Civil Engineering Reference
In-Depth Information
the contractor, sub-contractor or consultant in favour of a third party who is not the
original building owner or employer but who may nevertheless suffer loss in the event
of a construction or design defect.
Collateralwarrantiesessentiallydealwiththeapportionmentofrisk.Negotiation
of the terms of collateral warranties has become widespread, with the need to satisfy
the conflicting interests of the beneficiary and the grantor. Bodies within the con-
struction industry, including the Scottish Building Contract Committee, have made
various attempts to satisfy these conflicting interests without the need for protracted
negotiation by producing standardized forms of collateral warranty.
The use of collateral warranties in the construction industry has continued and
there is now included in both the SBC and the SBC/DB forms an option for the con-
tractor to provide collateral warranties, see Contract Particulars Part 2 and clause 7.
Interestingly, the NEC3 includes an option for the provision of collateral warranties
only in its Professional Services Contract (under Secondary Option X13), leaving any
requirement for collateral warranties in the other forms to be dealt with by bespoke
amendment in an appropriate Z clause. Despite the number of collateral warranties
being granted in the construction industry, there have been (at least until recently)
relatively few reported cases involving collateral warranties, see, for example,
Hill
Samuel Bank Ltd
v.
Frederick Brand Partnership
(1995);
Glasgow Airport Ltd
v.
Kirk-
man & Bradford
(2007);
Langstane Housing Association Limited v Riverside Construc-
tion (Aberdeen) Limited and others
(2009); and
Scottish Widows Services Limited v
Kershaw Mechanical Services Limited and another
(2011). However, as discussed in
more detail below, there have been a number of important recent cases, see
West and
another v Ian Finlay & Associates
(2014);
Oakapple Homes (Glossop) Limited v DTR
(2009) Limited (In Liquidation) and others
(2013); and
Parkwood Leisure Limited v
Laing O'Rourke Wales and West Limited
(2013).
13.2.2 Interests in obtaining warranties
The reasons why parties involved in a construction project require collateral war-
ranties vary depending upon the nature of their interest in the project.
Developer
In a typical commercial development, the developer of the project will intend either to
realize their investment at, or shortly after, completion of the project by disposal to a
third party purchaser, or to grant a leasehold interest to one or more tenants. In either
case the marketability of the development will demand that collateral warranties from
the contractor and the consultants are available to the purchaser and/or tenants.
Funder
While the funder will normally be protected by a heritable security over the develop-
ment,theywillwishtopreservearightofrecourseagainstanypartywhoseactions
