Court finds Collateral Warranty signed after Practical Completion has retrospective effect

A defendant contractor has successfully struck out a claim brought against it under a collateral warranty on the basis that the collateral warranty was found to apply retrospectively. The court considered the purpose and intention of the parties to a collateral warranty and highlighted the importance of ensuring a collateral warranty properly reflects the intention of the parties.

SSMC issued a claim in April 2017 in relation to Interserve’s construction of Swansea’s Liberty Stadium. The claim was, in effect, a claim for breach of a collateral warranty. The collateral warranty was not entered into until sometime after practical completion and included a clause which provided that Interserve should have no greater liability under the collateral warranty than it would have had under the building contract.

Interserve argued that practical completion was achieved in April 2005 and, accordingly, as the claim was not issued until 2017 (more than 12 years), SSMC’s claim was time-barred. It also argued that the collateral warranty should have retrospective effect from the date of practical completion. Interserve applied for Summary Judgment on that basis.

The Court found that the words used in the collateral warranty indicated that the parties intended the collateral warranty to have retrospective effect. He described the “no greater liability” clause as “the clearest indication” of the parties’ intentions. Accordingly, the majority of SSMC’s claims under the collateral warranty were dismissed, because no corresponding claim could be brought under the building contract.

Some parts of SSMC’s claim remain live, in relation to whether or not it failed to make good any defects. This part of the claim was not the subject of Interserve’s application for summary judgment and is listed for trial later this year.

See Swansea Stadium Management Company Limited v (1) City & County of Swansea (2) Interserve Construction Limited for further information.