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Time waits for no man: Interserve in the clear over Liberty Stadium

11 Dec 18 A recent decision in the courts considered when time expired for the purpose of making a claim under a collateral warranty. Mark Clinton, partner at law firm Irwin Mitchell LLP, reports.

Swansea's Liberty Stadium
Swansea's Liberty Stadium

The case was Swansea Stadium Management Company Ltd v City & County of Swansea and Interserve Construction Ltd.

The claim arose in connection with the design and construction of the Liberty Stadium in Swansea.  The project started in around September 2003.  On 1st April 2005 a statement of practical completion was issued, giving a practical completion date of 31st March 2005 (with a schedule of outstanding works and defects to follow).  The same month the management company entered into a 50 year lease of the stadium.  Matters dragged on somewhat and the statement of making-good defects shows that they were made good by April 2011.

In the meantime, Interserve entered into a collateral warranty in favour of the management company.   It contained provisions similar to many that are commonly found in such warranties. These included a provision that Interserve would have no greater liability to the management company than they would have had to them under the building contract, if the management company had been a party to it.  It does not appear to have included a clause, which is commonly found, to the effect that proceedings cannot be brought later than a certain time after practical completion.

The warranty was entered into as a deed.  That means that the management company had 12 years from breach of it to start proceedings in respect of such breach.   On 4th April 2017, the management company started proceedings in respect of alleged defects.   The question before the court was whether such proceedings were started in time.  Had they been started within 12 years of breach?

Normally, time will start to run for claims for defects from completion of the works.  In this case, there was some debate about when that was but the court found that, as a result of the deeming provision in the JCT terms, it was to be taken as the date stated in the statement of practical completion, namely 31 March 2005.

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There was also some uncertainty as to when the collateral warranty was executed.  It was undated.  The management company said that it executed it in 2012 and that, so far as it was aware, Interserve executed it in about 2007.  But Interserve said that it executed it in April 2005.

If the 12 years ran from the date that the warranty was executed, then that claim was in time – at least according to the management company’s version of the date of execution.  If it ran from practical completion, the claim was out of time.

Could time have started running before the warranty even existed?  That raises the question as to whether it had retrospective effect.    Whether an agreement has retrospective effect depends on the intention of the parties as determined from the language they have used and the relevant circumstances.  The fact that the warranty covered all of the obligations in the building contract, and that it limited liability to the extent of liability under the building contract, pointed to it having retrospective effect. And thus the judge decided that it did have such retrospective effect.  Accordingly, if was decided that time started running at practical completion and the 12 years expired on 31st March 2017.  The claim was therefore out of time. [Some good news for Interserve at last - ed.]

This case highlights that it is good practice to include an express provision in collateral warranties dealing with the time limit for claims.  That limits the scope for argument and reduces the risk of the time limit being missed.

About the author: Mark Clinton is a partner at law firm Irwin Mitchell LLP.

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