27/06/2022
Following the decision in the case of Toppan/Abbey v Simply Construct in 2021[1], the High Court decided that the wording of the collateral warranty and the fact that the collateral warranty was executed 4 years after practical completion and 8 months after another contractor had remedied the defects indicated that the collateral warranty was not for the “the carrying out of construction operations” pursuant section 104(1) of the Housing Grants, Construction and Regeneration Act Construction Act (“the Construction Act”) because the construction operations had already been carried out. For more information regarding the First Instance decision and the background facts, please see the following link: Is a Collateral Warranty a Construction Contract? | Bevan Brittan LLP
The decision in Toppan/Abbey v Simply Construct was appealed and summary judgment was handed down in June 2022 by the Court of Appeal[2] (“COA”). The COA held by a majority that the collateral warranty in this case was a construction contract and crucially, that the period between the actual works being carried out and the date of execution of the collateral warranty should not matter. Lord Justice Coulson gave two reasons for the timing of the collateral warranty deed being executed being immaterial to its enforceability.
Appeal
At appeal, the COA ruled that Toppan’s award should stand, and that Abbey had the right to adjudicate as the Abbey Warranty was a construction contract and not ‘akin to a product warranty’. It follows that the adjudicator’s decision was enforceable and Toppan should be awarded £908,000 as per the result of the adjudication proceedings.
Lord Justice Coulson held that the period between practical completion of the works and the execution of the collateral warranty ‘should not matter’ for two key reasons.
Firstly, the wording of the collateral warranty exhibited an express intention to be retrospective in nature, similar to the warranty in Swansea Stadium.[3] In Swansea Stadium, the date of execution was irrelevant as the warranty was retrospective, to secure previous and continuing works. The principal distinction between the facts of Swansea Stadium and Toppan/Abbey v Simply Construct, was that the warranty in Toppan/Abbey was executed after practical completion. LJ Coulson held that this distinction was immaterial as both warranties confirmed a guarantee as to the high-quality standard of past and future works on the project.[4] Hence, even if defects arose at practical completion before the execution of the collateral warranty, there remained a cause of action for the Claimant. Coulson also identified that there was nothing regarding the timing of execution that is relevant to the definition under section 104(1) of the Construction Act.
Secondly, LJ Coulson held that the date of execution of the collateral warranty should not matter as if it had, the judgment would be inconsistent with statutory construction. There would be a high level of uncertainty for employers and contractors if collateral warranties only covered future or current works, as the purpose of the warranty was to secure a guarantee for works that had been completed.[5] Moreover, if the precedent was set, then subcontractors would be free to escape liability by waiting to execute the collateral warranty after the subcontracted works had been completed.
Therefore, the date upon which the collateral warranty was executed cannot and should not be determinative of the contract’s validity.
Commentary
The COA’s decision ought to inspire certainty for employers and contractors that (a) a collateral warranty stands as an enforceable construction contract (irrespective of when it is signed and its specific wording), (b) the quality of past works will be secured against the collateral warranty, and (c) the process of adjudication is available for disputed breaches of the collateral warranty.
Point (c) is significant for employers and contractors as adjudication is the main process of recourse in the event of a dispute in construction. The certainty that adjudication is available is sure to inspire confidence.
It is also noteworthy that the COA made their decision based on a majority decision but Lord Justice Stuart-Smith’s judgment actually dismissed this appeal, so it will be interesting to see if there is further development and whether this case is appealed to the Supreme Court.
[1] Toppan Holdings Limited & Abbey Healthcare (Mill Hill) Limited vs Simply Construct (UK) LLP [2021] EWHC 2110 (TCC)
[2] Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2022] EWCA Civ 823
[3] Swansea Stadium Management Company Ltd. v City & County of Swansea & Anr. [2018] EWHC 2192 (TCC)
[4] At [71] and [72]
[5] At [75]
