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Note: Marketing Ways Services Ltd. (Contractor) was a Saudi Arabian company that had contracted with the Saudi Ministry of Municipality and Rural Affairs (Ministry) to build an animal waste treatment facility to be used after the Hajj pilgrimage beginning in 2014 and for ensuing years. On 5 March 2014, Contractor submitted a purchase order to Todaysure Matthews Ltd. (Sub-Contractor) to furnish incinerator equipment for the facility. The price for the incinerators was GBP 8,570,000, which was the amount Subcontractor had quoted for the manufacture of the incinerator equipment only, not including shipping or installation.

The subcontract provided that Contractor may be entitled to a performance bond for GBP 8,570,000 in the event that there was an issue with performance of the contract, but in the case of a dispute, there must be a final accounting to determine what amount, if any, should be paid under the performance guarantee. Sub-Contractor applied for and obtained a standby letter of credit from RBS Citizens Bank NA (Issuer) which served as collateral against a counter-guarantee provided by RBS UK (Counter-Guarantor). The Local Bank beneficiary of the counter-guarantee was National Commercial Bank of Riyadh (Local Bank) which issued its Local Undertaking in favor of Contractor.

From March to May 2014, Subcontractor began manufacturing the incinerators. At this time, Ministry sent Mr. Voss (Consultant) to visit the various subcontractors handling the project, including Sub-Contractor, and write a report. The report confirmed that Subcontractor was contractually responsible solely for the manufacture of the incinerators, not the installation, commission, or testing. Contractor was concerned by some contents of the report, and, as a result, a meeting was called for 7 June 2014 to clarify the terms of the contract and the scope of Sub-Contractor’s corresponding duties. In this meeting, the parties confirmed that the installation of the incinerators was not part of Sub-Contractor’s contractual duties and was instead to be undertaken by another subcontractor. In a later meeting, on 1 and 2 July 2014, Sub-Contractor agreed to supervise the installation at an additional fee. Furthermore, on 5 June 2014, the parties agreed that Sub-Contractor would accelerate the incinerators’ manufacture for an added fee to be paid by Contractor.

Due to the expedited manufacture, the incinerators were ready to be shipped to Saudi Arabia on 29 June 2014. The equipment began to arrive on 3 August 2014, but none of the required preparations had been made for the incinerator installation. Consequently, the managing director of Sub-Contractor (Director) wrote a letter to Contractor explaining that delays in installation were a result of the site not being prepared for the incinerators’ installation. Contractor did not respond nor did it dispute this statement.

Sub-Contractor also noted that payment had not yet been made according to the contract and urged that it be made. Director emailed Contractor inquiring about the late payment, to which Contractor did not respond.

The parties then met on 17 September 2014, when Sub-Contractor discovered that Contractor had made a demand for payment under the performance bond for GBP 8,570,000. Mr. Mattar (Contractor’s CEO) denied having made a demand on the performance bond. Because of this, in a prior action, Sub-Contractor sued Contractor in England in September 2014, and obtained an interlocutory injunction to stop Contractor from taking any further action on the guarantee. The parties later agreed that a consent order should replace the injunction, and they agreed to a consent order on 21 October 2014. It established that Contractor would not make any demand on a performance bond unless it first requested Bond Issuer to pay the amount to Contractor’s lawyers, who would submit the payment to the court.

Toward the end of September 2014, just before the Hajj pilgrimage, Ministry requested that Sub-Contractor’s employees leave the country with the expectation that they would return to continue the work following the pilgrimage. Return was rendered impossible, however, when Contractor failed to obtain the necessary permits so that Sub-Contractor’s employees could access the site later.

Then, on 17 December 2014, the parties met in Riyadh at Ministry’s encouragement of the parties to finish the project. Sub-Contractor agreed to take on the installation work in exchange for Ministry’s payment.

Contractor complained that Sub-Contractor had not completed the installation of the incinerators by the agreed upon date, 31 January 2015. However, as Flaux, J. notes in the opinion, the delay was entirely the fault of Contractor, as it did not obtain the required permits.

After having drawn on the performance bond again, in what the court called “contumelious breach of the consent order,” Contractor received a check for the full amount of the performance bond from Local Bank on 16 February 2015.

In the instant case, Sub-Contractor sued Contractor to recover the balance of contract’s price (GBP 1,714,000), the cost of expedition (GBP 465,973), the cost of the installation’s supervision (GBP 316,583), and the return of the proceeds of the performance guarantee (GBP 8,570,000). After a trial, the High Court of Justice Queen’s Bench Division, Flaux, J. ruled that Sub-Contractor was entitled to all claims for a total of GBP 11,066,566 and dismissed Contractor’s counterclaims.

In January 2016, Sub-Contractor brought contempt proceedings in a separate action against Contractor. The Judge found Contractor’s CEO guilty of criminal contempt of court, and ruled that “it was a particularly egregious contempt,” validating the judgment for 18 months’ imprisonment.

[JLN]

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