Contractor entitled to suspend works following non-provision of payment bond, notwithstanding significant payment into court by employer.
Multiplex Construction Europe Ltd -v- R&F One (UK) Ltd
The Technology and Construction Court has held that Multiplex Construction Europe Ltd (the contractor) remains entitled to suspend its works in accordance with the terms of a settlement agreement concluded between it and R&F One (UK) Ltd (the employer). This is despite payment by the employer of £15 million into court as part of ongoing settlement agreement enforcement proceedings.
By way of background:
- In August 2017, the parties concluded a building contract for the construction of a development at Nine Elms in Vauxhall.
- The building contract provided for provision of a payment bond for £15 million by the employer to the contractor by a specified date.
- The employer failed to provide the payment bond in accordance with the building contract and so the contractor made an application for summary judgment.
- Before the summary judgment hearing, the parties entered into a settlement agreement. Under this, the employer would provide the payment bond by a later specified date, failing which the contractor would be entitled to suspend performance of its obligations under the building contract until it received the bond.
- Again, the employer failed to provide the payment bond.
- The contractor commenced proceedings for enforcement of the settlement agreement. The contractor further advised that it intended to suspend further works if the bond was not provided.
- The employer contended that the contractor was not entitled to do so and that to do so would be wrongful and a repudiatory breach of contract.
- The contractor therefore sought clarification on this point in these proceedings (note that proceedings relating to enforcement of the settlement agreement by the contractor are ongoing).
- In court, the employer argued that in circumstances where it has paid £15 million to the court as part of the settlement agreement enforcement proceedings (to provide security for the contractor pending determination of those proceedings), the contractor has adequate payment security. Accordingly, in exercising its discretionary right to suspend works the contractor would be acting in an arbitrary and capricious manner. In the absence of very clear language to the contrary, arbitrary and capricious exercise of a contractual discretion is not permitted (BT Plc -v- Telefonica O2 UK Ltd - Supreme Court, 2014).
The court found in favour of the contractor, holding that unlike under a bond, the contractor has no right to immediate payment out of any funds held at court (and in particular, in the event of the employer’s insolvency).
Further, in suspending its performance of the works, the contractor would be exercising its discretion consistently with the contractual purpose of the right to suspend, namely to preserve its cash flow throughout the course of the works. In reaching its decision, the court referenced the employer’s history of late payment on the project.
- This case reinforces the importance of agreeing the form of any bonds etc to be provided under a building contract prior to entering into the building contract (both with the other party to the contract and the proposed surety).
- Parties should consider carefully the acceptability to it of any proposed sanctions for non-provision of security.
- Payment of monies into court is not necessarily equivalent security to other forms such as bonds.