The recent decision of the Technology and Construction Court (“TCC”) in Toppan Holdings Limited and Abbey Healthcare (Mill Hill) Limited v. Simply Construct (UK) LLP arguably follows only one precedent.

But the result matters to anyone who calls on an ancillary warranty. The lesson is: get a guarantee signed immediately if you don’t want to lose the right to decide.

Suppose an owner, buyer, or tenant (“Beneficiary”) discovers hidden defects in the work of a subcontractor. The beneficiary will usually assert claims against its main contractor. However, there may be reasons why this is not possible. For example, the main contractor may be insolvent. The beneficiary will therefore assert claims against the subcontractor, invoking its security guarantee (if any).

How is the claim made? The obvious answer is: by judgment. It’s quick, cheap and usually significantly cheaper than the alternative (litigation or arbitration).

But does an ancillary warranty qualify as a “construction contract” for the purposes of the Housing Grants, Construction and Regeneration Act 1996? This in turn requires an agreement on the “implementation of construction work” in accordance with Section 104 of the Act.

Is an ancillary warranty such an arrangement? This question arose in Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd
[2014] TCC. Akenhead J said the answer would depend on the wording of the particular guarantee. He said:

“A very strong clue for that [ie to the contract
being a “construction contract”] regardless of whether the contractor concerned undertakes to carry out such work towards the warrantee. An indication, on the other hand, could be that all work has been completed and the contractor only guarantees an earlier condition and achieves a certain level, a certain quality or a certain standard. ” [underlining supplied]

At Parkwood Leisure, the guarantee was considered a construction contract and was therefore relevant to the decision.

In Toppan, Judge Martin Bowdery QC, who sat as deputy judge on the High Court, conducted the same test. However, based on the facts here, he decided that the guarantee was on Not a building contract. What was the difference?

The key point was that it had taken some time to sign the guarantee. In fact, the work was completed about four years before it was signed. The case thus conveniently fell into the underlined “pointer against” by Akenhead J. As the judge said:

“Based on the facts of the present case, I cannot see how, according to commercial common sense, a collateral guarantee given by another contractor four years after practical completion and months after the disputed renovation can be interpreted as an agreement on the execution of construction work. “

According to the judge, the guarantee is therefore simply “a guarantee for a state of the past or future, similar to a manufacturer’s product guarantee”. The warrantee – Abbey Healthcare, a long-term tenant – could of course sue for the allegedly faulty work. But she could not use the fast route of justice.

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The guarantee contained a mixture of commitments about past services (“The contractor has fulfilled …” “The contractor has exercised …”) and about future services (“The contractor ….. will continue to provide …”. . “).

This second type of commitment could well have turned the guarantee into an eligible construction contract if the guarantee had been signed while there was unfinished work to which the commitments could relate. But they were meaningless when the work was done. The guarantee was therefore only related to a product guarantee.

It may seem strange that a document can be a “construction contract” if it is signed at one time, but something else if it is signed at another time. However, the law concerned the provision of redress, including a right of decision, in ongoing projects. It was not designed to regulate product warranties after completion. The Toppan decision can therefore be supported in principle. It’s also very much in line with Parkwood Leisure.

In what condition is the work almost, but not fully, completed at the time the guarantee was signed? It is proposed that a court would generally treat this as a contract for the execution of construction works and thus as relevant to the decision, unless the outstanding work could be viewed as de minimis.

Finally, what can a beneficiary do to prematurely sign a subcontractor or consultant? In practice, construction contracts are often amended to withhold funds from the main contractor until all guarantees have been signed and returned. The only thing that is reserved here is the rather cumbersome way of applying for concrete fulfillment of the promise to sign.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.