Factual and Procedural Background
This opinion concerns an expedited hearing of a Part 8 claim brought by the Plaintiff, a banking corporation acting as Security Trustee, against the Defendant, a bond issuer. The dispute arises from the Plaintiff's entitlement to recover under a performance bond and a retention bond issued by the Defendant. The background relates to the construction and commissioning of a waste treatment facility ("the Facility") delivered under a public private partnership (PPP) involving public councils as procuring authorities, a project company established by private sponsors, and various contractors and lenders. The project company contracted a construction company for the design, construction, commissioning, and completion of the Facility. The construction company provided two bonds via the Defendant: a Performance Bond and a Retention Bond, intended to protect the project company under defined circumstances including insolvency defaults.
The project company granted security over its rights under these bonds to the Plaintiff as Security Trustee via a Borrower Debenture. Disputes arose concerning the effectiveness of the assignment of the bonds to the Plaintiff and the validity of demands made under the bonds following the administration of the construction company's guarantor. The Facility was not completed by the long-stop date, and the councils gave notice of termination of the Project Agreement, leading to automatic termination of the Construction Contract. The Plaintiff made demands under the bonds which the Defendant refused to pay, prompting the commencement of proceedings seeking declarations and orders for payment.
The Defendant responded by challenging the validity of the assignment and the demands. The court ordered an expedited hearing and directed the Defendant to file its grounds for refusal to pay. The Defendant served grounds relying on alleged invalidity of the assignments and demands.
Legal Issues Presented
- Whether the assignment of the Performance Bond and the Retention Bond to the Plaintiff was effective so as to enable it to sue on the bonds.
- Whether the demands made under the Performance Bond and the Retention Bond were valid and properly signed by the Employer or its authorised representatives.
- Whether the Plaintiff, as Security Trustee and assignee or attorney for the project company, had the standing to make claims and seek declarations under the bonds.
- Whether any waiver or contractual agreement existed that dispensed with the requirement for the Plaintiff to accept the Employer's repayment obligation under the Performance Bond before assignment.
Arguments of the Parties
Plaintiff's Arguments
- The assignment contained in the Borrower Debenture was valid between the assignor (the project company) and the assignee (the Plaintiff), but the issue was whether it was effective against the Defendant due to clause 9 of the Performance Bond requiring prior acceptance of repayment obligations.
- The Plaintiff contended the opening words of clause 9 did not create a condition precedent for assignment and that the assignment was effective from the date of the Debenture.
- Alternatively, the Plaintiff argued that the Defendant’s acknowledgment and the Notice of Assignment constituted either a contractual agreement or waiver that the repayment obligation acceptance was not required for effective assignment.
- The Plaintiff relied on the Notice of Assignment’s clause stating the project company remained liable under the bond and that the Plaintiff had no obligation to the Defendant, arguing this showed an agreement or waiver.
- The Plaintiff submitted that even if no effective assignment existed, the demand made by the Plaintiff as attorney for the project company under a power of attorney was valid.
- The Plaintiff argued that the demands under both bonds were properly signed and that a director of a company holding a valid power of attorney satisfied the requirement for signature by a director of the Employer.
Defendant's Arguments
- The Defendant contended there was no effective assignment of the Performance Bond because the Plaintiff had not confirmed acceptance of the repayment obligation as required by clause 8 and 9 of the Performance Bond.
- The Defendant argued the Notice of Assignment did not constitute a binding contract or waiver, lacking clarity, consideration, and express amendment as required by the bond’s non-waiver clause.
- The Defendant maintained that the demand under the Performance Bond was invalid as it was not signed by the Employer (the project company) as required.
- The Defendant also contended the demand under the Retention Bond was invalid as it was not signed by a duly authorised officer of the Employer.
- The Defendant highlighted that it relied solely on information from the construction company and expressed concerns that the demand was made without genuine loss and might be on a false premise.
- The Defendant submitted that the Plaintiff’s action was improperly constituted as the project company was not a party and could not make a claim.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Linden Gardens v Lenesta Ltd [1994] 1 AC 85 |
Principle on the effectiveness of assignment of choses in action and the requirement of acceptance by the debtor. |
The court agreed the assignment was valid between parties but questioned its effectiveness against the Defendant absent acceptance of repayment obligations. |
| W J Alan and Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 |
Principle on waiver of contractual rights. |
The Plaintiff relied on this authority to argue that the Defendant’s conduct amounted to a waiver of certain requirements under the bond. |
| Credit Agricole Indo-Suez v BB Energy BV [2004] EWHC 750 (Comm) |
Interpretation of non-waiver clauses and their enforceability. |
Considered in relation to the bond’s non-waiver clause limiting the effectiveness of alleged waivers. |
| RGI International v Synergy Classic Ltd [2011] EWHC 3417 |
Non-waiver clauses and their potential waiver. |
Used to assess whether the non-waiver clause could itself be waived. |
| Grupo Hotelero Urvasco SA v Carey Value Added SL [2013] EWHC 1039 (Comm) |
Effect of non-waiver clauses in commercial contracts. |
Supported the court’s view on the strict requirements for effective waiver under the bond. |
| Actionstrength Ltd v International Glass Engineering In GI En SpA [2003] 2 AC 541 |
General principles on contract interpretation and waiver. |
Referred to in considering the non-waiver clause and waiver arguments. |
| Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 |
Party autonomy and the effect of contractual non-waiver clauses on subsequent conduct. |
The court relied heavily on this authority to affirm that a waiver of rights must also waive the non-waiver clause expressly. |
| IE Contractors Ltd v Lloyds Bank PLC [1990] 2 Lloyd's Rep 496 |
Construction and interpretation of performance bonds and the doctrine of strict compliance. |
The court held that strict compliance applicable to letters of credit does not necessarily apply to performance bonds and considered the nature of the signature requirement. |
Court's Reasoning and Analysis
The court first addressed the validity of the assignment of the Performance Bond. It accepted that the assignment was valid between the project company and the Plaintiff but questioned its effectiveness against the Defendant due to the requirement in clause 9 of the Performance Bond for the assignee to accept the Employer's repayment obligation under clause 8. The Plaintiff had not given such acceptance, and no prior written agreement or waiver by the Defendant existed to dispense with this requirement.
The Plaintiff argued that the Notice of Assignment and the Defendant’s acknowledgment constituted either a contract or waiver of the repayment obligation acceptance requirement. The court found no binding contract arose from the Notice of Assignment, largely because consideration was lacking and the Defendant’s acknowledgment was more an acceptance of receipt than a contractual agreement. The court also found that the Notice of Assignment did not amount to an effective waiver under the bond’s non-waiver clause, which required any waiver to be expressly stated and to identify the terms amended or waived. The broad language in the Notice did not meet this stringent requirement.
Authorities were considered regarding the effect of non-waiver clauses, particularly the Supreme Court decision in Rock Advertising, which confirmed that a waiver of rights does not automatically waive a non-waiver clause unless expressly stated. Applying this, the court concluded the Plaintiff’s alleged waiver was ineffective, and thus the assignment was not effective to transfer the chose in action under the Performance Bond.
The court then considered whether the Plaintiff could make a claim as attorney for the project company under the power of attorney contained in the Borrower Debenture. It held that while the Plaintiff could not obtain an order for payment in its own name under the Performance Bond, it could seek a declaration that the demand made was valid and that payment should be made to the specified account. The court found that a signature by a director of a company holding a valid power of attorney for the Employer satisfied the requirement for a signature by "a director of the Employer" under the Performance Bond.
Regarding the Retention Bond, the court found that the assignment was effective and that the demand was validly signed by the Plaintiff as assignee. Although the Retention Bond lacked an extended definition of "Employer" including assignees, the court construed the bond as permitting a duly authorised officer of an assignee to sign demands. Even if that was incorrect, the demand was signed by the Plaintiff as attorney for the project company, which satisfied the requirement.
Overall, the court declared that the demands under both the Performance Bond (made by the Plaintiff as attorney) and the Retention Bond (made by the Plaintiff as assignee) were valid.
Holding and Implications
The court held that:
- The assignment of the Performance Bond to the Plaintiff was not effective due to non-acceptance of the repayment obligation and absence of waiver or agreement by the Defendant.
- The Plaintiff, acting as attorney for the project company under a power of attorney, made a valid demand under the Performance Bond.
- The assignment of the Retention Bond to the Plaintiff was effective, and the demand under it was validly made by the Plaintiff as assignee.
- The Defendant is liable to pay the amounts demanded under both bonds.
The direct effect is that the Plaintiff is entitled to payment under the bonds as claimed. No broader precedent was established beyond the interpretation of assignment effectiveness, waiver requirements under non-waiver clauses, and the validity of demands signed by attorneys or assignees under such bonds.