Structural engineer not compelled to deliver collateral warranty to building project owner

Structural engineer not compelled to deliver collateral warranty to building project owner

A commercial judge has held that a structural engineer hired for an Edinburgh building project could not be compelled to execute and deliver a collateral warranty in favour of the landowner over five years after the conclusion of a contract between the engineer and the project’s contractor in which the obligation to produce a warranty was created but never complied with.

Pursuers The Engine Yard Edinburgh Ltd and Allenbuild Ltd sought declarator that a ius quaesitum tertio in favour of the first pursuer was created by a contract between the second pursuer and Bayne Stevenson Associates Ltd that would allow the first pursuer to demand the execution and delivery of a collateral warranty by the defender in its favour. The defender’s position was that the first pursuer had no title to sue, and any rights held by the second pursuer had extinguished by prescription.

The case was heard by Lord Sandison in the Outer House of the Court of Session. D Thomson KC and Manson, advocate, appeared for the pursuers and MacColl KC for the defender.

Directly enforceable right

On 8 March 2017 the second pursuer entered into a contract with Places for People Developments Limited, of which both pursuers were wholly owned subsidiaries, in which it was appointed as the design and build contractor for a building project known as The Engine Yard Edinburgh. The first pursuer was a special purpose vehicle formed in connection with the project, which owned the land upon which the project was built.

The defender was appointed as the structural engineer for the project by a letter of appointment to which the first pursuer was not party. Under Clause 6.1 of the letter, the defender was obliged to execute a collateral warranty in favour of the first pursuer as the employer in a form that was envisaged to be annexed to the letter, although no such form existed, or in another form as required by the second pursuer as the contractor.

No such warranty was delivered to either pursuer despite a written request on 25 August 2022 by the second pursuer. It later transpired that remedial works would be required to be carried out to the property between September 2020 and January 2021 at considerable cost. The pursuers alleged 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 would not have incurred the repair costs had the defender fulfilled the duties incumbent upon it.

For the defender it was submitted that any right held by the second defender to require the delivery of a collateral warranty had extinguished five years following the conclusion of the contract on 22 May 2017. There was nothing in terms of clause 6.1, or anywhere else in the letter, suggesting there was any intention to confer a directly enforceable right onto the first pursuer. It was a matter for the second pursuer when or whether it passed the requested collateral warranty onto the party in whose favour it had been written.

Part of a pattern

In his decision, Lord Sandison observed: “Prima facie, [Clause 6.1] 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, he continued: “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.”

Considering the effect this had on the creation of any ius quaesitum tertio, Lord Sandison concluded: “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.”

Turning to any right that could be held by the second pursuer, Lord Sandison said: “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.”

He added: “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 observes 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’.”

Lord Sandison therefore assoilzied the defender from the second conclusion of the summons and repelled the pleas of the pursuers.

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