Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd

A collateral warranty may constitute a construction contract under Part II of the Housing Grants, Construction and Regeneration Act 1996. The question is determined primarily by construing the particular agreement and its factual context. A retrospective agreement can qualify. The decisive consideration is whether the contractor undertakes to the beneficiary to carry out or complete construction operations. A warranty confined to a past state of affairs may point against that conclusion, but it is not necessary for the agreement to be wholly prospective. Where the warranty contains an undertaking to complete the works, together with contractual remedies for non-completion or defective performance, it may fall within the statutory definition and confer a right to adjudicate.

Parkwood occupied and operated a swimming and leisure facility constructed by Laing O'Rourke Wales and West Ltd under a building contract with the owner. Before practical completion, the contractor executed a collateral warranty in favour of Parkwood. Disputes later arose concerning alleged defects in air-handling units. Parkwood commenced Part 8 proceedings seeking declarations on two issues: whether the collateral warranty was a construction contract for Part II of the Housing Grants, Construction and Regeneration Act 1996, and whether later claims concerning the air-handling units had been compromised by a settlement agreement.

The court determined the statutory issue and made declarations concerning the settlement agreement in wording agreed by counsel.

1. Construction contract. The collateral warranty was a construction contract for the purposes of Part II of the Housing Grants, Construction and Regeneration Act 1996. Section 104 requires attention to the agreement made between the relevant parties. Ordinary contractual interpretation principles determine whether it is an agreement for carrying out, arranging, or providing labour for construction operations.
2. The statutory expression is broad. A construction contract may be retrospective. It need not be wholly or partly prospective, since parties commonly record or formalise arrangements after work has begun.
3. Not every collateral warranty connected with construction will qualify. The wording and factual background of each warranty must be examined. A strong pointer is an undertaking by the contractor to the beneficiary to carry out or complete construction operations. A possible contrary pointer is that the works are complete and the warranty merely confirms a past state of affairs.
4. Here, the recital and clause 1 referred to the design, carrying out and completion of the works. The contractor warranted, acknowledged and undertook that it had carried out and would carry out and complete them in accordance with the building contract. The prospective obligations, including those concerning design, materials, workmanship and compliance, were substantive contractual obligations to Parkwood.
5. The warranty also provided ordinary contractual remedies, including the reasonable cost of repair, renewal and reinstatement and further losses caused by breach. The exclusion of liability for delay did not exclude liability for non-completion or defective completion. The warranty was therefore an agreement for the carrying out of construction operations by the contractor.
6. Settlement agreement. The court considered that deciding whether particular later air-handling-unit claims fell within the settled claims would require factual analysis of the earlier complaints and the surrounding correspondence. The court was not in a position to decide that issue on the evidence. The parties agreed the wording of the relevant declarations.
7. Judgment was given for Parkwood by declaration that the collateral warranty dated 6 December 2007 was a construction contract for Part II of the Act. Declarations were also made concerning the effect of the settlement agreement in the form agreed by counsel.