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Collateral warranties, a standstill agreement and a concurrent tort claim

One multi-party (and multi-action) Technology and Construction Court (TCC) claim involving Linklaters, Sir Robert McAlpine and others is under scrutiny by commentators at the moment. While it is important to remember that the latest installment, like the previous one, is still at the pre-trial (interlocutory) stage, what can we learn from How Engineering v Southern Insulation?

Collateral warranties

As we said in connection with the Scottish court’s judgment in Scottish Widows v Harmon, it is sometimes helpful just to see the courts refer to collateral warranties, given how widespread their use is (and has been) on commercial property development.

Akenhead J’s judgment in How Engineering adds to that feeling by finding that:

  • For the purposes of the sub-sub-contractor’s strike out application, the parties accepted that (in 1995) collateral warranties were common practice on commercial property development projects. One of the authorities referred to, Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, is the classic case that distinguished losses arising in the ordinary course of business from losses under “particularly lucrative” contracts. It seems that collateral warranties, at least in 1995, were entered into in the ordinary course of business.
  • In practice, it makes no difference if a sub-contractor (or sub-sub-contractor) faces a claim that originates from one or more collateral warranties, compared to a claim that originates from the employer to the main contractor, and then from the main contractor to the sub-contractor (under the building contract and then the sub-contract). That would not materially affect the kind or type of loss claimed. (The claim in How Engineering relates to the cost of repairs to pipework that was allegedly not properly insulated.)

(See paragraphs 24 and 25 of the judgment.)

Standstill agreement

In the context of commercial litigation, a standstill agreement allows the parties to take pre-trial steps, such as complying with the pre-action protocol for construction and engineering disputes, having effectively put the limitation period on hold. In England and Wales, limitation is a defence, so a party can waive its right to raise that defence.

In How Engineering, the aggrieved sub-sub-contractor argued that it was prejudiced by a standstill agreement, which it was not party to. However, the court dismissed this argument:

“All that the Standstill Agreement did was to freeze limitation so that, to the extent that Linklaters’ claim was already time-barred, it remains time-barred; to the extent that Linklaters’ claim was not time-barred, it froze the position until any party gave 28 days notice. It is a reasonable inference that, if the Standstill Agreement had not been issued, that Linklaters would simply have issued proceedings forthwith and sought to persuade this Court to grant an appropriately generous extension of time whilst a Pre-Action Protocol process was gone through and whilst detailed information for Particulars of Claim were collated. It is wrong to speak of a claim being made pursuant to the Standstill Agreement; the claim is made by Linklaters primarily through the Collateral Warranties said to have been breached by [the main contractor] and [the sub-contractor].”

(See paragraph 29 of the judgment.)

However, the court was not asked to consider the sub-sub-contractor’s limitation defence in detail. The parties agreed that the sub-sub-contractor’s limitation defence was a triable issue, so it was not dealt with at the strike-out application.

Concurrent claims in tort and contract

Paragraphs 13 to 19 of the judgment plot a helpful course through established authorities on concurrent claims in tort and contract, including:

Having reviewed the authorities, the court concluded (for the purpose of the strike out application) that, under the sub-sub-contract, the sub-sub-contractor owed a concurrent duty of care in tort alongside its contractual duty to exercise reasonable skill and care. However, the court was not asked to give any formal final declaration on this point.

Newsworthy, but not new?

While the How Engineering judgment, and the “Linklaters’ litigation” in general, may be newsworthy, it seems that it has not generated new law or new authority; it has not yet reached trial or lead to final declarations.

An appeal hearing has been scheduled in the Linklaters’ proceedings for August 2010. We will report on any new law that may emerge from that Court of Appeal judgment…

One thought on “Collateral warranties, a standstill agreement and a concurrent tort claim

  1. While commentators may have been awaiting the outcome of the Court of Appeal’s judgment, they will have to wait a little longer. The judgment has been published, but one appeal was dismissed (in the Linklaters’ action) and the other one (in the How Engineering action) was adjourned.

    As a vacation court, only sitting for one week during August, the Court of Appeal said it was being asked to “get a quart into a pint pot”. With the trial of both actions due to start in October, it concluded that it could not hand down a reserved judgment before then. It noted that is was unfortunate that Southern could not walk away “scot-free”, but recognised that it was more important that the trial of both actions was not deferred while these appeals were dealt with.

    Food for thought?

    The Court of Appeal agreed with Akenhead J that the issue of whether Southern owed the alleged duty of care in tort to Linklaters or How Engineering was problematic and suggested that it was an issue that “may require the attention of the Supreme Court in due course”.

    After a four week trial later this year, this is one case that may well be attracting the Supreme Court’s eye.

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