Collateral Warranties

Abstract

Abstract The purpose of a collateral warranty (including duty of care letters) is to create a contractual relationship between contractors or professional advisers and a third party who is not their client. In most cases, the contractual relationship is designed to replicate for the benefit of the third party the contractual duties and obligations that the contractors/professional advisers owed their direct client. Collateral warranties in favour of purchasers, end-users, funders, guarantors, and tenants have been a feature of the construction industry for many years. Their usage came to prominence following the seminal decision in the case of Murphy v Brentwood District Council where the House of Lords held that, in the absence of a contractual duty of care, there was no general duty of care in tort not to cause ‘pure economic’ loss (namely, a loss arising from damage to the building or structure itself as a consequence of defective design or manufacture, as opposed to damage caused to something other than the building itself ). For a lengthier exposition on this see paras 26.16 and 26.26 below.