On 9th July 2024, the UK Supreme Court delivered a landmark judgment in the case of Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2024] UKSC 23. The Court unanimously ruled that a collateral warranty does not fall within the definition of a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act). This decision has significant implications for the construction industry and those involved in property development.
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Collateral Warranties Explained
A collateral warranty is a legal agreement between a designer, contractor or sub-contractor and a third party (often a lender or future occupier) that provides contractual rights to that third party. The designer, contractor or sub-contractor warrants the quality and performance of its obligations for the benefit of the third party.
The Dispute and the Court of Appeal’s Decision
The case centred around a dispute between Abbey Healthcare (Mill Hill) Ltd (Abbey), the future occupier of a care home, and Simply Construct (UK) LLP (Simply Construct), the contractor. Simply Construct had executed a collateral warranty in favour of Abbey at the request of the freeholder. When fire safety defects were discovered in the care home, Abbey sought to use the adjudication provisions of the Construction Act to resolve the dispute with Simply Construct.
The Court of Appeal sided with Abbey, finding that the collateral warranty constituted a construction contract under the Act. This meant Abbey could pursue adjudication, a faster and less formal method of resolving construction disputes compared to traditional court proceedings.
The Supreme Court’s Ruling and Reasoning
The Supreme Court overturned the Court of Appeal’s decision. The Court held that the key purpose of a construction contract under the Act is the carrying out of construction operations. While a collateral warranty may offer assurances about the construction works, its primary purpose is to create a separate right of action for the beneficiary (the third party) in the event of defective work.
The Court highlighted the distinction between the main building contract, which governs the relationship between the employer and the contractor regarding the construction itself, and the collateral warranty, which provides additional benefits to a third party who is not directly involved in the construction process.
Implications of the Decision:
The Supreme Court’s judgment has several key implications:
- Limited access to adjudication: Parties seeking to enforce a collateral warranty will no longer be able to automatically rely on the adjudication provisions of the Construction Act. This means they will likely need to pursue alternative dispute resolution methods, such as mediation or litigation, which can be more time-consuming and expensive.
- Importance of clear drafting: The Court emphasized the importance of clear and concise drafting in collateral warranties. The document should explicitly state the rights and obligations of both parties, particularly regarding dispute resolution mechanisms.
- Alternative dispute resolution clauses: It is advisable to include well-defined dispute resolution clauses within collateral warranties which could include adjudication expressly and/or mediation, offering a faster and less costly approach compared to traditional litigation.
- Impact on future claims: The decision may impact ongoing disputes where parties were relying on adjudication for resolving claims under collateral warranties. It is crucial to seek legal advice to understand the specific implications for existing cases.
Blackstone Solicitors: Your Partner in Construction Law
The recent Supreme Court decision on collateral warranties highlights the evolving legal landscape within the construction industry. At Blackstone Solicitors, our team of experienced construction law specialists can provide comprehensive guidance on drafting and enforcing collateral warranties, ensuring your rights are protected throughout the development process.
We can assist you with:
- Drafting and reviewing collateral warranties to ensure clarity and alignment with your specific needs.
- Advising on alternative dispute resolution mechanisms suitable for your project.
- Representing you in negotiations and, if necessary, litigation proceedings related to collateral warranties.
In Conclusion
The Supreme Court’s ruling clarifies the legal status of collateral warranties and their relationship with the Construction Act. While parties to a collateral warranty will no longer have automatic access to adjudication, alternative dispute resolution mechanisms can still be incorporated to facilitate efficient resolution of disputes. Blackstone Solicitors remains committed to providing clients with expert legal advice and support throughout all stages of construction projects.
How we can help
We have a proven track record of helping clients deal with construction claims. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of construction law services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/construction-solicitors/
How to Contact Our Construction Solicitors
It is important for you to be well informed about the issues and possible implications of a construction claim. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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