Beneficiaries be warned when dealing with Deeds of Collateral Warranty

A popular form of agreement on a construction project is the Deed of Collateral Warranty which is required for the benefit of most Funders, Owners and Tenants.

In view of a recent High Court decision, beneficiaries of such Deeds should be wary when receiving documents which they would ordinarily consider as complete, and therefore reliable, should a claim be made.  

The case  

In the case of Bibby Financial Services Ltd and others v Magson and others, which reflects what often happens in practice, the High Court had to determine whether guarantees and warranties in the form of deeds had been delivered by individuals. The individuals had signed the deeds, their signatures had been witnessed and the deeds handed to the other side. The individuals then contended that they had signed as a gesture of good faith, expecting, in the light of discussions at the time of signature, that clean versions incorporating their manuscript notations would be produced and versions in those revised forms would be signed afresh. 

The ruling

Based on the facts the court held that none of the warranties were intended to be delivered, in the technical sense, when handed to the other side after signature. In order that a document can be enforceable as a deed, it must be delivered as a deed. Critically the person who had signed the deed had separately indicated that he intended to be bound by the deed. However, mere signature was not enough and neither was it sufficient that what looked like a deed had been given to the person who appeared to be the beneficiary. The issue was not whether the document had been delivered or physically handed over to the beneficiary, rather the issue was whether the person providing the deed intended to be bound by it. The Court held that neither individual was bound by the warranty due to the absence of intention. 

Lessons learnt

The case illustrates the dangers of signing a document while it is an un-finalised draft form and highlights the importance of careful document drafting.

Specialist advice

For further details or advice regarding Deeds of Collateral Warranty please contact construction specialist Catherine Kay on 0161 234 8861 or send an email.