Landmark judgment on collateral warranties used in new Court of Appeal case

A legal precedent established in 2013 with help from Harrison Drury’s property litigation team has been used to determine another construction dispute at the Court of Appeal.

The case has clear implications for organisations in the property and construction sector, according to partner Colin Fenny, and associate solicitor Alex Walmsley, from our property and construction litigation team.

In a judgment handed down on June 21, 2022 in the case of Abbey Healthcare (Mill Hill) Ltd v Simply Construct LLP, the appellant relied upon a judgment made in 2013 that a collateral warranty could constitute a construction contract for the purposes of applying the statutory adjudication process.

In this earlier case (Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd), Harrison Drury represented Parkwood and were successful in demonstrating that, in certain circumstances, a collateral warranty can fall within the definition of a ‘construction contract’ within the meaning of  the Housing Grants, Construction and Regeneration Act 1996 s.104(1), which was a first of its kind judgment at the time.

“We knew back in 2013 when the original judgement was made in the Parkwood Leisure case, that the decision would have serious implications for the construction industry,” comments Colin.

“It was interesting to see this latest judgment making several references to the Parkwood case in which we were involved. It lends further weight to the argument that in circumstances where there are provisions made for the carrying out, or an undertaking to carry out construction operations, collateral warranties can be construed as a construction contract.”

Prior to the 2013 judgment, the previous position was that collateral warranties did not fall within the statutory definition of construction contracts and therefore could not be adjudicated under the Housing Grants (Construction and Regeneration) Act 1996.

Alex Walmsley adds: “Essentially, the precedent established by these cases extends the use of the adjudication procedure in principle to parties that are not directly involved in the underlying construction project in circumstances where they have the benefit of an appropriately worded warranty from the contractor relating to those works, particularly when there is a warranty to remedy defective works.

“This is significant because the adjudication process presents a much speedier and cheaper option for claimants to seek remedy for construction disputes compared to formal court proceedings, and while only certain collateral warranties will fall within the scope of this decision, it could lead to an increased use of this procedure for the resolution of collateral warranty claims, at least in relation to existing warranties which include wording that a contractor will carry out remedial work in the event of discovered defects.”

If you need further information on the implications of this case, advice on your construction contracts, or support with any other construction dispute, contact Colin Fenny or Alex Walmsley at Harrison Drury on 01772 258321.