A landmark Supreme Court ruling has reshaped the legal landscape concerning collateral warranties.
- The court decreed that most collateral warranties are not construction contracts.
- This decision prevents adjudication in cases like Abbey Healthcare vs Simply Construct.
- The ruling sets a new precedent, overruling previous judgements.
- Implications include potential increased reliance on litigation or arbitration.
The Supreme Court has made a pivotal decision affecting the realm of collateral warranties within construction law. On July 8th, a unanimous verdict from five judges determined that most collateral warranties cannot be classified as construction contracts, thereby exempting them from adjudication processes. This decision came about through the high-profile case involving Abbey Healthcare and Simply Construct.
Abbey Healthcare, the tenant of a care home in London, could not legally enforce an adjudication against Simply Construct due to the nature of their agreement. The agreement, a collateral warranty, was deemed not a construction contract since it did not entail any new instruction for building works beyond the original contract’s terms. This prevented Simply Construct from being held accountable through adjudication for alleged building defects.
This ruling marks a departure from the legal understanding since 2013 when collateral warranties were considered as construction contracts. Tim Seal, from Ridgemont law firm, noted that while parties can expressly include a right to adjudicate within such warranties, they are generally not entitled to it by default. This has significant implications, particularly for third parties seeking redress for construction defects through collateral warranties.
Historically, the adjudication was a preferred route for quickly resolving disputes. However, with this judgement, third parties might need to turn more towards litigation or arbitration, both of which are noted for being more time-consuming and costly.
The Supreme Court’s decision also overruled the precedent set by the Parkwood Leisure Centre v Laing O’Rourke case of 2013, which had erroneously categorised similar warranties as construction contracts. This brings about substantial legal clarity and realigns the understanding of collateral warranties for the future.
The Supreme Court’s decisive ruling fundamentally alters the legal approach to collateral warranties, emphasizing contractual clarity.
