| Date | 20 August 2003 |
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| Judgment | Northern & Shell plc v John Laing Construction Limited, CA 16 July 2003 |
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| The Issue | The operation of collateral warranties. |
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| Implication |
A warranty granted by a main contractor to the purchaser of the building under construction will generally allow the purchaser to step into the shoes of the employer under the main contract. Commonly, the warranty will therefore come into effect on the date of completion of the building works. |
printLast month the Court of Appeal considered a dispute which had arisen out of the construction of an office block originally known as Merchants' House, now known as Northern & Shell Tower, at City Harbour in the east end of London. Merchants' House was one of two office blocks constructed between 1987 and 1989 by John Laing Construction. As a term of the main contract, Laing was obliged to enter into a warranty with a company called Stockley Academy who had leased the building from the developer. The warranty provided that Laing had complied with the terms of the main contract, with the effect that Stockley would be able to step into the shoes of the developer and enjoy the same benefits as if it had entered into the main contract in the first place. The purpose of obtaining such a warranty became clear some years later when the successor in title to Stockley, Northern & Shell plc, discovered defects in the property. Northern alleged that the cladding of windows, roof coping and weatherproofing of the office building was not effective as a result of defective construction work by the cladding subcontractor to Laing. As a consequence, poor insulation, rattling of the cladding panels in the wind and moisture penetration into the building occurred. Northern alleged that these defects arose as a result of a breach by Laing under the building contract and hence under the warranty. Proceedings were commenced by Northern against Laing. There was however one major stumbling block which might prevent Northern from progressing its case. A limitation period of 12 years applied to the warranty. By the date that Northern had commenced its legal proceedings, more than 12 years had passed from the date of practical completion of the works. If practical completion was to be taken as the effective date for the commencement of the warranty obligations of Laing, the legal action would be statute barred and Northern's claims would be dismissed by the court. Northern was ready for this particular argument. It noted that the warranty itself had not been signed until some five months after practical completion of the works. Northern argued that this was the effective date of the warranty and the effective commencement of the 12-year limitation period. If those additional five months were taken into account, the proceedings had been commenced by Northern within the 12-year limitation period. The court therefore had to determine whether the cause of action accrued on the date when the warranty was signed, or at the earlier date when the works achieved practical completion. This particular point hinged upon the proper interpretation to be applied to clause 5 of the warranty agreement, which said: "This deed shall come into effect on the day following the date of practical completion of the building contract". Northern argued that there was no basis for treating the warranty as anything other than a simple contract. It operated in the same manner as a warranty given by a manufacturer to a purchaser on the sale of a television. The cause of action arose on the date when the warranty was signed. It was quite wrong to complicate this simple contract by finding that the effect of clause 5 was to give the warranty retrospective effect back to the date of practical completion. Laing argued that this simple approach was inappropriate. The warranty in this case defined the obligations of Laing by reference to its obligations under the building contract. It was entirely appropriate that the obligations under the warranty were tied to the obligations under the building contract. Clause 5 was intended to fix the date on which the warranty came into effect. It was entirely appropriate that if the warranty was not signed until after the date of practical completion, it should operate with respective effect back to the date of practical completion. The whole scheme therefore was to make entirely clear that the purpose was to give the leaseholder the same rights against the contractor as the developer. His Honour Judge Anthony Thornton QC was satisfied that Laing was correct. The effect of clause 5 was to backdate the deed of warranty to the date of practical completion. This also meant that the date when time started to run under the statutory limitation period was backdated to the date of practical completion. Accordingly he held that the limitation period had expired by the date Northern had commenced its action and the claims were statute barred. The Court of Appeal was satisfied that this was entirely the correct interpretation. It may have been intended by the parties that clause 5 would operate in circumstances where the warranty had been executed prior to the date of practical completion. However, the fact that clause 5 had not been amended when the warranty was eventually signed was consistent with it being the intention of the parties that the warranty was to come into effect at the date of practical completion. In conclusion, the claim was statute barred by the time the legal action had been commenced by Northern. The appeal was dismissed.
CJ-0332
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