Civil Engineering Reference
In-Depth Information
Conlictingviewshavebeenexpressedontheanswertothisquestion.Whileanum-
ber of legal commentators argued when the 1996 Act came into force that it would
extend to collateral warranties, the prevailing view since then has probably been that
it does not. However, that view has been challenged by the recent decision of the Tech-
nology and Construction Court in
Parkwood Leisure Limited v Laing O'Rourke Wales
and West Limited
(2013). In that case it was held that a collateral warranty may consti-
tute a 'construction contract' for the purposes of the 1996 Act and that as a result the
beneiciarymaybeentitledtobringadjudicationclaimsunderthe1996Act.hecourt
placed importance on the direct link between the collateral warranty and the under-
lying contract and the fact that the warranty under consideration contained future
obligations in respect of work not yet carried out at the time of signing. However, it
emphasized that not all collateral warranties will be construed as construction con-
tracts under the 1996 Act; the test is whether the contract is for 'the carrying out of
constructionoperations'forthepurposesofs.104(1)ofthe1996Actandanimportant
factor will be whether the grantor undertakes to carry out future works as opposed to
warranting that past works have been carried out in accordance with the underlying
contract. In the latter case it is unlikely that the collateral warranty will be construed
as a construction contract. As an English case, it is only of persuasive authority in
Scotland. Nevertheless, since the decision is unwelcome to contractors and consul-
tants (and their PI insurers) the immediate consequence of the decision is likely to be
that those parties may demand greater precision in the scope of obligations contained
in collateral warranties. It may also mean more reliance on third party rights as an
alternative to collateral warranties (see Section 13.5).
13.5 Third party rights schedule
13.5.1 Introduction
A third party rights schedule is a schedule forming part of a primary contract, such as
a building contract, which sets out a series of rights which can, in the circumstances
set out in the primary contract, be conferred on third party beneficiaries without the
need for a separate contract to be entered into with the third party beneficiary. In a
construction context the rights in a third party rights schedule will typically be very
similar to the rights that are contained in a collateral warranty.
In England, the Contracts (Rights of hird Parties) Act 1999 (which does not apply
in Scotland) provides a legal basis for the use of third party rights schedules as an
alternative to collateral warranties. Although, under the common law doctrine of
jus
quaesitum tertio
it has always been legally possible in Scotland (unlike in England)
for the parties to a contract to confer rights in favour of third parties, provided cer-
tain criteria are fulfilled, it was not until third party rights schedules were adopted in
England that they were considered for use in Scotland.
Both the SBC and the SBC/DB forms provide for third party rights pursuant to
clauses 7A and 7B and Part 5 of the Schedule, as an alternative to the provision
under clause 7C of collateral warranties from the Contractor to purchasers, tenants
