Plaintiff and contractor entering building contract – Defendant insurers granting performance bond – Contractor unable to complete works – Plaintiff entering second building contract and seeking to enforce bond – Action dismissed
In 1994 the plaintiff housing association sought to develop at Longford Street, London NW1. The plaintiff entered into a building contract with Woodward & Co (Finsbury) Ltd and required Woodward to provide a performance bond. Accordingly, a bond was given by the defendant in favour of the plaintiff. By the bond, the defendant undertook to pay the plaintiff a sum of up to £160,000 if one of three events occurred, inter alia, that “there was a valid determination of the building contract under clause 27 and the defendant satisfied and discharged the net established and ascertained damages sustained by the plaintiff up to £160,000”.
Before completion of the building works, Woodward went into liquidation and the plaintiff, in accordance with the terms of the building contract, terminated Woodward’s contract and entered into a second building contract to complete the works. The plaintiff claimed payment under the bond. The defendant submitted that the circumstances giving rise to liability under the bond had not arisen, namely that the plaintiffs had not presented it with any statement of their net and ascertained damages, which were to be calculated and assessed by Woodward’s liability under clause 27 of the contract.
Held: The action was dismissed.
The plaintiff seemed to have considered that the purpose of the bond was to help with difficulties in financing a second contract as it progressed, and had failed to understand the nature of the protection provided under the bond. The use of the words “net” and “ascertained” made it clear that what was to be paid was that which was due after an account had been taken. There was no liability on the defendant to make a payment on account to aid the plaintiff with funding difficulties pending the taking of the account. The defendant had not been provided with a statement that set out the net established and ascertained damages sustained by the plaintiff, calculated by reference to clause 27 of the building contract, and was therefore not liable to make any payment to the plaintiff. If such a statement were provided, and if it showed a net sum due to the plaintiff, the defendant would then become liable, up to the amount of the bond.
Robert Clay (instructed by Winckworth Sherwood) appeared for the plaintiff; Marcus Taverner (instructed by Herbert Smith) appeared for the defendant.
Sarah Addenbrooke, barrister
