· it may be accepted that such an arrangement would make recourse to the security more difficult from the obligee's point of view than if some alternative arrangement had been adopted, in that the obligee had to ensure that the certificate adequately particularised the circumstances justifying the making of the demand. It may be accepted also that such an arrangement would place a greater burden on the surety than would be the case if some alternative arrangement had been adopted, in that the surety had to be satisfied on the basis of the matters stated in the certificate that circumstances justifying the making of a demand existed. This does not make it commercially improbable that the parties should agree to such an arrangement. The parties were free to make whatever bargain they wished in relation to the provision of security;
· there is no general principle of law or commerce that requires that the surety under a performance bond should not, under any circumstances, be concerned with the question whether the party whose performance is secured by the provision of the bond, has performed its contractual obligations [cf Edward Engineering Limited v Barclay's Bank International Limited [1978] 1 Lloyd's Rep 166 at 172.]. The question in each case must be one of construction of the terms of the bond.
The rebuttable presumption
32 In I.E. Contractors Ltd v Lloyd's Bank Plc [1990] 2 Lord's Reports 496 [at 500] Lord Justice Staughton made the point that there is a bias or presumption in favour of the construction which holds a performance bond to be conditioned upon documents rather than facts. However that presumption is not irrebuttable if the meaning is plain. In what follows I proceed accordingly.
Certificate Procedures under Performance Bonds
33 The defendant's contentions clearly fly in the face of the well-established position that the commercial purpose of a certificate procedure under a performance bond is to avoid any inquiry or exercise of judgment by the bond issuer as to the underlying circumstances.
Decision
34 In what follows the Court accepts as of substance and substantially adopts, the Surety's submissions.
35 There is no occasion to be found in the terms of the subject performance Bonds [nor from the terms of the Deed] to warrant any departure from that well-established position which may shortly be summarised as follows:
· The nature and commercial purpose of a performance bond are incompatible with any limitation on the issuer's obligation to pay upon demand. See, e.g., Wood Hall Limited v. The Pipeline Authority (1979) 141 CLR 443.
· The only issue is whether the certificate complies on its face with the terms of the bond; the issuer need not be concerned with the underlying dispute. See, e.g. Gold Coast Limited v. Caja De Ahorros Del Mediterraneo [2002] 1 Lloyd's Rep 617 at 622.
· A performance bond is, thus, conditioned upon the regularity of documents rather than on any underlying state of affairs.
36 There is no warrant presently shown for importing a condition that payment is to be made only in the event of a breach of the construction contract between Chelmsford and the Contractor. See BI (Australia) Pty Limited v. Cigna Insurance Australia Limited, (1990) 11 BCL 64; Giles J., BC9001822, 24 October 1990. Nor in the present circumstances is there any scope to imply a term that Chelmsford provide particulars beyond those stipulated on the face of the Bonds.
37 Upon the proper construction of clause 2 of the Bonds, once the Surety had satisfied itself that the demand was in proper form, there was no occasion for any further exercise of judgment as to whether circumstances existed justifying the making of a demand. Provided a certificate included with a demand reproduced (or substantially reproduced) the contents of subparagraphs (i) - (iv) of clause 2, the certificate (and hence the demand) would be in proper form. Provided that the demand was in proper form the Surety was obliged to pay on the demand.
38 The proper construction of clause 2 is to construe the words "must include a certificate … to the effect that" as equivalent in meaning to a requirement that the demand "must include a certificate … that".
39 Contrary to the defendant's contentions, the "rationale … for permitting any departure in the certificate from the language of those subclauses" had nothing to do with an inquiry as to the underlying default. The words "to the effect that" did not require that the certificate particularise the "substance or gist of the matters that had to be certified" in the sense of the substance of the "circumstances justifying the making of a demand for payment".
40 Rather, the rationale for the phrase, "to the effect that", was to relieve Chelmsford of the obligation to use the exact words of clause 2 in the demands. The phrase, "to the effect that", meant that a demand would be in proper form if it contained a certificate conveying the substance of the matters in each of subclauses (i) to (iv) - even if the language used differed from that of clause 2. The question whether the certificate satisfied clause 2 was a matter going to the regularity of the demand: all the Surety had to do was to check that Chelmsford had certified the substance of those matters, not that it had given particulars showing that its certification was well-founded or justified in the circumstances.