Collateral warranties and liability

Complex, interrelated factors can determine the length of liability. A recent case has made one clearer at least.

How long are architects liable for under a collateral warranty? Several factors influence the answer and a recent case, involving a dispute about the slip resistance of floors and corroded structural steel at Swansea football stadium, has shed some light on one of them.

Is the warranty a deed or a simple contract? The statutory time period for bringing a claim for breach of a deed is 12 years, and six for a simple contract. A quick look at the signature page in the warranty should provide an indication of which type of agreement it is (the signature block for a deed will usually mention that the document is a deed).

But when does the six or 12 years start to run? Generally speaking, it is the date of the breach of the warranty. However, precisely when the breach of the warranty occurs depends on when the warranty was entered into and how it is drafted.

The simplest scenario is a warranty that is provided once the services are complete – here, the breach will occur on the date the warranty is entered into (because the consultant incorrectly states in the warranty that it has complied with the underlying appointment and has exercised reasonable skill and care when providing the services). If a warranty is provided before the services being warranted have been carried out, the breach of the warranty will only occur when the deficient or defective services are provided (or potentially even later, if the deficient or defective services are not noticed as part of a subsequent review).

It is possible for the warranty to include provisions which shorten or lengthen the period for bringing a claim and define when that timescale will start to run. In warranties, the six or 12 year time period for bringing a claim tends to be left unaltered, while the date that time starts to run is changed.

In particular, it is common for warranties to include a clause stating that: ‘No action or proceedings for any breach of this deed shall be commenced after the expiry of 12 years from the date of the last Practical Completion Certificate’. The period for bringing a claim for breach of the warranty remains the same (12 years), but the date that time runs from will never be later than the date of practical completion. This means that even if the warranty is entered into six years after a project has reached practical completion, for example, the time for bringing a claim will remain 12 years from then, rather than from the date of the warranty.

In Swansea Stadium Management Ltd v (1) City & County of Swansea and (2) Interserve Construction Ltd [2018], it was decided that the beneficiary of a warranty had to bring a claim against a building contractor within 12 years of the date of practical completion despite the fact that the warranty did not contain the clear wording mentioned above and was entered into some time after practical completion. This was for two reasons. First, the building contract stated that claims against the contractor had to be brought within 12 years from the date of practical completion and secondly, the warranty stated that the contractor was to have no greater liability under the warranty than it would have had if the beneficiary had been a party to the building contract.

There is always scope for debate between architects and clients over for how long the architect should agree to be liable under the warranty. Of course, the outcome is influenced by commercial considerations. But once agreement has been reached, architects should ensure that the warranty makes absolutely clear both the period for which the architect is to be liable and the point at which that period begins. Any lack of clarity on this can lead to costly disputes and increase professional indemnity insurance premiums.

In plain English: deed

A deed is a written document which clearly states that it is a deed; is executed in accordance with certain formalities (depending on whether it is executed by an individual, company or partnership); and is delivered. Delivery is not required in a physical sense (although physically handing a document over can be evidence of delivery) but in the sense of a party showing that it intends to be bound by the document. Unlike a simple contract, a deed binds parties even if it does not require something of value to be exchanged by them and can be sued upon for 12 years from the date of any breach of it. Construction contracts such as building contracts, appointments and warranties do not need to be executed as a deed in order to be effective, but they often are so as to take advantage of the 12 year limitation period.

This article was published on 8 October 2018 on RIBA Journal online.