Racing the Clock: Time Bar and Protective Actions

Racing the Clock: Time Bar and Protective Actions
Collateral warranties have long stood as a cornerstone in construction law in Scotland, governing the relationships between contractors, design consultants, funders, purchasers, and tenants. Recent decisions of Scotland’s highest courts have brought about substantial and impactful developments to the legal landscape surrounding these agreements. Of particular significance to practitioners are developments in the law on time bars, prescription periods, and the range of defences now available under collateral warranties. These changes reshape how these documents are reviewed and enforced.

Two cases in particular have significantly altered the landscape for collateral warranties in recent years:

1. Legal & General v Halliday Fraser Munro (HFM) [2025] CSIH 24 (Union Plaza, Aberdeen), now a leading Scottish authority on the issue of prescription in relation to collateral warranties; and
2. Engine Yard Edinburgh Ltd & Allenbuild Ltd v Bayne Stevenson Associates Ltd which confirmed that the right to demand a collateral warranty may itself be time barred

Both of these cases have generated important insights, shaping the future enforcement of collateral warranty agreements in Scotland, with substantial commercial implications for developers, contractors, consultants, funders, and property purchasers.

1. Legal & General Assurance v Halliday Fraser Munro: a major shift in warranty defences:

In the landmark decision of Legal & General Assurance (Pensions Management) Ltd v Halliday Fraser Munro [2025] CSIH 24, the Inner House of the Court of Session made a significant change to the interpretation of collateral warranties. The court ruled that defences available under the main construction contract do not automatically flow through to collateral warranties, such as time bar arising from the prescriptive process. It had previously been assumed that any defences available under the primary contract would automatically flow through to collateral warranties.

The court clarified that the availability of such defences depends on the explicit wording of the collateral warranty itself, rather than the terms of the underlying contract. This decision marks a notable shift from the long-held industry assumption, reinforcing the need for careful and clear drafting in collateral warranties to determine the scope of defences, if any, that may be relied upon.

In this case, Halliday Fraser Munro (“HFM”) had provided a warranty to Legal & General (“L&G”), but the warranty did not specifically include defences from the original professional appointment. As a result, HFM was unable to invoke defences such as time bars or other limitations available under the main contract. This decision contrasts with British Overseas Bank v Stewart Milne Group [2019] CSIH 47, where the warranty explicitly included equivalent rights in defence as the main contract, enabling the defending party to rely on similar time bars and limitations.

Another key aspect of the Legal & General case was confirmation that a collateral warranty triggers a fresh five-year prescriptive period under the Prescription and Limitation (Scotland) Act 1973, which starts from the date the warranty is granted, not from the date of practical completion of the works.
Under section 6 of the Act, the prescriptive period usually begins when the wrongful act and resulting loss occur, typically coinciding with practical completion. Historically, collateral warranties were seen as secondary obligations tied to the main contract, subject to the same prescription period. However, in this case, L&G successfully argued that the 2014 warranty created a new obligation, giving rise to a new prescriptive period of five years.

To view the full judgment please click here

2.Engine Yard Edinburgh Ltd & Allenbuild Ltd v Bayne Stevenson Associates Ltd [2024] CSOH 13: time limits for demanding a warranty

Allenbuild Limited (the “Contractor”) was the design-and-build contractor for the Engine Yard development in Edinburgh, with Engine Yard Edinburgh Limited (the “Employer”) as the contracting employer. The Contractor appointed Bayne Stevenson Associates (the “Engineer”) as the structural engineer under a bespoke letter of appointment dated 14 April and 22 May 2017. Clause 6.1 of the appointment required the Engineer to provide collateral warranty agreements upon written request.

On 25 August 2022, the Contractor requested a collateral warranty from the Engineer following discovery of defects believed to be caused by the Engineer. When the Engineer did not provide the warranty, both the Contractor and Employer raised an action seeking damages for remedial works.

The Engineer argued that the right to request the warranty had expired due to prescription, as no claim had been made within five years of the Appointment’s execution. The Contractor countered that the obligation to provide the warranty began only upon the written request. The Employer further argued that they had acquired third-party rights under the doctrine of ius quaesitum tertio to claim the warranty directly.

The court ruled that the Contractor had no right to demand the warranty, as the obligation had prescribed. The court held that the five-year prescription period began upon the execution of the Appointment. The clause requiring the warranty to be provided within seven days of a request was seen as a performance condition, not a starting point for the obligation’s enforceability. The Employer’s claim of third-party rights was rejected, as the Appointment explicitly provided for a warranty to be given to the Employer, and other contracts on the project excluded third-party rights. Notably, the Contract (Third Party Rights) (Scotland) Act 2017 did not apply, as the appointment pre-dated its commencement.

To view the full judgment please click here.

Commercial Impact
These cases highlight the essential importance for precision in drafting construction documentation, particularly in relation to the timing of obligations and enforceability of collateral warranty agreements. Construction industry professionals must proactively consider the impact of prescription, third-party rights, and liability for defects, ensuring that contracts and insurance policies align with evolving legal standards.

These cases demonstrate how legal nuances, such as prescription and third-party rights, can affect the enforceability of claims. Both cases emphasise the importance of addressing professional liability for defects and remediation responsibilities. They illustrate that parties entering into warranty agreements must clearly define their respective obligations to minimise disputes and effectively manage risk, particularly with regard to long-term liability and prescription.

The HFM ruling confirms that a collateral warranty granted after the completion of a project can be used as the basis for a claim, even where the defects predate the warranty. This ruling is significant because it treats the warranty as a fresh promise, including as to past performance. Whilst this decision strengthens the position of beneficiaries by affording greater protection and enabling claims to be pursued well after the project’s handover, it significantly extends potential exposure to parties granting collateral warranties who may now face claims many years following the completion of the project.

Collateral warranties should never be treated as mere formalities or afterthoughts. They are essential documents that lay out the crucial obligations, rights, and risks associated with a project. Parties involved in warranty agreements should seek specialist legal advice when reviewing, revising, and negotiating these documents. Properly drafted collateral warranties can help manage long-term risks, protect beneficiaries, and clarify the extent of liabilities post-completion.

Finally, with this extended liability window, the HFM ruling could prompt a reassessment of professional indemnity insurance and the risk profiles for construction projects. Warranty-driven claims may now arise much later than originally anticipated, which could impact the way insurers approach coverage for future projects. In response, it is essential that collateral warranties include reciprocal rights in defence provisions. These provisions will help ensure that all parties involved in the construction process are properly protected.

This briefing note does not constitute legal advice: individuals should seek professional advice, specific to their own circumstances, in relation to any matters raised.