The Court of Appeal has finally concluded that a collateral warranty can be a construction contract under section 104(1), Construction Act 1996. 

Uncertainty over collateral warranties

From the enactment of the Housing Grants, Construction and Regeneration Act 1996 back in 1998, there has been uncertainty as to whether collateral warranties are construction contracts and, therefore, within the scope of the Act. If they are, the effect is that disputes under collateral warranties can be referred to adjudication rather than having to be referred to the courts.

The position following the decision in Parkwood Leisure Ltd v Laing O'Rourke Wales and West Ltd [2013] EWHC 2665 (TCC) was that a collateral warranty can be a construction contract depending upon the wording, but there was still doubt as to the position in relation to collateral warranties signed after completion of the works.

In this case, Coulson LJ Interpreted the phrase "an agreement for the carrying out of construction operations" in section 104(1) broadly, finding it goes beyond traditional building contracts and includes agreements "related to" construction operations (section 104(5)). He rejected the submission that a construction contract has to include detailed payment provisions, finding that a nominal payment provision would comply with section 109.

He endorsed Akenhead J's judgment in Parkwood, confirming that it depends on the wording and held that because the collateral warranty included a promise as to the standard of past work and for future work to the same standard, its date of execution was irrelevant. Any other conclusion would make for considerable uncertainty and could mean that parties are reluctant to sign collateral warranties until after completion.

The effect of this is to resolve the uncertainty around the timing of a collateral warranty by concluding that all collateral warranties can be construction contracts regardless of whether they were provided before or after the completion of the works.

Here to help

At Myerson, our Construction Team offers advice on all aspects of contentious and non-contentious issues. If you have any questions or would like more information regarding collateral warranties and construction contracts, you can contact our Specialist Construction Solicitors below.