{"id":900369,"date":"2022-09-15T14:44:12","date_gmt":"2022-09-15T20:44:12","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900369"},"modified":"2022-09-15T14:44:17","modified_gmt":"2022-09-15T20:44:17","slug":"collateral-warranty-construction-contract","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/collateral-warranty-construction-contract\/","title":{"rendered":"When is a Collateral Warranty a &#8220;Construction Contract&#8221;"},"content":{"rendered":"\n<p>Kevin Greene adn Ruth Chang | <a href=\"https:\/\/www.klconstructionlawblog.com\/2022\/09\/when-is-a-collateral-warranty-a-construction-contract\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">K&amp;L Construction Law Blog<\/a><\/p>\n\n\n\n<p><em><u>Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP&nbsp;<\/u><\/em>[2022] EWCA Civ 823<\/p>\n\n\n\n<p>The Court of Appeal in this case considered when a <a href=\"https:\/\/www.myconstructionexpert.com\/blog\/risk-transfer-in-construction\/\" target=\"_blank\" rel=\"noreferrer noopener\">collateral warranty<\/a> will be regarded as a \u201cconstruction contract\u201d under the Housing Grants, Construction and Regeneration Act 1996 (the \u201c<strong>Construction Act<\/strong>\u201d).\u00a0<\/p>\n\n\n\n<p>The key take away points are as follows:<\/p>\n\n\n\n<p><strong>1.&nbsp;<\/strong>&nbsp;In deciding whether a collateral warranty is deemed to be a \u201cconstruction contract\u201d, one has to look at the obligations being warranted.&nbsp; If a collateral warranty seeks to guarantee obligations in relation to \u201c<em>past and static state of affairs<\/em>\u201d only, it is more akin to a product guarantee and will not be construed as a \u201cconstruction contract\u201d.<\/p>\n\n\n\n<p>To provide guidance on this, the Court provided an example of such \u201cproduct guarantee\u201d wording:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><em>\u201cWe completed these works two years ago and we warrant that they were completed in all respects in accordance with the Building Regulations<\/em><em>\u2026\u201d<\/em>&nbsp;&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><strong>2.<\/strong>&nbsp;&nbsp;To qualify as a \u201cconstruction contract\u201d, the collateral warranty will have to warrant&nbsp;<em><u>both<\/u><\/em>&nbsp;past and future performances.<\/p>\n\n\n\n<p>In this instance, the collateral warranty in the&nbsp;<em><u>Abbey Healthcare&nbsp;<\/u><\/em>case relates to both future-looking and retrospective obligations (i.e. wording of \u201c<em>has performed and will continue to perform<\/em>\u201d is included); hence the collateral warranty could be construed as a \u201cconstruction contract\u201d.&nbsp;<\/p>\n\n\n\n<p>In deciding this, the Court also commented that the lack of certain words (for example, \u201c<em>acknowledge<\/em>\u201d or \u201c<em>undertake<\/em>\u201d) in the relevant warranty, had little relevance in swaying the Court in finding whether the collateral warranty was a \u201cconstruction contract\u201d, or not.<\/p>\n\n\n\n<p><strong>3.<\/strong>&nbsp;&nbsp;In regards to the \u201cpayment requirement\u201d under the Construction Act, the Court made it clear that a collateral warranty is likely to satisfy the payment requirements under the Construction Act where the collateral warranty includes a nominal payment arrangement.<\/p>\n\n\n\n<p>&nbsp;A typical example of a nominal payment arrangement in a collateral warranty will be the inclusion of the wording \u201c<em>\u201cin consideration of the payment of one pound, receipt of which is hereby acknowledged by [the party]\u2026the deed is agreed as follows:\u201d<\/em><\/p>\n\n\n\n<p><strong>4.<\/strong>&nbsp;&nbsp;Assuming that the collateral warranty fulfils the above requirements, it is immaterial as to when it has been executed.&nbsp;&nbsp; The collateral warranty can even post-date the completion of the works.<\/p>\n\n\n\n<p><strong>5.&nbsp;<\/strong>&nbsp;The Court of Appeal also emphasised that the definition of \u201cconstruction contract\u201d under the Construction Act should be given the widest interpretation whenever possible and it is the intention of the legislature to extend access to the adjudication regime to all, whenever possible.&nbsp; The adjudication regime is very effective in resolving construction disputes (in particular payment disputes) and the 28 days timeframe has proven to be beneficial to the parties on many occasions.&nbsp;<\/p>\n\n\n\n<p><strong>Commentary<\/strong><\/p>\n\n\n\n<p>The Court of Appeal has refused permission to appeal the judgment in&nbsp;<em><u>Abbey Healthcare<\/u><\/em>&nbsp;to the Supreme Court.<\/p>\n\n\n\n<p>It seems, therefore, that a collateral warranty can be a \u201cconstruction contract\u201d for the purposes of the Construction Act. This will, however, always depend on the wording of the collateral warranty in question.<\/p>\n\n\n\n<p>This case arguably opens up the possibility of adjudication claims in respect of collateral warranties. For beneficiaries of collateral warranties (such as tenants, funders, purchasers and developers) this represents positive news but the effect of the judgment in terms of those providing collateral warranties to such beneficiaries may be that third party rights are offered instead of collateral warranties (on the basis that adjudication may not be available under such third party rights). \u00a0<\/p>\n\n\n\n<hr class=\"wp-block-separator\"\/>\n\n\n\n<p><strong>When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes &#8211; please call Advise &amp; Consult, Inc. at 888.684.8305, or email <a href=\"mailto:experts@adviseandconsult.net\" target=\"_blank\" rel=\"noreferrer noopener\">experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Kevin Greene adn Ruth Chang | K&amp;L Construction Law Blog Abbey Healthcare (Mill Hill) Limited v Simply Construct (UK) LLP&nbsp;[2022] EWCA Civ 823 The Court of Appeal in this case considered when a collateral warranty will be regarded as a \u201cconstruction contract\u201d under the Housing Grants, Construction and Regeneration Act 1996 (the \u201cConstruction Act\u201d).\u00a0 The&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/collateral-warranty-construction-contract\/\">Continue reading <span class=\"screen-reader-text\">When is a Collateral Warranty a &#8220;Construction Contract&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,480,224],"class_list":["post-900369","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-collateral-warranties","tag-construction-contract","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>When is a Collateral Warranty a &quot;Construction Contract&quot; 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