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Last edited 23 Oct 2020
Parkwood Leisure Limited v Laing
About the time the Housing Grants Construction and Regeneration Act 1996 (“the Act”) was passed, I recall asking my training principal whether a collateral warranty constituted a construction contract for the purposes of the Act. “Interesting question” came the response. Here’s an interesting answer................
Laing O’Rourke (“Laing”) the defendant Contractor was engaged under a standard JCT design and build contract to carry out and complete the design and construction of a swimming and leisure facility for Orion Land and Leisure (Cardiff) Ltd, (“Orion”), the employer. Orion granted a lease to Parkwood Leisure Ltd (“Parkwood”), the claimant, a facilities management company who operated the pool for them.
The building contract contained a term requiring Laing to provide collateral warranties to a number of third parties, among them, Parkwood. Before the works were completed, Laing executed a collateral warranty in favour of Parkwood.
Some of these problems were settled under a settlement agreement made between Parkwood and Laing, however issues with the air handling units persisted so Parkwood sought to claim against Laing under its collateral warranty.
Parkwood brought (CPR Part 8) proceedings for a determination as to whether:
- The collateral warranty amounted to a construction contract for the purposes of the Housing Grants Construction and Regeneration Act which would then enable it to adjudicate its claim.
- The present claim was compromised in the settlement agreement.
- 1. It has carried out and shall carry out and complete the Works in accordance with the Contract;
- 3. In the design of Works.....the Contractor...has exercised and will continue to exercise all reasonable skill and care to be expected of an architect......;
- 7. It has complied and will continue to comply with the terms of regularly and diligently carry out its obligations under the Contract.”
The judge, Mr Justice Akenhead, then looked at the definition of “construction contract” and “construction operations” under sections 104 and 105 of the Act and decided that Parkwood’s collateral warranty was a construction contract as the definitions were widely construed and the Act applies to all contracts related to the carrying out of construction operations. The warranty was subsidiary to the building contract which was itself a construction contract. The judge noted wording in the warranty relating expressly to the carrying out and completing of the works, i.e., a prospective obligation to finish the remaining works.
Not all collateral warranties will be construed as construction contracts for the purposes of the Act; that, of course, depends on the wording of the warranty. The judge indicated that warranties which relate to future performance might be considered construction contracts whereas a pointer against may be that all the works are completed with the Contractor warranting the works after completion.
The settlement agreement
Whilst certain matters relating to the air handling units were settled between the parties in the settlement agreement there was scope to bring claims which did not exist at the date of the agreement. The lesson to be learned here is the old nugget of clear and careful drafting and avoiding ambiguities that can come back to bite by reopening matters previously considered closed.
Collateral warranties will now be subject to greater scrutiny in the light of this case. We may now see a resistance among contractors and consultants to grant warranties and a desire to perhaps restrict the number and scope of warranties so that their application is limited to be retrospective only. That inevitably means further complications for the negotiation and drafting of warranties resulting in protracted and costly negotiations.
The upshot of this could now see the rise of third party rights as circumventing the issues arising from this case. Could this spell the end of the widespread use of warranties which may finally be falling out of favour?
This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.
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Related articles on Designing Buildings Wiki
- Collateral warranties.
- Construction contract.
- Definition of collateral warranty.
- Housing Grants Construction and Regeneration Act.
- Reasonable skill and care.
- Scheme for Construction Contracts.
- Third party rights.
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