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

Factual and Procedural Background

The Appellant, a design-and-build contractor, entered into a 2015 building contract with Company B to construct a 65-bedroom care home. The contract contemplated collateral warranties for future purchasers or tenants and included adjudication provisions.

Construction was completed in October 2016 and the building contract was novated to Company A in June 2017. Company A then granted a 21-year lease to the Respondent, which operates the care-home business. In 2018 fire-safety defects were discovered; remedial works were carried out by third-party contractors and funded by the Respondent.

After the defects emerged, Company A required the Appellant to execute a collateral warranty in favour of the Respondent. That warranty (executed in 2020) stated that the Appellant “has performed and will continue to perform” its contractual obligations.

Separate adjudications were commenced by Company A and the Respondent. The Appellant resisted the Respondent’s adjudication, arguing that the collateral warranty was not a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”). The adjudicator rejected the jurisdictional challenge and awarded the Respondent £869,500.

In the Technology and Construction Court, Judge Bowdery enforced the award in favour of Company A but refused to enforce the Respondent’s award, holding that the collateral warranty was not a construction contract. The Court of Appeal (Judges Coulson and Peter Jackson, Judge Stuart-Smith dissenting) reversed that decision. The Supreme Court, constituted by Judge Hamblen and four concurring Justices, granted permission and heard the appeal now under review.

Legal Issues Presented

1. What is the correct interpretation of the phrase “an agreement for … the carrying out of construction operations” in section 104(1)(a) of the 1996 Act?
2. On its proper construction, does the collateral warranty executed between the Appellant and the Respondent fall within that statutory definition, thereby conferring a statutory right to adjudication?

Arguments of the Parties

Appellant's Arguments

• The statutory term “for … the carrying out of construction operations” requires that the agreement’s purpose or object is the carrying out of construction work and that the contractor undertakes a separate and direct obligation to the beneficiary to perform that work.
• A collateral warranty that merely mirrors obligations already owed under a building contract does not meet that criterion; it is derivative and does not itself give rise to construction operations.
• The Court of Appeal majority adopted an impermissibly broad and purposive interpretation, conflating “for” with “in respect of” and relying on policy rather than statutory language.
• The earlier first-instance decision in Parkwood should be overruled because it makes the right to adjudication turn on drafting nuances rather than substantive obligations.

Respondent's Arguments

• The warranty language—particularly the promise that the contractor “has performed and will continue to perform” its obligations—creates an actionable obligation owed directly to the Respondent to carry out construction work to the contractual standard.
• Statutory purposes favour allowing the same factual dispute about the same works to be resolved by the same adjudicative mechanism, avoiding duplication of proceedings.
• Any distinction between “direct” and “derivative” obligations is formalistic; once privity is created, the obligation is necessarily direct.
• The Court should follow Parkwood, which correctly held that similar warranty wording constitutes a construction contract under section 104(1).

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Hamblen undertook a two-stage analysis:

1. Statutory construction.
   • The ordinary meaning of “for” in section 104(1) denotes the purpose of the agreement, not merely a connection with construction operations.
   • Policy considerations and section 104(5) cannot expand the statutory wording; reliance by the Court of Appeal majority on those factors was misplaced.
   • An agreement is caught by section 104(1) only if it gives rise to construction operations through a distinct obligation undertaken to the counter-party.
2. Application to the collateral warranty.
   • Clause 4.1(a) (“has performed and will continue to perform”) merely mirrors the contractor’s obligations under the original building contract; it does not create a new or separate obligation to perform construction work for the Respondent.
   • The Respondent has no right to control, vary, or suspend the works; therefore the warranty does not “regulate” construction operations.
   • Payment provisions of the 1996 Act are inapplicable because consideration under the warranty is nominal (£1), reinforcing that the statute was not intended to apply.
   • Accordingly, the warranty is an instrument of secondary or derivative liability, not a contract for construction operations.

Because the collateral warranty fails the statutory test, the adjudicator lacked jurisdiction and the Court of Appeal majority was wrong to hold otherwise. The earlier Parkwood decision is expressly overruled as inconsistent with this interpretation.

Holding and Implications

APPEAL ALLOWED. The collateral warranty is not a construction contract under section 104(1) of the 1996 Act; the adjudicator’s decision in favour of the Respondent is therefore unenforceable.

Implications: The ruling restores the pre-Parkwood understanding that most collateral warranties fall outside the mandatory adjudication regime. Parties who wish to obtain adjudication rights under such instruments must now do so expressly. The decision narrows the scope of the 1996 Act and provides clearer guidance that only warranties containing separate, primary obligations to perform construction work will be treated as construction contracts.