The decision in the recent case of Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd is of great interest to those that work within the UK construction industry.
It is the first time that the court has considered whether a collateral warranty is a construction contract for the purposes of adjudication within the meaning the Housing Grants, Construction and Regeneration Act 1996 ("the Act").
In short, it was decided that a collateral warranty entered into between a third party and contractor amounted to a construction contract for the purposes of the Act. As a result, the beneficiary of the warranty (in this case a tenant of the building) had the statutory right to refer a dispute under the warranty to adjudication, avoiding the need for it to go down the more time-consuming litigation or arbitration route. This decision is likely to send shock-waves through the industry and cause the parties’ advisers to revisit their collateral warranties to see whether adjudication is now an option or indeed a risk. This decision is therefore likely to be seen as good news for the procurers of collateral warranties (banks, funders, purchasers, tenants etc) but bad news for the givers of such warranties (contractors, specialist subcontractors and consultants).