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legal alert: New TCC guidance on “no greater liability” clauses in collateral warranties

11 Oct 2018

Swansea Stadium Management Company Ltd v City & County of Swansea [2018] EWHC 2192 (TCC)

Facts

CCS entered into a building contract with Interserve to design and build the Liberty Stadium in Swansea.

Around 22 April 2005, Interserve executed by way of deed, a collateral warranty in favour of SSMC warranting compliance with the building contract.

The warranty included a standard limitation of liability providing that Interserve “shall have no greater liability under this Agreement than it would have had if the Beneficiary had been named as joint employer with the Employer under the Contract” (the Limitation).

On 4 April 2017, SSMC issued proceedings against CCS and Interserve in respect of alleged defects.

Interserve sought default judgment to dismiss part of SSMC’s claim on the basis that the 12 year limitation period under the warranty had expired. It argued that, the limitation period had expired as 12 years has passed since the date for a cause of action for a contractual claim arose.  For a defects claim, this was the date practical completion was certified (31 March 2005) so the limitation period expired on 31 March 2017.

SSMC argued that the earliest date a defects claim under the warranty could have arose, was when the warranty was executed (circa April 2005).  Therefore limitation period expired circa 22 April 2017 and the claim was not statute barred.

Interserve’s counter argument was that the Limitation indicated that liability under the building contract was to be back to back with the warranty and should therefore be given retrospective effect.  This meant the same limitation period applied to the warranty as applied to any claim under the building contract. 

Decision

The TCC held that:

(1) the warranty should be interpreted to have retrospective effect from the date of practical completion due to the wording of the Limitation. The limitation period therefore expired on 31 March 2017;

(2) the Limitation governed not only the nature and scope of the obligations giving rise to any liability and but also the duration and timing of any claim;

(3) the reference in the Limitation to the SSMC being “named as joint employer” under the building contract was key. This meant that Interserve’s liability to SSMC should match its liability to CCS under the building contract.

Commentary

This case clarifies that the limitation period and defences contained in a building contract will be stepped down into a collateral warranty, as a result of a “no greater liability” clause. This will apply even when the warranty is executed after completion of the works (as in this case).

A purposive interpretation was central to the decision. The court will interpret such a clause pragmatically to ensure it achieves back-to-back liability with the underlying building contract.

Often the Limitation will be used in conjunction with an ‘equivalent rights of defence’ clause, which would equally have ensured that the limitation period in warranty mirrored the limitation period in the building contract.

 
 
 

Contacts


Bal Manak | Associate

Email:
bal.manak@watsonburton.com
Tel:
0345 901 0929