28 November 2018

Practical completion and collateral warranties

A recent High Court judgment highlighted the problem of time-barring when issuing proceedings under a collateral warranty.

Swansea Stadium Management Company Ltd v City & County of Swansea (1) Interserve Construction Limited (2) [2018] EWHC 2192 (TCC) (“SSM v CCS & Interserve”)

It was held by the court that, regardless of the date of execution of the collateral warranty, the warranty had retrospective effect, which meant that proceedings were time barred by the time they were started.

What happened in the case?

  • CCS, as employer, engaged Interserve, as contractor, under a JCT Standard Form of Building Contract with Contractor’s Design 1998 edition, subject to bespoke amendments. The works were the construction of the Liberty Stadium in Cardiff.
  • The works had “reached Practical Completion as at 31 March 2005.”
  • CCS then leased the stadium to SSM and all three parties entered into a collateral warranty.
  • In April 2017, SSM issued proceedings seeking damages under the collateral warranty for alleged defects in the concourse floor and steelwork. Interserve argued that the claims were time barred as they were brought more than 12 years after 31 March 2005, the date of Practical Completion. SSM argued the 12 years commenced when the collateral warranty was executed.

Decision

The Court agreed the claims were time barred as follows:-

  • The key clauses in the warranty did not contain any express expiry date, limitation period or a date in which any cause of action for breach would be deemed to have occurred.
  • The warranty did, however, require professional indemnity insurance for at least 12 years from the date of practical completion, provided that Interserve would have no greater liability under the warranty than it would have had if SSM had been named as a joint employer with CCS under the JCT contract.
  • The language used in the warranty and the factual matrix of the agreements were key, including the “no greater liability” clause. The JCT contract stated that “Practical completion…shall be deemed for all the purposes of the Contract to have taken place on the day named in such a statement.”
  • It was implied that Interserve’s liability was to mirror CCS’s liability under the contract. This would mean any breach of contract created by the warranty would be actionable from the date of Practical Completion; the date of breach under the JCT contract and this is when the limitation would start to run.
  • As Practical Completion was deemed to have been achieved on 31 March 2005, the 12 year limitation period had expired before the proceedings were issued in April 2017 and SSM were time-barred.

Conclusion

It is always better to ensure there are express provisions in a collateral warranty covering its duration. Otherwise, the factual matrix and implied intentions may mean the warranty has retrospective effect regardless of the date of execution.

For more information, or advice on collateral warranties, contact a member of our Construction team.