Note: Liberty Mercian Ltd. (Employer) and Cuddy Civil Engineering Ltd. (Contractor) contracted to develop a new retail plateau for the future construction of a supermarket. The contract required Contractor to supply Employer with a guarantee from Contractor's parent company, a performance bond, and two warranties. The contract was terminated, and Employer sued Contractor for specific performance. In a previous decision, the High Court of Justice, Queen's Bench Division, Technology and Construction Court, Ramsey, J., decided that the parties entered into a valid contract, that Contractor was in breach of contract for failing to supply the aforementioned undertakings, which had been requested before the contract was terminated, and also that Contractor remained obligated after the termination. In the opinion discussed in this Note, the Judge further dealt with the claim for specific performance to obtain the performance bond and two warranties.

In opposition to specific performance, Contractor argued that "damages are an adequate remedy for nonprovision of a performance bond because such a bond is in a liquidated sum and can be expressed in terms of damages". In support of specific performance, Employer argued that "an obligation to provide a document in the nature of a performance bond cannot be properly reflected in an award of damages particularly in the circumstances of this case where [Contractor] is a company without assets." The High Court of Justice, Queen's Bench Division, Technology and Construction Court, Ramsey, J., agreed with Employer's argument and held that damages were not an adequate remedy for the nonprovision of a performance bond in this case.

Contractor also argued that "it was impossible for [Contractor] to obtain a performance bond in circumstances where the contract has been terminated and where [Contractor] does not have assets." Contractor relied on an email from its bondsman, John Norbury of Buckingham House (London) Limited, where the bondsman explained that he "discussed the possibility of obtaining a bond with his usual bond markets and none were willing to issue a performance bond." The Judge found that Contractor's evidence was unsatisfactory and that regardless of its inability to fund a performance bond, Contractor had access to funds from a third party.

Contractor also argued that because the draft bond annexed to the contract contained no expiry date, the obligation was uncertain, and that the court should not order specific performance, especially in this case where the contract had been terminated. The Judge declined to make a final decision on Contractor's argument, but stated that because the performance bond in this case was to be provided by a bank or insurer, the question of expiry depended upon the bank or insurer. "If, for instance, they are only prepared to provide one which expires on termination [of the contract], then it will be impossible to provide one. Equally if they are not prepared to provide one to cover the liabilities up to termination then there will be difficulties in ordering specific performance."

The Judge entered an order of specific performance to obtain the performance bond and warranties in favor of Employer.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.