The Supreme Court to consider whether a collateral warranty is a construction contract
6 January 2023
Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) Ltd
In this ongoing battle as to whether a collateral warranty constitutes a construction contract; the defendant, Simply Construct (UK) Ltd (“Simply Construct”), now has leave to appeal to the Supreme Court. At first instance, it was held by the Technology and Construction Court (TCC) that a collateral warranty was not a construction contract and so the adjudicator had no jurisdiction and therefore his decision could not be enforced. This decision was subsequently overturned by the Court of Appeal. However, it will now be for the Supreme Court to make a final ruling which, depending on the decision, could have wide reaching implications for the industry.
We covered this case when it first went to trial in the TCC at the end of July 2021, in an article titled: ‘Collateral warranties – to be, or not to be, a construction contract?’
Since that first instance decision, the claimant, Abbey Healthcare (Mill Hill) Ltd (“Abbey”), took the matter to the Court of Appeal and won, with only one judge dissenting. It was held that the collateral warranty they had with the contractor, Simply Construct (UK) Ltd, did amount to a construction contract and therefore Abbey was entitled to refer the dispute to adjudication, meaning that the adjudicator did have jurisdiction to consider the dispute which arose between the parties. His decision could therefore be enforced.
The Court of Appeal reached that decision based on the following:
- Where a collateral warranty is given in relation to future works (regardless of whether those works have, in reality, already been completed), it is a construction contract.
- It is not relevant when the warranty is executed, only the wording of it.
However, Simply Construct has now been granted permission to appeal the decision again to the Supreme Court. It is not yet clear when the appeal will be heard, but we will be sure to update you when the decision is out.
The leading case on this point was previously Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd  EWHC 2665 (TCC). In that case it was held that collateral warranties can be construction contracts but only where they include future works. The Court of Appeal decision in this case has pushed that further, given that now even if there are no future works to be completed, but the warranty refers to future works – or ongoing construction obligations, the warranty is considered a ‘construction contract’ and consequently the parties will benefit from adjudication as a means of dispute resolution.
It will be interesting to see how the Supreme Court approaches this case, and if it affirms the Court of Appeal’s ruling. Until then, more careful drafting will be required to ensure the parties’ preferences as to whether or not adjudication should apply is unequivocally reflected in the wording of any collateral warranty which they enter into.
The Birketts View
There is no final ruling on this case as yet. Our hope is that in reaching its decision, the Supreme Court will clarify the status of collateral warranties as construction contracts in general. If it does, this will not only help parties deal with similar disputes in future, but also help avoid those disputes as parties will then (hopefully!) know the legal implications of their specific collateral warranty at the time of signing it.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2023.