This case arose in circumstances where a consultant refused to execute a collateral warranty that was requested more than 6 years post-completion, by which time proceedings had been raised against the main contractor for defects in the works. The court agreed to order the consultant to execute a warranty despite an “armada” of arguments that the consultant made for not doing so.
Under the main contract, Kier, as principal contractor, undertook to produce a collateral warranty in favour of the Council from all the design consultants and sub-contractors it employed on the project. One of the consultants appointed was WM Saunders Partnership LLP (“WMSP”).
WMSP’s Appointment included a standard undertaking to provide a signed collateral warranty in favour of the Council within 14 days of a formal request from Kier. A style warranty was appended to the Appointment with blanks for the names of the other consultants in the net contribution clause and for the amount of professional indemnity insurance cover to be obtained by WMSP.
The project was completed in May 2008 but it was not until January 2015 that Kier formally requested that WMSP execute a collateral warranty in favour of the Council. Kier sent a draft warranty to WMSP for signature, completed with a general description in respect of the “relevant persons” in the net contribution clause and a figure of £5 million in respect of professional indemnity insurance.
Following chasers by Kier, WMSP agreed to execute the warranty in exchange for payment of what they considered to be outstanding fees. Kier agreed to make payment of the fees in exchange for the executed warranty but reserved their position regarding a larger sum of money said to be due by WMSP to Kier. A cheque for the sum of outstanding fees was duly sent to WMSP but they did not deliver the warranty; instead, several months later, they returned the cheque to Kier. Kier raised proceedings to enforce delivery of the signed warranty.
The issues and outcome
Lord Woolman had little difficulty deciding that, in terms of the well established rules of formation of contract, parties had concluded a bargain for delivery of the executed warranty in exchange for the agreed sum of outstanding fees in March 2015. As a result, WMSP was obliged to deliver the executed warranty. However, Lord Woolman also addressed WMSP’s other arguments and his findings are instructive to parties who may find themselves facing refusal to execute a warranty some months (or years!) after project completion.
Firstly, WMSP argued that they were not obliged to provide a warranty until the parties had reached a further agreement in respect of the net contribution clause and the level of professional indemnity insurance cover. These aspects amounted to an ‘agreement to agree’ which could not be enforced. Lord Woolman rejected this. He held that if that were the correct interpretation, and the obligation in the Appointment was merely an agreement to agree, WMSP could refuse to agree the insertions, leaving Kier in breach of the main contract which required delivery of the warranty.
Secondly, Lord Woolman held that the obligation to provide a warranty is a stand-alone requirement without a true counterpart. WMSP was not therefore entitled to withhold the warranty due to alleged breaches by Kier.
Thirdly, Lord Woolman rejected WMSP’s argument that they could not now make the representation set out in the collateral warranty that the works would be completed to the necessary standard, given their present knowledge that the works had not been completed to that standard.
Finally, WMSP argued that Kier’s draft did not comply with the Appointment because it included a generic reference to the other design consultants in the net contribution clause rather than the “full designation” required by the draft form of warranty appended to the Appointment. Kier maintained that its generic description was appropriate and did not prejudice WMSP but Lord Woolman concluded that the language in footnote 10 of the Appointment (which required the “full designation”) was unambiguous and should receive effect. Although he found that Kier made a technical mistake in completing the draft warranty for signature, he suggested that the court would be slow to hold that such an error defeated Kier’s rights and it is likely that a hearing would have been fixed to establish whether that technical error could be overcome.
For main contractors, this case highlights the importance of correctly completing the draft form of warranty for signature and also the advantages to getting the collateral warranty package signed and delivered shortly after the appointments/sub-contracts have been entered into, rather than when defects have emerged in the project. For consultants, it confirms that there is likely to be no excuse for failure to deliver a contractually required warranty.
The full judgment is available on the Scotcourts website.