Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP)

The Supreme Court considered whether a collateral warranty can be a "construction contract" within section 104(1) of the Housing Grants, Construction and Regeneration Act 1996 and therefore subject to the statutory right to adjudication. The court held that a collateral warranty is a construction contract only if it contains a contractual obligation by the contractor to the beneficiary to carry out construction operations which is separate and distinct from the contractor's obligations under the primary building contract. The decision overruled Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd [2013] EWHC 2665 (TCC) to the extent it treated typical collateral warranties as falling within section 104(1). The appeal was allowed because the Abbey collateral warranty merely promised performance of obligations owed to the employer and did not impose a distinct obligation to carry out construction operations for the beneficiary.

Background and parties:

• The appellant (contractor) was Augusta 2008 LLP (formerly Simply Construct (UK) LLP) and the respondent (beneficiary) was Abbey Healthcare (Mill Hill) Ltd, tenant of a care home built under a JCT Design and Build Contract dated 29 June 2015 between the contractor and the original employer, Sapphire Building Services Ltd, later novated to Toppan Holdings Ltd.
• Toppan discovered alleged fire-safety defects after completion; remedial works were carried out by a third party and Abbey paid for them on Toppan's behalf. After litigation and negotiation Toppan required Simply to execute a collateral warranty in favour of Abbey, executed in 2020.

Procedural posture and relief sought:

• Toppan and Abbey each referred disputes about defects to adjudication; the Adjudicator gave decisions in their favour. Toppan obtained summary judgment in the TCC to enforce its decision but Abbey did not; the TCC dismissed enforcement of the Abbey decision on the basis that the collateral warranty was not a "construction contract" for the purposes of the 1996 Act. The Court of Appeal allowed Abbey's appeal by a majority. The Supreme Court granted permission to appeal on the question whether the collateral warranty was a construction contract. The immediate relief originally sought in the courts was enforcement of adjudicators' decisions by summary judgment.

Issues framed:

• Statutory interpretation: the meaning of an agreement "for … the carrying out of construction operations" in section 104(1) of the 1996 Act.
• Contractual interpretation: whether, properly construed, the Abbey collateral warranty fell within that statutory description.

Court’s reasoning and subsidiary findings:

• The court rejected the view that the term "for" in section 104(1) should be read broadly as "in respect of"; instead it requires that the purpose or object of the agreement be the carrying out of construction operations, identified by primary obligations undertaken by the parties.
• The majority in the Court of Appeal and Akenhead J in Parkwood were wrong to treat a collateral warranty which merely promises that the contractor will perform obligations owed under the building contract as itself creating a contract "for" the carrying out of construction operations.
• The correct and practical test is whether the collateral warranty imposes a separate and distinct obligation on the contractor to carry out construction operations for the beneficiary; where it merely replicates or mirrors obligations owed to the employer it will not fall within section 104(1).
• The Court therefore overruled Parkwood to the extent it took a contrary approach and concluded that most collateral warranties will not be construction contracts; parties remain free to contract into adjudication if they so wish.

Outcome: the appeal was allowed and the enforcement of the Abbey adjudicator's decision failed because the collateral warranty did not constitute a construction contract under section 104(1).

Appeal allowed. The Supreme Court held that a collateral warranty is a "construction contract" under section 104(1) of the Housing Grants, Construction and Regeneration Act 1996 only where it imposes a contractual obligation on the contractor to carry out construction operations for the beneficiary that is separate and distinct from the contractor’s obligations under the primary building contract. A warranty that merely promises performance of obligations owed to the employer does not suffice. The Court overruled the reasoning in Parkwood to the contrary and allowed the appeal for that reason.

First instance: Technology and Construction Court, judgment of Mr Martin Bowdery QC [2021] EWHC 2110 (TCC) (summary judgment: Toppan awarded; Abbey refused enforcement). Court of Appeal: Abbey's appeal allowed by majority, reported [2022] EWCA Civ 823. Supreme Court: appeal from [2022] EWCA Civ 823; judgment [2024] UKSC 23.