You don’t see any cases on collateral warranties for months if not years, then two come along at once. Readers of this column will already be familiar with the recent case of Abbey vs Simply Construction and the issue of whether warranties are adjudicable or not. But another point on collateral warranties has recently come before the courts: what losses might a warrantor be liable for under a warranty?

This came up in Orchard Plaza Management Company Ltd vs Balfour Beatty Regional Construction Ltd [2022] EWHC 1490. Balfour Beatty (Mansell, as it then was) had given a warranty to a funder in respect of its obligations under a building contract for the conversion of an office block in Portsmouth to residential apartments and commercial units. The funder assigned the benefit of the warranty to the freeholder, who then assigned it to the management company for the block, Orchard Plaza. Defects were identified in the block, and Orchard Plaza brought a claim against Balfour Beatty for the costs of repair.

As part of its defence, Balfour Beatty argued that the claimed costs of repair by Orchard Plaza, as the management company, were not recoverable on the basis that they were too remote. It said they were too remote because those costs were not the type of loss that would have been reasonably contemplated by the parties at the time the warranty was entered into as a serious possibility of being a consequence of a breach of the warranty given to the funder. Orchard Plaza applied for summary judgment and/or to have those parts of the defence struck out, on the basis that they were bound to fail.

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