Construction Act does apply to Collateral Warranties !

There had been doubts as to whether claims under collateral warranties were claims under “construction contracts” such as to fall within Part II of the Housing Grants Construction and Regeneration Act 1996 (“HGCRA”). The point being that such claims are susceptible to being determined by adjudication as provided for under the HGCRA.

In Parkwood Leisure Limited – v- Laing O’Rourke West and Wales Limited (2013) the claimant was the tenant of a new property and had been provided with a collateral warranty by its Landlord’s contractor Laing.

The High Court found that the introduction to the warranty referred to the underlying construction contract (between the Landlord and Laing) as being “for the design, carrying out and completion of the construction of a pool development”. As such there [could] be little or no dispute that the Contract was a construction contract for the purposes of the HGCRA”. Furthermore that wording was replicated in Clause 1 of the Collateral Warranty which related expressly to carrying out and completing the Works.

The Court was impressed that Laing had undertaken to Parkwood “that, in the execution and completion of the Works, it [would] comply with that underlying contract.” Most obviously the warranty obligated Laing to Parkwood in relation to:
– the quality and completeness of the Works,
– compliance with the Contract specifications and drawings,
– compliance with any relevant legislation and
– compliance with the Employer’s Requirements and Contractor’s Proposals.

It did not follow from the above that all collateral warranties given in connection with all construction developments will be construction contracts under HGCRA.

You need to decide on the wording and the circumstances of each such warranty to see whether:

– it is a construction contract for the carrying out of construction operations. A major indicator will be whether or not the Contractor is undertaking to the beneficiary of the warranty to carry out such operations.

– Conversely if all the works are completed and the Contractor is simply warranting that previous works have attained a certain level, quality or standard that will be factor strongly militating against the Warranty being a Construction Contract under the Act. However the fact that all the works had been completed would not necessarily be the deciding factor against it being a “construction contract”.

Accordingly the Court ruled that the warranty was a “construction contract” so as to entitle Parkwood to seek adjudication under HGCRA

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