Jumping the gun: know your rights before seeking recourse to bank guarantees

March 31, 2020

The recent decision in the English High Court of Justice between Yuanda (UK) Company Limited v Multiplex Construction Ltd & Australia and New Zealand Banking Group Ltd [2020] EWHC 468 illustrates the importance of precise wording in clauses dealing with unconditional bonds.


Multiplex Construction Ltd was the main contractor under a design and build contract (‘Main Contract’) of One Blackfriars. Multiplex engaged Yuanda (UK) Company Limited under a sub-contract to carry out façade works on the building (‘the Subcontract’). Under the Subcontract, Yuanda provided Multiplex with a bank guarantee (the ‘Guarantee’), which included the following clause:

 

The Guarantor guarantees to the Contractor that in the event of a breach of the Contract by the Sub-Contractor, the Guarantor shall subject to the provisions of this Guarantee Bond satisfy and discharge damages sustained by the Contractor as established and ascertained to and in accordance with the provisions of or by reference to the Contract and taking into account all sums due or to become due to the Sub-Contractor.

 

As a result of various delays on the project, Multiplex incurred £7,500,000 of liquidated damages under the Main Contract, which it sought to pass down to Yuanda under the Subcontract. Yuanda disputed Multiplex’s entitlement to recover liquidated damages on this basis, and consequently, Multiplex sought to have the matter determined by way of adjudication.

 

Relevantly, the adjudicator was required to provide its determination by 6 March 2020. Notwithstanding this, on 17 January 2020, and without prior notice, Multiplex sought recourse to the Guarantee on the basis that Yuanda had failed to pay the liquidated damages due under the Subcontract.  

Yuanda successfully obtained an interim injunction preventing Multiplex seeking recourse to the Guarantee.

 

At trial, and having found that the Guarantee constituted a conditional bank guarantee, the Court held that in order for Multiplex to make a valid call on the Guarantee:

 

  • The damages it claimed had to be “established and ascertained” under the terms of the Subcontract;

  • It had to obtain the determination of a “decision-maker” before it could make a call on the Guarantee; and

  • That determination had to recognise its entitlement to levy liquidated damages before Multiplex could have recourse to the Guarantee.

 

Multiplex’s attempt to seek recourse to the Guarantee on 17 January 2020 was held to be invalid. Multiplex had acted prematurely by failing to obtain a determination as to its entitlements under Subcontract, before seeking recourse to the Guarantee.

 

The full decision of Yuanda (UK) Company Limited v Multiplex Construction Ltd & Australia and New Zealand Banking Group Ltd [2020] EWHC 468 can be found here.

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