LEGAL AND GENERAL ASSURANCE (PENSIONS MANAGEMENT ) LTD AGAINST HALLIDAY FRASER MUNRO AND OTHERS

Factual and Procedural Background

This opinion concerns one of two related actions involving a multi-storey office building known as Union Plaza in The City. The building, constructed in 2008, includes basements and a superstructure, with defects alleged in the design and application of protective paint systems intended to safeguard steelwork against fire and corrosion. The current action pertains to defects in the basements, including water ingress and corrosion protection, while the companion action addresses defects in the superstructure. The Plaintiff is the second purchaser of the building, having acquired it in 2013, and bases its claims on collateral warranties assigned from the original contractor, architect, and engineer. The court considered preliminary legal pleas concerning prescription, specification, and relevancy, focusing on the relationship between collateral warranties and the underlying construction contract, particularly under the Prescription and Limitation (Scotland) Act 1973.

Legal Issues Presented

1. Whether the main contractor is entitled to the benefit of prescription arguments available had the claims been brought by the original employer.
2. Whether the Plaintiff has pled a relevant case based on section 11(3) of the Prescription and Limitation (Scotland) Act 1973.
3. Whether the Plaintiff has pled a relevant case based on section 6(4) of the Prescription and Limitation (Scotland) Act 1973.
4. Whether the Plaintiff is entitled to recover damages in relation to collateral warranties granted after the purchase of the building.
5. Whether the architect partnership is entitled to be released from liability on the basis that its liabilities have been assumed by its successor company.

Arguments of the Parties

Plaintiff's Arguments

• The main contractor's collateral warranty should be subject to the same time-bar as the original construction contract, but not limited by a "no greater duties" clause absent from their warranty.
• The Plaintiff was induced, by words and conduct of the Defenders, and their certificates of compliance, to believe that obligations had been fulfilled, delaying awareness of defects and the commencement of prescription.
• The Plaintiff contends it can sue on collateral warranties granted after the purchase date because actual reliance is not necessary to found a claim for breach of warranty.
• The Plaintiff denies consenting to any discharge of liability by the architect partnership and insists both the partnership and its successor company remain liable.
• The Plaintiff relies on sections 6(4) and 11(3) of the 1973 Act to argue that prescription should be postponed due to induced error and lack of awareness of defects.

Defenders' Arguments

• The main contractor (SMG) is entitled to the same prescription defenses as would have been available against the original employer, with prescription running from the date of practical completion.
• The Plaintiff's claims under section 11(3) of the 1973 Act are not relevant as the employer had financial loss at practical completion, and the Plaintiff has accepted it cannot maintain this argument against some Defenders.
• The Plaintiff must show specific words or conduct directed at it to rely on section 6(4) of the 1973 Act; general performance or payment claims do not constitute inducement to error.
• The warranties containing "no greater duties" clauses limit the Plaintiff's claims to those the original employer could have made, and express wording is required to incorporate statutory prescription exceptions.
• The Plaintiff cannot recover damages on collateral warranties granted after the purchase date as any loss was already sustained.
• The architect partnership's liabilities have been assumed by the successor company, and the Plaintiff's decision to sue the company implies acceptance of this transfer, justifying dismissal of claims against the partnership.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the terms of the collateral warranties and the relevant statutory prescription provisions. It held that the main contractor's warranty incorporated the same prescription defenses as were available under the original construction contract, with prescription running from practical completion. The absence of a "no greater duties" clause in the main contractor's warranty did not preclude this, as the warranty expressly linked obligations to the construction contract, reflecting the principle of equivalence.

Regarding section 11(3) of the 1973 Act, the court accepted that the Plaintiff and its predecessors lacked actual or constructive awareness of defects until specific dates supported by expert reports, thus making relevant averments for postponement of prescription. However, the argument was excluded against certain Defenders where the Plaintiff no longer pressed it.

On section 6(4), the court found that the Plaintiff had pled a relevant and sufficiently specific case that the Defenders' words and conduct induced an erroneous belief that obligations had been met, delaying the commencement of prescription. The court rejected arguments requiring that inducement be directed specifically at the Plaintiff, recognizing that prior owners' induced error was relevant. It also rejected the need for express incorporation of section 6(4) into collateral warranties, relying on the principle of equivalence to ensure claims do not fall into a "legal black hole".

The court dismissed the Defenders' arguments that the Plaintiff could not sue on collateral warranties granted post-purchase, holding that actual reliance is not necessary to found such a claim and that liability for repair costs can be pursued by the current owner.

Lastly, the court rejected the submission that the architect partnership was released from liability by the transfer of obligations to its successor company, finding that the Plaintiff had not consented to such discharge and that both entities remained liable.

The court concluded that the Plaintiff's pleadings were relevant and that the actions should proceed to proof with specified averments excluded from probation. Further procedural steps were ordered to clarify interlocutors, procedure, and expenses.

Holding and Implications

The court's final decision is to allow the actions to proceed with certain averments excluded from probation. Specifically, it sustained the main contractor's plea-in-law regarding contractual limitation equivalent to prescription, excluded the Plaintiff's statutory prescription averments against certain Defenders, and rejected arguments that the Plaintiff could not rely on collateral warranties granted after purchase or that the architect partnership was released from liability.

The implications are that the Plaintiff may pursue its claims against all Defenders, including both the architect partnership and its successor company, and that the prescription period is subject to postponement based on induced error as pled. No new precedent was established beyond the application and clarification of existing principles on collateral warranties, prescription, and induced error in this context.