We examine how
The Technology and Construction Court's recent decision in
The case has supplied judicial direction on an area of construction law which has not had the benefit of a
The Facts and Issues
In
Collateral Warranties and the Law
In order to be referred to adjudication under Section 108 Construction Act 1996, the Abbey Collateral Warranty had to be a construction contract for the purposes of Section 104(1)(a) of the Construction Act 1996. Section 104(1)(a) states that a construction contract is a contract for "the carrying out of construction operations".
The question of whether collateral warranties could ever fall within this definition had previously been answered by Akenhead J in
The Decision
In
The judge recounted the reasoning in Parkwood Leisure, quoting from Akenhead J's judgement: "One needs primarily to determine in the light of the wording and of the relevant factual background each such warranty to see whether, property construed, it is such a construction contract for the carrying out of construction operations... A pointer against may be that all the works are completed and that the Contractor is simply warranting a past state of affairs as reaching a certain level, quality or standard." He also relayed Akenhead J's statement in Parkwood Leisure that the expression "for... the carrying out of construction operations", as found in Section 104 of the Construction Act, was intended by
The judge in the present case also noted that Lord
Consequently, the judge considered the Abbey Collateral Warranty in the light of its wording, as suggested by Akenhead J. He observed that the phrase "warrants, acknowledges and undertakes", present in the Parkwood Leisure warranty, was not present in the Abbey Collateral Warranty. Instead, Simply had warranted that it 'has performed and will continue to perform diligently its obligations under the Contract'. Although the judge accepted that this referred to both a past state of affairs and future performance, he quickly indicated that, regardless of the wording, the timing of the warranty's execution was problematic.
The judge then noted that the Abbey Collateral Warranty between Abbey and Simply was executed four years after practical completion, and eight months after the remedial works had been completed. He proposed that "where a contractor agrees to carry out uncompleted works in the future that will be a very strong pointer that the collateral warranty is a construction contract and the parties will have a right to adjudicate... where the works have already been completed, and as in this case even latent defects have been remedied by other contractors, a construction contract is unlikely to arise and there will be no right to adjudicate."
The judge stated that he could not see how a collateral warranty which was executed years after Practical Completion, and months after the works were remedied, could be viewed as an agreement for carrying out construction operations. He pointed out that there was no evidence that Abbey or Simply contemplated any construction operations actually being carried out as a result of the warranty. Consequently, he found that the Abbey Collateral Warranty was not a construction contract for the purposes of the Act. Therefore, there was no right to adjudicate and the adjudicator had indeed lacked jurisdiction.
Commentary: The Importance of Wording and Timing
The judgement in
Parties executing collateral warranties may thus wish to consider the stage which their construction works have reached, in order to assess the impact which future construction works could have on their right to adjudication. Furthermore, warrantors may want to examine whether their warranty's wording refers to both a past state of affairs and future performance, to avoid being ambushed by later adjudication proceedings. Conversely, if parties are especially desirous of a right to adjudicate, they could expressly include provision for adjudication in the collateral warranty itself.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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