Harrison Drury has won a landmark case at the High Court that is likely to have significant repercussions for the UK construction sector.
The firm represented Parkwood Leisure Ltd in a claim against construction giant Laing O’Rourke which was heard in the Technology and Construction Court on 23 August 2013.
Parkwood Leisure Ltd is responsible for operating and managing Cardiff International Pool. The facility was designed and built by Laing O’Rourke. While Parkwood was not a party to the main construction contract, it has the benefit of a collateral warranty from Laing O’Rourke in respect of the design and building works.
It was previously the position 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.
However, this case has confirmed that in certain circumstances a collateral warranty can fall within the definition of a “construction contract” for the purposes of s104 of the Housing, Grants, Construction and Regeneration Act 1996. The effect of this is that statutory adjudication is now potentially available for resolving warranty claims as an alternative to formal court proceedings.
Colin Fenny, associate solicitor at Harrison Drury, who represented Parkwood Leisure, said: “The decision will have serious implications for the construction industry because it extends the use of the adjudication procedure in principle to parties that are not directly involved in the underlying construction project where they have the benefit of an appropriately worded warranty from the contractor.
“Adjudication presents a much speedier and cheaper option for claimants to seek remedy for construction disputes compared to formal court proceedings, and while only certain warranties will fall within the scope of this decision, it could lead to an increased use of this procedure for the resolution of warranty claims at least in relation to existing warranties. It could significantly speed up the resolution of disputes to the benefit of the construction industry generally in delivering buildings without costly delays and disputes as the economy picks up.”
“In the longer term I expect that the decision is also inevitably going to lead to a greater reluctance on contractors to provide collateral warranties to third parties in the future, or at least limit the scope and extent of any warranties they are prepared to give.”
Earlier this year, Parkwood Leisure Limited intimated a claim to Laing O”Rourke under its collateral warranty. The claim related to alleged defects in the system which controls air quality at the facility. Laing O’Rourke denied any liability and rejected Parkwood’s proposal that the parties voluntarily refer the claim to adjudication for resolution on the basis that the adjudication procedure was not available for collateral warranty claims.
To avoid any subsequent issues arising over whether an adjudicator had the jurisdiction to determine a collateral warranty claim, Parkwood sought a declaration in the Technology and Construction Court that the collateral warranty was a “construction contract” and therefore satisfied the qualifying requirements for the statutory adjudication procedure.
In his judgement handed down last week, Mr Justice Akenhead ruled that where a collateral warranty was “for…the carrying out of construction operations” it could be construed as a “construction contract” and therefore be subject to statutory adjudication.
On the terms of the collateral warranty in question, Mr Justice Akenhead had “no doubt” that it was “for…the carrying out of construction operations” and should therefore be treated as a construction contract. In arriving at this conclusion, the judge made the following observations:
- A contract entered into after the construction works are completed is not necessarily a bar to the contract being a construction contract.
- The words adopted by parliament in drafting the legislation are purposefully wide and should be interpreted as so.
- The specific words used by the parties in the collateral warranty, and in particular clause 1, where Laing O’Rourke “..warrants, acknowledges and undertakes…” placed an obligation on Laing O’Rourke “to do something”. That obligation was to carry out the construction works.
The ruling means that Parkwood Leisure Ltd can now refer its warranty claim in respect of the air quality system to adjudication for determination. Harrison Drury will continue to represent the firm in this process.