Liberty Mercian Ltd v Cuddy Civil Engineering Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ramsey |
| Judgment Date | 30 October 2014 |
| Neutral Citation | [2014] EWHC 3584 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-12-55 |
| Date | 30 October 2014 |
[2014] EWHC 3584 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon Mr Justice Ramsey
Case No: HT-12-55
Simon Lofthouse QC and Marc Lixenberg (instructed by Morgan LaRoche) for the Claimant
Simon Hargreaves QC and Christopher Harrison (instructed by Hugh James) for the Defendants
Judgment No 3
Introduction
In these proceedings the Claimant ("Liberty Mercian") seeks specific performance of obligations relating to a performance bond and two collateral warranties under a contract for a development project ("the Contract").
In the first judgment ( [2013] EWHC 2688 (TCC)) I dealt with a number of issues relating to the Contract and, in particular, the question of when the Contract was formed and which of the Defendants, Cuddy Civil Engineering Limited ("CCEL") or Cuddy Demolition and Dismantling Limited ("CDDL") was the Contractor under the Contract. I held that the Contract was made with CCEL and that CCEL's obligation to supply the performance bond and warranties survived the termination of the Contract and that CCEL was in breach of contract in failing to supply them.
In the second judgment ( [2013] EWHC 4110 (TCC)) I dealt further with the claim for specific performance of a performance bond and two warranties. I held that, subject to certain matters raised by CCEL but not established on the evidence then put before the court, I would have been inclined to grant specific performance both in respect to the performance bond and the warranties. As I indicated, my concern was that I should not order specific performance in circumstances where, on proper investigation, the obligations to provide the performance bond or warranties might prove to be impossible. I therefore decided to proceed by stages by first ordering CCEL to use its best endeavours to obtain both the performance bond and the warranties so that the position on alleged impossibility could be properly considered at a further hearing. I therefore gave CCEL further time to deal with those matters.
At a hearing on 19 December 2013 the parties agreed that the date by which CCEL should use its best endeavours to supply a performance bond and warranties should be extended to 16 February 2014.
At the subsequent hearing I heard submissions on whether, on the basis of the evidence then produced, I should order specific performance of the performance bond and warranties and I also heard submissions on costs. Certain matters arose during the course of oral submissions and I gave permission for each party to exchange further submissions after the hearing.
I now consider the three issues which remain:
1) Whether to grant specific performance of CCEL's obligation to produce a performance bond.
2) Whether to grant specific performance of CCEL's obligation to provide warranties.
3) The appropriate order for costs in these proceedings.
Specific performance of the performance bond
As set out in the second judgment, subject to the question of impossibility and the expiry date for any performance bond, for the reasons given in that judgment I would have granted specific performance.
As stated in my order dated 19 November 2013, as amended by my order dated 20 December 2013 ("the Order") CCEL was to use its best endeavours by 16 February 2014 to " supply to the claimant a performance bond (executed by a bank or insurer strong enough to carry the bond) in the form enclosed herewith".
In the event, as indicated in the second judgment at [23], it was open for Liberty Mercian to put forward evidence showing that a performance bond could be obtained by using reasonable endeavours. In the event there was a degree of co-operation between the parties in seeking to obtain the required performance bond. It is therefore convenient to summarise the steps which were taken, as set out in the third and fourth witness statements of Michael Cuddy served on behalf of CCEL and the witness statement of Ian Crabtree, the Company Secretary of Liberty Mercian, served on behalf of Liberty Mercian.
After seeking advice from a financial consultant, Mr Cuddy approached Oval Insurance Broking Limited ("Oval"), a firm of leading UK commercial insurance brokers. He sought their assistance in obtaining a performance bond in the terms attached to the Order. He set out the relevant circumstances both as to these proceedings and the termination of the Contract. Mr Cuddy made the following request: " whilst CCEL has no assets, can you please respond to this enquiry on the presumption that sufficient security can be provided."
Mr Paul Rowland of Oval consulted eight underwriters, ACE, Aviva, CBL, Enterprise, Euler Hermes, HCCI, QBE and Travelers. After completing his enquiries with that specialist panel of underwriters, he provided his surety market review document. In the covering email he said this:
"The content details the reason why the specialist panel of underwriters whom we approached and engaged on behalf of CCEL have not offered their appetite, capacity and support for this risk proposition in this instance."
In the report he set out the responses from the underwriters, attaching the emails from each of them responding to the enquiry. He summarised his conclusions in the following terms:
" Despite our very best efforts, it has proven impossible to secure market appetite, capacity and support for this risk proposition due to the following reasons:
1. The on-site work has progressed significantly to the point of near practical completion; as such, the issuance of a bond at this juncture would retrospectively attach all the liability onto a Surety underwriter.
2. The continuing, and as yet unresolved, legal dispute with regards to the engagement of the correct principle to the contracting entities.
3. Under the contentious relationship there is a clear "monies owed position" between both parties yet to be resolved
4. The proposed contract form is NEC3. As such the surety underwriters would need to introduce some bespoke clauses to make it more acceptable and compliant."
Mr Cuddy then instructed HMT LLP, a corporate finance firm, to make further enquiries on behalf of CCEL. HMT consulted eight lending institutions: RBS, Santander, HSBC, Metrobank, Barclays, Lloyds, Clydesdale and Handelsbank and a specialist debt advisory business, Litmus.
In his response to Mr Cuddy, Mr Andrew Thomson of HMT attached a schedule and said:
"…each institution either declined the opportunity outright or required the bond to be 100% cash covered. Given the circumstances of the situation (i.e. a strong likelihood that the bond would be called and the financial circumstances of your business), the results of this exercise are by no means surprising and, in our opinion, there would be no point in widening it further."
As set out in that attached schedule, all of the financial institutions except two were stated to have shown no interest. In respect of Santander it was stated that the trade finance director had said that, for the bank to consider any form of performance bond, they would need it backed by tangible security of equal amount to what is issued. In relation to Metrobank it was noted that their interest was "unlikely". They had stated that the basis on which they would consider issuing a bond would be on a fully cash covered basis. They said they would need to obtain credit approval and they could foresee some resistance in view of the history.
On 13 December 2013 Mr Rowland of Oval informed Mr Cuddy that, despite initially declining, one of their preferred and highly respected surety markets, HCCI, had come back and issued a non-binding indication of terms for the requested £420,000 bond against a £12,600 premium. In addition there was an onerous security of 100% cash deposit, being £420,000 equal to the value of the proposed bond to be issued. He said that the bond expiry clause would be " on issue of the certificate of practical completion, which shall be conclusive for the purposes of this guarantee".
On 16 December 2013 HCCI confirmed the terms of the bond but on the morning of 17 December 2013 Mr Rowland wrote to Mr Cuddy to say that HCCI had advised that, after taking another look at this case and discussing the matter further internally, they have determined that in this specific instance this was a " bond placement best left alone".
Meanwhile on 10 December 2013 Liberty Mercian's solicitors had been in contact with CCEL's solicitors to say that a meeting had been arranged with Henderson Surety Services ("Henderson") and a representative of their underwriters, Evolution. On 17 December 2013 a meeting took place between Henderson, Evolution, Liberty Mercian and CCEL.
Mr Cuddy says that after discussing the project, the background, the contract and the fact that it had been terminated the representative of Evolution said he could not provide a performance bond on a terminated contract and it was his view that in those circumstances a bond was not available. At the end of the meeting Mr Crabtree of Liberty Mercian said he would report the bondsman's position to Liberty Mercian. Mr Brian Tourle, the representative of Henderson confirmed the position in the following terms:
"I confirm that it will not be possible to issue a performance bond guaranteeing performance of a contract which no longer exists and therefore is not capable of being performed.
I can further confirm that I have been in touch with underwriters across the Surety market in this regard and this is a consistent response."
In his witness statement Mr Crabtree says that Mr...
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Liberty v Cuddy (3): Is The Court Acting As A Bondsman?
..."best endeavours" to procure the security documentation. The Court reserved judgement on the remedy afforded to Liberty. Third decision [2014] EWHC 3584 The Court held that CCEL had complied with its obligation to use its best endeavours to secure a performance bond. However, CCEL had not b......
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...Group Pty Ltd [2019] QSC 232. as to speciic performance, see paragraph 9.51f. 173 Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2014] EWhC 3584 (TCC) at [52]–[57], per ramsey J. 174 See, eg, Liberty Mercian Ltd v Cuddy Civil Engineering Ltd [2013] EWhC 4110 (TCC) at [39], per ramsey J ......
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