Parkwood v Laing O’Rourke
Technology and Construction Court August 2013
It was widely thought that a collateral warranty is not a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 on the basis that it is not a contract “for the carrying out of construction operations”. It transpires that it could be.
In Parkwood Leisure v Laing O’Rourke Wales & West, Laing O’Rourke had been engaged to design and construct Cardiff International Pool. In December 2007 it executed a bespoke collateral warranty in favour of Parkwood, the operator of the facility. Practical completion was achieved later, in 2008.
Defects emerged and when a dispute followed over whether Laing was responsible for the various costs arising, Parkwood sought a declaration that the warranty was a construction contract so the matter could be taken to adjudication.
The judge agreed that it was. He put particular emphasis on the words “warrants, acknowledges and undertakes…” and said that to “undertake” is an obligation to do something – in this case to complete works in accordance with the building contract. There were also other references to works being left to complete.
The judge stressed that this did not mean that every collateral warranty will be a construction contract: “A very strong pointer to that end will be whether or not the relevant contractor is undertaking to the beneficiary of the warranty to carry out such operations. A pointer against may be that all the works are completed and that the contractor is simply warranting a past state of affairs as reaching a certain level, quality or standard.”
Peter Stockill’s analysis
The wording of this warranty was not particularly remarkable – it is common to refer to work in both the past and future tense, removing the need for amendment at the point of execution. So, although the decision may be correct, it does present some practical challenges.
Parties giving warranties may look more closely at and take issue with the wording. Rightly or wrongly, a warrantor’s perception may be that they are better off delaying execution until after practical completion.
Does it mean beneficiaries will now look to adjudicate rather than litigate claims? Some will, but there are disadvantages to this:
- Beneficiaries who were not party to the works or the matters in dispute could be at a disadvantage without the exchange of information and disclosure that litigation provides;
- Without agreement of all parties, it is not possible to refer a dispute between multiple claimants and/or defendants to one adjudication. Multi party disputes are common under collateral warranties because of the number of beneficiaries and presence of net contribution clauses, meaning that to make a full recovery a claimant needs to involve all contributors;
- Jurisdictional challenges could be made on the basis that the collateral warranty in question is not a construction contract.
Adjudication has grown beyond its initial primary purpose of assisting with cash flow during projects and in suitable cases it is an effective way for parties to obtain a speedy determination. However, it is rare to see express adjudication provisions in collateral warranties, which indicates that beneficiaries have little appetite for it. I suspect that many employers will not be overly resistant to amendments to ensure that adjudication does not apply. Pragmatic types may even pre-empt them.
One final thought: section 7(4) of the Contracts (Rights of Third Parties) Act 1999 states that a beneficiary of third party rights is not a party to the contract in question, which means they do not enjoy a statutory right to adjudicate under s108 of HGCRA or similarly worded adjudication agreements. If a party is keen to avoid making adjudication available, this might weigh in favour of using a third party rights schedule rather than a collateral warranty.
