New Court Ruling Permits Adjudication Claims under a Collateral Warranty

For decades, contractors and consultants have been giving collateral warranties to relevant third parties on UK construction projects. However, in a recent unexpected development, in the case of Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited, Mr. Justice Akenhead has ruled that a collateral warranty may constitute a “construction contract” under the Housing Grants Construction and Regeneration Act 1996 (“the Construction Act”) and, as a result, the beneficiary may be entitled to bring adjudication claims under the collateral warranty.

The Decision -

Mr. Justice Akenhead concluded that the collateral warranty in question was “a construction contract for the carrying out of construction operations by others” within the meaning of the Construction Act. He reasoned that the Construction Act was widely drafted and that there was nothing to suggest that collateral warranties should be excluded. In considering the wording of the collateral warranty, he placed importance on the direct link between the collateral warranty and the underlying contract and, crucially, the fact that there were on-going obligations for the contractor to undertake future works. The Judge took care to emphasize that not all collateral warranties will be construed as construction contracts under the Construction Act; it will depend on the particular wording and interpretation of the collateral warranty in question. In particular, it appears that a strong indicator will be whether the contractor/consultant undertakes to carry out future works (as opposed to warranting only that past works/services have been carried out in accordance with the underlying contract/appointment).

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