Abbey v Augusta

Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP)

Citation: [2024] UKSC 23

Background Facts

Simply was engaged to design and build a 65-bedroom care home in Mill Hill, London, under a JCT Design and Build Contract 2011.
The original employer was Sapphire Building Services Ltd, later rights transferred to Toppan Holdings Ltd.
Abbey became tenant of the care home in 2017.
Simply provided a collateral warranty to Abbey in 2020 after practical completion and after remedial works to fire safety defects had been carried out. The warranty contained promises regarding both past and future performance.
Fire safety defects were discovered; Abbey sought damages via adjudication under the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”). Simply argued that the collateral warranty was not a “construction contract” under section 104(1) of the Act and therefore adjudication did not apply.

Key findings:
- A collateral warranty is only a “construction contract” under section 104(1) of the 1996 Act if it involves a separate or distinct obligation to carry out construction operations directly for the beneficiary.
- Where a warranty merely confirms obligations already owed to another party (here, to the original employer under the building contract), it is not a construction contract.
- In this case, the Abbey warranty did not create new, direct obligations to Abbey for carrying out works but merely warranted past and future compliance with obligations owed to Toppan.

Outcome:
The Abbey warranty was not a construction contract. As a result, the adjudicator lacked jurisdiction, and Abbey could not enforce the adjudication award.

Definition of "construction contract":
A collateral warranty is a construction contract only if it imposes a direct obligation on the contractor to carry out construction operations specifically for the beneficiary. Merely warranting performance under another contract is not enough.

Purpose of collateral warranties:
The primary purpose of such warranties is usually to give third parties a right of action for defects — not to provide them with control or rights equivalent to an employer under a building contract.

Statutory interpretation of section 104(1):
The term “for” in “agreement for the carrying out of construction operations” implies that the purpose of the agreement must be the actual carrying out of construction operations, not simply relating to the quality of past work.

Clarification and overruling of prior law:
The decision overrules Parkwood Leisure v Laing O’Rourke, which had found some collateral warranties to be construction contracts. This returns to the previously understood position in the industry that most collateral warranties fall outside the statutory adjudication regime unless expressly provided otherwise.

Certainty for industry:
Provides clarity that collateral warranties will generally not be subject to mandatory statutory adjudication under the 1996 Act, reducing unintended exposure for contractors.