Can a Collateral Warranty Itself be a ‘Construction Contract’?

Posted: 2nd September 2013

In the context of a contract to develop a public swimming pool, the High Court has given useful guidance on the circumstances in which a collateral warranty can itself amount to a construction contract within the meaning of the Housing Grants, Construction and Generation Act 1996 (the Act).

The company that operated the pool under an agreement with the local authority had sued the company that built it for in excess of £300,000 in damages, alleging a number of construction and commissioning defects, relating in particular to air handling units which were said to be unfit for purpose.

A preliminary issue arose as to whether a deed, whereby the contractors gave certain warranties, acknowledgements and undertakings in respect of their performance of the contract, could be viewed as a construction contract for the carrying on of construction operations under the Act.

Ruling in favour of the operators on that issue, the Court found that the references to ‘contract’ within the Act must refer to any contract concluded under English law whether formed in writing, orally, under seal or otherwise. The warranty explicitly referred to the carrying out and completion of the development and included undertakings that the work would be performed with reasonable care and skill.

On a correct interpretation of the warranty, the Court found that it was intended to have contractual effect by the parties and therefore gave rise to the ordinary contractual remedies. Amongst other things, the Court’s decision opened the way for the operators to submit the contractual dispute to adjudication.