Are collateral warranties also “construction contracts”? Court of Appeal to consider

Recently, in the case of Toppan Holdings Ltd V Simply Construct (UK) LLP, the High Court provided further guidance on when a collateral warranty can be a construed as construction contract within the meaning of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Construction Act”).

The Court ruled that the terms and time of execution of a collateral warranty were relevant in determining whether the warranty was a “construction contract” and whether statutory adjudication rights would apply to it.

On 15 November 2021, the Court of Appeal allowed an application to appeal this decision. The Court’s consideration of this issue will be welcomed by the UK construction sector which relies heavily on utilising collateral warranties.

We commented on the Toppan decision in the article Collateral Warranties – Are they also a ‘Construction Contract’?. There, we noted the court’s decision that timing and wording are key and should be considered when deciding whether a collateral warranty is a construction contract.

Subject to the terms of the collateral warranty, if the works are not complete at the point of executing the warranty, this can be a good indicator that the contractor gives a warranty in respect of uncompleted works in the future and therefore falls under “construction operations” such that the warranty is a “construction contract” as defined by the Construction Act.

In 2013, Parkwood Leisure Ltd v Laing O'Rourke held that collateral warranties could constitute a “construction contract” under the Construction Act 1996. Many considered that this decision turned on its facts and the construction industry largely continued with its use of collateral warranties with little regard for the Parkwood decision.

However, the Toppan decision has put this issue into the spotlight again.

No doubt the Court of Appeal has identified that the issue is of public interest and sufficient importance to warrant further consideration. We look forward to further guidance from the courts on this issue in 2022.