 Thank you everyone, and can I welcome the appreciated members to the 11th meeting in 2017 by the Delegated Powers and Law Reform Committee. Agenda item 1 is the decision to take business in private. It is proposed that the committee takes item 5 in private. Item 5 is consideration of the child poverty, Scotland Bill, so does the committee agree to consider item 5 in private. Agenda item 2 is instruments subject to affirmative procedure, and the two affirmative instruments for consideration today are the Draft, Transport and Works Scotland Act 2007, Environmental Impact Assessment Regulations 2017, and the Draft Roads Scotland Act 1984, Environmental Impact Assessment Regulations 2017. Both instruments were initially laid before Parliament in draft on 8 March 2017. Subsequent to that, the committee's legal advisers identified some drafting inconsistencies and minor errors in both of the instruments. Accordingly, they were withdrawn by the Scottish Government and relayed with the errors identified having been corrected. They were relayed on 23 March 2017. No points have been raised by our legal advisers on the relayed instruments, so is the committee content with the relayed instruments. Agenda item 3 is instruments subject to negative procedure, and the first instruments for consideration is the non-domestic rates transitional relief Scotland regulations 2017, SSI 2017 number 85. Those regulations reduce the amount payable as non-domestic rates for certain properties for 2017-18. The regulations were laid before the Parliament on 16 March and come into force on 1 April 2017. They do not respect the requirement contained in section 282 of the Interpretation and Legislative Reform Scotland Act 2010 that at least 28 days should elapsed between the laying of an instrument that is subject to the negative procedure and the coming into force of that instrument. Does the committee agree to draw the regulations to the attention of Parliament under reporting ground G? The instrument fails to comply with the requirements of section 282 of the Interpretation and Legislative Reform Scotland Act 2010. Does the committee agree to draw the regulations to the attention of Parliament under reporting ground G? We do. Thank you very much. Does the committee also agree to find the failure to comply with section 28 to be acceptable in the circumstances, as outlined in correspondence from the Scottish Government, published as part of our papers today? No points have been raised by our legal advisers on the remainder of the negative instruments before us today, which include the Transport and Works Scotland Act 2007, Applications and Objections Procedure Amendment rules 2017, SSI 2017, number 74 or Lloch Brwm Scallops, several Fishery Order 2017, SSI 2017, number 77 or the Valuation Appeal Committee Procedure in Appeals under the Valuations Act's Scotland Amendment regulations 2017, SSI 2017, number 78 or on the Road Traffic Permitted Parking Areas and Special Parking Area, Angus Council Designation Order 2017, SSI 2017, number 79 or in parking attendance wearing of uniforms, Angus Council Parking Area Regulations 2017, SSI 2017, number 80 or on the Road Traffic Permitted Parking Area and Special Parking Area, Stirling Council Designation Order 2017, SSI 2017, number 82 or in the parking attendance wearing of uniforms, Stirling Council Parking Area Regulations 2017, SSI 2017, number 83 or on the Road Traffic Parking Adjudicators, Stirling Council Regulations 2017, SSI 2017, number 84. Is the committee content with these instruments? Many thanks, which takes us to agenda item 4, which contracts our party rights. Scotland Bill and today we welcome James Rust, who is a partner at Morton Fraser specialising in agricultural law. We are delighted indeed to welcome him here today to the committee. Mr Fraser, you are indeed most welcome and thank you for taking the time to come and be with us today. I have the first question for Mr Rust. The question is regarding the need for a statutory approach. The bill team and the Scottish Law Commission have indicated that case law is unlikely to develop quickly enough to deal with the problems identified in the law and that statutory rules are needed. Can you outline your own views on the need for statutory rules for third party rights, please? Yes, fairly briefly, I think that it is a necessary step to ensure that the law changes in an appropriate way. I am not an academic lawyer in any sense, I am a practitioner and I had to remind myself of the difficulties with the JQT position because it has ended up as a backwater in relation to practitioners' approach to contract law. There are one or two specialist areas that deal with it a lot, but otherwise it has fallen into a state of disuse because of its difficulties and uncertainty. Therefore, I think that legislation is a good idea. I turn now to the default rules and the provisions in the bill set out the default position. Contracting parties are free to make express provisions to the country. Could you outline to the committee to what extent you agree with the approach and why? I agree with the approach. I think that it is important to give as much flexibility as possible to contracting parties, to adjust and come to their own basis of understanding. Therefore, I think that the introduction of a default position is a good one because it allows the necessary flexibility that parties may be seeking. As you are aware, there are a range of third parties in the agricultural sector. I am thinking, for example, of maybe spouses who benefit financially from the partnership agreements that are used to run the farms, although they are not actually partied to those agreements. Can you explain in more detail what kind of third-party rights exist in the agricultural sector and what are the most important examples in your view? I will try. I have given that a little bit of thought. The agricultural sector is a business sector like any other. It is typified by contracts between A and B. Not often do you come across, frankly, a C in whatever context that might be. Consequently, there are possibilities where you may have farm land owned by an individual. The farm may be worked by a partnership and there may be contract farming arrangement that might hang off that. Consequently, you see situations where there may be three parties with different rights attached to it. More typically, it is a matter of relationship between A and B. Therefore, I would say that there is not a particular issue that I have come across that might mean that this change in the law might have a significant impact on farming. Your comment about spouses who are not engaged in the partnership, but who are involved in the farming enterprise, if you like, is an interesting one. Certainly, to that extent, there may well be some impact on family law situations, which have been particularly difficult and there have been difficult cases involving that. Felly, I should declare an interest in this section of questioning being a former myself. I apologise to the committee for not having done so earlier in the proceedings. Alison, have you got further questions that you want to ask? Can I just really look at the impact of the current law? One of the main criticisms of the common law and third party rights is that the scope is uncertain. The other is that the irrevocability role, makes it difficult to amend or cancel third party rights. What is your view of these general criticisms and what is the impact of the problems, if any, on the agricultural sector? My view is that those problems make the law almost unworkable, in the sense that it does not give any opportunity for flexibility of circumstances change before a third party has an entitlement to operate the right that may be granted. I think that that partly explains or rather largely explains why it is an area right for legislative change. I think that this is a growing area of potential problem in the agricultural sector. You mentioned, specifically, contractors and other parties involved in and around ag culture law at this time. Would you like to expand on contractors, ag culture contractors and contract farming as well instead of tenants? I do not want to stray into ag culture holdings because that is a topic on itself. The fact of the matter is that the state of the law in ag culture holdings is in a constant state of flux and uncertainty. Therefore, I think that you are correct in your presumption that other forms of farming have become more and more popular, I think, as an alternative to ag culture holdings per se. Consequently, there are a number of contracting arrangements that are entered into between the farmer, landowner and a contractor or, indeed, a partner, perhaps, for a particular season to farm the land and to get a profit off it. The agricultural sector is typified by a number of different arrangements for working the land beyond simply agricultural holdings and the traditional landlord and tenant approach. As the more one thinks about it, the more areas there are in that area such as seasonal grass-partlets are very popular. Of course, there is a seasonality about it, so investment into the land is pretty minimal unless the landlord is going to do that himself for whatever reason. There are a number of varying types of contracts that allow for the land to be worked by someone other than the landowner himself. Indeed. How many are third parties as many as you can have, or fourth parties? I am thinking of someone who takes a seasonal let and then gets another contractor to put fertilizer on to that land for them. Absolutely nothing to do with the person who has originally let the land to on a seasonal let basis. Indeed. The connection between the landowner and the fertilizer spreader is quite detached. Equally, I think that the landowner would want to know whether fertilizer is to be spread. Commonly, that would have been a matter of discussion between the landowner and the greasier. A basis for the commercial arrangement arising from that would have been reached. He would be on a softer rent perhaps to account for the investment that he would be putting into the land, or indeed sometimes the landowner may have made a contribution himself. Thank you. I think that we are exhausted in that for the meantime. Monica, would you like to… Thank you. Good morning, Mr Rust. Unlike the convener, I do not have any special knowledge of agriculture or fertilizer, none the less. In previous evidence sessions, the committee has heard that in many other sectors construction being one example, that legal workarounds seem to be used to get around the problems in the current law on third party rights. Are there any workarounds that are used in the agricultural sector to grant rights to third parties? If so, what are the benefits and disadvantages that they offer? I have given that some thought. I can honestly not say that I have come across any… There is not a standard collateral warranty, for example, that we pull out of the door every time we deal with some form of new tenancy arrangement or contract arrangement. In the old days, when limited partnership agreements were much more popular than they were now, then you occasionally would have a back letter of some sort, but it usually tended to just be between the parties. In other words, there was not necessarily a third party involvement in those. I am sorry, I have wracked my brains, but I have not come across anything particular to agriculture. Clearly, in some of the bigger farming operations, they may well be involved in significant construction contracts. Consequently, to that extent, I am aware that construction has a number of collateral warranty approaches to subcontracting and that sort of thing. To that extent, farmers may become involved in such warranty arrangements. However, particular to agriculture and the practice of that, I have not been able to think of anything, I am afraid. No, that is helpful, that is a clear answer. From previous sessions, again, the construction example was that where collateral warranties are quite commonly used, clients and practitioners might be quite wedded to that approach and we wonder to what extent the new law would be used. The other issue that we have looked at is the black hole of non-liability. The Scottish Law Commission has indicated that the bill will make it easier for businesses to avoid what it calls a black hole of non-liability, which currently reduces protection for company groups. Speaking today about agriculture, do you agree with that? If so, can you explain what change that might have in relation to agriculture? I agree with it as a proposition because I understand it. I do not think that it will have a particular resonance in agriculture because we do not tend to operate with group companies in agriculture. There are one or two substantial operations that may find themselves in that situation where there are two or three different companies that are linked, but most farming operations are pretty straightforward. They are either individuals or their partnerships and, occasionally, you may have a limited company. I suppose that you might have a trading company as a subcompany of the limited company, perhaps if there is a farm shop or something of that order. You can see that there might be a relevance in those circumstances, but for the vast majority of cases, it is not an issue for agriculture. Thank you. Okay, many thanks. David, good to have Mr Torrance. Thank you, convener, and good morning. Given that the bill seeks to provide greater clarity, do you think that the provision in the bill is clear and resolves some of the uncertainty that is associated with the current law? Yes, I think that the bill is clear and I think that it will resolve uncertainty. I think that it will be interesting to see how it is received by practitioners because I think people, as practitioners, have got used to the state of uncertainty and therefore have factored it into their practices. What that does or what it will do is provide an opportunity for quite significant rethinking of their approaches. I think that, like everything else, trying to get people to move off something that they feel familiar with and a regime that they are comfortable with, albeit that it has its difficulties, into a new place will take a little time, but one would hope that the advantages will be perceived fairly quickly. Can you give any tangible examples of the agriculture sector? Again, I gave that some thought. I am afraid that I cannot think of anything that would have me rushing to the act to say, right, I am going to change my styles here, there and everywhere, but we are constantly reviewing and updating and certainly we will have this bill in front of or this act when it becomes an act. We will have this act in front of us and we will look at our standard form offer and standard form leases and see if there is anything that we want to stick in there to make reference to that. The act that the bill when it becomes an act will apply across the board in any event. The common law is to be done away with, so we will be into a new regime come what may. Do you think that the bill will improve a law in relation to the agriculture and, if so, how? I think that it will do so in the sense that agriculture, as I have said earlier, is a commercial operation and therefore this clarifies certain area of law that affects commercial contracts and therefore there will be benefits to be had in particular circumstances, so yes, in the right circumstances. Mr McMillan, I want to ask a question. Thank you, just a supplementary to David Torrance's question. In your answer a few moments ago, Mr Rust, you highlighted that you think that the bill is clear and it will resolve uncertainty. With that being the case, do you then consider it a reality that the costs of actually going into the contracts could then be a bit cheaper for those who are going to enter into the contracts going forward? I do not think that it will have a material effect on costs because I think that there are many more things that bear on cost than simply this particular change in the law. If it reduces the side documentation that is occasionally introduced in particular circumstances—again, I come back to construction as an example—if people can build in the necessary rights into the contract itself without having to think about a separate side position, then what it might well do is speed things up. That may have the effect of reducing costs because a lot of cost is incurred simply in the time taken to get things done. If you can simplify the process, then I think that you will hopefully take some cost out of the procedure. In other sectors, there has been some suggestion that there might not be an uptake of the new legislation. Do you think that parties in that culture sector will use the new rules in the bill, or is there a risk that they will continue to use existing legal structures such as they are to set up their projects? I think that that is a risk. I have probably touched on that already. I think that some fairly clear direction from academics, possibly the law society, as to where that might have positive application and the benefits of that might not be a bad thing. As practitioners, we are always hugely busy and trying to open our mind to something new, such as that, is always a constant challenge. The more encouragement that we can get that there is actually benefit to this, and it is not just more legislation for legislation's sake, the better. We are just on that latter point regarding the benefits. I will say much, but not all, of the focus of the bill has been upon the various sectors that set the bill's benefit from the bill. You have touched upon in your earlier comments that much of the contracts that take place are between individuals, notwithstanding the odd contract with the larger agricultural providers. Do you think that the bill will also benefit individuals as well as businesses? If so, can you provide more detail about how you think there would be these benefits? Well, I think that every business has behind it an individual. To that extent, I think that there will be individual benefit to be had from this. In the agricultural industry, there are many, many businesses that are great and small, and some of them are sole businesses. Through a process of evolution, one would hope that there will be greater utilisation of the third-party provisions contained within the bill to allow individuals to benefit from that. Sorry, it is crystal ball stuff. Certainly sections 4 to 6 of the bill stop the contracting parties modifying or cancelling a third-party right. Do you think that those sections of the bill provide the right balance between the rights of contracting parties to change their minds and the rights of third parties? Yes. I think that that has been thought through reasonably carefully. It strikes the right balance. One of the difficulties with the laws that it is at present is the lack of flexibility and what it does is introduce unnecessary balances. Are you doing arbitration? Certainly section 9 of the bill is regarding the arbitration agreements. Do you have any comments regarding this particular section between the contracting parties that operate on respect of third-party rights and what impact do you think that the new rules on arbitration will have on the agricultural sector? I think that the introduction of an arbitration provision is sensible and it is right to extend that to third parties in the way that it does. It integrates quite neatly within the existing legislation. I think that all works quite well. Agriculture is not unknown for its disputes. There are various ways in which those disputes can be settled. Arbitration is one of them, certainly, but mediation would be another. The Scottish Land Court would be another in relation to landlord and tenant. There are various routes that can be taken in the event of dispute in the agricultural context. I think that that would simply be an enhancement in relation to the arbitration arrangements that are already in place. That is probably an unfair question, but you have mentioned that the agricultural law is an area that is not unknown to disputes and not also unknown to not fulfilling ECHR requirements. Do you think that the proposals here are ECHR compliant in terms of the fairness proposed in terms of arbitration, given how much time this Parliament has spent in the regard of ECHR compliance and fairness? Yes, I would say so. There was nothing that I read in this that was unfair or unreasonable on anybody. I am well aware of the sensitivities of that situation, but I think that it is correct that it allows a third party at locusts within an arbitration procedure, and I think that that must be only right. I think that not to do that might well lead you into greater difficulty. Thank you very much. I have a final question from Monica Lennon. In our other sessions, we have been taking cognisance of the speed of law reform, and we have heard from other witnesses that some of the problems in the Scottish law of third party rights have been around since at least the second world war. On that basis, do you think that there is an argument that the pace of law reform has been too slow? I think that that must be the case, in the sense that I think that Scott's law was always played second fiddle to UK legislative change when we had to work through Westminster. That was a well-known set of circumstances that meant that there was a lot of very good legislative change being spoken about in the law commission, but there really was not the parliamentary time to deal with it. Since we have had the Scottish Parliament, obviously the dam has burst and we have got on with it. In relation to that issue, practitioners have just gone on with the job of life and made do with the law in all its imperfections. We are eventually catching up with that particular imperfection. To characterise that issue as one that has been particularly slow and noteworthy because of that, I do not think that that is fair. I think that that is part of a wider problem that we are in the process of dealing with, with my personal view. One of the aims that is set out by the Scottish Law Commission is to increase the usage of Scott's law. Is it the 1999 act that applies in England and Wales? That has been realised in Scotland. Do you think that if we can get that right and we have an act in Scotland that is fit for purpose, that there will be less use of other forms of law? Absolutely. I am sure that that must be the case. If we can provide our own solution to the issue, as we are doing here, I am sure that people will turn to it. My only caveat to that is that, again, I come back to the point that people are familiar with what they know. If it works, albeit that it is an English legislation that they are using, they will need to be educated and persuaded that that now exists and the intention is that they turn to it rather than utilise an English act. Anyone else? Do you have any final questions? I was just on that point again. I touched upon this earlier. If this act—well, this bill will not become an act when that is in operation—if there is the perception, but also the reality that this could save costs, money for the legal firms and also time for the legal firms, would that not be one of the main drivers for the legal firms to use that piece of legislation, as compared to what it is currently doing? If it eases the process, that would be something that people would want to make use of. Once that is recognised, I think that the benefit on cost-saving should ensue from that. Sometimes it is not just cost that is the driver. It is about utility, practicality, speed of process as well. All of those things have a bearing. I think that you have to look at it in a slightly broader sense. It remains for me to thank Mr Rust for coming and giving us his evidence today. Thank you very much if, in the dark hours of the night, or subsequently you or any of your colleagues at Morton Fraser or indeed any other law firms dealing in agriculture law on reflection and having heard your evidence, is there any other matters that you consider would be helpful to us in arriving at producing the best piece of law that we can in this regard? I will be very pleased to hear from you subsequently. In the meantime, thank you very much for your help this morning. I will now suspend the meeting just for a second to allow the witnesses to change. We will now move to our next witness, providing evidence on the contract third party, right to Scotland Bill today. I have my great pleasure to welcome David Wetterburn, who is a forensic architect representing the Royal Incorporation of Architects in Scotland. I now invite questions from members and the first questions I have myself, and it is a need for a statutory approach. The bill team and the Scottish Law Commission have indicated that case law is unlikely to develop quickly enough to deal with the problems identified in the law and that statutory rules are needed. Can you outline your own views on the need for statutory rules for third party rights, please? We feel that there is need because, with the common law approach, the law is, first of all, uncertain, and the development of the law is also uncertain, because it depends on what cases come before the courts and how the courts deal with it. The problem at the moment in the construction industry, and I notice you have been referring to that already, the approach to third party rights has been through a lot of separate contracts, collateral warranties, and the kind of people that are needing these assurances because they are exposed either because they have lent money or are occupying properties constructed and designed by under other contracts and are liable for their maintenance or are buying properties for investment all need certainty because they are hazarding quite a lot of money, both capital and expenditure. At the moment, even though there is the common law right, they tend in both Scotland and England to use collateral warranties. Another driver is that a lot of these third parties, wanting third party rights, have headquarters in England, in London, and tend to have English solutions. Certainly, up until when I was in practice until about five or ten years ago, we were using even in England, notwithstanding the third party rights act, they were still using collateral warranties. It will take a lot of persuading for these institutions to move over. As well as being representative of the RIS, I am also on the drafting committee of the Scottish Building Contracts Committee. There, we have actually drafted third party rights into standard form building contracts with the assistance of Professor Hecton McQueen. They have not been used very much and they are a bit clumbasome because of the problem of irrevocability and the requirement to lodge the rights in books of council of session or some other kind of delivery to make them enforceable. I think that the new law will assist in getting some of the clumbasome aspects of the present attempts to use third party rights in the future. We have heard a little about the 1999 act in England but not a huge amount of uptake since of what that offers to contracting parties. Have you any comments to making that? I am not an English lawyer and I do not have extensive experience of operations in England but we have been involved in developments that involve English developers and they still think in terms of collateral warranties rather than using third party rights. Even now, almost 20 years later? Yes, it is. Commercial law moves slowly, I think. Right. That is consistent with what we have been hearing from others as well. I am moving now to default rules and the provisions in the bill set out the default position. Contracting parties are free to make express provisions to the country. Could you outline to the committee to what extent you agree with this approach and, if so, why? Yes, we agree with this approach because we want to have the third party rights established clearly and have the non-applicability as an exception to the rule. There are benefits to architects in having all their legal obligations set up under the one document and anything that makes it uncertain that these rights will be established will encourage other third parties to insist upon extra contractual arrangements. So, anything that can establish all those third party rights under the architect's appointment would be to the benefit of everyone. I move to Alison Harris for the next question. Good morning. In your written evidence, you explained that third party rights are needed in commercial developments to protect the position of the funders, purchasers and tenants. Could you expand on why third party rights are so important to commercial developments and are there any other areas of construction where third party rights are important? Yes. The ones in relation to funders, purchasers and tenants are important. In relation to funders, the funder is extending a large amount of money alone to somebody and the only security is the property. That security is damaged if the property is not as defective in any manner. Therefore, there need to be a course against those that they think may have caused the damage to the property. That is why they always insist. In fact, they have special kinds of third party rights. In addition to having recourse in relation to defects, they also usually insist on what are called step-in rights, which means that if the developer goes bust, for example, they can step in, take over the construction from the developer and finish it, so that they again protect their investment. In relation to purchasers, they need to know what they are buying because the problem with buildings is that they have latent defects. It is often not patently showing that there is a problem with the building and that a forward purchaser can purchase what they think is a perfectly good building. There are loads of defects. In relation to tenants, the commercial tenants are let on a full repairing and ensuring lease. Therefore, they are liable if there is something wrong with the building. Again, they need to protect their position. Are there any other areas of the construction that you can think of with third party rights? Those are the main ones. The other area is what I would say the panatown type situation, that it is quite common for developers to have a group arrangement where they transfer the ownership of their property to one member of the group company, while another member of the group company will enter into the contracts to have them built. There, you have a situation of contract with no loss and somebody suffering a loss with no contract. That is an ideal situation to have a third party right, so that they are protected. You have touched on it already in your first response to the convener. I have had a look at your written evidence as well, where you explained that the uncertainty in the current law means that parties in the construction sector normally use collateral warranties. I have listened to your earlier comments. Is it simply just that commercial lawyers are teachers of habit? Is that what is going on? Especially lenders and banks like to have a piece of paper that they can show, that they can pursue, raise and action on. It is really an educational task once we have the bill as an act to persuade them that we can point to the contract and the provisions in the contract that they can rely on. I suppose that what I am wondering is that it sounds like the use of collateral warranties is very well established in light of the uncertainty in terms of common law. In your evidence, it appears that collateral warranties are quite difficult to arrange logistically, so it is not an easy option perhaps. Could you explain what some of those practical problems are? I have had circumstances in which we have had to dash off to the Highlands. It has got a deal about to sign. One of the parties is on a holiday in a cottage up far north and send two solicitors up to stand at his door until he has signed the document and then take it back so that we can do a deal the next day. Those things cannot happen. Is that a fairly typical example of that? Usually we manage to get everyone lined up and all together and everyone signed, but it is like herding cats sometimes. In your written evidence, you indicate that a technical problem with collateral warranties is that sometimes the rights and benefits in the warranty are not aligned with initial contract terms. Could you expand on that point? Yes, it is a problem that collateral warranties are independent legal documents and can be drafted in any way parties like. The danger is that people take them off the shelf from one development and apply them to another. The advantage of the third party rights approach is that automatically they are aligned with the contract because the rights are written into the contract. With a separate document it could enter into all sorts of things which don't align with the underlying contract. We have also heard from other witnesses similar to yourself that in the short-term collateral warranties will probably be used for some time instead of the new rules. Do you agree with that view? You have touched on the need for education. How do you go about educating practitioners? The first thing that we will be doing as an incorporation is issuing practice notes to members, alerting them to the new when the act becomes an act. Problems, of course, often develop as they approach their architect when they are thinking about doing a development. That is the point to bring to their attention these approaches. However, if they are going to a bank to get funding, the bank will go to their own lawyers rather than to involve anyone in the development team. That is where it needs education of lawyers as well. How will that be addressed within the banking sector? I am not sure. It is not my area of expertise. I now move to Alison Harris, who is going to talk about another subject. The Scottish Law Commission has indicated that the bill will make it easier for businesses to avoid what it calls the black hole of non-liability, which currently reduces protection for company groups. Do you agree, and if so, can you explain what the impact of this change will be in the construction sector? I have touched on that in relation to the pan-a-town type situation where you have one member of the group being contracting to get the thing built and then as soon as it is finished it is passed on to another part of the group that holds all the property. In present law there is the danger that, although there are a number of it including the House of Lords, they have then used fancy footwork to try to bridge the gap. It is a much nicer legal way to create third-party rights that allows all the members of the group to benefit from the original contract. Thank you. Do you think that it is maybe more cleaner? Yes, it is cleaner. Okay, thank you. I'll Mr McMillan, over to you. Thank you. Sections 4 to 6 of the bill stop the contracting parties modifying or cancelling the third-party right. Do you think that those sections of the bill provide the right balance between the rights of contracting parties to change their mind and also the rights of third parties? Yes, I think so. The important thing I've indicated before with regard to the kind of people in the construction industry that are looking for warranties is to make sure that the underlying contract can't change under their feet. I think it is very important that they are able to rely upon it. I think that the provisions making it quite clear when things can be cancelled and also the ones when they can still rely upon it even though the underlying contract may have subsequently changed. I think they are very useful for the kind of people in the construction industry who will rely on the third-party rights of warranties. Certainly, with the discussion that we have had this morning and also in previous sessions much, but not all the focus has been on various business sectors that will benefit from the bill. Do you think that the bill will also benefit individuals as well as businesses, and if so, can you provide further examples or more detail about who you think will benefit? My main experience is through organisations as third parties, companies and business partnerships, but they are all made up of individuals. To the extent that a lot of our members are sole traders and are therefore individuals, they will benefit from having less paperwork and having the issue of third-party rights established right at the beginning under their appointment, rather than what often happens now towards the end of a job having already entered into their appointment, somebody comes along and says, by the way, you need to sign all this great chief of collateral warranties, so hopefully that situation will be less likely to occur. On the issue of the collateral warranties and what is in this bill, with the operation of collateral warranties, notwithstanding the fact that they have been used for quite some time and, as Monica Lennon was asking earlier, the protectors are the creatures of habit to use them. Do you think that they will continue to be an expensive route of legal practice when this bill is passed in whichever shape or form? Do you think that this will actually be a cheaper method of operation as compared to the collateral warranties? Yes, suddenly it will be cheaper, although given the scale of some of the large commercial operations, the percentage of saving will be quite small, but it will be more important that there will be less hassle in doing it this way. It is a neater way of doing it and it causes less disruption to the parties involved in the development. When you gave your example earlier of two solicitors being sent up to the Highlands to stand at the door, I take it that that was before that this Parliament passed the legal writings, counterpart and delivery Scotland Act. Yes, it was a number of years ago. Okay, thank you very much. Right, thank you very much. Mr Torrance, you have some of the final questions, please. Thank you, convener, and good morning. Arbitration and impact that is had in the construction sector. In your written evidence, you explained that it is currently difficult for third parties to join in arbitrations dealing with collateral warranties. You indicate that section 9 of the bill will make it easier for multiple-party arbitrations to take place. Could you expand on this point and explain what the advantages are for multi-party arbitrations in the construction sector? The arbitration has been a varying thing in the construction industry over the last few years. When I was first practicing an architect back in the 70s, the standard form had the default of arbitration, but it fell into disrepute because the arbitration was relied on articles of 1695 or somewhere around then. It was rather antiquated and it could go on and on. So there was a move in later years to move to court proceedings, but since the arbitration act of 2010, we have the SBCC at least, who are the major drafters of Scottish building contracts have moved back to arbitration being the default position for dispute resolution. Therefore, it is very likely that any underlying contracts will have arbitration as the means of dispute resolution. That then creates problems for third parties who are not party to the underlying construction contract being involved in any arbitration. So we welcome this approach in the third party rights bill to allow them to join in any such proceedings. There is something further which I just thought of earlier this morning, so I am not sure how it will, I haven't thought it fully through, but as you may be aware, construction contracts are subject to the Housing Grants and Construction Regeneration Act, which gives a right to adjudication on disputes. Now, we are in an interesting position where we already are of the interaction between the two, but that is something that would need to be borne in mind of how the two interact. On the speed of law reform, from evidence that we have received so far and the problems in Scottish law and third party rights, do you think that reform has been too slow? No, I think that it is good to see it happening and coming up. I think that the fact that we have a Scottish Parliament has allowed a lot of issues that have lain unresolved for a long time to be addressed by the Parliament, which I welcome. It is interesting that the third parties were addressed, an issue was addressed in England in 1999, but they were coming from a different position where they had privity of contract and therefore no third party rights to begin with. I am glad that we have now legislated so that we have a proper statutory basis for Scottish third party rights. Excellent. Do you have any final questions for Mr Wedderburn? No, in the absence then of there being any other questions, Mr Wedderburn it is my pleasant duty just to thank you very much for taking the time to come and give us the benefit of your advice today. As I have said to other witnesses, if you or other of your colleagues, if matters occur to you on reflection and following this session that you think would be a benefit to us in making good or better law that you haven't managed to convey to us today, please do so subsequently, should you wish. In the meantime, thank you very much for your help today. Shall we resume again colleagues and the final witnesses before the committee today are Craig Connell QC, who is a partner at Princeton Nations, and David Christie, who is a senior lecturer in law at Robert Gordon University. I welcome both Mr Connell and Mr Christie, and thank you very much for coming and joining us today. As before, I have the first question, and the first question is on common law to statutory footing. The bill team and the Scottish Law Commission have indicated that case law is unlikely to develop quickly enough to deal with the problems identified in the law and that statutory rules are needed. Can you outline your own views on the need for statutory rules for third party rights? Thank you, convener. I just start before I do that by thanking the committee for its courtesy and allowing me to rearrange my appointment to come today so that I could attend my colleagues' funeral in air as it happened a week ago, which is very much appreciated. My own view, and I will let Mr Christie chip in just in a second, is that this is quite a tricky balance for this Parliament to maintain, because although the common law is, in a sense, cumbersome, it does, however, have the advantage that it develops over time and things change. Different types of case emerge. Third party rights would not have been discussed in the context of collateral warranties 20 years ago. They would have been discussed in the context of title conditions on people's houses, which is where they were largely to be found. The common law does shift along in a slightly cumbersome way, and as soon as you put legislation in place, you are then faced with detailed statutory provisions that may or may not all turn out to be ideal. I suspect that I am rather more ambivalent about the pros and cons of this, although I recognise that the revocability point that the Law Commission identified, which I realise is another question, is a matter that is not easily resolved by case law. If I may, I set out some of my reasons for this in the paper in which I produced the committee, but I think that it might be helpful just to briefly summarise them. In terms of the broad policy, I think that the codification of the common law in this situation is probably necessary if there is a recognised need to have third party rights. In general, consensus seems to be that there is a benefit in having third party rights. In the construction sector, where there is a value put on pragmatism and flexibility, I think that at least having the option of third party rights would be useful. In Scotslaw at the moment, and I call it perhaps slightly poetically, a death spiral, but third party rights are subject to a death spiral because there are no cases coming before the courts to help to clarify the existing law. In the absence of clarity in the existing law, nobody is using third party rights, which means that there are no cases coming before the courts to clarify it, and so nothing is happening with third party rights. If the codification occurs in England and Wales, there may be, and I wouldn't necessarily put it any higher than that at the moment, the possibility of a virtuous cycle whereby use of third party rights increases and it becomes perpetuating to the extent that the more people use it, the more it becomes accepted and the more useful it has. That is not to say that collateral warranties in the construction context that most knowledges on would not go away, but there may be changes to the extent to which they are emphasised and used. Yes, we will take you to an explanation of your term primordial soup in your evidence later on. In the meantime, we will ask Monica Lennon to take up the uncertainties about the scope of the law. One of the main criticisms of the common law is that its scope is uncertain. Do you agree with that criticism? If so, why, could you give some examples to suggest what extent you think the law needs to be clarified in legislation? Partly, there is the general perception of lack of clarity, which, as I have said, is self-perpetuating, but that largely comes from—I think that you have heard about irrevocability is the particular issue—and the lack of clarity around exactly how third party rights are constituted in a way that can be binding. The danger with third party rights, as well, is that, if there is uncertainty as to constitution, there is always a risk that some third party, if you are entering contracts, might crawl out of the rework and raise a claim against you, which makes them quite scary because there is a lot of uncertainty about where a claim might come from. The parties, as a result, will simply exclude third party rights from the contracts altogether, so there are never any questions about it. The inherent uncertainty is the real problem here. The Law Commission has plotted a route through how it could interpret the law in one way, but it requires probably more work and the need to argue those cases before court in order to achieve that. The best way to short-circuit the problem, if you think that third party rights are a great idea—which I think that they probably are—is to codify them in legislation, essentially to reboot the common law. I was thinking in the train down that it is a bit like if you have a technical problem with your computer, often you will continue to use it and you will just find a way to get along with the problem. In the construction industry, in some ways, that is collateral warranties. It is not necessarily easy, but it does the job. However, you need somebody to upgrade your system and get rid of that problem altogether. At least, it gives you a choice about how you keep going. You think that the upgrade is a step in the right direction, what is proposed. Given that the bill seeks to provide greater clarity, do you think that the provisions in the bill are clear enough and do they resolve some of the uncertainty linked to the current law? I have reflected on the supplementary evidence given by the Faculty of Advocates, which I thought was interesting. They have picked out a number of difficulties with the legislation. I would not necessarily say difficulties but areas where it is inelegant. Certainly, there are sections that are very wordy. I was reflecting a lot. I think that the conceptual difficulty is that, with third party rights, there is a distinction between the right and where the right comes from. If you have a contract, the contract contains rights. The way that you work out what those rights are is by reading the contract. With third party rights, the rights have to come from somewhere. In the legislation, it is what is termed the undertaking. It is the interpretation of the undertaking that gives you the scope and the parameters of the third party right. The legislation therefore is trying to take account of that duality, because so much of what the legislation is trying to do seems to be facilitating the intention of the parties and giving the third party right. I do not know if I am making sense now. I am just about with you there. Mr Cynill, do you want to add to that? Yes. It is interesting. It probably goes back to the point that I made at the outset. If I just take revocability as an example, if the law says that the right must be revocable to work, that is pretty clear. Whether it is a good rule or a bad rule, it is clear, and everybody knows the rule. It did not cause any problem in the previous regime for third party rights in relation to titles, because it was always in the title deed, so it was there. As soon as you then say, well, we want to change the rule, you then get into some of the provisions in the act, which are probably quite well designed to create a lot of dispute, such as sections 4 to 6, which has been commented on by other contributors, and I know that it comes up later. As soon as you take away the simple position that you find yourself possibly having to create quite a complicated answer in order to cope with the issue that you are dealing with, I was trying to think of another issue about clarity, because I realised that this question might arise. The one that just occurred to me and Mr Christie will tell me that I am attacking the coherence of the law. If you want to make things very simple, you just say that third party rights can only be created expressly. If you want them, you write them down, they are in the contract, everybody can look them up and see what they are. You do not allow them to be implied, because as soon as you allow them to be implied, you open up a whole range of, well, if they are not there in express terms of what circumstances can they be implied, so that there are degrees of certainty. I think that Mr Christie has pointed out to me this morning that if you remove implied, then you create a different position to other areas of the law. It is quite an interesting trade-off between clarity and progress. Second, about the current approach that is set out in the bill, Professor Hugh Beall and the Law Society have touched on the complexity of sections 4 to 6. Do you share some of those concerns? No, absolutely. I make it clear to the members of this committee that I am a contentious lawyer, so I deal with problems. Although I have, for the purpose of assisting this evidence, gone to speak to people who work in other areas such as drafting documents, so I may have been able to assist on some of those points as well. When I see clauses that talk about reliance and reliance to a material extent, I wonder what that means. We can litigate over that then. I think that there are a lot of areas in there that are quite difficult to find a simple fix for. There is quite a complex fix here. It may not matter if there are not that many cases, but it certainly creates a number of areas of complexity. I am not a parliamentary draftsman, so I am afraid that I have not come here with a nice, neat, one-setting solution for you. However, I certainly think that there is something to be said for wondering whether those provisions are too complicated. I will add to that on the point that Mr Connell and I discussed beforehand about implied rights. The Law Commission considered whether or not they should be allowed by implication because that is different from the approach in some other jurisdictions. I do not have a particular view either way, but the point that I made to Mr Connell was that part of the way in which the legislation treats third-party rights is to interpret them essentially as if there were other provisions of a contract. It is just that they happen to give the rights to a third party. To allow implied rights brings them within the broad sphere of how you interpret contractual provisions, which is to look at the words—Mr Connell knows all of this—in their surrounding circumstances and work out what the party's intention was. If you start to differentiate third-party rights from the broader sphere of contract interpretation, you may find yourself in difficulties because you are not allowed to use the broader suite of rules to understand how the third-party rights work. If you have not got access to that broader suite of rules, it is harder to work out what the meanings of the rules in third-party rights terms are, which then increases the uncertainty. I might pick that up again in some later questions. I will digest that. Sorry, the secret we are not letting out is that Mr Christie and I used to work in the same office, so we know each other from long ago, hence some of the discussion. Professor Beall implied, if my memory serves it correctly, that the English legislation was more straightforward and clear-cut and almost binary. Would that be something that you see that this proposed legislation is not providing sufficient clarity? Would you agree with the Faculty of Advocates response that you may or may not have seen? I confess that I have seen only sections of the Faculty of Advocates response. I dipped into Professor Beall's evidence but I regret that I did not have time to read it all. Although I am qualified in England, I am not sure that I can offer a definitive view as to whether the 1999 act and this act are, when you compare them, precisely the same or whether there are material differences. I am not being a practitioner. I would not want to hazard a view particularly on the interpretation of specific provisions, but I did look at the Faculty's further response and I thought that that seemed like quite an elegant way to deal with it. Certainly, from a pragmatic point of view, if you have the Faculty of Advocates who are going to be the ones arguing about this legislation already picking up issues in the drafting, I think that we should probably take that into account. Possibly the thing with sections 4 to 6 is that they are aimed at addressing specific problems that arose or exist in the current common law. A problem has been identified and this is the drafting fix to sort that problem out, whereas perhaps the Faculty's view is to take a more holistic approach to all of those issues. Okay, I think that we should move on and it appears that move on to me. Regarding default rules and the provision in the bill set out, the default position contracting parties are free to make express provisions to the contrary. Could you outline to the committee to what extent you agree with this approach and why, although you may already have touched on that subject. However, if you would like to further put that on the record, just your views on that question, please. To your autonomy is the phrase that is usually used, the general principle that, so far as possible, parties should be free to put into a contract. What they want to put into a contract and the other party to that contract should be free to accept or reject it, leading to a conclusion and that those provisions ought not to be restricted in any unnecessary way. I think that that is the general principle that is widely applied and should apply here. The answer would be that party autonomy is provided for. I agree with that. It is important for parties to have the choice. The act helps them to have a choice where they perhaps do not have a full range of choices compared to other jurisdictions just now. However, I can foresee situations where collateral warranties would still be highly useful, even if the act passes. For example, it might be that it takes some of the more basic situations where you use collateral warranties out of the frame and allows you to focus your efforts on the more complex situation, but that would be again a matter for choice and that helps the flexibility in these relatively complex contractual situations. I hope that that will be okay. Section 2 of the bill abolishes the irrevocability rule so that contracts granting third-party rights can be cancelled or modified. Do you support the abolition of this rule and, if so, why? I think that I will probably defer to Mr Christie. In many of the situations in which third-party rights might have been envisaged in the past, that would not have been an issue. I go back again to the title deed example that is put in the title deed while it is there. The issue of the title deed being revoked or changed does not arise. If there is a view from, for instance, the construction industry that has a more nuanced ability to shift and change is required, then clearly that is not provided for in the current common law. If you are going to change it, you will have to do it by statute. I think that there is a benefit in allowing the parties to agree and construct the third-party rights that suit their particular situation. If that limits or restricts the extent to which you have to hit certain preset criteria, that is a good thing. I am slightly conscious that most of the evidence that you have heard will have been from lawyers who are the people who are involved in setting up collateral warranties in those arrangements. We need to reflect on the extent to which the beneficiaries of third-party rights and the beneficiaries of collateral warranties will be those who are often buying property and construction and the funders and so on. They have an interest in certainty and the extent to which there is certainty as to what the third-party right is getting is important. I think that there is a balance to be struck between revocability and the ability for funders and the beneficiaries of third-party rights to continue or to be able to rely upon those rights. I think that that is something that the bill sets out to achieve and that is perhaps why the wording that we have been discussing is fiddly, because it is trying to draw that balance between flexibility and constitution and certainty when it comes to executing the rights. I will be the first to admit that I am not a lawyer, but just tell me how renunciation might impact on what you have just said or not at all. I am just aware of that being part of the faculty of advocate's evidence. Is that relevant to revocability or not? I think that we could all like to confess not to be lawyers if it was an option for us. I do not have a particular view on renunciation, apart from the general framework of it. You cannot force someone to have a right that they do not want, but I have not really engaged with the reasoning of the faculty of advocates any further than that. I confess that I can be engaged with their reasoning at all. One of the complications is that the bill deals with the granting of rights only, because that is what the previous law dealt with. In many of the situations that arise in practice, there may be an attempt to impose obligations. Just as a previous witness talked about documents going beyond simply saying that you have the right to do X. As soon as you go there, you will get into much more complicated territory. Clearly, if it is simply the granting of a right, the person to whom the right is given can say, no, thank you, I give it up, and that is reasonably straightforward. We now move to Mr McMillan's questions. Some of this has been touched upon regarding sections 4 to 6, and certainly those sections stop the contracting parties modifying or cancelling a third party right. Do those sections provide the right balance between the rights of contracting parties to change their mind and the rights of third parties? I am not going to reiterate, Mr McMillan, the general comments about the nature of some of those points. If I was to make an educated guess at it, I suspect that if you need provisions of this kind, then there has been a very fair attempt to try and create a balance between the right of the original contracting parties to say no, and the right of the person who has received the option to insist on it in certain circumstances that are specified. In a sense, that rather elaborate answer to your very simple question probably gives the clue as to why those provisions are quite complicated. I do not think that there is that much else that I would add beyond what Mr Connell has just said and what I have said already. It is partly about the conceptual difficulty of separating out the underlying instrument that creates the right and the right itself, and that is something that I do not feel qualified to look at the drafting to deal with, but I think that the faculty of advocates have had a good think, and it might be one for further reflection. In terms of the policy memorandum with the bill, that states that the legislation will promote the use of Scots law and based on your experience, do you think that that is correct? I think that there is a prospect of it. Other witnesses have spoken of what you might call the London waiting, in other words, the fact that a lot of transactions are dealt with by people who are advised originally by lawyers in London and so on. Therefore, there is a natural inclination to assume that nothing out of London matters. As other witnesses have said, it is perhaps worth remembering that the English partly changed their law because they thought that the Scots law was better than the rigid privacy of contract rules that the English had, and the Scots had third party rights, albeit with some difficulties. However, the reality, I suspect, is that, like all changes, changes come out. People prick up their ears and say that they may have well forgotten use quasi-tum tertiary, which they learned when they were at university, because they have not seen it since. Now there is a new act. People will say, what does that do and may well then sit down and think that can we use it? Does it advantage our clients? I would have thought on balance the answer is that there is a reasonable prospect of some greater use of Scots law. I think that I would agree with that based on the literature of Luke Tarrum and my own experiences. I do not necessarily think that it is the radical change that is going to cause an explosion in the use, but certainly in itself it closes a gap between Scots law and its main competitor in English law and also aligns it more closely with broader European law. I also think that it is useful as a way of demonstrating, along with the other piece of legislation about current parties that you mentioned earlier, Mr McMillan, a way of demonstrating that Scots law is moving forward and recognising where there are areas and is able to start sorting those issues out. I was going to bring that piece of legislation back in as well. That bill went through the committee and I recollect that the then minister who took the bill forward, it was a point that he highlighted on numerous occasions that it was about trying to modernise Scots law and, as we heard already this morning in terms of the SLC bills that have come into the Scottish Parliament, it is just about that modernising and bringing about making Scots law more competitive on that international area. It must be sensible if we stick with the construction example for the moment, if we have a project in this jurisdiction, the logic of putting anything in with the law of another jurisdiction is silly. The committee will probably be aware from other evidence that the classic example is the North Sea, where the North Sea has been conducted largely within Scottish jurisdiction, not entirely but largely, and yet the suites of contracts that have been entered into by the entire industry have largely been dominated almost by default by English law provisions and, in fact, a lot of the disputes disappear elsewhere as well. Now, this is an opportunity at least to edge something forward, I would have thought. In terms of the construction industries, they often use standard forms of contract and the main suites use English law in that, albeit that there is a version with a kilton for the joint contract tribunals one, but, for example, if you can align the law more closely, that makes it easier to tweak the standard forms to apply a Scots law because you do not have to do as much consequential drafting. If there are other good reasons why you might want to have Scottish jurisdiction, which there will be in terms of logistics and so on, it makes it appealing and easier to use the standard forms. Some of the evidence that we have heard today regarding the workarounds. When the bill passes through the parliamentary process and then becomes an act, clearly there will be an education process that will need to take place. I accept as well that this is not a crystal ball exercise, but in terms of that education process, how much effort do you think we need to go in to encourage practitioners to consider this particular piece of legislation to make when it comes to the contracts going forward? My guess—this is not one for which I have any evidence—is that you probably need to do something—sorry, something needs to be done after the initial activity. In other words, assume that the bill becomes an act, the act comes out, it is announced, royal consent date is announced, etc. People pick up their ears, think about it. My own guess is that a year later everybody has forgotten about it, unless somewhere in the professional organisations there is some effort to reiterate the new scheme. The reality with the workarounds, the collateral warranties, I had a long chat with a colleague of mine who does little else but draft construction contracts. What he tells me is that the drafting still needs to be done, so you still need to work out who is to get the right, who is to give the right, what the terms of the right are, are there any additional material? All of that still has to be done exactly as before. What you are potentially avoiding by this bill is, as he puts it, the paper chase, so you may be able to put it all in the one contract provision for the granting of rights in favour of various parties, as opposed to having a recent contract, we had 120 collateral warranties, because each of the specialist participants in the building process had to grant warranties in favour of each of the parties with an interest, tenants, funders and so on. Each of those requires another piece of paper. Some people like to have their own little piece of paper, as we have heard, but I suspect that avoiding a paper trail is always, in principle, a good idea. If the professional bodies take up the mantle after the Parliament has given them the opportunity, it just needs a bit of consistent education. Just to add to that, I think that it is also worth, in terms of the education process, the ideas that go into third-party rights to the extent that, in construction cases, they are using collateral warranties, the thinking is already there. It is not necessarily introducing a whole set of foreign terms into the industry. People understand what collateral warranties do and that third parties can do some of the same things. They will also understand third-party rights if they have experience in England and Wales, which most of the complex, large construction companies who will be engaging in the large projects that have collateral warranties will understand, because they will have operated in England and Wales, and Scots Lawyers will have some familiarity, because we have all studied use-quiesies in tertio or tertio universities. It is a reminder and a bringing up to date, rather than necessarily. Here is a brand-new concept, which we all have to get our head round. Certainly the SLC also indicated that the bill will make it easier for businesses to avoid what it calls the black hole of non-liability, which currently reduces the protection for company groups. Do you agree with this? If so, can you outline your reasons why? I am a bit cynical about the prospect, to be frank, speaking as a contentious lawyer. The black hole cases usually tend to arise because somebody has not thought it through. Things have happened and it turns out, as the previous speaker said, the loss is in one place, but the right is in another and the two are not matching up. If you have not thought about it, it does not matter what this bill provides, you will not have written it in. If you have thought about it in advance, then, of course, there is already a suite of mechanisms for dealing with this. That will add another one. There are not that many black hole cases. I think that the witness spoke from the RIS earlier and said that the courts sometimes use what he described as fancy footwork to get around them, because the courts do not like the idea of a black hole, because it is just abhorrent. If there is a loss caused by somebody's failure, why should that fall into a black hole, as opposed to land on the appropriate person? There is footwork that can be done. I am not convinced that that makes much odds to those relatively rare cases where it arises. There might be scope to pick off some of those, if you have a third party rights act. The SLC uses the example in its paper of a group of companies where you might be able to construe the third party right quite widely to cover companies in the group. The overall problem with black holes defies a simple solution, as the number of dissertations that I have to look at on the master's course in construction law, which look at the issue and try and solve it, will testify to. I was glad to see that the SLC is looking at ways to progress at themselves and I wait with interest progress on that matter. We are quite long in analysis there in terms of defining the problem. Do you have any solutions, particularly from an academic perspective, given the benefit of advice that you have had from many students? No. It is not something that I have yet dared to grapple with, because conceptually it opens up a gap between various classifications of law, between contract law and the law of delict and things like that. While I am aware that there is a gap there that might be interesting, I would want to delve deep into the literature to come to any view myself. The prospect in that particular area is too daunting. I have decided to go for some other areas myself at the moment. The thought of an interesting point of law as well is one of which a colleague of Mr Connell, a former colleague of mine, said that if a doctor comes to you or if you go to the doctor and he says that you have an interesting condition here, that is the worst possible diagnosis that you can hear. Having an interesting problem like transferred laws of black holes is not a great thing, so I am looking forward to others taking forward some work on that. It is something that I will keep an eye out for and think about in the future. Currently in the two difficult books. Well, thank you very much for that. We are now probably going to get more detail about collateral warrantries, if you have any information left to give us from Monica Lennon. We would like to hear about collateral warranties. Sticking again with construction, the construction sector is diverse, so we have very large companies. We have touched on that earlier, some of which are headquartered in London. Can you give some examples of how collateral warranties are used, bearing in mind that, within the sector, there is a range of players, if you like? I think that they came around that the growth of collateral warranties was not necessarily a response to the gap in terms of third-party rights, but to change or an evolution in the law of deal it in the late 80s, early 90s and the extent to which people who weren't parties to a contract could recover for pure economic loss, which is the loss caused by defects rather than physical damage now. That's a complicated area in itself. Suffice to say for present purposes, there are a number of reasons why we have collateral warranties in terms of the way that it gives parties control over their liability. I think that the use will be required by parties often as a comfort that there is a route to recover for losses where that might otherwise be cut off through insolvency of other parties or for a host of other reasons. I think that generally the driver for having them is from the funders and the insurers, the people who have a financial stake in it, and it's a way probably in terms of controlling their finances. I don't know if Creech has anything else to add at this point. No, just that having had some discussion with colleagues on this, they've pointed out that in past eras, if you wanted a building built, you went to a builder and the builder actually did the building. However, in more complex times as we now live in, in many cases, the person you think is the builder will actually be a little more than a manager and will organise under his umbrella a whole raft of highly specialised people dealing with electrical equipment or heating and whatever. Therefore, the real expertise lies not in the hands of the builder that you think you have the contract with, but with those very specialist contractors. Part of the reason for the rise of the collateral warranty is so that those who want to then know who to blame and who to recover from can go direct to the party who is responsible for what the particular defect is, which is usually not something simple like bricks and mortar. It's usually something very technical and very difficult. I suspect that that's why there's been this tendency to now have lots of people with legal obligations. In terms of the interests of the funders, there are stepping rights that are often used in collateral warranties, which is where the funder can take on control over the contractor. That's something where there is identified in the literature in England a possible gap with their legislation, because that would mean transferring not just the benefit, but also, to some extent, an obligation. Having said that, the discussion that has been in England will suggest that that gap can be filled by drafting the contracts. Appropriately, rather than necessarily requiring any fix in the legislation. Will only occur in the complex commercial situations where the resources are worth putting in to make sure that those provisions are appropriately contained within the contract. It strikes me that in those very complex commercial examples, the collateral warranty is a bit like a comfort blanket that people won't want to let go of too easily. How will the investors who are putting the big money and how will they be persuaded over time to detach from this comfort blanket? Blanket, because I was going to use that metaphor myself, so I'm grateful for that. I think that there is a possible gap opening up in England now. I would again say no more than it's a possible gap, but I think that you have heard many times, and we've all had experience, and when Mr Connell was referring to chasing after collateral warranties, my face was darkening at memories of having to do that myself when in practice. The logistical problems of collateral warranties are well known. There are also issues that have emerged in case law, both in England and in Scotland, about enforcing parties' obligations to provide collateral warranties. There is a case of liberty mercy against Cuddy in England and a case involving cure construction in Scotland, where the court had to make an order to force a party to produce it, so it can be difficult to procure the collateral warranties. Those case laws have come out in the last couple of years, so I've really given brought to light that this is a problem. There have been a number of decisions that have perhaps been surprising in terms of the interpretation of collateral warranties. The case of Parkwood, where it was held at the 1996 housing grants legislation applied to collateral warranties, was seen as a surprise. Perhaps, and some commentators have remarked on that as well, there is some shaking of the faith in collateral warranties as the mix metaphor, as the foundation of the Comfort Blanket for Collateral Warranties. As third-party rights have become established, Mr Beall's research has established that they are at least becoming more recognised in England that you would have the opposite of the death by which is a virtuous cycle, whereas people think that collateral warranties are not as much of a security blanket as we have hoped for. Let's think about whether third-party rights can be used instead, and in support of that, at least the joint contracts tribunal has produced as part of their standard form a schedule that sets out some detailed provisions for third-party rights, so there's support from it from one of the standard forms. The people that draft the standard forms—I'm conscious of them going on a bit—are commercial bodies, so they wouldn't go to the time and effort of pulling those documents together if there wasn't some demand for it or some benefit that they could give for doing that. I think that I mentioned in my paper that NEC has also another standard form contract. They also might have a schedule, but I couldn't actually find that when I was looking for it, but certainly there's provision within the other standard forms to allow for third-party rights too, so those are bodies that are looking to sell their standard forms to parties to use in their construction projects, and they think that it's worthwhile. There is, I think, at least a growing baseline for support in England for third-party rights, which I think would also help those parties to operate in England and Scotland to be more comfortable with those as a form of protecting their interests. Why do you think that strictness is happening now in England and Wales some 18 years after the act came into force? Possibly, those three factors are a growing zeitgeist, and sometimes you're not quite sure how those things emerge in terms of legal reforms. There needs to be a gap that they fill. It may be that there's been, following 2007 and all that, a growth in litigation generally, or arguments generally, and that's promoted some cases to come to light, where people have taken points that might not have used in previous years. When the financial crash led to significant downturn in the construction industry, and it may be that there was a, I can't recall the exact statistics just now, but it may have been that certain arguments were run as a means of promoting a dispute that might not have been run in the past. For example, you may have explored or put more stress on the legal system's rules, which have now allowed certain points to be taken. The more that you take those points, then other people think, well, maybe there's something in this. Let's try this argument. It's got to be a slow burn. It's quite simple. Nothing is going to change overnight. People are accustomed to working the way they've been accustomed to work. My own guess is that it will take an example of a third-party right in a construction contract actually being successfully relied upon, perhaps either in a, one I might describe as a public dispute or possibly in a dispute that happens behind the scenes under one of the dispute resolution procedures that the construction industry has, and it will then spread that contractor X successfully used remedy Y, and then somebody else will think, oh, that sounds as if it might save us some paperwork. If the bill is enacted and there continues to be, I suppose, a reliance on collateral warranties, is that something that people should be troubled by? I mean, we've heard mixed reports about collateral warranties. A bit of a safety net and comfort blanket is familiar, but at the same time I'm picturing a sea of paperwork in quite difficult transactions. So, to what extent will it be a problem if people continue to turn to warranties? As a problem, I mean, it's just a little bit of unnecessary paperwork, and given that you still have all the negotiation detail to do anyway, it is just that last bit where it's the difference between putting the terms down in a contract and creating a whole series of different contracts and then persuading all the people that agreed to give them to give them. I'm not sure I would describe it necessarily as a problem, but clearly if it is more admin than is needed, then it's better to remove it. Would your minister, Colonel, agree with your colleague Mr Christie that it's a suboptimal solution, as he roughly describes it in his evidence? I think that it can be a suboptimal solution in some straightforward circumstances. I'm just conscious that we're talking here about replacing a general principle of law. We're not talking here about creating an ideal structure for contract X, and I suspect that there's a fair number of what we're calling collateral warranties, as if they were all the same, which contain much more detailed provisions that aren't going to be replicated, and those will still, I imagine, continue. Mr Christie's reference, stepping rights, it may be quite difficult to structure things to create all the different obligations and rights that would then flow. I think that I'd agree with that interpretation of my own remarks. The point about the co-existence of third-party rights and collateral warranties—I suppose the simple point is that I'm not aware of a particular unhappiness with the 1999 act in England where they use collateral warranties and third-party rights. I don't think that there's a suggestion that that legislation isn't of some use. It may be of limited use, but it is of some use, and there are some indications that it may be of growing use, albeit that's not altogether clear, but it's very difficult to get hold of the detail on that. The position that we're seeking to try and grasp or try and find is that notwithstanding your reservations, that represents progress rather than the alternative to progress. My opening point was that people should have options. Third-party rights are recognised in the Scots law today, but they're not recognised in a way that is as useful as it could be for those involved in construction projects. To clarify the law is a good idea, and it would provide parties in construction contracts in Scotland with another option about how they go about protecting their interests and the same options that they have in other jurisdictions. Thanks very much, Mr McMillan. I'm not sure if there's much I have to say on that, but on you go. Finally, I'll turn to arbitration. Do you have any comments on section 9 of the bill that allows arbitration agreements between contracting parties to operate in respect of third-party rights? The faculty of advocates are less than flattering about that. Mr Christie and I had a lengthy one-and-a-half-minute conversation about this before we started to give evidence. I suspect that it depends on what the point of the provision is. If the idea is that you should get to a position where all disputes, which in a general sense arise from the contract, should be handled in the same type of way, the logic of saying that the third party should also deploy arbitration is compelling. The odd thing is that, if it's assumed that many of those circumstances will be in construction contracts, construction contracts generally don't have arbitration as their first port of call. They have a thing called adjudication as a dispute resolution mechanism. They may have other dispute resolution mechanisms, particularly a thing called expert determination, which is simply an agreement to refer to a skilled person on a particular matter whose decision is binding. There may be other dispute resolution mechanisms within the contract. If the logic that drives that provision is that third parties should use the same suite, I might have expected a wider provision than just one that focused on arbitration, because it happened to be a statutory scheme that has recently been enforced. Arbitration was the dispute resolution mechanism of choice for construction when I was a lad. Arbitration is now not much used in practice at all in construction, because it is almost always adjudication, either adjudication in terms of a contractual set of provisions or there is also an overlay by statute, which Mr Christie mentioned earlier. My comment is that I see the logic of everybody using the same system, but I was a little surprised to see that it was just restricted to arbitration. If the logic is that you, the third party, should come in and use the same mechanisms, I would have thought that they should all be available. It would stand to reason if the logic of the bill is to offer more choice, then it would be reasonable to offer more choice would it in terms of dispute resolution. To follow on from Mr Connell's comments, it was interesting that we had come to the same question independently. Arbitration was the topic that I left for my train journey down. One of my colleagues, who is an expert in arbitration, had a look and didn't have much to fault the drafting of on the particular point of arbitration, but I was interested and I was reflecting on what the difference between arbitration in this context is and other forms of alternative i.e. non-court dispute resolution. There is a particular issue with construction adjudication, because in England and Wales they had a decision where the statutory scheme was held not to apply by default to third party rights in England and Wales, but there would be nothing to stop that being brought in by contract if the party has agreed it. Adjudication is quite intensive at last 28 days, so bringing in a third party adds an extra layer of complexity to that, which might be a policy reason not to include adjudication, but there may be reasons why you would bring in adjudication as an option and all sorts of other forms of alternative dispute resolution. I wasn't able to satisfy myself that there was a good reason not to bring that into the bill, but I wasn't able, at the same time, to work out exactly how you would do it. I think that the only reason why arbitration is different to some extent is that there is a role for the state in the enforcement of arbitration awards, which doesn't necessarily exist in other forms of dispute resolution, which are more purely contractual. It might be that, which is the differentiator. There is also a possible issue that the borderline between some arbitrations and some forms of other alternative dispute resolution aren't altogether clear in law. The definition isn't necessarily fixed. I think that there is scope potentially to consider bringing in other forms of dispute resolution, and I think that there would be sense for the reasons that Mr Connell has outlined in reflecting on that. I think that that's very helpful and certainly allows us to take that up with others subsequently. Mr McMillan. Thank you. Just on that point regarding the arbitration, I think that it was two sessions ago that the Parliament introduced and passed updated legislation on arbitration. I think that notwithstanding some of the earlier questions and comments regarding the updating of Scots law to make it more competitive, with the introduction of that particular legislation. I don't know what the thinking is, so I'm hinted at the question to you, but could that not be one of the reasons why the focus has been about arbitration as compared to having a wider suite of options, so that that legislation that is now updated could be the focus for dispute resolution? I'm not sure, to be honest. I suspect that it's there because the very reform that you're discussing moved arbitration out of a collection of case law-led material and some very old statutory provisions into a single suite of all-encompassing statutory controls. Therefore, it's in everybody's mind that you need to make sure that nothing here cuts across or fails to fit with the relatively recent legislation. I think that my question had been the slightly broader one. Is there a broader point to this? Is the intention that, if the third party exercises their rights, it should do so in accordance with the same suite of provisions that other parties to the contract would exercise or not? I confess that I haven't studied the matter in sufficient detail to know the answer to that question. It seems to me to be one that might be worth pondering before it's finalised. Similarly, I don't think that there's any reason not to include arbitration in the way that it's currently included. I think that it's more whether that particular principle ought to be adopted more broadly or not, as Mr Connell said. However, I think that the interest in aligning arbitration in Scotland with other jurisdictions is useful and seems to be met from what my colleagues said in terms of the basic drafting here, notwithstanding the comments of the faculty that I haven't gone into in detail. It's fair to say that this Parliament and the Scottish Government and a whole range of other bodies are actively promoting arbitration in Scotland as a dispute resolution mechanism. It may well be that parties had in mind that anything that could be done to assist that process would be useful. Excellent. Thank you very much. Is there anything further that you wish to add? The final question is just that we've talked a lot in the sessions about the speed of law reform in that area, and we've heard that some of the problems in the Scottish law and third party rights have been around since at least the second world war. I just wondered what your own reflections are on that. Is that something that you think is a fair assessment? Has it been too slow? Any final comments on that? The difficulty with law reform is achieving agreement on what the reform should be. Quite often, you find that one party's real problem is another party's real advantage to be blunt, and you get very conflicting views as to whether there should or should not be a change in the law. In other cases, people may have a wide range of views, and I suspect that one of the real challenges of any form of law reform is to achieve a consensus. I think that there is probably a legitimate criticism that, if you get to cases where there is a pretty broad consensus that there should be change, no one has quite cracked moving swiftly to make that change in an ideal way. I think that other speakers have spoken about it being better now than it was, and that must be undoubtedly correct. The Parliament has been working to find ways of making that easier and swifter, which is all a good thing. I am not sure that we are quite there yet. I was instancing to Mr Christie an example where I found an error in a piece of Scottish law about time limits. Clearly, there was no dubiety about it. I raised it with the Scottish Law Commission and they said, well, we cannot deal with it because it is not on our programme of activities at the moment, so sorry, you will need to take it up with this division of the Scottish Government to whom I then communicated and I never heard any more about it. That was the end of it. Now it so happens that it is now being dealt with by the Law Commission in a process to deal with the law of prescription more generally. They are tagging it on to the end because they can now do that. However, I suspect that there are things that people spot that could still be done faster, and we are all constantly thinking of ways of achieving that. I was going to add a supplementary point now that this is on the radar and there is a commitment to reform. What are the expectations within the legal profession? We have talked a lot about what some of the limitations might be and some of the challenges. Ultimately, it is about improving something, but are people optimistic or do they have a close interest in this and how it develops? I suspect that this is not on most people's radar at all. It is too esoteric a topic. In the world of the legal profession now, people are becoming increasingly devoted to working in little boxes. People do personal injury cases or people do construction cases or whatever. If whatever is going on is not sitting in your box, you are probably not putting your heads up. I am perhaps an exception now because I am old enough to come from an era when most of us did everything and some of the bar are the same. Academia, as a whole, is the same because there is usually someone in academia who is looking at a particular area, but it can be quite difficult to raise interest in anything that is not landing on your desk every day of the week. On the sphere of law reform generally, which is the first question, I suppose that one of the things about collateral warranties that I mentioned earlier is that they only really became a thing in the early 90s, which was followed by a legislation in 1999 in England. The position of Scotland has followed on behind that, but there has been a testing ground for third-party rights in England to see how they are going. They have not necessarily changed practice, so perhaps it was not demonstrated as a burning issue that needed to be resolved before then. In terms of law reform, when a problem arises, in order to be a successful form, it has to fill a gap. Identification of the gap and clear identification of the gap and an urgency in fixing the gap are probably necessary. It is interesting to compare the 1999 act in terms of its impact with the 1996 construction legislation that introduced adjudication among other things. That is mandatory, so it is a very different character, but that took off immediately and has had a massive impact on construction law, but it was mandatory. I do not think that you would suggest that third-party rights should become mandatory as a way of promoting them, but not only was that legislation mandatory, but it also captured a moment in the zeitgeist in terms of people being ready for this change to happen. I think that there was a lot of industry consultation and publicity around that. This is probably more technocratic reform. I think that it is necessary for the reasons that I have said already, but I do not think that it is necessarily something where people are crying out for a particular solution on the streets of Aberdeen, Glasgow or Edinburgh. Did I have anything else to say? I think that I will leave it there. I thank you very much, gentlemen, Mr Christie and Mr Connell, for taking the time to come and give us your elegant thoughts on these matters today. We are very much in your debt, as with other witnesses, and, as I have said to other witnesses, should any other matters occur to you on reflection, on your discussion on the train back home, perhaps, or subsequently do let us know, because we would be grateful for your further considerations. However, in the meantime, I thank you both very much for taking the time today. I now suspend the meeting momentarily before we move into private.