Collateral Warranties - a refusal to sign...what are your remedies?

It is commonplace for building contracts and consultant appointments to include express obligations for the provision of collateral warranties. But what happens if there is a refusal to provide these? What are your remedies?

This is the point addressed in the recent case of Kier Construction Ltd v WM Saunders Partnership LLP [2016] CS.

In this case, a professional consultant (WMSP) was engaged by a building contractor (Kier). The terms of the appointment obliged WMSP to provide a warranty in favour of the employer when requested in the form attached to their appointment.

The warranty attached to the appointment was noted as "draft" and the net contribution clause and amount of professional indemnity insurance to be provided by WMSP was incomplete.

Kier entered into communication with WMSP some six years after practical completion, requesting that WMSP provide the collateral warranty in favour of the employer. This was against the background of defects in the works and litigation proceedings having been raised.

Despite agreeing through an exchange of correspondence to sign the warranty in return for payment of allegedly outstanding fees, WMSP later refused citing "an armada" of arguments, including:

• Kier was not entitled to an order for specific implement _ in the event of default, the contract provided that Kier could suspend fee payment. This was Kier's sole remedy.

The court was not convinced by this argument - very clear language would be required before inferring that a party had waived its rights to specific implement.

• The collateral warranty was in draft and therefore required further agreement.

The court held the reference to "draft" was simply a matter of description. The appointment set out a simple procedure for completion of the draft collateral warranty which WMSP were obliged to provide. The blanks would be completed to reflect the roster of consultants and subcontractor's that Kier assembled. This necessarily had to be done after the date of the appointment.

• The principle of mutuality precluded Kier from enforcing the Appointment _ Kier were allegedly in breach by failing to pay WMSP's fees and wrongly deducting a sum for late delivery of drawings. It was also argued that Kier had prevented WMSP from performing their services under the appointment.

The court held the obligation to provide a collateral warranty was a stand-alone requirement. The duties referred to by WMSP did not preclude the requirement to deliver a collateral warranty.

• WMSP contended that it was impossible for it to represent that the works had generally been carried out and concluded to the specified standard covered by their design. WMSP argued that (a) practical completion has already been reached; (b) Kier did not call for inspections including the final inspection; and (c) Kier did not generally carry out the works to the standard specified in WMSP's design.

The court saw no force in this argument. The alleged breach of duty referred to by WMSP gave rise to a right to claim damages from Kier for any proven loss sustained. It did not preclude the requirement to deliver a collateral warranty.

In conclusion, the court found there was no defence to the claim and ordered WMSP to provide the collateral warranty (a process called specific implement in Scotland, the Scots law equivalent of specific performance in England).

This decision will be welcome news for employers and main contractors alike who are often faced with the difficult task of procuring collateral warranties from their supply chain members.