Legal development

Abbey Healthcare v Simply Construct

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    Last year we reported on a case in the TCC that considered whether a collateral warranty was a construction contract in accordance with s.104(1) of the Housing Grants (Construction and Regeneration Act) Act 1996 (the "Act"). You can find our summary here.

    At first instance, the court found that Abbey's collateral warranty was not a construction contract. The judge concluded that 'where the works have already been completed, and as in this case even latent defects have been remedied by other contractors, a construction contract is unlikely to arise'. Abbey appealed the decision, and the Court of Appeal handed down its decision on 21 June 2022.1

    Here, we summarise the Court of Appeal's judgment in five points:

    • The Court of Appeal overturned the TCC's analysis of section 104(1) of the Act in favour of a broader interpretation. It held that the term "construction contract" does not only cover primary building contracts but is also capable of including subsidiary agreements, including collateral warranties.
    • In his leading judgment, Coulson LJ pointed out that s.104 was intended to cast the net of the Act as widely as possible.
    • Whether a particular collateral warranty is a "construction contract" will depend on what has been warranted. Affirming the judgment in Parkwood Leisure v Laing O'Rourke2, Coulson LJ emphasised that a warranty will have to relate to both past and future performance, in order to qualify. A warranty that only relates to a "past and static state of affairs" will be insufficient.
    • Provided the warranty has both retrospective and future effect, the date of execution is irrelevant, no matter if it post-dates completion of the works.
    • As the collateral warranty provided by Simply Construct to Abbey was both retrospective and future-facing ("has performed and will continue to perform"), the warranty constituted a "construction contract".

    Closing Comment: The Court of Appeal's judgment has underlined the importance placed on maintaining the widest possible interpretation of the Act, as well as safeguarding access to the adjudication procedure provided by the Act. As Coulson LJ observed, adjudication remains a "popular and cost-effective dispute resolution process" and therefore clarity as to when it is available under the Act is crucial. This decision provides that clarity for the beneficiaries of collateral warranties.

    Authors: Sadia McEvoy, Matthew Bool and Ben Patton

    1. Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP [2022] EWCA Civ 823
    2. [2013] EWHC 2665 (TCC)
    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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