Collateral warranties - Supreme Court decides that usually no right to adjudicate under a collateral warranty

The Supreme Court has this morning (9 July 2024) handed down judgment in the case of Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct UK LLP) 

Stuart Pemble, construction partner at Mills & Reeve, in commenting to EG said "The Court’s decision is a sensible and pragmatic one.  The Court decided that most collateral warranties are not, as a matter of statutory interpretation, agreements for the carrying out of construction operations.  It is the underlying contract to which the warranty is collateral which creates the obligation to carry out the operations.  The only exception will be where there is an express (and separate) obligation to carry out the operations for the beneficiary in the warranty.

Also, the use of the words “will continue to perform” (or similar) in the warranty is not enough, as a matter of contractual interpretation, to create the sort of express obligation the Court envisages as being necessary to make the warranty an agreement for the carrying out of construction operations.

Pleasingly, the Supreme Court acknowledged a point argued by lots of practising lawyers that warranties were never intended to be caught by the scope of the Act, not least because the provisions regarding payment and cashflow are not relevant to collateral warranties.”

This decision means that in most cases there will be no right to adjudicate under a collateral warranty.