A collateral warranty will not be a construction contract within the Housing Grants, Construction and Regeneration Act 1996 with an entitlement to refer disputes to adjudication if it is merely derivative and reflective of obligations owed under the building contract.
The Supreme Court has allowed the contractor’s appeal in Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2024] UKSC 23; [2024] PLSCS 127.
The appellant, Simply, was the contractor under a JCT Design and Build Contract 2011 by which it was engaged to design and build a 65-bedroom care home in Mill Hill, London. The works were completed in October 2016 and in June 2017 the JCT contract was novated to Toppan Holdings Ltd, the substitute employer, which granted a 21-year lease of the property to the respondent, Abbey.
In August 2018, Toppan discovered alleged fire safety defects at the property. Simply was notified and asked to rectify them, which it did not do. Toppan engaged a third-party contractor to conduct the remedial works, paid for by Abbey on behalf of Toppan. Simply provided a collateral warranty to Toppan and Abbey in September 2020.
Toppan and Abbey made claims against Simply arising out of the fire safety defects. They referred the disputes to adjudication, claiming sums in excess of £8.8m and £5.5m respectively, and succeeded on liability. When Simply failed to pay the sums due, they sought summary judgment. Toppan’s application succeeded. Abbey’s failed because the warranty was not a construction contract within section 104 of the 1996 Act, which provides that a construction contract means an agreement with a person… for the carrying out of construction operations. Abbey successfully appealed to the Court of Appeal and Simply appealed to the Supreme Court.
Unanimously allowing the appeal, the Supreme Court found that the purpose of a collateral warranty is usually to afford a right of action in respect of defectively carried out construction works and not the carrying out of construction works themselves. It is the building contract which gives rise to the carrying out of such operations. So a collateral warranty is not an agreement “for” the carrying out of construction operations if it merely promises to perform obligations owed to someone else under the building contract. A separate obligation to the beneficiary is required.
While under the collateral warranty Simply promised to Abbey that it “has performed and will continue to perform” its obligations under the building contract, this was an entirely derivative promise. Simply was not promising anything not already promised under the JCT contract.
Louise Clark is a property law consultant and mediator
