The main contractors for the construction of a new leisure complex for a borough council entered into a subcontract for the groundworks. The subcontractor and the appellants provided a Bond for 10 percent of the value of the subcontract on condition that ‘if the subcontractors shall duly perform and observe’ all the terms of the contract or ‘if on default by the subcontractor the surety shall satisfy and discharge the damages sustained by the main contractor thereby’ up to the amount of the Bond then the obligation would be null and void but otherwise remain in full force.
Held: The appeal succeeded. The subcontractor was entitled to a set off against a claim on the bond given to the head contractor. A sub-contractor’s bond was a guarantee and he was entitled to the rights of a guarantor. The House viewed with scepticism a submission that it was an implied term of a bond that any overpayment would be repaid.
Bonds in similar form had always been treated as guarantee; the bond referred to the appellants as ‘the surety’; the contract appeared in substance to be one to answer for the default of another; and it contained express provisions negating release of the surety upon a variation of the contract or forbearance as to time.
Lord Jauncey of Tullichettle said: ‘There is no doubt that in a contract of guarantee parties may, if so minded, exclude any one or more of the normal incidents of suretyship. However, if they choose to do so clear and unambiguous language must be used to displace the normal legal consequences of the contract . .’
Judges:
Lord Jauncey of Tullichettle
Citations:
Gazette 19-Jul-1995, Times 04-Jul-1995, [1995] 3 All ER 737, [1996] 1 AC 199
Jurisdiction:
England and Wales
Citing:
Appeal from – Trafalgar House Construction (Regions) Ltd v General Surety and Guarantee Co Ltd CA 1994
Beldam LJ said: ‘It seems to me implicit that the demand made by the sub-contractor should state the amount of the damages sustained by the default. But it does not follow that, because the main contractor must state the amount of the damages, the . .
Cited by:
Cited – Gold Coast Ltd v Caja De Ahorros Del Mediterraneo and others CA 6-Dec-2001
The banks appealed findings as to their liability to pay out under on-demand guarantees they had given in respect of stage payments for the construction of a ship. It was claimed that the delivery times had not been met, and the builder was in . .
Cited – Van Der Merwe and Another v IIG Capital Llc ChD 13-Nov-2007
The parties had entered into a debt factoring agreement, under which repayment was sought of some $30m, and the claimants were said to have guaranteed the loan by the factor to their company. The court was asked whether the guarantors had the same . .
Lists of cited by and citing cases may be incomplete.
Contract, Construction
Updated: 15 May 2022; Ref: scu.89972