The curse of the collateral warranty – a warning from the Courts

Following on from my previous blog the case of Liberty Mercian Ltd v Cuddy Civil Engineering Ltd also gives comfort to employers that the courts are willing to assist in obtaining collateral warranties.

Collateral warranties are essential documents in many construction projects and are an absolute requirement for many funders, tenants and purchasers.  Many trainee solicitors in our construction team spend hours wrestling with contractors, sub-contractors and consultants to prise these documents out of their hands.

With this in mind we have come up with many ingenious ways over the years to try and persuade (force) contractors, sub-contractors and consultants to provide executed warranties.

These have included making payment under the contract conditional on the receipt of signed warranties and even giving the employer a power of attorney to execute the warranty on behalf of the contractor, sub-contractor or consultant.  Unfortunately, even these obligations cannot persuade some contractors, sub-contractors or consultants to hand over signed warranties.

However, the case of Liberty Mercian Ltd v Cuddy Civil Engineering Ltd has provided an “Ace” for us solicitors.  The  contract required Cuddy to provide collateral warranties within 28 days of Liberty’s request Cuddy argued that because the contract had been terminated Liberty’s right to obtain collateral warranties fell away.  Mr Justice Ramsey disagreed and held that the obligation to provide warranties survived.  The court therefore held that Liberty remained, in principle, entitled to an order for specific performance of the obligation to provide collateral warranties.

Whilst this is wonderful and tickety boo, in practice I wonder how many employers will be willing to go through the expense and sheer hassle of court proceedings to obtain collateral warranties.  I will therefore keep including my “persuasive” drafting in my construction document and keep the threat of “specific performance” up my sleeve for when the going gets tough.

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