Much ink has been spilled on the subject and I had thought that there was nothing further that could be said. But I am sufficiently riled by Melinda Parisotti's piece in Building ("What apocalypse?", 10 August, page 37) to respond.
Melinda's piece – rather smugly – suggests that the Contracts (Rights of Third Parties) Act 1999 is a "damp squib", and that those who hoped it might make a difference are – rather gratifyingly – wrong. Astonishingly, she suggests that the construction industry does not need the act, as it has the collateral warranty mechanism to deal with third party rights. She defends that mechanism and suggests that it is preferable to using the act.
Most of us feel that we have better uses for our time and our clients' money than perpetrating the present fiasco. In an industry that is trying so hard to eliminate waste and improve its processes, is there any room for this quest for an overcomplicated and ultimately self-defeating web of separate contracts?
So, I think it is worth looking at Melinda's reasoning in detail.
She suggests that third parties want to be able to file away their own piece of paper. She even suggests that collateral warranties are "fairly brief and unambiguous". She contrasts this with the position if the act is used. This means, she asserts, that beneficiaries need to search through a substantial bundle of documentation to find the parts that confer rights.
Most of us feel that we have better uses for our time and our clients’ money than perpetrating the present fiasco
This is simply wrong. Collateral warranties may be brief, but they are meaningless unless they are filed with a copy of the contract on which they depend. And given the doubts about the enforceability of many of the provisions of collateral warranties, such as net contributions clauses, to describe them as "unambiguous" is disingenuous. And the act does not mean Post-it notes all over the contract – the rights that are conferred on the third party can be clearly set out in a separate schedule, in exactly the same way as the collateral warranty is at present.
Melinda suggests that one or two lawyers with whom she has had dealings are "twitchy" about using the act. A straw poll of leading construction lawyers in the City reveals no such twitchiness; rather the reverse. Those brave developers who have been in the vanguard of using the act have, for the most part, been greeted with a constructive response and have enormously simplified their transactions. Indeed,
the construction sub-group on the City of London Law Society and the JCT are both examining the possibility of drafting provisions using the act.
Melinda's next explanation for the industry's reluctance to use the act is inertia. "Traditional diehards" exclude it because they object in principle to third party rights. As this principled objection presumably applies to rights conferred by collateral warranties, the diehards must be working on projects that are neither funded externally, sold nor let.
Melinda's final assertion is that giving rights to third parties adds complicating factors to construction contracts, and therefore time and cost. Is Melinda arguing that the need to get collateral warranties signed when a tenant is found is not a complication that adds time and cost?
Postscript
Ann Minogue is a partner in solicitor Linklaters.
