George Elliman

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Case update: TCC weighs in on suspensions and securities

Construction / 05 February 2020

In Multiplex Construction Europe Limited -v- R&F One (UK) Limited [2019], the Technology and Construction Court (TCC) considered a contractor’s right to suspend works in circumstances where a contractually agreed payment bond was not provided.

To start with, some background on how this issue came before the TCC:

– Multiplex (the contractor) and R&F One (the employer) entered a building contract in 2017 – the building contract included a clause requiring the employer to provide a payment bond for £15 million as security for the contractor by a specific date.

– The employer failed to provide the payment bond by the date stipulated under the contract, so the Contractor applied for summary judgement.

– The parties entered a settlement agreement before the hearing, again with the stipulation that the employer would provide the payment bond by a new date. The contractor would also be entitled to suspend works if the employer failed to do so.

– Once again, the deadline passed, and the contractor suspended works.

Interestingly, the employer had paid £15 million into court rather than providing a payment bond, as part of separate settlement enforcement proceedings. When the contractor suspended works, the employer argued that this was a wrongful breach of contract. As their argument went: while no payment bond had been provided, the contractor was now secured to the same sum of £15 million. Surely, in those circumstances, it was capricious of it to suspend works?

No, said the TCC judge, and held that the contractor was entitled to suspend the works. The core purpose of the payment bond in the agreed form was to:

– Preserve the contractor’s cash flow throughout the lifespan of the project; and

– Give the contractor immediate access to the monies following a demand under the contract.

Counter to this purpose, the payment into court would remain the employer’s property. If the employer were to become insolvent, the monies would not be immediately available to the contractor, who would join the order of priority as a secured creditor only. This did not give the contractor the same level of security. The judge also drew attention to the fact that the employer was a shell company with a history of late/non-payment.

Key points to take away
Security can be a hugely important part of the contractual relationship between the parties to a building contract, especially when contracting with: (i) financially uncertain companies (ii) shell companies, or (iii) where the scale of the project means non-performance by the other party creates a cash flow issue.

As this case shows, the courts are likely to look closely at what the parties have agreed in writing and are unlikely to entertain efforts to ‘water down’ security.

Greenwoods GRM can assist with working effective security into your building contracts. To find out more, get in touch our Construction team.

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