When is a warranty more than a warranty?

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Any contractor or professional consultant who has provided a collateral warranty on a construction project, or indeed any real-estate owner who has the benefit of a collateral warranty, will be interested to learn of the recent case of Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd (2013 EWHC 2665 (TCC)). In this case, Mr Justice Akenhead held that the collateral warranty given by a main contractor, Laing O’Rourke, to a tenant, Parkwood, was a construction contract and so the regime set out in the Housing Grants, Construction & Regeneration Act 1996 applied to include the right for the beneficiary to commence adjudication proceedings against the warrantor.

Parkwood was a sub-tenant of the Cardiff international pool, a swimming and sports centre. Before Parkwood’s sub-lease was granted, the head leaseholder, Orion Land and Leisure (Cardiff), engaged Laing O’Rourke to finish the design and carry out and complete its construction. 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 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.

Over the next 30 months, a number of alleged construction and commissioning defects were discovered, which were resolved in a March 2012 settlement agreement. In February 2013, Parkwood wrote to Laing O’Rourke complaining that the air-handling units installed at the centre were defective and/or not fit for purpose and subsequently applied to the court for a declaration that the dispute was not covered in the March 2012 settlement agreement and that the collateral warranty was a construction contract for the purposes of the Housing Grants, Construction & Regeneration Act…

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