Following on from Martino’s blog earlier this week about Parkwood Leisure Limited v Laing O’Rourke, it will now be important to establish which collateral warranties might be subject to adjudication.

The judge found that the collateral warranty in the Parkwood case was subject to adjudication only because of the specific facts. It does not follow that all collateral warranties will be subject to adjudication. The judge did however say that it was a “strong pointer” that adjudication would apply if the Contractor was undertaking to carry out works in the warranty, as this would relate to the quality and completeness of the works in the future. It would be a “pointer against” adjudication applying if all of the works were completed and the Contractor was “simply warranting a past state of affairs”.

On this basis:

  • warranties provided after the completion of the works are unlikely to be subject to adjudication.
  • for warranties provided during the works, where the parties do not wish adjudication to apply:
    • the case suggests the word “undertakes” should be avoided, and that “warrants” may be preferable.
    • avoid if possible the contractor warranting that it will complete the works. The difficulty with this is that it dilutes the obligations placed upon the contractor so is unlikely to be acceptable for the majority of clients/funders.

The effect of the Parkwood decision is that there are no hard and fast rules setting out which collateral warranties the courts will find are subject to adjudication. One thing is sure: we have not heard the last of this issue, and further cases are likely to emerge over the next few months!