Notary Public & Construction, Commercial and Contentious Probate Litigation Associate Solicitor
𝐇𝐨𝐭 𝐨𝐟𝐟 𝐭𝐡𝐞 𝐩𝐫𝐞𝐬𝐬 – 𝐈𝐬 𝐚 𝐂𝐨𝐥𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐖𝐚𝐫𝐫𝐚𝐧𝐭𝐲 𝐚 𝐂𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧 𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭? 𝐓𝐡𝐞 𝐒𝐮𝐩𝐫𝐞𝐦𝐞 𝐂𝐨𝐮𝐫𝐭 𝐡𝐚𝐬 𝐫𝐞𝐥𝐞𝐚𝐬𝐞𝐝 𝐢𝐭𝐬 𝐝𝐞𝐜𝐢𝐬𝐢𝐨𝐧! Those of you who attended the Dutton Gregory Solicitors Property Professionals Breakfast Briefing in April this year may recall me discussing the Court of Appeal’s decision in 𝘈𝘣𝘣𝘦𝘺 𝘏𝘦𝘢𝘭𝘵𝘩𝘤𝘢𝘳𝘦 𝘷 𝘚𝘪𝘮𝘱𝘭𝘺 (2022) that the collateral warranty (in that case) was held to be a construction contract (within the meaning of section 104(1)(a) Housing Grants (Construction & Regeneration) Act 1996 (“the 1996 Act”)) which meant, in summary, that adjudication was a valid process to resolve the dispute relating to the collateral warranty. That decision was appealed to the Supreme Court and the hearing took place at the end of April this year. The Supreme Court released their decision this week. It is a landmark ruling and a significant development for the construction industry because it resolves the uncertainty concerning the interpretation, and applicability, of statutory adjudication provisions to collateral warranties. The Supreme Court has 𝐨𝐯𝐞𝐫𝐭𝐮𝐫𝐧𝐞𝐝 the decision of the Court of Appeal and 𝐡𝐞𝐥𝐝 𝐭𝐡𝐚𝐭 𝐭𝐡𝐞 𝐜𝐨𝐥𝐥𝐚𝐭𝐞𝐫𝐚𝐥 𝐰𝐚𝐫𝐫𝐚𝐧𝐭𝐲 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐜𝐚𝐬𝐞 𝐰𝐚𝐬 𝐧𝐨𝐭 𝐚 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭. The Supreme Court’s reasoning is that the promise under the warranty was a ‘derivative promise’ i.e. Simply was only promising to Abbey what it had already promised to the employer under the building contract. Simply’s promise to Abbey gave rise to no separate construction operation. This means that to answer the question of 𝘸𝘩𝘦𝘵𝘩𝘦𝘳 𝘢 𝘤𝘰𝘭𝘭𝘢𝘵𝘦𝘳𝘢𝘭 𝘸𝘢𝘳𝘳𝘢𝘯𝘵𝘺 𝘪𝘴 𝘢 𝘤𝘰𝘯𝘴𝘵𝘳𝘶𝘤𝘵𝘪𝘰𝘯 𝘤𝘰𝘯𝘵𝘳𝘢𝘤𝘵 you will need to look at whether the collateral warranty merely replicates undertakings given in the building contract (in which case, it is not a construction contract) or whether the collateral warranty gives rise to separate and distinct undertakings for the carrying out of construction operations (in which case, it is likely to be a construction contract). If the collateral warranty is not a construction contract then the statutory regime of adjudication will not apply to disputes relating to the collateral warranties. 𝐖𝐡𝐚𝐭 𝐝𝐨𝐞𝐬 𝐭𝐡𝐞 𝐒𝐮𝐩𝐫𝐞𝐦𝐞 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐝𝐞𝐜𝐢𝐬𝐢𝐨𝐧 𝐦𝐞𝐚𝐧 𝐢𝐧 𝐩𝐫𝐚𝐜𝐭𝐢𝐜𝐞? The majority of collateral warranties (which tend to be documents where the contractor merely warrants performance of its obligations under the building contract) will 𝐧𝐨𝐭 be construction contracts so the statutory scheme of adjudication will 𝐧𝐨𝐭 apply. The position is likely to be the same with respect to other ancillary documents such as parent company guarantees. #construction #law #collateralwarranty #supremecourt
Jayna Patel
5mo
Interesting - no quick and fast option. Perhaps we'll see more engagement in the ADR process? What do you think Alice Grace Toop?
Managing Partner at Dutton Gregory Solicitors helping to find improbable solutions to seemingly impossible problems
5moGood insight Alice - thanks for sharing