No greater liability clauses in collateral warranties
No greater liability clauses in collateral warranties

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • No greater liability clauses in collateral warranties
  • Collateral warranties—general principles
  • Drafting a no greater liability clause
  • Limitations and defences—equivalent rights of defence
  • Set-off
  • Contributory negligence
  • Limitation period
  • Standard form warranties
  • Sample clauses

'No greater liability' clauses are a common feature of collateral warranties (and third party rights memoranda). Their purpose is to ensure that the warrantor does not have greater exposure under a warranty than it has under the original contract. However, the drafting of these clauses has been subject to debate and can sometimes result in unintended consequences for the parties.

Collateral warranties—general principles

It is a generally accepted commercial principle that, if a party enters into a warranty which is collateral to an underlying contract, it should not be under any obligations or duties under that warranty which are greater or of a longer duration than those under the original contract. In fact, professional indemnity insurance policies commonly exclude cover for claims under a collateral warranty which result from obligations which are more onerous than those under the original contract.

However, this general principle may not always apply, particularly where a warranty is drafted with an obligation which is different to that contained in the original contract. Clearly, care should be taken to ensure that warranties are drafted so that the terms are consistent with the original contract, but this is not always the case in practice. As a result, 'no greater liability clauses' are used to protect a warrantor from having more extensive duties and obligations than it does under