Wood Hall Ltd v Pipeline Authority

For the reasons I have given, it seems to me clear that the Bank was obliged to the Authority to make payment when demand was made. It is unnecessary to consider whether it would be possible to grant to the contractor any relief against the Bank if it were established that the making of a demand by the Authority was a breach of its duty to the contractor, because, for the reasons which I am about to state, I consider that the Authority was entitled, as between itself and the contractor, to make the demands when it did.

The right of the Authority to make demands under the two sorts of bank guarantee must be considered separately, and I turn first to the performance guarantees.

It is clear that the bank guarantee for $1,500,000 was provided by way of alternative security under condition G4.2, and there is no reason to doubt that the bank guarantee for $100,000 was intended by the parties also to be governed by the provisions of condition G4. Both those bank guarantees were therefore provided "as security for Contractor's due and faithful performance of the Work": condition G4.1. The submission made on behalf of the contractor was that "the Work" had been duly and faithfully performed and that therefore the Authority had no right to resort to the security. The basis of this submission was that "performance of the Work" in condition G4.1 means performance of the physical work, and not performance of the contractual obligations of the contractor. In support of this argument reference was made to the definition of "the Work" in condition G1.12 which, it was said, refers to work of a physical kind, and to the provisions of condition G30.1, under which the contractor is entitled to a certificate of acceptance "upon completion by Contractor of the Work so that the pipeline shall have been constructed to the point which is shown on the alignment sheets as marking the end of the pipeline and so that all of the Works shall have been peformed by Contractor in accordance with all of the covenants, terms and conditions of the Contract ". If "the Work", in this condition, meant "the contractual obligations", the consequences would be inconvenient in a way which the parties to the contract cannot have intended. The date on which the contractor obtains, or becomes entitled to obtain, a certificate of acceptance is vitally important for a number of purposes under the contract. It marks the time when the Authority can no longer retain the balance of ten per cent of the moneys deducted from progress payments (condition G24.5), the time up to which liquidated damages are payable in the event of delay in completion (condition G26), the time after which payment is to be made to the contractor (condition G30.5) and the time of commencement of the defects liability period (condition G35.1). The contract cannot possibly mean that if the contractor has been guilty of delay in performance he can never become entitled to a certificate of acceptance. It is apparent that when condition G30.1 uses the words "completion of the Work", or "all of the Work shall have been performed", it refers to completion and performance of the physical work, whether or not there has been a compliance with the provisions of the contract as to time, but this does not assist the contractor in the construction which it seeks to place on condition G4.1. That clause uses the words "due and faithful performance of the Work" and in this case the word "due" appears to imply that there has been a proper compliance by the contractor with its contractual engagements, including those as to time. However, I need not rest my decision on that ground. There is nothing in the words of condition G4 that suggests that the Authority can only demand payment under an alternative security provided under condition G4.2 if there has been a failure by the contractor to perform the work. The primary security, to be provided under condition G4.1, is of course cash, to be paid on or before the execution of the contract. The Authority is not required to prove that there has been a want of "due and faithful performance of the Work" as a condition of receiving payment under condition G4.1. The payment is to be made on or before the execution of the contract, and when paid is held as security. There seems to me nothing incongruous in holding that the Authority may resort to the alternative security in accordance with its own terms, and, having demanded and received payment under it, must hold the money received as if it were the sum provided under condition G4.1. It was submitted on behalf of the contractor that it was intended by condition G4.2 that the contractor should have the right to provide a security that was a true "alternative" to the payment of cash, and that a security would not answer that description if it could be converted to cash at the will of the Authority. It is unnecessary to consider whether condition G4.2 gave the contractor a right to require the Authority to accept any alternative security that contained terms and conditions which objectively could be regarded as reasonable, or whether it embodied no more than an agreement to agree, because in fact the contractor provided, without objection, the performance guarantees. Condition G4.2 says nothing as to the circumstances in which the Authority can demand payment under an alternative security. That question must be governed by the terms and conditions of the alternative security itself. If the terms of the bank guarantee or performance bond entitle the Authority to payment on demand, there is nothing in condition G4 to suggest that such a demand can only be made if there has been a want of due and faithful performance of the work. However, once demand has been made, and the money has been paid, the money must be held as security for the contractor's due and faithful performance of the work, as though it had been paid under condition G4.1.