Comparison of collateral warranty and indemnity in construction contract

Abstract

Construction contract is where people in a construction project are connected. Chain of numerous contractual relationship usually brings benefit to the parties to the main contract. The people who are at the extended position of the contractual chain usually face a hard time if any unfortunate events occurs in the construction project. These people are usually known as third parties. As a general rule, the third parties are not entitled to claim anything if unfortunate event occurs as they are not the parties to the main contract. This is where the concept of collateral warranty and contract of indemnity comes in. The terms collateral warranty and indemnity are used commonly to protect the right of the third parties. These two terms are used interchangeably in contracts. However, the confusion between the terms had resulted harm to third parties as it actually differs between one and another. The judgment of the lower court in the case of MCST Plan No 1933 v Liang Huat Aluminium Ltd[2001] 3 SLR 253 is a prove that confusion of indemnity and collateral warranty clause can result to the loss of the rights of the third parties. Therefore, this research is conducted in order to protect third party’s rights. This research objective is to identify the difference of the terms of collateral warranty and indemnity. Result from the analysis, the terms of indemnity and collateral warranty indeed differs based on the interpretation of the elements that are used to establish them. Finally the result also shows that the terms of collateral warranty and indemnity do not only enables the third party to sue but also be sued.