If you are the beneficiary of a collateral warranty, be sure it has been properly transferred to you – otherwise you may find yourself unable to make a claim
Collateral warranties do not crop up too often in the Technology and Construction Court, but they did make an appearance before Judge Bowsher a couple of weeks ago. They were tied up with an attempt by Allied Carpets to bring a claim against architect the Whicheloe Macfarlane Partnership.

Collateral warranties are there to create a contractual relationship where one does not exist naturally. As you will know, it is much easier to make a claim under a contract, where a duty of care is clear, than by alleging negligence.

Allied Carpets wanted to bring a claim about problems with its building, a retail discount warehouse in Barnstaple, Devon. It had not been the employer for which the warehouse had been built. That was a developer called Canynge Bicknell, and it had developed the property for Harris Queensway. It was Bicknell, rather than Harris Queensway, that had retained Whicheloe Macfarlane, but it was Harris Queensway that was going to suffer if the architect did not do its job properly. In negotiating the agreement for lease with Bicknell, therefore, Queensway required Bicknell to organise a collateral warranty to be given by the architect. Harris Queensway was therefore protected.

Collateral warranties are particularly valuable, however, if the beneficiary can pass the benefit on to anybody to whom it sells its interest in the building. A purchaser would otherwise not be able to bring a claim against the architect without worrying about whether it could demonstrate negligence.

This case was no exception. It was a term of the agreement for lease that if Harris Queensway assigned its interest in the agreement to a third party, it could also assign the benefit of the warranty.

The building works were completed and the lease was signed. A couple of days later, the collateral warranty was signed as well. Harris Queensway was happy – it had a right of action against the architect in contract if ever it should need it.

The killer was that Queensway had not assigned the warranty or acted as though it intended to

The warranty did not do Harris Queensway a great deal of good, because it went into liquidation. The liquidator assigned the lease to Allied Carpets, which subsequently found problems with the building. Quite what those problems were, we do not know, but Allied Carpets thought that the architect was at least partly to blame. It blew the dust off the pile of paper that came with the lease, and finding the collateral warranty, it brought a claim. Whicheloe Macfarlane said Allied Carpets had no right to claim.

The court decided to sort that out before moving on to consider the complaints being made against the architect. If the warranty did not work, there was no point in going any further.

There were two problems. The first was that the warranty expressly permitted Harris Queensway to assign the warranty to anyone taking an assignment of the agreement for lease. Whicheloe Macfarlane argued that this meant that there could only be an assignment of the warranty if there was an assignment of the agreement for lease. By the time Allied Carpets came along, the agreement for lease had been superseded by the lease itself.

Judge Bowsher was not too worried by this problem. Just because there was an express permission to assign in one situation, there was no reason to say that there could be no assignment in other situations. There had been no covenant against assignment in the warranty, and therefore there was nothing stopping Harris Queensway from assigning it if it had wanted to.