In 2006 Dumfries and Galloway Council employed Kier Construction Limited (KCL) to build a new leisure centre, and KCL, in turn, appointed WM Saunders Partnership LLP (WMSP) as a design consultant.
Under the terms of the building contract KCL were required to procure a collateral warranty from WMSP in favour of the Council.
Under its appointment, WMSP agreed to provide a collateral warranty to the Council within 14 days of a formal request from KCL. The form of collateral warranty was appended to both the building contract and appointment document.
The Outer House of the Court of Session recently ordered WMSP to grant the collateral warranty to the Council notwithstanding that it was over nine years since the Appointment was signed.
In his judgement, Lord Woolman gave short shrift to the consultant’s “armada of arguments” resisting the ruling, which included a contention that WMSP was no longer able to make the representations set out in the warranty, because i) practical completion had already taken place; and ii) KCL was itself in breach of the Appointment.
Significantly, Lord Woolman held that the duty to provide the warranty was a “stand-alone” requirement, taking the view that it was not a counterpart to KCL’s obligations. Accordingly, WMSP remained bound even if KCL’s breach of the Appointment was proven.
A large portion of the judgement focused on an exchange of letters between the parties, in which WMSP initially offered to provide the warranty to KCL in exchange for outstanding fees. KCL accepted this in their reply, but suggested that the warranty be provided to them first, and the fees delivered afterwards.
WMSP claimed that this did not constitute a binding agreement, because KCL had not agreed to the order of exchange that they had originally proposed. The court held that the letters were ‘a discussion of the mechanics of settlement [which] did not preclude agreement’.
Ultimately, the decision was made on the basis that WMSP’s duty to provide the warranty could not be extinguished by any alleged breach of the Appointment by KCL; and also that the parties had agreed through their letters that the warranty would be provided.
Significant weight in this case was given to the parties’ statuses as “reasonable businessmen”, with Lord Woolman concluding that their “shared knowledge” would have led both to believe that agreement had been reached that WMSP would provide a collateral warranty. These remarks are a helpful reminder to all parties that the courts will favour an objective approach when evaluating a contract, and will often seek to preserve underlying commercial intent.
Employers, contractors and subcontractors alike should bear this in mind both in negotiating contracts and, if necessary, in enforcing them.
On February 9, 2016