James Burgoyne of Brunel Professions considers a Technology and Construction Court (T&CC) decision supporting no greater liability clauses in reliance documentation.
There is a general principle that a collateral warranty should not create any liability greater or of longer duration than under the appointment to which it is collateral.
This principle is often echoed in exclusions in professional indemnity insurance policies which exclude any liability in reliance documentation (i.e. collateral warranties, reliance letters, certificates, etc...) which is greater than in the appointment between the professional and their actual client.
It is common practice to deal with this situation through a limitation clause in reliance documentation which excludes any liability over and above that owed under the appointment – a “no greater liability” clause. Over time it has also become common for such clauses to be “double barrelled”, and include not only a statement that there is no greater liability under the warranty than the appointment as if the beneficiary was “joint employer under the appointment”, but also a statement that the professional may rely on any defence or limitation under the appointment in defending a claim by the beneficiary under the warranty.
An example of such a clause is the following: "The Consultant has no liability under this Deed which is greater or of longer duration than it would have had if the Beneficiary had been a party to the Appointment as joint employer.
The Consultant shall be entitled in any action or proceedings brought by the Beneficiary under this Deed to rely on any limitation in the Appointment and to raise equivalent rights in defence of liability (but excluding set-offs and counterclaims) as would have been available to the Consultant had the Beneficiary been the employer under the Appointment."
The efficacy of no greater liability clauses was recently tested, in a Technology and Construction Court decision in connection with Swansea’s Liberty Stadium, home of Swansea City FC and Ospreys Rugby Union Club. The occasion was a claim against building contractor Interserve Construction, who had been hired by Swansea City Council to build the stadium in 2004.
Interserve had provided a 12-year collateral warranty to the Stadium Management Company that it would comply with the original building contract with Swansea City Council. The warranty included a “no greater liability” clause along the “joint employer” lines of the first part of the example clause given above, but the warranty clause did not contain the “equivalent rights” second part.
In 2017 the Management Company started proceedings against Interserve, alleging that the stadium’s steel structure was corroding and that visitors had fallen on slippery surfaces.
The relevant liability period became critical to a part of this claim. Interserve argued that more than 12 years had passed since practical completion, and that limitation therefore applied on the basis that liability had expired under the appointment, and hence the warranty as well via the no greater liability clause.
The Management Company argued for a more restricted and technical interpretation of the clause, arguing that the 12-year period started when the warranty was signed in 2005 so that its claim fell inside the limitation period.
Construction and Insurance practice is based on the position advanced by Interserve, so it was something of a relief when the Court agreed that overly technical interpretations of the clause were inappropriate, and granted summary judgement to Interserve.
Court judgements can sometimes take practitioners by surprise, and legal decisions reached can sometimes feel counter-intuitive. However in the present case, the Court viewed the intent of the parties as straightforward, which was to mirror the liability position of the appointment in the warranty.
Interestingly the Court supported the “joint employer” formula of words of the no greater liability clause, which suggested that the “equivalent defences” element was not necessarily needed.
Nevertheless, the double barrelled clause is in common use, and does not usually cause any alarm to either side. As such, it is expected that practitioners will continue to use it.