Animal Farm, George Orwell’s key notion was that “all animals are equal, but some are more equal than others”. This concept of exceptions to the orthodoxy is applicable to collateral warranties. I say this because it was largely well understood among construction lawyers who draft agreements for lease, building contracts and related derivative agreements such as bonds, parent company guarantees and collateral warranties, that the Construction Act does not apply to collateral warranties unless it actually requires the contractor to carry out construction operations on request by the beneficiary (typically a tenant or funder).

For example, it may be that in the latter scenario, the contractor is expressly under an obligation to return to the project to fix defects when requested by the beneficiary of the collateral warranty. The problem was that several cases had removed the exception and equated the standard wording in collateral warranties with “construction contract” as used in section 104(1) of the Construction Act.

The Supreme Court has now fixed the problem.

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