The Supreme Court has today, handed down its judgment in the much-anticipated case of Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct UK LLP) which will have a significant impact on dispute resolution in the construction industry. 

The case considered whether a collateral warranty was a construction contract for the purposes of The Housing Grants, Construction and Regeneration Act 1996 (the HGCRA) and therefore, whether the beneficiary was able to bring a claim via adjudication, rather than through the courts.

Under the HGCRA, parties to a "construction contract" are able to refer disputes to adjudication at any time.

The HCGRA sets out a definition of what will be deemed to be a "construction contract" at s.104 to 106. In essence, a "construction contract" is one which involves "construction operations" (as defined at s.105(1) of HGCRA).

In the first instance decision, the Technology and Construction Court held (among other things) that a collateral warranty will not be a "construction contract" if the works have been completed at the time the parties enter into the collateral warranty. The court considered that the party providing the warranty was simply warranting it had carried out the past works to the quality expected under the original contract. Therefore, the collateral warranty was not a construction contract and the beneficiary had no right to adjudicate. 

Abbey subsequently appealed this decision and was successful. The Court of Appeal decided that a collateral warranty could be a construction contract and accordingly, parties had the right to adjudicate.  

In December 2022, permission was granted for an appeal to the Supreme Court. Today, the Supreme Court has handed down its judgment, allowing the appeal. 

The Supreme Court held: 

1. A collateral warranty will be an agreement “for … the carrying out of construction operations” if it is an agreement by which the contractor undertakes a contractual obligation to the beneficiary to carry out construction operations which is separate and distinct from the contractor’s obligation to do so under the building contract; and 
2.  A collateral warranty where the contractor is merely warranting its performance of obligations owed to the employer under the building contract, will not be an agreement “for” the carrying out of construction operations.

The decision has provided much needed clarity on the limits of statutory adjudication rights under the HGCRA. It is now clear that most parties to a collateral warranty will not have the right to adjudicate disputes, unless there is an express right included in the drafting.