Chapter 15 Collateral warranties

The so-called rule of ‘privity of contract’ prevents third parties relying on contracts to which they are not a party. Whilst, the Contracts (Rights of Third Parties) Act, 1999, has sought to circumvent this rule, many agreements expressly exclude the Act and collateral warranties continue to be commonly used. A collateral warranty is entered into between two parties which would not normally have a direct primary contractual relationship. The benefit of a collateral warranty is freely assignable without the consent of the other party, but it is typical that the person giving the warranty will seek to limit the number of assignments or insist on prior written consent. A question is often asked whether a dispute under or in connection with a collateral warranty can give rise to statutory adjudication under the Housing Grants, Construction and Regeneration Act, 1996 – it appears that adjudicators and many in the industry consider that this Act does not apply to a typical collateral warranty because it is not a contract ‘for’ the carrying out of construction operations.