Collateral warranties - more than just ticking a box

07/06/2010

By Chris Whittington, Partner & Head of Construction & Engineering

There have been very few cases involving collateral warranties in the English courts. However, the recent Scottish judgment in the combined cases of Scottish Widows -v- Harmon and Scottish Widows -v- Kershaw will be persuasive down south.

The case involved defects in the roof andcurtain-walling to Widows' headquarters and consultants were sued under warranties. The main point found by the Court gave effect to the principle behind warranties - their commercial intention - thus reinforcing the rights of beneficiaries to recover costs of dealing with defects even though not party to the original contract.

The Judge said warranties "must be construed in such a way as to further their essential purpose, namely to ensure that the party who suffers loss has a right of action…" and the fundamental purpose was "..to provide a right of action to a person who is liable to suffer loss as a result of defective performance..". So if you have a warranty, the warrantor has carried out defective work and you suffer loss, you can sue.

The Contract (Rights of Third Parties) Act was heralded as the 'death-knell' of collateral warranties, but as the Act allows everyone to opt out, most have - the JCT rushed out a standard amendment doing precisely that, which has been almost universally adopted. So to paraphrase Mark Twain on death, reports of….need we go on!

So the message is clear - it is not just a box-ticking exercise and they are worth the paper they're written on. There is no reason to suppose the English courts will not take the same line as Scotland.

Beneficiaries - protect yourselves and get a full package of good warranties.

Those giving them - you cannot now assume they are worthless and won't be relied upon.