Citation: [2016] EWHC 607 (TCC)
Nature of Case:
In this case the contractor sought an injunction preventing the employer from making a call on an on-demand bond in relation to the contractor’s alleged liability to the employer for non-payment of liquidated damages. The contractor was required to design, construct and commission a power plant in east London. Due to a significant overrun, the employer claimed an entitlement to £8,274,000 in liquidated damages
The contract was an amended version of the FIDIC Yellow Book, clause 25 of which provides for determinations by the engineer of claims made by the employer. The contract was amended so that the right to liquidated damages was not subject to clause 2.5. However, clause 2.5 itself had not been amended.
Rather than seeking an interim injunction, as would be the norm, the contractor sought a final determination as to whether the engineer’s determination was required.
The issues before the court were: (i) whether the employer was entitled to call on the bond without a determination; (ii) if not, whether a call upon the bond would be fraudulent; and (iii) whether an injunction should be granted, preventing any call on the bond. The application for the injunction was premised on the assumption that if the court found in the contractor’s favour on issue (i), then from that moment the employer would be acting fraudulently in attempting to call on the bond. The contractor’s approach also assumed that, if the point were decided against the employer at first instance, the employer could not legitimately contend for the purposes of making a call on the bond that the first instance decision was incorrect.
Proceedings were issued on a Thursday and determined the following Wednesday.
Carr J held that a determination by the engineer was not a condition precedent to an entitlement to call on the bond. She noted the removal of an express reference to such determinations, which appeared in the unamended Yellow Book. She considered that the clause dealing with the bond was a self-contained regime which was not linked with the clause dealing with engineer’s determinations in the same was that other parts of the contract were. She noted inconsistencies between the clauses dealing with the bond and the determination, such that they could not easily be reconciled.
On the fraud point, on the assumption that she was incorrect on the construction of the bond clause, Carr J held that a call on the bond by the employer before an engineer had made a determination in its favour would not be fraudulent. The trigger for the performance bond was the employer’s belief in its entitlement, not the entitlement having been finally determined by an engineer. The clause itself provided for a later refund of any sum overpaid in light of the engineer’s determination.
The claim for injunctive relief fell away.
Counsel: Justin Mort QC represented the defendant (employer).
