A collateral warranty can be a “construction contract” for the purposes of adjudication

The Court of Appeal in England has issued a judgment confirming that a collateral warranty can be a construction contract within the meaning of s.104(1) of the Housing Grants (Construction & Regeneration) Act 1996 (the HGCRA). This means that the fast-track adjudication process can be used to resolve disputes under a collateral warranty.

The Court of Appeal decision overturns the Technology and Construction Court’s (TCC) ruling in this case, clarifying the position and broadening out the use of adjudication to collateral warranty disputes, even where the warranty has been signed several years after completion of the works.

Background

The parties in this case had been to adjudication to resolve a dispute about fire protection in a care home. The parties’ contractual relationship was regulated by a collateral warranty. Nearly £1m was awarded to the claimant but the respondent refused to pay. The claimant argued, at enforcement proceedings in the TCC, that the adjudicator did not have jurisdiction on the grounds that the warranty was not a “construction contract” for the “carrying out of construction operations” under the HGCRA because it had been executed years after the construction operations had been completed.

The TCC concluded that the warranty was not a construction contract because the works had already been completed and latent defects had even been remedied by other contractors so there was no contemplation of further construction work being carried out.

Appeal decision

The Court of Appeal reviewed the one previous decision on this point, Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd [2013] EWHC 2665 (TCC).

In that case Akenhead J found that the collateral warranty was a construction contract for the purposes of the HGCRA. This was on the basis that “the carrying out of construction operations” is a broad expression.

Although not all collateral warranties will be construction contracts, where a collateral warranty includes an obligation to do something, not only a guarantee for a past state of affairs, that will point to it being a construction contract.

The Court of Appeal endorsed Akenhead J’s approach in Parkwood. In this case the warranty said that the respondent “will continue to perform diligently its obligations under the contract” so was not entirely retrospective. The fact that it was signed after completion of the works did not change its interpretation.

Our specialist construction and engineering team has a wealth of adjudication experience and can advise on disputes arising under all types of construction contracts.

Access the judgment: https://www.bailii.org/ew/cases/EWCA/Civ/2022/823.html