3. providing his own labour, or the labour of others, for the carrying out of construction operations.

Section 104 also provides that a ‘construction contract’ includes an agreement “to do architectural, design or surveying work, or provide advice on building, engineering, interior or exterior decoration or on the laying-out of landscape, in relation to construction operations…”

There is no authority directly on the issue as to the extent to which collateral warranties are to be considered as construction contracts for the purposes of the Act.

The Court held that the reference to a ‘contract’ must mean a contract under English Law. In determining whether that contract is one ‘for the carrying out of construction operations, the arranging of the carrying out of construction operations by others or the provision of labour or the labour of others for the carrying out of constructions operations,’ the ordinary contractual interpretation principles must be applied.

The Judge noted the following:

• The fact that the construction contract (if it is one) is retrospective in effect is not a bar to it being a construction contract;
• An agreement ‘for…the carrying out of construction operations’ is a broad expression and it is to be determined from the contract in question whether it fits within those words;
• Usually where one party to a contract agrees to carry out and complete construction operations, it will be an agreement ‘for the carrying out of construction operations’.

The Court’s Decision

The Court held that this particular collateral warranty was and is to be treated as a construction contract ‘for…the carrying out of construction operations’ and Parkwood has the statutory right to refer the dispute to adjudication under section 108 of the Act. The Judge gave numerous reasons for his decision, including:

1. The Recital sets out that the underlying construction contract was ‘for the design, carrying out and completion of the construction of a pool development’. There can be little or no dispute that this underlying contract was a construction contract for the purpose of the Act. This is again replicated in Clause 1 which relates expressly to carrying out and completing the Works;

2. Clause 1 contains express wording whereby LORWW ‘warrants, acknowledges and undertakes’. These words have different meanings and the Judge held that it is difficult to conclude that the parties meant for these words to be one and the same.

3. This is view is further reflected by the wording used in Clause 1 which refers to both past and future events. LORWW gave an undertaking that it will comply with the contract in completing the Works and gave a warranty to the work and design both already provided and yet to be carried out. There is a further prospective element in sub-clause 3 whereby LORWW ‘will continue to exercise’ care and skill;

4. This is not a contract limited to the quality of work, design and materials, as Clause 10 expressly excludes liability for delay in progress and completion but does not exclude liability otherwise for non-completion.

As such, the Judge stated that ‘this Collateral Warranty is clearly one ‘for the carrying out of construction operations by others’, namely LORWW’.

Importantly however, the Judge stated that not all collateral warranties given in connection with all construction developments will be construction contracts under the Act, and as such not all collateral warranties will carry with them the statutory right to refer a dispute arising under the contract to adjudication. To determine whether a collateral warranty is a construction contract for the carrying out of construction operations, it must be considered in light of both the wording and the relevant factual background of such a contract.

A key factor, the Judge highlighted, is the timing of the collateral warranty. The Judge stated that ‘a very strong pointer to that end will be whether or not the 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.’

This decision may result in adjudication being used for collateral warranty disputes where it was previously considered unavailable. It is important to remember that this decision is not a ‘one size fits all’ scenario – whether a collateral warranty affords the beneficiary the statutory right of adjudication will depend upon the facts of each particular case.