BRACHER RAWLINS | Collateral Warranties

Background

There has been a lot of online chat in the last few weeks as to whether a collateral warranty can be a construction contract and as such can be the subject of an adjudication.

This chat has followed the decision the Court of Appeal in the case of Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP which was handed down on 21 June 2022.

The case overturned an earlier decision of the Technology & Construction Court and at first blush seems to be nothing more than a restatement of existing law. But is it?

The Facts

Pursuant to the Housing Grants Construction Regeneration Act 1996 either party to a construction contract (other than a contract for the construction of residential premises) may refer a dispute to adjudication.

In this case, Simply had contracted to build a care home in 2015. The works were complete in 2016 but Simply only provided a collateral warranty to Abbey, the tenant in 2020.

Shortly after, Abbey commenced an adjudication with respect to defective workmanship. Simply took a point on jurisdiction, contending that a collateral warranty cannot be a construction contract.

The Adjudicator disagreed. He considered that he had jurisdiction and proceeded to find against Simply for a sum in excess of £900k. Simply Construct did not pay and this led to Abbey seeking to enforce payment of the Adjudicator’s award at Court.

The Judge at first instance (who is a senior and respected construction barrister) recognised that a collateral warranty can be a construction contract following the 2013 case of Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd in which the Court found that a collateral warranty can be a construction contract.

However, he distinguished the case of Abbey from the earlier case of Parkwood in that the collateral warranty in Abbey was executed after the construction works had been completed, and that the warranty in Abbey was a warranty for past performance and not a warranty relating to future or live construction works.

Therefore, the warranty was not a contract for construct works, adjudication was not applicable and in conclusion the Adjudicator had no jurisdiction and the award was unenforceable.

The Court of Appeal

£900k is a lot of money so Abbey took this to the Court of Appeal. The Court, comprised of three of the leading construction judges, asked itself three questions:

Can a collateral warranty be a construction contract such that adjudication applies?
If so, was the collateral warranty given by Simply such a construction contract?
Did the date of the collateral warranty have any effect?

The Court of Appeal, unsurprisingly, followed Parkwood and found, as the Judge at first instances had, that a collateral warranty could be a construction contract and the warranty in this case was a construction contract.

The issue then was whether the date of the warranty had any effect. The argument deployed by Abbey was that the works which were the subject of the warranty had already been undertaken, therefore the warranty could not be a construction contract.

On the face of it this seems a reasonable statement. However Coulson LJ, in the leading judgment disagreed. Although the collateral warranty had been executed after the works had been completed, it was retrospective in that it warranted the standard of work undertaken and also the standard of any future work.

Therefore the warranty was a construction contract, the Adjudicator had jurisdiction and is award was to be enforced

Conclusions

On reflection, there seems to be no new law made by this case. Collateral Warranties can be construction documents and adjudication may apply. But we knew this in 2013.

So what have we learnt? In simple terms, if a warranty references past and future work, that is what it means. Read the document and apply the obvious and straightforward interpretation.

The hidden message is that the Courts will continue to fully support the statutory adjudication process and arguments defeating jurisdiction are unlikely to succeed. In other words there is nothing to see; just move on.

Lewis Cohen
8 August 2022

If you have any Construction related enquiries, please contact us as follows:

Lewis Cohen	lewis.cohen@bracherrawlins.co.uk	020 7400 1547
Simon Rawlins	simon.rawlins@bracherrawlins.co.uk	020 7400 1539

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.