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Guidance provided on the interpretation of no greater liability clauses

  • United Kingdom
  • Construction and engineering - Articles

15-11-2018

Swansea Stadium Management Company v City & County of Swansea, Interserve Construction Ltd [2018] EWHC 2192 (TCC)

Summary

The TCC has held that a “no greater liability” clause within an undated contractor’s collateral warranty is subject to the same periods of limitation that apply to claims made under the underlying building contract. The case also makes it clear that unless expressly state to the contrary, the liability period under a collateral warranty (even an undated one) will be co-extensive with that provided by the corresponding contract.

Facts

This case emerged from a continuing dispute between Swansea Stadium Management (“SSM”), Swansea City Council (“SCC”) and Interserve Construction (“IC”), relating to alleged defects to the Works on Liberty Stadium. SCC employed IC to design and build Liberty Stadium under a building contract dated 17 June 2004 (the “Contract”). SSM agreed to lease the stadium from SCC for a term of 50 years via a lease dated 22 April 2005. Around the same time as the lease was entered into IC executed a collateral warranty in favour of SSM, this warranty was undated.

Clause 16.1 of the Contract provided that:

‘When in the reasonable opinion of the Employer the Works have reached Practical Completion…the Employer shall give the Contractor a written statement to that effect, and Practical Completion shall be deemed for all purposes of this Contract to have taken place on the day named in such statement.’

SCC’s agents informed IC on 1 April 2005 (the “Letter”), that the works had reached practical completion at 31 March 2005, in accordance with this provision.

On 4 April 2017, SSM issued proceedings against both SCC and IC, alleging damages for defects in the concourse flooring and steelwork totalling £1.3 million. Responding to this, IC applied for a summary judgement and strike out on the basis that the claim fell outside the statutory limitation period of 12 years. IC contended that the warranty should be interpreted to have retrospective effect, and that any defect claim should be taken to have arisen as at the date of practical completion under the building contract. IC also asserted that the  “no greater liability” provision mean that its liability under the building was back-to-back with the warranty.

Decision

Two issues were considered by O’Farrell J

  1. What was the effect of the collateral warranty agreement?
  2. What was the effect of the completion clause in the contract?

The effect of the collateral warranty agreement

The collateral warranty was undated and the date that it had been signed was disputed between the parties. SSM submitted that the warranty had been signed by IC in 2017 and therefore that even if practical completion had occurred on 31 March 2005, the action did not accrue on that date but on the date the warranty was signed, and therefore their claim was within the limitation period.

O’Farrell J disagreed with this, she held that the purpose of the collateral warranty was to ensure SSM the same rights that SCC had against IC. The intention of the parties therefore must have been that the warranty had retrospective effect and therefore, the date the warranty was signed was immaterial. SSM’s rights under the collateral warranty therefore accrued on the date of practical completion.

The effect of the completion clause in the contract

On this point O’Farrell J commented that “It is well-established law that a cause of action for breach of a construction contract accrues when the contractor is in breach of its express or implied obligations under the contract. Where, as in this case, there is an obligation to carry out and complete the works, the cause of action for a failure to complete the works in accordance with the contract accrues at the date of practical completion.”

IC contended that the Letter meant that practical completion occurred on 31 March 2005. SSM asserted that IC was still on site working at the point the Letter was issued and that there were patent defects in the works.

The Court found that the Letter was good evidence that practical completion occurred on 31 March 2005 and that the works had reached practical completion in accordance with clause 16.1. There was no evidence of any challenge to the statements made within the Letter. The Letter contained express reference to outstanding works and defects which were identified in a snagging list issued in March 2005. Clause 16 provided that completion would be achieved: “When in the reasonable opinion of the Employer the Works have reached Practical Completion and the Contractor has complied with … clause 6A.5.2…” The date of practical completion was therefore on the reasonable opinion of the employer, the Contract did not require a third party to certify completion of the works. O’Farrell J therefore held that the presence of defects was irrelevant and the date of the Letter and that the Letter provided conclusive evidence of the date that practical completion occurred. The physical state of the works on 31 March 2005 was therefore irrelevant. The application for summary judgment was therefore granted.

Practical Considerations

We can take three useful points from this case:

  1. The purpose of a no greater liability clause is to put a party in the same position as if it were joint employer under the underlying contract. The court’s decision in this case reinforces that commercial purpose. No greater liability clauses are not to be interpreted by reference to technical legal distinctions but by reference to their purpose of achieving back-to-back liability under the underlying contract.
  2. A collateral warranty will allow limitation defences to carry across from the underlying contract even where a collateral warranty (as in this case) is signed after completion of the underlying contract works.
  3. The case also serves as a warning that, although there may be patent defects which theoretically means PC cannot be achieved, the commercial interests in protecting the finality of issuing a practical completion statement means parties should be wary of practical completion being given where there are patent defects outstanding.

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