Augusta 2008 LLP v Abbey Healthcare (Supreme Court)

Citation: [2024] UKSC 23

In Augusta 2008 LLP (formerly Simply Construct (UK) LLP v Abbey Healthcare (Mill Hill) Ltd [2024] UKSC 23 the Supreme Court considered: (1) statutory interpretation, i.e. the meaning of s.104 and Part II of the Housing Grants, Construction and Regeneration Act 1996 (‘the Act); and (2) contractual interpretation, i.e. whether the collateral warranty in this case, executed long after the execution of works, was a construction contract within the meaning of s.104 and Part II of the Act. 

The Supreme Court held that the warranty was not within the scope of Part II of the Act.  The Supreme Court overruled Parkwood Leisure v Laing O’Rourke [2013] BLR 589, and held:

• A collateral warranty will be an agreement “for … the carrying out of construction operations” if it is an agreement by which the contractor undertakes a contractual obligation to the beneficiary to carry out construction operations which is separate and distinct from the contractor’s obligation to do so under the building contract.
• A collateral warranty where the contractor is merely warranting its performance of obligations owed to the employer under the building contract will not be an agreement “for” the carrying out of construction operations.

Alexander Nissen KC and Tom Owen KC appeared for the Respondent.  The recording of the live stream of the oral argument, the judgment and press summary are here. Issue 1: statutory interpretation

1. Section 104(1) of the Act requires an assessment of whether the object or purpose of the agreement is the carrying out of construction operations: [64].
2. The purpose of a collateral warranty is to afford a right of action for defective construction works, not the carrying out of such operations themselves: [65]. It is the building contract that gives rise to the carrying out of the construction operations; not the collateral warranty: [66]-[69].
3. Warranties which merely promise to perform obligations owed to someone else under the building contract will not be an agreement “for” the carrying out of “construction operations”. There needs to be a separate or distinct obligation to carry out construction operations for the beneficiary: [70].

Issue 2: contractual interpretation

1. The Court of Appeal, by majority, had held that the warranty was a construction contract. Central in that finding was clause 4.1(a), under which Simply promised Abbey that it “has performed and will continue to perform” its obligations under the building contract. The Supreme Court disagreed. It held that this obligation was entirely derivative and reflective of the obligations already owed under the building contract.
2. Accordingly, the collateral warranty was not a construction contract for the purposes of section 104(1) and Part II of the Act. The Adjudicator lacked jurisdiction.
3. It is likely to mean that most collateral warranties will not be construction contracts: [77]. The Supreme Court considered there were good reasons for concluding that, e.g. the payment provisions are inapplicable, and that one of the Act’s objectives (i.e., to improve cash flow) is not furthered by its application to collateral warranties. The Supreme Court overruled Parkwood: [81], upon which the majority of the Court of Appeal placed considerable weight.