Court of Appeal finds Collateral Warranties can be a ‘Construction Contract’

The Court of Appeal has today handed down judgment in the case of Abbey Healthcare (Mill Hill) Limited and Simply Construct (UK) LLP [2022] EWCA Civ 823. The case concerned whether a collateral warranty relied on by Abbey (“Abbey Collateral Warranty”) was a ‘construction contract’ within the meaning of Section 104 (1) of the Housing Grants (Construction & Regeneration) Act 1996 (“Construction Act”).

In a majority decision (LJ Stuart-Smith giving the dissenting judgment), the Court decided that a collateral warranty could be a construction contract and therefore providing beneficiaries with a statutory right to adjudicate.

Having considered the specific wording of the Abbey Collateral Warranty (wording that is commonly seen in such warranties), the Court decided the Abbey Collateral Warranty was a construction contract and Abbey had the statutory right to bring an adjudication.

The Court of Appeal’s decision is a potential game-changer for the construction industry and will affect all parties to collateral warranties from professional consultants, contractors and sub-contractors to management companies, landlords, purchasers, tenants, and funders, as well as professional indemnity insurers. On the one hand, beneficiaries of compliant warranties have been provided with a quick and cost effective dispute resolution mechanism through adjudication. On the other hand providers of compliant warranties have just had their exposure to adjudication and potential claims increased overnight. No doubt those parties will now be reviewing their collateral warranties and assessing whether they too have a right bring or be exposed to adjudications.