The Technology and Construction Court recently rejected a novel interpretation of a “no greater liability clause”. Typically found in collateral warranties, these clauses are designed to limit the warrantor’s liability to a beneficiary under the warranty so that it is no greater than its liability to the employer under the underlying building contract or consultant appointment.

Following completion of a project there was a fire that largely destroyed the property. It was alleged that the extent and spread of the fire was due to negligent design by the architect. In turn, the architect alleged that the contractor had not completed the works in accordance with its design and it was this that exacerbated the fire.

The architect tried to defend a claim by the purchaser/tenant on the basis of ‘contributory negligence’ by the contractor. The argument was based on a “no greater liability” clause, which provides that the architect would have no greater liability to the beneficiary under the warranty than it would have had if the beneficiary had been named as a joint employer under the architect’s appointment. The architect argued that this common form of wording would give the beneficiary a claim against the contractor if it had breached its design obligations under the D&B contract. The TCC rejected the architect’s position.

The TCC’s interpretation is sensible and one that most practitioners would have expected. The no greater liability clause with joint employer wording limits the liability of the warrantor to that under the underlying contract. It does not, however, entitle the warrantor to defend a claim or reduce the damages payable on the basis of contributory negligence by a contractor or other consultant. If this is the intention then a specific cap or net contribution clause should be requested.

The case also provides a useful reminder about the exclusions often found in consultant’s PI policies, which should be considered when negotiating the terms of collateral warranties.

Oakapple Homes (Glossop) Limited v (1) DTR (2009) Limited (in liquidation), (2) Ian Robert (Liquidator of DTR (2009) Limited) and (3) SJ Catlin Syndicate 2003 at Lloyd's, QBE Casualty Syndicate 386 at Lloyd's and Mitsui Syndicate 3210 at Lloyds