Whether procuring the construction of a newbuild logistics development or the refurbishment of an existing industrial property, ensuring a comprehensive suite of collateral warranties are in place will give multiple layers of protection and the ability to bring claims against parties involved in the design and construction of a development. But what is the appropriate forum for bringing those claims? Is a claimant required to sue through the Courts, or is the quicker and possibly cheaper route of adjudication open to a party who is suing under a collateral warranty?
The High Court has previously decided that collateral warranties are not construction contracts, meaning that there would be no associated recourse to statutory adjudication for disputes under collateral warranties. However, In the case of Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2022], the Court of Appeal has overturned this decision by finding that collateral warranties can in fact be construction contracts, and disputes under collateral warranties may therefore be capable of being referred for resolution via adjudication.
Here are the points to consider when assessing if a collateral warranty is a construction contract:
- Is the warranty in respect of ongoing obligations, or in respect of a past static state of affairs. Key wording to look out for is any wording similar to "performed and will continue to perform diligently its obligations under the contract".
- Detailed payment obligations are not required, payment of a single amount (even a nominal sum) is sufficient to comply with the Construction Act.
- The date of the warranty does not matter, it is the contents that is important. A delay between completion of the works and the execution of the warranty does not have an impact.
Permission for an appeal to the Supreme Court has been granted in this case, and so a further update on the status of collateral warranties as construction contracts may be required in the near future. In the meantime, careful and specific drafting of collateral warranties can give certainty on this and other issues.
