Collateral Warranties In Construction Transactions Webinar

Published date31 January 2022
subjectMatterReal Estate and Construction, Construction & Planning
Law FirmRonan Daly Jermyn
AuthorMs Finola McCarthy, Georgina Wallace and Alison Bearpark

RDJ Partners Finola McCarthy and Alison Bearpark, alongside Solicitor Georgina Wallace were joined by guest speaker James Burke BL to review the practical issues and risks with collateral agreements and relevant case law surrounding contractual interpretation and limitation clauses.

Below are some key takeaways from that discussion:

Collateral Warranties and their effect

  • Creates a direct contractual link between the parties.
  • Without a warranty, third party's recourse is solely in tort, where recovery of damages for pure economic loss in Ireland remains uncertain. In Ireland, the decision of Keane CJ in Glencar Exploration plc v Mayo County Council1 which addressed in obiter comments that the Plaintiff was not entitled to recover for pure economic loss in circumstances where a contractual relationship did not exist between the parties (this case did not relate to collateral warranties).
  • In the UK, the case of D&F Estates Limited v Church Commissioners for England2 established that a third party could not recover damages for pure economic loss

Standard of Care

  • The provisions of a warranty should be consistent with the underlying primary contract.

If the primary contract provides for a standard of reasonable skill and care, be careful not to sign up to a standard of fit for purpose. A construction professionals PI insurance is likely only to cover a standard of reasonable skill, care and diligence even if higher standard of care is agreed to by the construction professional.

Limitation of Liability Clauses

  • The scope of liability remains a key concern and a construction professional will try and limit its liability to a beneficiary Limitations of liability can arise in a number of ways, by way of time bar (6 v 12 years), an overall financial cap or the exclusion of certain heads of loss.
  1. ANet Contribution Clause ("NCC") confines a consultant's liability to the loss which is attributable to that consultant only. The purpose of a NCC is to protect against S.12 of the Civil Liability Act 1961 in relation to concurrent wrongdoers. There is no Irish case law on NCC and it remains to be seen whether such a clause would be upheld.
    • The UK case of West v Ian Finlay and Associates3 would be considered to be of persuasive authority in Ireland. In this case, the Court of Appeal upheld a net contribution clause in an architect's appointment and capped its liability at 30%.
  2. Time Limitations
    • Claim in contract- Where a contract is signed under hand, a 6 year...

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