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As you were? An important decision about Scottish collateral warranties By Neil Kelly
Partner, MacRoberts LLP switch
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Tere was a decision last year on the interpretation of a Scottish collateral warranty in the context of prescription of a claim arising out of alleged construction works defects - British Overseas Bank Nominees Ltd v Stewart Milne Group Ltd. Judges in the Inner House of the Court of Session have now overturned that decision on appeal.
Background In 2008, Stewart Milne entered into a contract with Northburn Developments Ltd for work at a development in Inverurie. In June 2013, the Bank bought the development from Northburn. Stewart Milne executed a collateral warranty in favour of the Bank dated 24 June and 28 August 2013. Tere was flooding at the development and a technical consultancy produced a May 2013 report on it. Te Bank raised an action against Stewart Milne on 21 June 2018 on the basis it resulted from its defective design or construction.
Te arguments In defending the claim, Stewart Milne relied on two clauses from the warranty which, it argued, gave the
Bank the equivalent rights enjoyed by Northburn but no more. Delivering the appeal court judges’ decision, which overturned the previous decision in favour of the Bank, Lord Drummond Young said the exercise of interpretation of the warranty had to be both purposive and contextual. Te appeal court decided
the clauses gave the Bank the equivalent rights enjoyed by Northburn. As a result,
there was a valid contractual restriction on the claims that could be made by
the Bank. Should the prescriptive period have
been found to run from the date of execution of the warranty, this would have extended the obligations of Stewart Milne beyond those under the building contract.
Conclusion Many will argue the decision reflects what had been understood as the correct interpretation of collateral warranties. However, given recent decisions in the field of contractual interpretation and prescription, make sure to watch this space. ● To find out more, email
neil.kelly@
macroberts.com or call 0131 248 2124.
CABLEtalk OCTOBER/NOVEMBER 2019 61
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