A Collateral Warranty Can Be A Construction Contract ' Adjudication Award Enforced

• Published date: 05 July 2022
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning, Landlord & Tenant - Leases
• Law Firm: Shepherd and Wedderburn LLP
• Author: Mr Iain Drummond

In Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP, the Court of Appeal recently determined that a collateral warranty, signed four years after completion, was a construction contract that applied retrospectively, therefore an adjudication award applied to the dispute under the warranty and was enforceable.

The court's decision provides clarity that a collateral warranty can be sufficient evidence of contractual obligations to seek enforcement of an adjudication award.

Background

On 29 June 2015 Simply Construct (UK) LLP ('Simply Construct') was contracted to construct Aarandale Manor care home, which completed in October 2016. Abbey Healthcare (Mill Hill) Ltd ('Abbey Healthcare') became the tenant in August 2017. A year later defects were discovered and Abbey Healthcare paid for 'some or all of the remedial works'.

Abbey Healthcare and Simply Construct entered into the collateral warranty in October 2020. Abbey Healthcare raised an adjudication for its losses and was successfully awarded '908,495.98. It then applied for enforcement of the award, which was refused on the basis the collateral warranty was signed years after the construction operations had completed. That decision was appealed.

At appeal

The Court considered three main issues:

1. Can a collateral warranty ever be a construction contract as defined by section 104(1) of the Housing Grants (Construction &amp Regeneration) Act 1996 ('1996 Act')?
2. If so, did the terms of this collateral warranty make it a construction contract as defined by section 104(1)?
3. Does the date on which the collateral warranty was executed make any difference?

Issue 1 - can a collateral warranty be a construction contract?

Yes. A collateral warranty, as a promise to regulate the carrying out of ongoing construction operations, can be 'a contract for the carrying out of construction operations' in line with the 1996 Act. It is not restricted to the primary construction contract. There is a necessary entitlement to payment which was present by the agreement to pay a single amount.

The 1996 Act separately provides for hybrid contracts, referring to an agreement 'related to' construction operations, demonstrating the Act is to apply 'as widely as possible'. The intention of the Act was to improve a number of factors including the resolution methods available in construction disputes, such as the efficiency of adjudications, in order to reduce cost within the industry.

A consistency of approach and outcome is needed...