Construction disputes – to adjudicate or not to adjudicate?

In most construction disputes there is a familiar proposition that when seeking to settle a dispute, adjudication tends to be a preferred route to dispute resolution as it is quicker and cheaper than court proceedings.

However, in a recent case of Toppan Holdings Ltd and Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) LLP [2021] EWHC 2110 (TCC) the Technology and Construction Court (TCC) has clarified the entitlement to adjudicate according to a collateral warranty.

What is adjudication in construction?

Adjudication in construction is a faster and less formal route of dispute resolution than resorting to relatively slow and expensive court proceedings.

The case and parties involved were Toppan Holdings Ltd and Abbey Healthcare  (Mill Hill) Ltd v Simply Construct (UK) LLP

The collateral warranty in question was to Abbey Healthcare, a tenant who had taken a long lease on a property built by Simply Construct.

It was executed four years after practical completion and eight months after remedial works had been carried out by another contractor.

Following an adjudication, Simply Construct resisted enforcement on the grounds that Abbey’s warranty was not a “construction contract” and therefore the adjudicator had no jurisdiction.  The TCC agreed, although this is the first instance and may be subject to appeal and change.

Critically, the TCC held that whilst the warranty was drafted to state that Simply Construct “has performed and will continue to perform diligently its obligations under the Contract”, the reality was that the works had already been completed and, even latent defects had been remedied by other contractors.

Therefore this particular warranty could not be a construction contract for the purposes of statute; it was not contract for the “carrying out of construction operations”.

This decision by the TCC is perhaps a surprise to many in the sector.  The statutory right to adjudicate is often the preferred route to dispute resolution and without this procedure available, the matter is likely to involve lengthy and costly formal litigation proceedings.

Is there a way to ensure an adjudication is still an option?

The answer is yes, but careful drafting of collateral warranties when disputes arise is therefore important.  It is possible to include an express adjudication clause and so not rely on statute.  Had this been included in the collateral warranty to Abbey Healthcare, then Simply Construct’s jurisdictional challenge would have not had merit. Another point to consider, and whilst not always possible, is that it is prudent to execute collateral warranties as early as possible during a project and whilst the construction works are still being carried out.

This case has helped clarify a point of principle regarding the statutory right to adjudicate.  To avoid potential issues in the future a careful review of relevant construction contracts is recommended and where required, express clauses can be inserted into contracts.

For further information on these or any other issues surrounding contracts or disputes contact Jayne Meakin or another member of the construction team in your local office.