In a recent TCC decision in the case (1) Toppan Holdings Limited and (2) Abbey Healthcare (Mill Hill) Limited against Simply Construct (UK) LLP Deputy Judge Martin Bowdery QC found that a Collateral Warranty was not a Construction Contract for the purposes of s104 of the Housing Grants, Construction and Regeneration Act 1996 (the "Construction Act").
Background
Sapphire Building Services Limited entered into a building contract with Simply Construct (UK) LLP ("Simply") on 29 June 2015 for the design and construction of Aarondale Manor Care Home (the "Care Home"). Practical Completion was achieved on 10 October 2016.
Thereafter, the building contract was novated to Toppan Holdings Limited ("Toppan") on 14 June 2017 as owner, who in turn granted a lease in favour of the occupational tenant and operator of the Care Home, Abbey Healthcare (Mill Hill) Limited ("Abbey") on 12 August 2017.
Fire safety defects were discovered at the Care Home in August 2017. In September 2019, Toppan engaged alternative contractors to carry out the remedial works that Simply had failed to carry out. These works were completed in February 2020. Shortly after that Toppan raised proceedings for specific performance of the obligation under the building contract for Simply to execute a collateral warranty in favour of Abbey. In the event, the collateral warranty was signed by Simply in September 2020 in terms of which it warranted, amongst other things, that it has performed and will continue to perform diligently its obligations under the building contract.
Thereafter, separate notices of adjudications were served by Toppan and Abbey in respect of their losses under the Contract. Simply took a jurisdictional challenge in the referral by Abbey on the grounds that Abbey had no right to refer the dispute to adjudication, as the collateral warranty was not a Construction Contract under s104 of the Construction Act.
TCC Decision
In finding that the collateral warranty in favour of Abbey could not be treated as a construction contract for the purposes of the Construction Act, the Deputy Judge relied on Mr Justice Akenhead's comment in Parkwood v Laing O'Rourke, in which he said:
"A pointer against [a collateral warranty being a Construction Contract] may be that all the works were completed, and that the contractor is simply warrantying a past state of affairs as reaching a certain level, quality or standard."
The collateral warranty here had been executed some 4 years after the works had been completed and some 8 months after the remedial works had been carried out. Even though the warranty referred to both past and future performance, the Deputy Judge found that in circumstances where the works had been completed (and latent defects having been made good) before the collateral warranty had been granted, it would be unlikely that the collateral warranty could be construed as an agreement for “the carrying out of construction operations”.
Practical Considerations
The emphasis placed by the TCC on the timing of execution of a collateral warranty introduces an unfortunate element of uncertainty for parties. Timing of execution can be influenced by any number of factors, where the beneficiary of a warranty may not be known for some time or even where a contractor may delay execution until after the works are complete.
Parties should therefore, if possible, and as a matter of good practice, look to have warranties executed at the earliest opportunity. Consideration could also be given to making express provision in a collateral warranty for a right to adjudicate (if that was appropriate for the particular circumstances) in order to avoid the issues which arose in this case.
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