Collateral Warranties – when your claim is kicked into touch Part 2

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Readers may recall the discussion in the September 2018 issue on the case of Swansea Stadium Management Company Ltd v City & Country of Swansea & Anor which concerned the limitation period for bringing claims under collateral warranties.

In the latest round of litigation concerning the construction of the Liberty Football Stadium in Swansea, the Court looked at the period of a Contractor’s liability for defects under a building contract and the importance of the Notice of Making Good Defects.

By way of reminder:

  • Swansea Stadium Management Company Ltd (“SSMC”) was the tenant of the stadium and had the benefit of a collateral warranty from the contractor, Interserve
  • Practical completion had been achieved on 31 March 2005
  • The Notice of Making Good Defects (NMGD) was issued on 26 May 2011 and recorded that Interserve had made good all defects as at 14 April 2011 even though there were still problems with the concrete floor and steelwork paint

In the previous litigation, SSMC’s claim under the collateral warranty was time barred as it was commenced just four days after the expiry of the 12-year period following practical completion.

In order to avoid the 12-year limitation period, SSMC argued that Interserve was in breach of a contractual obligation to identify and make good defects during the Rectification Period (i.e. post-practical completion). Note that this was an unusual departure from the standard drafting, where it normally falls on the Employer or the Employer’s Agent to identify defects during the Rectification Period.

HELD: Although Interserve had failed to rectify the defects during the Rectification Period, this did not create a new cause of action. SSMC’s claim was therefore dismissed.

The Court’s rationale was that:

  • The building contract provided that the NMGD signified that “the completion of making good defects shall be deemed…to have taken place on the day named in such notice” even if the defects had not actually been rectified
  • Following the issuing of the NMGD, no further instructions could be issued in relation to the rectification of those particular defects
  • The NMGD was not conclusive evidence that the works had been completed fully in accordance with the building contract, but any such claim would also be time barred 12 years after practical completion
  • As the limitation period had expired, SSMC’s claim was out of time and therefore dismissed

COMMENT: This decision is not in any way surprising. However, it does emphasise the need for the beneficiaries of collateral warranties or third party rights to undertake proper due diligence on the underlying construction documents and to diarise the time limit for bringing any claims. This will generally be 12 years from practical completion under a building contract executed as a Deed or six years where it is signed as a simple contract.