A recent case in the High Court puts limitation periods under collateral warranties on the spot 

francis ho bw 2017

Slippery surfaces and a slippery slope. This is the tale of Swansea council’s Liberty Stadium and a £1.3m construction defects dispute. Standing beside the River Tawe in Landore, the 21,088-seat arena opened in 2005 and has played host to concerts as well as top-flight football and rugby matches.

In addition to hazardous concourse and mezzanine floors, paint delamination had allegedly resulted in corroding steel structures. The faults fell on Swansea Stadium Management Company Ltd (SSMC), the Swansea City AFC controlled entity that leases and operates the venue and which is liable under a tenant’s repairing covenant. In turn, it is suing both the landlord and the design and build contractor, Interserve Construction Ltd. The trial is set for late October.

SSMC’s claims against the second defendant derived from a collateral warranty provided by Interserve. Firstly, it asserted that the design and construction of the concourse flooring were defective, as were the supply, construction and painting of the steelwork. Secondly, Interserve had failed to recognise and rectify those defects, contrary to clause 16 of its building contract with the council, which was based on the JCT Standard Building Contract with Contractor’s Design 1998 supplemented by amendments.

“It has long been accepted under English law that agreements can be drafted to have retrospective effect – that is, they operate from a date earlier than their execution or completion”

In June the contractor sought summary judgment on, or a strike-out of, the first of these claims in the Technology and Construction Court. This was on the basis that the Interserve warranty’s limitation period had expired prior to the issue of legal proceedings. 

It relied on two grounds. On a proper construction of the document, the collateral warranty tied retrospectively back to the date of practical completion and was therefore statute-barred. Alternatively, a similar outcome was achieved through a proviso in clause 1 that Interserve would owe no greater liability to SSMC under the warranty than if the latter had been named jointly with Swansea council as the employer under the building contract.

It has long been accepted under English law that agreements can be drafted to have retrospective effect – that is, they operate from a date earlier than their execution or completion. Indeed, this is common in the construction industry, where purchasers or tenants often obtain collateral warranties that are intended to cover previous and future work under the associated contracts. This is why, for instance, contractors can begin sweating when asked to provide warranties once defects are suspected.

“The cause of action for breach of contract accrues at the date of practical completion”  

As it turned out, the Interserve warranty did not identify an expiry period or a commencement date. Prompting further uncertainty, it had not been dated and there was disagreement as to whether Interserve had executed it in 2005 or 2007. (Somewhat messily, Interserve plc, an intended party to guarantee the contractor’s duty, had not signed at all.) The contractor’s obligation to uphold professional indemnity insurance and the liability of the guarantor were each stated to lapse 12 years from the date of practical completion. Neither, however, could be used to establish a period of limitation.

In circumstances of disputed provisions, courts frequently look to the “factual matrix”. This is a method of contractual interpretation formed from an objective analysis of the parties’ intentions. Mrs Justice O’Farrell was satisfied that the language used in the warranty – for example, references in clause 1 to the contractor’s past and future performance, as well as the instrument’s raison d’être of presenting SSMC with rights against Interserve – pointed to a clear commercial requirement for retrospective effect.

The proviso in clause 1 lent further credence. More specifically, it was held to curtail the duration of the contractor’s liability to the position under the building contract. With duties to carry out and complete works, the cause of action for breach of contract accrues at the date of practical completion. Under a deed, a party ordinarily has 12 years to bring suit.

The building contract stated that practical completion would occur on the date expressed in a written statement for that purpose from the employer. The employer’s agent had sent a letter confirming that practical completion had taken place on 31 March 2005. In response, the claimant pleaded in vain that extensive snagging meant that practical completion did not occur until later.

SSMC’s first claim against Interserve was knocked out. It had started proceedings on 4 April 2017 – four days too late. Summary judgment was awarded in favour of the second defendant. It was acknowledged that the purported clause 16 breaches by Interserve were not subject to the limitation defence. Those aspects will proceed to trial. 

Francis Ho is a partner in Penningtons Manches