Owners, Purchasers and Tenants of real estate - to protect your interests you should always find out if contractual rights of recourse to the construction team are available for your benefit (whether in the form of collateral warranties or otherwise) - a failure to do so could lose you a valuable right. It is important that these contracts are properly drafted and signed and that you have all the documentation needed to enforce your rights.
Construction and engineering contractors and professionals - collateral warranties and other third party rights give rise to real risks and potential liabilities and to protect your interests you should make sure that you understand and limit so far as possible your exposure.
The practical benefits / risks of collateral warranties have been illustrated in recent cases.
In Glasgow Airport Limited v Messrs Kirkman and Bradford (Court of Session judgement issued 6th June 2007) the consulting engineer responsible for the design of the floor slab was sued under a collateral warranty for £2m to cover costs including replacement of a defective floor slab. The case is interesting because:-
- The engineer was sued under a collateral warranty.
- The benefits / risks of sub-contractor collateral warranties is highlighted - although the consulting engineer was a sub-contractor to the building contractor the action was raised against the sub-contractor because the building contractor was insolvent.
- The benefit / impact of a limitation on liability clause is demonstrated - although the actual loss was estimated at a figure above £2m the sum sued for was restricted to £2m because of a clause limiting the engineer’s liability.
A judgement was recently issued (25th November 2005 / 9th July 2007) in the Court of Session case of Royal Insurance (UK) Limited ("RIL") v AMEC Construction Scotland Limited and others. As a future purchaser of an office building RIL obtained collateral warranties from various members of the construction team. Following the purchase RIL entered into a sale and lease back deal and became the tenant of the building. The case is interesting because:-
- The construction team is being sued under collateral warranties.
- The benefits / risks of tenant collateral warranties is shown - from the terms of the judgements issued to date RIL as tenant is suing under collateral warranties for around £10m.
Disclaimer
The material contained in this e-update is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
