In the case of British Overseas Bank Nominees Ltd and others v Stewart Milne Group Ltd (10 September 2019), the Inner House of the Scottish Court of Session allowed an appeal and ruled that a collateral warranty was subject to the same limitation period as the underlying building contract to which it related
The case involved a collateral warranty granted some years after the works had been completed. The beneficiary made a claim under the collateral warranty after the statutory and contractual limitation periods under the building contract had expired. The argument was that, under Scots law of prescription, the limitation period under the collateral warranty ran from when the collateral warranty itself was granted.
The Court did not accept that. It ruled that the purpose of a collateral warranty is to put the beneficiary and the contractor in an equivalent position to the original employer and the contractor. This principle of “equivalence” was key to understanding a collateral warranty and applied to the liability period unless the parties agreed otherwise.
The express terms of this collateral warranty included the typical phrases of “no greater liability” and “equivalent rights of defence”, plus a contractual limitation of 12 years after practical completion under the building contract. The Court ruled that these provisions supported the general “norm” of equivalence in a collateral warranty.
Overall I think the judgment is to be welcomed, because otherwise it would have possibly made the law on this different as between England and Scotland (for example, the first instance judgment that was overturned conflicted with that of the High Court in Swansea Stadium Management Company Ltd v City & County of Swansea and another [2018] EWHC 2192 (TCC).