British Overseas Bank Nominees Ltd v Stewart Milne Group Ltd
| Jurisdiction | Scotland |
| Judge | Lady Wolffe |
| Judgment Date | 10 September 2019 |
| Neutral Citation | [2019] CSIH 47 |
| Docket Number | No 3 |
| Court | Court of Session (Inner House) |
| Date | 10 September 2019 |
[2019] CSIH 47
First Division
Lady Wolffe
Anns v Merton London Borough Council [1978] AC 728; [1977] 2 WLR 1024; [1977] 2 All ER 492; 75 LGR 555; 243 EG 523; 4 Const LJ 100; [1977] JPL 514; (1978) 84 LSG 319; 137 NLJ 794; (1977) 121 SJ 377
HOE International Ltd v Andersen [2017] CSIH 9; 2017 SC 313; 2017 GWD 6–83
Junior Books Ltd v Veitchi Co Ltd 1982 SC (HL) 244; 1982 SLT 492; [1983] 1 AC 520; [1982] 3 WLR 477; [1982] 3 All ER 201; [1982] Com LR 221; 21 BLR 66; 79 LSG 1413; 126 SJ 538
Midlothian Council v Bracewell Stirling Architects [2018] CSIH 21; 2018 SCLR 606; [2018] PNLR 25; 2018 GWD 12–163
Murphy v Brentwood District Council [1991] 1 AC 398; [1990] 3 WLR 414; [1990] 2 All ER 908; [1990] 2 Lloyd's Rep 467; 50 BLR 1; 21 Con LR 1; 22 HLR 502; 89 LGR 24; (1991) 3 Admin LR 37; (1990) 6 Const LJ 304; 154 LG Rev 1010; [1990] EG 105 (CS); 87 (30) LSG 15; 134 SJ 1076; The Times, 27 July 1990; The Independent, 27 July 1990
Rainy Sky SA v Kookmin Bank Co Ltd [2011] UKSC 50; [2011] 1 WLR 2900; [2012] 1 All ER 1137; [2012] 1 All ER (Comm) 1; [2012] Bus LR 313; [2012] 1 Lloyd's Rep 34; [2011] 2 CLC 923; [2012] BLR 132; 138 Con LR 1; [2011] CILL 3105; The Times, 18 November 2011
Scottish Widows Services Ltd v Harmon/CRM Facades Ltd (in liquidation) [2010] CSOH 42; 2010 SLT 1102; [2011] PNLR 8
Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173; [2017] 2 WLR 1095; [2017] 4 All ER 615; [2018] 1 All ER (Comm) 51; 171 Con LR 1; [2017] CILL 3971; The Times, 7 April 2017
Scottish Building Contract Committee, Design and Build Contract: For use in Scotland (SBC/DB/Scot 2005) (SBCC, Edinburgh, October 2007)
Scottish Building Contract Committee, Design and Build Contract: For use in Scotland, Amendment 1 (SBCC, Edinburgh, April 2007)
Prescription — Quinquennial prescription — Obligation in collateral warranty granted by design and build contractor in favour of purchaser of newly constructed commercial premises — Whether applicable prescriptive period was a contractual period incorporated into the collateral warranty or imposed by statute — Whether prescriptive period ran from the date of the collateral warranty or the date of the original design and build contract between the original employer and the contractor
Contract — Construction — Collateral warranties — Terms in both original contract and collateral warranty imposing time-limits for claims — Whether time-limits should be interpreted so that they imposed the same deadline for claims in each contract
British Overseas Bank Nominees ltd brought an action under the Commercial Cause Rules (Act of Sederunt (Rules of the Court of Session 1994) 1994 (SI 1994/1443 (S 69)), Ch 47) in the Court of Session. They sought damages from Stewart Milne Group Ltd in respect of breach of a collateral warranty. The defender averred that the action was time-barred. The cause came before the commercial judge (Lady Wolffe) for a debate. On 21 December 2018 the commercial judge held that the action was not time-barred ([2018] CSOH 125). The defender reclaimed.
A contractor was employed to design and build a retail development, including a car park. The development was constructed in 2009. The original employer sold the development and, on 27 June 2013, the purchaser took entry. By a contract dated 24 June and 28 August 2013, the contractor granted a collateral warranty in favour of the purchaser, under which it warranted that the development had been designed and built with reasonable skill, care and attention.
On 21 June 2018, the purchaser raised an action to recover the cost of remedial works it averred were necessary to prevent flooding of the car park. The purchaser founded upon the collateral warranty and averred that the car park had not been constructed with the requisite skill, care and attention. The contractor averred that the action was time-barred.
After debate, the commercial judge held that the action was not time-barred. The contractor reclaimed. The contractor argued that the effect of the collateral warranty was that the purchaser could not be placed in a better position than the original employer and that the collateral warranty was subject to the same prescriptive period as the original contract between the contractor and original employer. The purchaser had been aware of the flooding since it received an investigative report in May 2013 and the action had not been raised within five years of receipt of that report. The purchaser contended that the collateral warranty was a separate contract and that the action had been raised within five years of the granting of the collateral warranty.
Held that: (1) the underlying commercial purpose of collateral warranties was of fundamental importance in constructing the terms of any collateral warranty, which was to provide the purchaser with rights against the contractor that were equivalent to the rights enjoyed by the original employer, so as to avoid a situation where the party with a right of action against the negligent contractor (the original employer) had suffered no loss and the party that suffered the loss (the purchaser) had no right of action (paras 7–13); (2) a collateral warranty would normally be subject to the same time-bar as applied to the original building contract and would have effect on the same day (paras 14–16); (3) the terms of the collateral warranty made it clear that the liabilities undertaken by the defender to the pursuer were to be equivalent to, but no greater than, the defender's liabilities under the building contract, and the intention of the clause in the collateral warranty that entitled the defender to rely upon the same rights in defence of liability as it would have against the employer was to incorporate those defences into the relationship between the defender and the pursuer, including incorporation of a conventional prescriptive period that corresponded to the statutory period of prescription that applied to any claim under the original building contract (paras 21–30); (4) the contractor's liability to the purchaser was extinguished by prescription at the latest five years after the report on flooding had been received by the purchaser (para 32); and reclaiming motion allowed.
Murphy v Brentwood District Council [1991] 1 AC 398 and Scottish Widows Services Ltd v Harmon/CRM Facades Ltd (in liquidation)2010 SLT 1102considered.
The cause called before the First Division, comprising the Lord President (Carloway), Lord Brodie and Lord Drummond Young, for a hearing on the summar roll, on 26 June 2019.
At advising, on 10 September 2019, the opinion of the Court was delivered by Lord Drummond Young—
[1] Opinion of the Court— The parties' dispute relates to the construction of a collateral warranty granted by a design and build contractor in favour of purchasers of a development from the original developer. The development, which was situated at Souterford Road, Uryside South, Inverurie, comprised the construction of eight new retail units together with a garden centre slab, tenant fit-out works and associated car parking, service yards and related external works. The developer, who was the employer in the design and build contract, was Northburn Developments Ltd (‘Northburn’). The defender was the design and build contractor. The construction contract between Northburn and the defender was dated 20 and 21 August 2008, and was in the form of the Scottish Building Contracts Committee (‘SBCC’), Design and Build Contract: For use in Scotland (SBC/DB/Scot 2005 Edition, October 2007 Revision), as amended by a document entitled Amendments to the SBCC Design and Build Contract for use in Scotland 2005, incorporating Amendment 1 (issued April 2007) and October 2007 Revision.
[2] The contract between Northburn and the defender imposed obligations on the defender to use, in general terms, proper skill and care in the design and construction of the works. It further contained an obligation on the defender to grant collateral warranties in favour of any person who might subsequently acquire an interest in the development as a purchaser or tenant. The pursuers are nominees for National Westminster Bank plc, which operates as a depositary of the Janus Henderson UK Property PAIF. In June 2013, the pursuers, acting in that capacity, and Northburn concluded missives for the sale of the site and development to the pursuers. The pursuers took entry on 27 June 2013. In terms of those missives, Northburn was obliged to deliver to the pursuers various collateral warranties, including a collateral warranty in the pursuers' favour executed by the defender as the design and build contractor. A collateral warranty by the defender in favour of the pursuers was in due course executed and delivered to the pursuers; it was dated 24 June and 28 August 2013.
[3] The development had been constructed during 2009. It subsequently became apparent that the car park at the site, which had been designed and constructed by the defender, suffered from flooding at its northern boundary. The present action relates to the alleged flooding. The pursuers aver that the defender was in breach of obligations that it had undertaken in the collateral warranty to carry out and complete the building works, to perform all of its duties under the building contract, and to design the works and select materials with reasonable skill and care such as would be expected of a prudent and experienced designer of the relevant discipline. The flooding, it is averred, resulted from defective design and construction of the car park by the defender. The pursuers aver in particular that if the car park had been properly designed and installed it would not suffer from flooding in ordinary course; that the gradient of the car park as constructed was inadequate to manage ordinary surplus water; and that standard...
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