New UK Case on Performance Bonds

Caterpillar Motoren GMBH & Co K.G. v Mutual Benefits Assurance Company

The above recent judgment of the UK’s High Court  (please click on case name to download full judgment) considers whether a  contract of guarantee in a suite of construction contracts is a demand or a performance bond or a simple guarantee.

Factual Summary:

The claimant entered into a sub-contract with a construction company which was guaranteed by various bonds provided by the defendant. As matters progressed the claimant terminated the sub-contract, and thereafter made a demand for payment premised on the bonds granted by the Defendant. Payment on the bonds was refused by the Defendant and the claimant pursued summary judgment that the bonds were payable on demand. Pursuant to a review of the contract the Court came to the following conclusions:

  • Whether the bonds in question were payable on demand depended on how “commercial men” would construe them.
  • Where a bond document contains an undertaking to pay “on demand”, there will be a presumption that it is on demand.
  • The bonds contained undertakings by the defendant to “pay forthwith on demand… without reference to the sub-contractor…” and, therefore, were payable on demand by the claimant.

For more information and to place the foregoing decision in an Irish context, the Irish law pertaining to Bonds was the subject of a CBA Technical Talk by Michael Binchy BL.  The relevant paper may be downloaded here The Law of Performance Bonds – Michael Binchy BL

JSF (20.10.2015)

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