When Is A Collateral Warranty A "Construction Contract"?

• Published date: 05 August 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
• Law Firm: Gowling WLG
• Author: Mr Ashley Pigott and Cathy Moore

Back in 2013, the Technology and Construction Court (TCC) decision in Parkwood Leisure Limited v Laing O'Rourke Wales and West Limited [2013] caused quite a lot of murmuring in the ranks when the TCC held that the parties' collateral warranty was a "construction contract" for the purposes of the Housing Grants, Construction and Regeneration Act 1996, as amended (the Construction Act).

Fast forward some eight years and we have the first reported case to cite the Parkwood decision. We review the judgment in Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] and what it means for parties agreeing collateral warranties.

Background

• In 2015, Simply were engaged by a third party to design and construct a care home in Mill Hill that was in due course occupied and operated by Abbey The contract was an amended form of JCT Design and Build Contract 2011 with June 2015 updates (the Building Contract).
• Practical completion was certified in October 2016.
• In 2017, by a novation agreement, the third party transferred all its rights and obligations under the building contract to Toppan, the owner of the care home.
• In mid-2018, fire safety defects were discovered in the care home. In January 2019, Simply was notified of these defects, which were subsequently rectified by another company.
• In 2020, the parties executed the collateral warranty whereby Simply warranted to Abbey that it had performed and would continue to perform its obligations under the Building Contract (the Abbey Collateral Warranty).
• Adjudications followed, including a claim by Abbey against Simply under the Abbey Collateral Warranty for loss of trading profits, and a claim by Toppan against Simply under the Building Contract arising out of the remedial works. Abbey and Toppan succeeded in the adjudications and were awarded approximately '908,000 and '1 million respectively by the (same) adjudicator - Simply did not pay.
• These TCC proceedings were commenced in order to enforce the two adjudication decisions against Simply.

Various matters were in issue in the proceedings. We concentrate here on the arguments between Abbey and Simply relating to the Abbey Collateral Warranty and whether or not it comprises a "construction contract" under the Construction Act. If the Abbey Collateral Warranty is not a construction contract, then the adjudicator did not have jurisdiction to decide this dispute and the award will not be enforceable.

The Construction Act

Section 104(1)...