A recent case in the TCC concerning collateral warranties (Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP1 ) has received a lot of coverage. In this post we explain what it's about and why it's relevant in five bullet points.
- Under a JCT D&B 2011 (with amendments) Simply Construct were appointed to build a care home. The works were completed in 2016. Included in the D&B contract was an obligation on Simply Construct to provide Toppan and any tenant with collateral warranties on notification.
- In 2018 Toppan, now the owner of the care home, discovered fire safety defects in the walls. Simply Construct were instructed to rectify the defects but Toppan had to engage a third party contractor to carry out the remedial works.
- It wasn’t until 2020 that Toppan asked Simply Construct for a collateral warranty in favour of Abbey (the tenant under a long lease). In the warranty Simply Construct warranted inter alia that it has performed and will continue to perform diligently its obligations under the D&B contract.
- Following adjudication proceedings in Toppan and Abbey's favour, Simply Construct resisted enforcement and sought a stay of execution. In respect of the Abbey collateral warranty, Simply Construct resisted on the basis that the adjudicator did not have jurisdiction to decide the dispute because the Abbey collateral warranty was not a "construction contract" for the purposes of Section 104 of the Housing Grants, Construction and Regeneration Act 1996 (the "Act").
- The TCC judge agreed with Simply Construct. He said "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 and there will be no right to adjudicate". Therefore, in order to pursue Simply Construct, Abbey would need to start fresh proceedings in court.
Closing Comment: Parties to construction disputes tend to prefer adjudication because it is quicker and cheaper than going to court. If warranty beneficiaries want to ensure they have such a right, they need to be careful as to how they draft the terms of their warranties and when they enter into them. To be 100% certain, they may want to consider drafting a contractual entitlement to adjudicate into their warranties, as relying on the statutory entitlement under the Act may not be enough.
-  EWHC 2110 (TCC)