Collateral warranties: beware

By Jonathan Pawlowski

Is your company a party to a construction contract or to a collateral warranty? You might think this is obvious; after all, your company’s contract manager is familiar with both types of document and knows the difference. However, what would happen if a collateral warranty was suddenly interpreted as a construction contract? How would it affect your company, which is in the business of designing, manufacturing and installing pumps where the pumps form an integral part of a building or plant?

In Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd (2013), the judge held that the parties’ collateral warranty was actually a construction contract within the meaning of the Housing Grants, Construction and Regeneration Act 1996.

Prior to the completion of the works and the commencement of Parkwood’s sub-lease, Laing O’Rourke executed a collateral warranty for the benefit of Parkwood stating, among other things, that ‘the contractor warrants, acknowledges and undertakes that it has carried out and shall carry out and complete the works in accordance with the contract’. Parkwood then took possession of the centre and opened it to the public…

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