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Last edited 17 Nov 2020
Liberty Mercian Limited v Cuddy Civil Engineering Limited and others
A range of issues emerge from the complicated facts of this interesting case but it continues the theme of the provision and effect of collateral warranties seen in previous cases:
- In Oakapple Homes v DTR, we saw how the court ordered an architect in liquidation to provide executed warranties to tenants, thereby enabling them to benefit from the architect’s professional indemnity insurance cover.
- In Parkwood Leisure Limited v Laing we saw how collateral warranties can be construed as construction contracts for the purposes of the Housing Grants Construction and Regeneration Act, and in so doing, permitting the adjudication of disputes.
Liberty Mercian, the employer (“the Claimant”), engaged Cuddy Civil Engineering Limited as its contractor (“the Defendant”) to construct a retail plateau for the development of a supermarket in Cardigan.
The building contract was an amended NEC3 form which required the contractor to provide a performance bond, parent company guarantee and collateral warranties (from its subcontractor). This article focuses on the provision of those warranties.
A dispute arose concerning defects in the work which the Defendant failed to rectify causing the Claimant to terminate the contract. The Claimant then brought (Civil Procedure Rules (CPR) Part 8) proceedings seeking a declaration or specific performance that, amongst other things, executed collateral warranties which the Defendant was obliged to provide under its contract - should now be delivered.
The matter came before Mr Justice Ramsey in the Technology and Construction Court (TCC) who decided that whilst the unperformed primary obligations arising from a contract cease on termination, ancillary rights or obligations which have accrued from the performance of the contract, for example, the provision of performance bonds or warranties, survive termination. These are continuing obligations which must be honoured despite the fact that the main contract has come to an end. Primary obligations form the subject matter of the contract so, for example, here they constitute performance of the actual building works, whereas secondary/ancillary obligations include the provision of performance bonds or warranties. The judge confirmed that at the termination date there was a continuing obligation on the Defendant to provide both the bond and warranties from its subcontractor in favour of the Claimant and another party.
Mr Justice Ramsey decided the Claimant was entitled to the remedy of specific performance to enforce the delivery of executed warranties, he declared “...the rights which had been acquired by Liberty Mercian in relation to the bond and the warranties were....continuing obligations on the Contractor which did not cease at termination. They therefore continue to give rights to Liberty Mercian to have specific performance of those rights and were not converted at the date of termination into only rights for damages.....”
However, the court’s discretion as to whether to order specific performance was affected by whether it was possible to perform the obligation as, amongst other factors, the subcontractor was in liquidation.
Beware the court’s robust approach demonstrated in the above cases, clearly revealing its willingness to enforce contractual obligations to deliver documents. If you have agreed to provide warranties there is now precedent to compel their delivery. Could this mean that employers, unwilling to be inconvenienced to chase the provision of warranties to comply with their back to back requirements under lease agreements, for instance, will now look more to the use of third party rights as discussed in Parkwood Leisure Limited v Laing? Perhaps so.
This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.
Related articles on Designing Buildings Wiki
- Collateral warranties.
- Housing Grants Construction and Regeneration Act.
- Oakapple Homes v DTR.
- Parkwood Leisure Limited v Laing.
- Third party rights.
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