A "Parasitic" Problem: Are Collateral Warranties Construction Contracts?

• Published date: 04 October 2021
• Subject Matter: Real Estate and Construction, Construction & Planning
• Law Firm: Gatehouse Chambers
• Author: Ms Sally Wollaston

We examine how Toppan Holdings and Abbey Healthcare v Simply Construct has helped clarify when collateral warranties will be considered construction contracts for the purpose of adjudication.

Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC)

The Technology and Construction Court's recent decision in Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP provides guidance on whether collateral warranties will be considered "construction contracts" for the purpose of Section 104 of the Housing Grants, Construction and Regeneration Act 1996 (the "Construction Act 1996").

The case has supplied judicial direction on an area of construction law which has not had the benefit of a High Court judgement since Parkwood Leisure v Laing O'Rourke Wales and West Ltd [2013] EWHC 2665 (TCC). The judgement of Martin Bowdery QC (sitting as a deputy High Court Judge) demonstrates that the wording and the timing of execution of a collateral warranty are the two key factors in determining whether they will be construction contracts, and consequently subject to adjudication.

The Facts and Issues

Simply Construct Ltd ("Simply") had designed and built a care home in Mill Hill for their original employers, Sapphire Building Services. After practical completion in October 2016, a dispute over defects and sums due led the parties to enter into a settlement agreement, which did not settle claims for latent defects.

Sapphire Building Services then novated all its rights and obligations to Toppan Holdings Ltd ("Toppan"), who granted a lease to a firm under the same ownership, Abbey Healthcare Ltd ("Abbey"), to occupy the care home. In 2018, fire safety defects were discovered which Simply failed to rectify, so Toppan engaged another contractor to complete the works in 2019.

In October 2020, four years after practical completion, a collateral warranty was executed between Simply, Abbey, and Toppan (the "Abbey Collateral Warranty") in accordance with the original Building Contract. Adjudication proceedings later began between Abbey and Simply over a loss of trading profits sustained while remedying the fire safety defects. When Simply did not comply with the Adjudicator's decisions, Toppan and Abbey sought to enforce them. Consequently, Simply resisted enforcement and argued that the adjudicator had lacked jurisdiction, on the grounds that the Abbey Collateral Warranty was not a construction contract.

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