Scottish Widows Services Ltd v Building Design Partnership

[2011] ScotCS CSIH 35

Scottish Widows Property Management Ltd granted a lease for a plot of land to a developer. The architect was BDP who were obliged to give collateral warranties to various third parties. The developer assigned the benefit of the lease to another Scottish Widows company who later granted a sub-lease to a further Scottish Widows company, who at the same time assigned their right in the sub-lease to Scottish Services, who occupied the building. Scottish Services was also assigned the benefit of a collateral warranty given by BDP. Defects were found and Scottish Services carried out remedial works, and looked to BDP to recover its losses. BDP said that as Scottish Services did not have a repairing obligation under the sub-lease, they could not be liable for the costs incurred. Only the building owner could recover such losses. BDP also said that the warranty itself restricted recoverability to the building owner, and to limited third parties who sustained injury from a defect. The Scottish CA taking a commercial view, disagreed:

"There is, in our view, nothing inherently impossible, or even difficult, in the notion of an architect, or other member of the professional team...granting indemnity to a named prospective occupier, or that occupier’s assignees, for the costs of rectifying defects, impinging on the occupiers enjoyment, for which defects the granter is responsible by reason of breach of professional or other contractual duty...while the primary physical loss may be sustained by the owner or tenant of the building at the time when the defective work was performed, that physical loss has economic consequences, and any party who suffers those economic consequences, such as a subsequent owner or tenant, may sue for that loss provided that a contractual relationship exists between the party responsible for the defective condition of the building and the person who suffers the economic consequences."