Do not give up

Obtaining collateral warranties from parties involved in construction projects is notoriously difficult. A recent decision in the Technology and Construction Court (TCC)* shows that the courts are prepared to go to great lengths to order the provision of such warranties, even in the most unlikely circumstances.

In this case, the contractor had agreed to provide the employer with warranties from a civil engineering sub-contractor. Various problems arose during the project, and the employer terminated its contract with the contractor. Unfortunately, the collateral warranties had not yet been provided, and so the employer requested that the contractor provide them.   By this time, however, the civil engineering sub-contractor had gone into liquidation.  It was subsequently dissolved.  The contractor, therefore, refused to provide the warranties on the basis that it had used its best endeavours to obtain the warranties, but could not get them.

On the face of it, one would not expect a court to order specific performance in these circumstances. Apart from the difficulty of obtaining a warranty from a dissolved company, what use is a warranty from a company which no longer exists?

The court looked beyond these obstacles, and found that the warranty provider had held insurance cover that might back up a warranty. As such, the court considered that it was still possible for the contractor to perform its obligation to provide the collateral warranties, and ordered the contractor to obtain the warranties from the sub-contractor.

In light of this decision, employers should not simply give up on pressing contractors to provide warranties upon being told that the warranty provider has been dissolved. There may be appropriate insurance which could respond to claims brought pursuant to the warranty, in which case a Court may still order specific performance of the obligation. They should also note that the contractor’s obligation to provide the warranties survives termination of the contract.

This post was edited by Amira Khan and William Cursham. For more information, email blogs@gateleyuk.com.

* Liberty Mercian Limited v. Cuddy Civil Engineering Limited and Cuddy Demolition and Dismantling Limited [2014] EWHC 3584


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.