Limitation of liability, collateral warranties and terms of business
A recent and relatively rare case on collateral warranties Bloomberg LP v Malling Pre-Cast Ltd  EWHC 2858 (TCC) looked at the scope of limitation clauses and apportionment of liabilities between various contractors – or warrantors – on a project. Those involved in construction or environmental remediation projects are likely to be familiar with the concept of a collateral warranty, which allows a beneficiary to bring a claim for damages directly against the warrantor – for example, due to poor design or workmanship – in circumstances where a claim might otherwise have been impossible (or, at best, difficult).
The facts of the case begin with the landlord, SLA, entering into an agreement for lease with tenant, B. A contractor, MPC, carried out cladding works under a trade contract on the property and gave B a collateral warranty. Not unusually, the warranty included a limitation clause which stated that proceedings could not be brought against MPC after 12 years from practical completion of the work. A year after practical completion, some cladding tiles fell off the property. MPC carried out some remedial work, employing third parties, S and BH, as engineering consultants. S and BH also gave B a collateral warranty in respect of those engineering consultancy services.
Thirteen years after practical completion further cladding tiles fell off the building and B carried out temporary works at a cost of £470,000.
The cost of full repair works were estimated at £2 million.
B issued proceedings against MPC, S and BH although the claim against MPC did not proceed because it was out of time. The central question then became whether S and BH could claim from MPC a contribution (under section 1(3) of the Contribution Act 1978) towards their liability to the tenant. MPC argued that the expiry of the 12 year limitation period in the collateral warranty it had given to the tenant protected MPC from this claim too.
The court held that the limitation clause in the collateral warranty only applied to direct claims by B. The underlying legal rights given by the warranty had not been extinguished by the expiry of the 12 years: it was simply that the tenant was now barred from enforcing them. As a result, contributions could be claimed by S and BH.
The case may be of particular interest in circumstances of environmental damage, which is rarely of such an instantaneous or obvious nature as cladding tiles falling off a roof into a street. Pollutants may, for example, lay underground or migrate undetected for many years and it may be some considerable time before evidence of defective design or workmanship come to light. A limitation clause of 12 years may provide a relatively short period of protection for the beneficiary.
Collateral warranties remain an important tool for those involved in environmental remediation projects and, in practice, the case is unlikely to have a real impact on lengths of limitation clauses. No doubt warrantors will continue to try to negotiate a reasonably short limitation clause while beneficiaries will continue to try to negotiate longer periods. This case is important, though, in highlighting to warrantors that the expiry of the limitation period does not signal the end of all potential liabilities. Warrantors may now aim to contract out of statutory contribution provisions (although whether the courts will uphold such an exclusion remains to be seen).
When considering exclusions of liability, not only in collateral warranties but also in consultants’ terms and conditions of business, another recent case may also be of interest: Persimmon Homes Ltd and others v Ove Arup & Partners Ltd and another  EWHC 3573 (TCC). There, the court upheld a total exclusion of liability for any matters relating to asbestos. However:
- the court re-emphasised that protectionis strictly limited to liabilities expressly covered by the exclusion clause in mquestion. In this case, it perhaps seems obvious that claims relating to manything other than asbestos would not have been covered but the wording can often be more opaque;
- the court also held that, on the factsof this case, the exclusion clause which appeared in a 2009 contract could not exclude liability for work covered by a separate but related 2007 contract. If a new agreement is intended to govern or supersede an earlier contract, clear express wording will be required.
Should you require any assistance with a collateral warranty or consultants’ terms and conditions of business, do not hesitate to give one of our team a call.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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