Abbey Healthcare v. Augusta 2008: supreme court rules on collateral warranties and construction contracts

In the case of Abbey Healthcare (Mill Hill) Ltd (Respondent) v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) (Appellant) [2024] UKSC 23, the Supreme Court addressed whether the collateral warranty provided by Simply to Abbey constitutes a ‘construction contract’ under section 104(1)(a) of the Housing Grants, Construction & Regeneration Act 1996 (the “1996 Act”), thereby giving rise to statutory adjudication rights.

Simply Construct, a contractor under a JCT Design and Build Contract, was engaged to construct a care home in Mill Hill, London, completed in October 2016. The contract was later novated to Toppan Holdings Ltd, which subsequently leased the property to Abbey. Following the discovery of fire safety defects, Toppan engaged another contractor for remedial work, funded by Abbey. In 2020, Toppan and Abbey sought to enforce a collateral warranty, leading to adjudication claims totaling over £14 million.

The Adjudicator found in favor of Toppan and Abbey, but Simply did not comply with the payment. The Technology and Construction Court initially ruled the Abbey collateral warranty was not a construction contract under the 1996 Act, a decision partially overturned by the Court of Appeal, prompting Simply to appeal to the Supreme Court.

The Supreme Court, led by Lord Hamblen, unanimously allowed Simply's appeal, determining that the Abbey collateral warranty was not a construction contract. Key issues included statutory interpretation of section 104(1) and the contractual interpretation of the warranty's terms.

Section 104(1) assesses if the agreement’s purpose is the execution of construction operations. The Court concluded that collateral warranties generally assure rights regarding defective construction rather than constituting agreements for carrying out such operations. Hence, warranties reflecting obligations under a building contract without independent commitments do not qualify as construction contracts.

The Court critiqued the Court of Appeal's reliance on the warranty clause indicating continued performance of the building contract, stressing the need for distinct obligations for a warranty to fall within section 104(1). Most collateral warranties, therefore, replicate building contract terms and do not form construction contracts under the 1996 Act.

Tim Seal, Head of Construction at law firm Ridgemont, commented, "The Supreme Court's ruling signifies a major shift, establishing that most collateral warranties lack the right to adjudicate unless explicitly stated. This reverses the precedent set by Parkwood and clarifies the statutory scope."

This landmark decision emphasises clear contractual delineation, affecting future construction law and warranty interpretations.