A bolt-on to a standard contract for a swimming pool put the contractor into dispute with the facilities manager. But can a collateral warranty within a contract be referred to adjudication?

Tony Bingham

I don’t think we have had a case previously that asked whether a collateral contract is a construction contract and can be adjudicated? It has cropped up in a dispute about the Cardiff International Swimming Pool. Laing O’Rourke Wales & West Ltd was the contractor under the familiar JCT Design & Build main contract. These “collateral contracts” are sort of bolt-on goodies, which bolt on all sorts of firms and folk and promises into the main contract. Laing O’Rourke happily agreed all the usual promises to the employer and then happily made all the same promises in a collateral contract to five other organisations with an interest in the swimming pool. One of the five is Parkwood Leisure Ltd, being the facilities manager for the completed building once built and up and running.

Seemingly, in the first two years of all this swimming, the facilities managers complained about the air-handling units not air handling well enough. Ceilings and walls became mucky and the air-handling units were blamed. Other things irked Parkwood - the list, in fact, grew to 23 items. The contractor says Parkwood and it came to a settlement as to these items. Then a year later Parkwood pointed to the “collateral contract” and told Laing O’Rourke that it had been obliged to go elsewhere for the remedials and wanted payment. It announced it was enforcing its legal rights under the collateral warranty signed at the outset of building. The claim by now was upwards of £600,000. No, no said Laing O’Rourke, the claim was long since compromised. Rubbish, retorted Parkwood. So, there we have a dispute.

My guess is that Parkwood was well advised to ask the High Court to decide whether a collateral contract is a construction contract as defined in the adjudication legislation. Presumably the document itself didn’t have an express adjudication clause. It would have been handy if it was written in, but it comes in automatically by law if the promises are about commercial construction operations. So instead of simply adjudicating, they first came to the Technology and Construction Court (TCC) to ask about the right to adjudicate. By the way, the court proceedings were begun on 30 July 2013 and over and done with in less than one month. True, it’s a short question but it does show how the court moves along these days.

No, No, said Laing O’Rourke, the claim was long since compromised. Rubbish, retorted parkwood. So, there we have a dispute

The collateral contract showed Parkwood as a “beneficiary” and explained that Laing O’Rourke had entered into a design-and-build contract in April 2006 for this pool. Laing O’Rourke gave the beneficiaries a shopping list of promises: it would comply with the design-and-build contract to the level of any architect, engineer or professional designer; the materials would be tickety-boo, so too workmanship; it would be diligent, timely and more besides. It expressly promised to take care of repairs and renewals and even covered a claiming beneficiary such as the facilities manager for loss of profit or other consequential loss up to £2.5m.

A construction contract is defined in the same government act that gives us adjudication. It is an agreement to carry out construction operations, which are also defined. There is no hint in the legislation about collateral warranties. True, it talks about a construction contract being an agreement for the carrying out of construction operations. And the judge reminded us that a contract is formed whether simple, in writing, oral, under seal or otherwise. The actual wording of the collateral warranty convinced the court that in this particular case it was and is to be treated as a construction contract for the carrying out of construction operations. Plainly it referred to the underlying construction contract being that between the employer and contractor under a JCT document.The wording promised Parkwood that the contractor would carry out and complete the works. It gave rise to ordinary contractual remedies. There will be an entitlement to claim for damages for late completion, claim for repairs, renewals and reinstatement.

So, the collateral contract with these warranties is capable of giving jurisdiction to an adjudicator. The adjudicator will be deciding the contractual rights of the parties, albeit on a pro-tem basis within 28 days. And if one of the parties is doubtful about that result, it can all be brought back to the TCC - the same place it has just left.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple