ABSTRACT
Why do we have collateral warranties at all? The reason is that, owing to recent decisions by the courts, it appears that the liability in tort for negligence of Contractors and consultants to third parties, other than their own Employers or clients, in respect of financial loss arising from construction defects is practically non-existent. See, for example, D & F Estates Limited v Church Commissioners for England [1989] AC177, HL, Murphy v Brentwood District Council [1990] 3 WLR 414, HL, and Department of the Environment v Thomas Bates & Son Limited [1990] 3 WLR 457, HL. Therefore, third parties will now usually demand collateral warranties in their favour from Contractors and consultants. In a conventional building project, where the Employer engages a consultant to design the Works and a Contractor to build them in accordance with that design, collateral warranties will usually be required from the Contractor and consultants concerned in favour of the funding institution and future purchasers and tenants. Warranties may be demanded from more than one consultant, e.g. Structural Engineers as well as Architects. In ‘design and build’ or ‘turnkey’ projects, where the Contractor is responsible for design as well as construction, the warranties required will differ, because it will be the Contractor, not the Employer, who will act as the client of the consultant. Therefore, the consultant should be requested to enter into warranties with the Employer, as well as with the funding institution, purchasers and tenants. Collateral warranties are much in need of standardization and practice differs very widely at the present time. The JCT publishes a number of documents to be used in cases where Nominated Sub-Contractors and the like assume direct contractual responsibilities to the Employer, e.g. JCT Agreement NSC/W, but these have no application to other parties such as funding institutions, purchasers and tenants.
