11 2013

Legal Notebook

19

Legal Q&A: Collateral warranties

Louise Shiels, Partner, Dundas and Wilson

OLLATERAL warranties are an

integral feature of any design and
build construction package but
what are they and what is a consultant
signing up to when it enters into a
collateral warranty?
A collateral warranty is a contract
between a grantor (a consultant) and a
beneficiary who has an interest in a
project, or land on which a project is
carried out. It is collateral to a professional
appointment, but it is a contract in its own
right. Within a collateral warranty the
grantor warrants that it has complied with
its duties under the professional
appointment. It creates a direct contractual
link between the grantor and beneficiary
so that the beneficiary can rely upon the
services of, and have recourse to, the
grantor (and indirectly its PI insurer if
appropriate) if there is an issue with those
services. Common features include:

What should a consultant

expect to see in a
collateral warranty?

Confirmation that the grantor has

complied with its obligations under the
professional appointment.
An obligation to exercise skill, care
and diligence in the carrying out of
design. Consultants should remain alive
to attempts by beneficiaries to impose a
higher duty of care than that stated
within the professional appointment.
An obligation to use reasonable skill,
care and diligence not to specify
prohibited materials.
Limitation of the grantors liability both
in terms of time and value. A common
time limit sought by consultants is 12
years from practical completion of the
works under the building contract.
Overall aggregate caps or caps on
consequential losses often inserted by
consultants to ensure clear limits of
potential exposure.
Equivalent rights of defence a
clause which states the consultant owes
no greater liability under the collateral
warranty than it owes under the
professional appointment.
Net contribution clause/fair value.
Consultants PI insurers often seek
to incorporate this clause to avoid

Collateral warranties are an

integral feature of any design
and build construction package
but what are they and what is a
consultant signing up to?
liability on a joint and several basis.
These clauses are often resisted
by beneficiaries.
The grant of a copyright licence,
allowing the beneficiary use of
documents prepared in connection with
the project an important right
required for a number of reasons,
including allowing a tenant to integrate
its fit out, or maintain the premises.
An obligation to maintain PI
insurance, often for 12 years from
practical completion. This clause should
mirror the requirements stated within the
professional appointment.
A right to assign the collateral
warranty. Assignment on two occasions
is generally an acceptable balance
between a beneficiarys desire for
flexibility/freedom of assignment and the
grantors concern that it may be exposed
to claims from many different parties.
Louise Shiels, Partner, Dundas and Wilson
louise.shiels@dundas-wilson.com
www.dundas-wilson.com