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

A collateral warranty is a construction contract under section 104(1) of the Housing Grants, Construction and Regeneration Act 1996 only where the contractor undertakes a separate and distinct obligation to the beneficiary to carry out construction operations.

A promise that merely mirrors the contractor’s obligations to an employer under a building contract does not qualify. Its object is to provide the beneficiary with a remedy for defective performance, rather than to give rise to construction operations. Such a warranty therefore carries no statutory right to adjudication, although the parties may agree one expressly.

A contractor designed and built a care home under a building contract. After completion of the original and remedial works, it executed a collateral warranty in favour of the tenant. The warranty promised that the contractor had performed and would continue to perform its obligations under the building contract.

The tenant referred a defects claim to adjudication. The Technology and Construction Court declined to enforce the resulting award because the warranty was not a construction contract: [2021] EWHC 2110 (TCC). The Court of Appeal allowed the tenant’s appeal by a majority: [2022] EWCA Civ 823.

The Supreme Court had to decide whether the warranty was an agreement “for … the carrying out of construction operations” under section 104(1) of the Housing Grants, Construction and Regeneration Act 1996.

1. The appeal was allowed unanimously. Lord Hamblen gave the judgment, with which Lord Briggs, Lady Rose, Lord Richards and Lady Simler agreed. The collateral warranty was not a construction contract under section 104(1) of the Housing Grants, Construction and Regeneration Act 1996. The adjudicator therefore lacked jurisdiction in the tenant’s dispute.

2. The word “for” in section 104(1) indicates the object or purpose of the agreement. The provision should be construed by the ordinary process of statutory interpretation, without adopting a predisposition towards either a broad or a narrow meaning. Section 104(5), which addresses hybrid contracts, does not enlarge section 104(1). Nor do the practical advantages of adjudication justify extending the statutory regime beyond the boundaries chosen by Parliament.

3. A collateral warranty ordinarily provides a beneficiary with a contractual remedy for defective construction work. A warranty which merely promises that the contractor will perform obligations already owed to an employer does not itself give rise to construction operations. It is derivative of the building contract and gives the beneficiary no control over the performance of the works.

4. A collateral warranty falls within section 104(1) only if the contractor undertakes to the beneficiary an obligation to carry out construction operations which is separate and distinct from its obligation under the building contract. The distinction is between such an independent undertaking and a promise which merely replicates obligations owed to the employer.

5. The words “has performed and will continue to perform” in the warranty were a promise covering past and future performance. They nevertheless did no more than mirror the contractor’s existing building-contract obligations. Their prospective form was necessary because the standard warranty had to operate whenever it was executed. They did not create a distinct obligation to carry out construction operations for the tenant.

6. Most collateral warranties will consequently fall outside the mandatory adjudication regime. That conclusion is supported by the general inapplicability to such warranties of the payment provisions in sections 109 to 113. Parties remain free to confer a contractual right to adjudication.

7. Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd [2013] EWHC 2665 (TCC) could not satisfactorily be distinguished. Its conclusion rested on a substantively equivalent promise and was wrong for the same reasons as the Court of Appeal majority’s decision. It was overruled.

1. United Kingdom Supreme Court: The contractor’s appeal was allowed unanimously. The collateral warranty was not a construction contract, and the adjudicator lacked jurisdiction: [2024] UKSC 23.

2. Court of Appeal: The tenant’s appeal was allowed by a majority comprising Peter Jackson and Coulson LJJ; Stuart-Smith LJ dissented: [2022] EWCA Civ 823.

3. Technology and Construction Court: The tenant’s summary judgment application was dismissed because the warranty was not a construction contract and the adjudicator lacked jurisdiction: [2021] EWHC 2110 (TCC).