Avoiding Adjudication under Warranties
The Parkwood v Laing O’Rourke case has set construction lawyers all a-jitter.
Akenhead held that a collateral warranty could be a contract for the carrying out of construction operations. If it was, then the parties had a right to refer disputes to adjudication.
It is all rather reminiscent of the mild panic caused by the Blyth & Blyth v Carillion decision on novation agreements!
The difficulties faced are that recipients of warranties do not like change and want to revert to the pre-Parkwood position when there was definitely no adjudication.
For tenants and purchasers of the completed development, there are a number of strategies to achieve this:
- To execute warranties after practical completion. However, in Parkwood Akenhead said “The fact that the construction contract (if it is one) is retrospective in effect is not a bar to it being a construction contract.“
- To avoid using words which refer to any future obligation to provide works and/or services i.e. “the warrantor undertakes that it will carry out.” However in Parkwood Akenhead said “A very strong pointer to that end will be whether or not the relevant Contractor is undertaking to the beneficiary of the warranty to carry out such operations. A pointer against may be that all the works are completed and that the Contractor is simply warranting a past state of affairs as reaching a certain level, quality or standard.”
- To add words into a standard warranty to the effect that “The warrantor confirms that it has carried out the works and/or services under the Agreement and that at practical completion the works and/or services comply with the terms of the agreement.” This could be combined for the full belt-and-braces effect with “This warranty shall not take effect until the works are completed.” However, there is no guarantee as Akenhead clearly said “One needs primarily to determine in the light of the wording and of the relevant factual background each such warranty to see whether, properly construed, it is such a construction contract for the carrying out of construction operations.“
For funders, I suggest a more radical step. Most funder warranties are provided as a condition precedent to funding and so there are works/services still be carried out when the warranty is completed.
As I said in my Defero Law post about funder warranties, the funder is really only concerned with step-in rights.
So how about deleting all the words except those relating to the step-in agreement which will neatly side-step the issue?