The Scottish Parliament has announced that The Contracts (Third Party Rights) (Scotland) Act 2017 will come into full force on 26 February 2018 reforming Scottish contract law and replacing the common law doctrine on third party rights known as jus quaesitum tertio (“JQT”). JQT was largely criticised as being uncertain and inflexible and was therefore rarely used or relied upon in Scotland.
For the construction sector, the Act introduces for the first time a clear option of granting enforceable rights to third parties without the need for collateral warranties.
If included in construction contracts, third party rights will likely look very similar to the provisions you find in a collateral warranty but a separate document will not be required to be completed and executed by the relevant parties to effect the third party rights (as is the case with a collateral warranty). Third party rights can be effected in a much simpler and more efficient way - on notice to the granter.
The Act provides for flexibility as to the identity of third parties – they can be named or described in the contract and a class of third parties can be used. The third party also does not need to exist at the time the underlying contract is entered into or know about the rights in its favour. Under the Act, the third party rights themselves are also flexible as they can be modified or cancelled unless the parties expressly agree in the underlying contract not to cancel or modify the third party rights.
From the third party’s perspective, the fact the third party right can be modified or cancelled may cause some concern but the Act acknowledges this and builds in some statutory protections for a third party in the case of modification or cancellation. In the construction industry, I suspect we will also see some practical solutions being developed by third parties to protect against modification or cancellation.
The existence of a choice now for parties in the Scottish construction industry is welcomed but only time will tell if this choice will make a difference to current industry practice. The potential for significant time and cost savings for all parties involved in a construction project is surely the biggest driver for change and if there is a shift in market expectation, third party rights could conceivably become the preferred option of the future.
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