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24 Cards in this Set

  • Front
  • Back

What are the three ways that benefits can be transferred under JCT contracts?

1) Collateral warranties
2) Third party rights
3) Assignment

What are collateral warranties?

Create contractual relationships between parties where there would otherwise not have been any. They are alongside another agreement


Why are they used?

Privity of contract means the rights and obligations under a contract can only be enforced by a party to that contract, therefore
collateral warranties give remedies to parties that otherwise would not have them.

Who might want a collateral warranty?

Any third party with a financial stake in a project but not party to the main contract
E.g. funding institution, house buyers
Employer may want a collateral warranty with key subbies (M&E) or suppliers, else if main contractor goes bust no contractual link for redress in case of defective workmanship etc


How are they requested?

They should be notified to the tenderers at the time of tender



Part 2 7C and D is where the number and nature of the collateral warranties should be stated

What are the common clauses / terms in collateral warranties?

Obligations should mirror main agreement - therefore a breach of the main agreement would also be in breach of the warranty
Limitation of liability
Reasonable skill and care v fitness for purpose
Requirements for PI insurance
Assignment rights
Novation rights

Name some standard forms of collateral warranty that may be used?

CWa/F – JCT standard form of collateral warranty for a funder
CWa/P&T – JCT standard form of collateral warranty for a future purchaser or tenant

How has the contract (rights of third parties) act changed the situations regarding rights under contracts?

It has significantly changed the traditional principle of privity of contract, whereby obligations can only be enforced by the parties to a contract


What contracts does the act apply to?

All contracts made after the 11 May 2000

What has been the impact of the Act?

Initially the response was suspicion – new – not much case law – not tried and tested etc
BUT JCT now includes provisions to allow third party rights to be granted
Evidence that they are starting to be used in the industry

How can third party rights be included under JCT contracts? (DOUBLE CHECK THIS DETAIL)

Fill in Part 2 of the contract particulars – sections 7A and 7B
The individual / group that has a right to enforce has to be ‘expressly’ named or described
The terms that they can enforce should also be listed
The third party identified can use any raise any defence or set off that the contracting party could

Why might third party rights be used instead of collateral warranties?

If a lot of warranties are required it involves a lot of administration and cost – easier for third party rights


What is assignment?

Where the rights and benefits of one contractual party are transferred to a third party

Can benefits be assigned under JCT contracts?

The standard position (clause 7.1) is that assignment of rights under the contract is totally excluded
BUT optional clause 7.2 enables assignment to be permitted


What is the standard commercial position regarding assignment?

It is standard to allow assignment of rights twice without consent



The assignment should be notified in writing to the other party

What is novation and how does this differ from assignment?

A new contract that transfers the rights and obligations of one contractual party to a new third party – assignment is only rights

Give a common example of assignment and novation

Assignment of the rights under a collateral warranty to a different tenant / purchaser



Novation of the design team under a design and build contract

What is the key issue after a design team has been novated?


Whether the new party has the right to take action against the novated party for breaches that occurred before novation

If the contractor took full responsibility for the design what would they want?

They would want the ability to take action against the consultants for breaches before novation

How does novation affect the employer’s rights?

They lose all contractual relations with the novated party and therefore the right to take action for a breach - it is therefore common for there to be a collateral warranty between the employer and novated party

What is a limitation clause, give some examples?

Clauses that limit a party’s liability for loss.


Eg's:
Limitation to a fixed sum
Limitation to the extent of PI insurance
Exclusion of consequential loss
Limitation to loss recoverable from a third party
Limitation to responsibility – net contribution clause

What is a net contribution clause?

Clause that limits a party’s liability to the proportion of loss that they are responsible for

How can the employer potentially lose out?

They would have to sue each contributing party separately to reclaim their total loss



If one party is insolvent they lose out on that money

What act is relevant?

Unfair Contract Terms Act 1977
This limits the extent that a party can avoid liability for breach of duty
Cannot avoid liability for death / personal injury
All other limits have to be ‘reasonable’