract is regarded as

antithetical to the existence of a ius flowing from that contract. However, the right to

terminate in the present case is expressed as not determining the operation of, inter alia,

clause 6.1, which is to continue to apply but only insofar as it relates to duties falling due

for performance prior to the date of termination. Although it would prima facie appear that

a termination of the contract before any demand for execution and delivery of a collateral

warranty had been made would result in performance of the relevant obligation not having

fallen due prior to the date of termination, I did not have the benefit of parties' submissions

on the interaction of clauses 6.1 and 10.1 and accordingly do not treat this as a matter

militating against the possibility of the existence of a ius quaesitum tertio in the contract in

question.

[29]

Ultimately, however, two considerations weigh heavily, individually and

cumulatively, against the conclusion that the parties to the appointment letter ought to be

regarded as having intended the creation of a ius quaesitum tertio in the first pursuer. The

first such consideration is that the second pursuer plainly had its own substantive interest in

being able to demand the execution and delivery of a collateral warranty from the defender,

pointing towards the conclusion that whatever benefit the first pursuer might gain from

such execution and delivery was incidental rather than essential to the purpose of the

relevant stipulation. The second is that the appointment letter formed only one part of a

pattern of linked contractual rights and obligations amongst various parties, including

the present litigants, and it cannot be said with any confidence that the implication of a

ius quaesitum tertio would not undermine the essential structure of the arrangements

which those parties decided to put in place. I accordingly reject the proposition that the

appointment letter conferred any ius quaesitum tertio on the first pursuer to demand the

execution and delivery of a collateral warranty directly to it.

Prescription

[30]

The defender's case in relation to prescription is straightforward; its contractual

obligation under clause 6.1 of the appointment letter to furnish a warranty having subsisted

for a continuous period of 5 years from 22 May 2017 without any relevant claim or

acknowledgement, it was extinguished at the end of that period. The pursuer's case is

equally simple; there was, on a proper construction of clause 6.1, no obligation to furnish

the warranty unless and until a written demand was made for it, which happened on

25 August 2022, and so no question of the obligation having subsisted for any continuous

period of 5 years. Both parties agreed that the issue of the subsistence of the relevant

obligation was a matter to be determined by a proper construction of the contract.

[31]

The suggestion that the subsistence of that obligation depended on the fulfilment of

a supposed condition which consisted of nothing more than a demand for its performance

seems to me to be attended by considerable conceptual difficulty. Gloag observes at 270 that

a "contractual obligation is termed pure when it can be enforced at once, and is not subject

to any condition" and adds that in the absence of any provision to the contrary an obligation

is deemed to be pure, and enforceable at once. I do not understand it to be in dispute that

the second pursuer could have enforced the defender's obligation to execute and deliver a

warranty as soon as the contract constituted by the appointment letter was entered into. It

did not have to await the occurrence of any uncertain extraneous event before being able to

enforce the obligation; the matter was entirely dependent on its will. From the defender's

point of view, it was liable to be called upon at any point from 22 May 2017 to perform the

obligation which it had undertaken to execute and deliver a warranty, which I understand

is what Gloag is referring to when he further observes at 272 that, even in the case of a

condition which is truly contingent and suspensive, "looking at the matter from the point

of view of the debtor, the obligation exists from the time when it was undertaken".

[32]

If one approaches the question by asking what provision to the contrary displaces

the presumption that an obligation is pure and enforceable at once, the pursuers can only

point to those parts of clause 6.1 requiring the making of a written request by the second

pursuer, which will have the consequences of settling the terms of the warranty (within the

bounds of reasonableness) and fixing the point in time (7 days after the request) by which

performance of the obligation is required. However, none of these mattes displaces the

presumption that the obligation in question is a pure one. The second pursuer could not

validly call for performance of an obligation which was not already in subsistence. The

fact that it could call for performance at any time from conclusion of the contract rather

indicates that the underlying obligation was in subsistence from the outset. The language

of clause 6.1 does not provide any particular support for a construction that the making of

a written request should be considered at once as making the obligation enforceable and

calling for its performance. The terms of the request will, at the point of its being made,

either be reasonable or not, with the contract providing for arbitral determination should

there be any dispute about the issue. The potential uncertainty which the contract allows

for as to the precise terms of the warranty to be granted (a double uncertainty given that

no standard warranty was in fact attached to the contract as contemplated) does not render

the underlying obligation unenforceable unless and until that uncertainty is resolved;

certum est quod certum reddi potest. The 7 day period allowed for delivery of the warranty

appears clearly to be a stipulation concerned with the performance of the relative obligation

rather than about its subsistence.

[33]

Counsel for the pursuers sought to draw an analogy between clause 6.1 and the

case of a loan repayable on demand. However, even if one were to accept the validity of

the analogy, the conventional view is that the underlying obligation to repay in such a case

subsists from the outset and the demand for repayment affects only the performance of that

obligation, rather than creating it (cf Neilson v Stewart 1991 SC (HL) 22, per Lord Jauncey

at 40).

[34]

I did not find considerations of commercial sense, or of what prescriptive regime

would have been applicable to any warranty which might have been granted, helpful in

arriving at the true construction of clause 6.1, simply because it seemed to me that the terms

of that clause were sufficiently clear in themselves and that the commercial consequences of

one or other construction were not so obviously extreme as to be capable of displacing the

natural meaning of the words used.

[35]

I conclude for the reasons stated that, on a proper construction of clause 6.1 of the

appointment letter, the defender's obligation to execute and deliver a warranty subsisted

for a continuous period of 5 years from 22 May 2017 without any relevant claim or

acknowledgement having been made in relation to it, and was accordingly extinguished

at the end of that period.

Conclusion

[36]

I shall sustain the defender's sixth plea-in-law and assoilzie it from the second

conclusion of the Summons, sustain its first plea-in-law and dismiss the rest of the extant

conclusions, and repel the pursuers' pleas.