Greenore Port Ltd v Technical & General Guarantee Company Ltd

A contractor’s inability to continue work, caused by the lapse of essential insurance and imminent insolvency, may amount to repudiation. The employer may accept that repudiation by objectively engaging a replacement contractor, even if the parties misunderstand the legal position. Acceptance does not depend on the employer’s legal knowledge.

Additional completion costs are assessed by comparing the reasonable cost of completing the works with the adjusted contract price. An employer may act reasonably in using an open-ended cost-reimbursement arrangement where urgent completion, the available workforce and bargaining circumstances justify it. A guarantor’s unsolicited proposal to complete works will not necessarily affect mitigation, particularly where the proposal lacks sufficient detail and gives no reasonable basis for confidence.

The claimant engaged SAR Marine & General Ltd to renovate Greenore Harbour. The defendant issued a performance bond limited to IR£325,773.50. SAR experienced serious financial difficulties, its insurance lapsed on 18 July 2001, and it ceased work. The claimant subsequently engaged Norfolk Marine Ltd to complete most of the remaining works and later claimed under the bond.

The defendant disputed liability. It contended that the claimant had repudiated the construction contract, had unreasonably rejected an offer to complete the works, and had incurred costs which were not recoverable. The principal issues concerned the manner in which SAR’s contract ended, mitigation, additional completion costs, delay damages, and rock-dredging losses.

1. Termination. SAR’s conduct on 18 July 2001, including the lapse of insurance, cessation of work, exhaustion of funds and imminent insolvency, amounted to repudiation. The claimant accepted that repudiation by deciding to engage Norfolk and transferring funds to enable Norfolk to obtain insurance. Engaging a new contractor to perform the same works was objectively inconsistent with continuation of SAR’s contract. The claimant’s lack of awareness of the legal character of its conduct was immaterial.
2. Communication to SAR was effective. Mr Wilcox was both a director of SAR and a director of Norfolk, represented SAR during the relevant period, and was capable of receiving notification on SAR’s behalf. Arab Bank plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262 was distinguishable. The reasoning of Hoffmann LJ in El Ajou v Dollar Holdings plc [1994] 2 All E.R. 685 supported the conclusion on authority. The contract ended on or about 20 July 2001.
3. Mitigation. The claimant acted reasonably in rejecting the defendant’s 9 August proposal. The proposal was unusual, lacked material detail, involved an unknown company, and came after Norfolk was already performing the work. The defendant failed to establish that acceptance would have produced a satisfactory or properly funded completion.
4. Completion costs. The appropriate starting point was the reasonable cost of completing the works less the adjusted contract price, consistent with Mertens v Home Freehold Company [1921] 2KB 526. The claimant reasonably used Norfolk despite the open-ended arrangement because delay was commercially damaging, Norfolk’s workforce knew the project, a lump-sum tender was unlikely, and the bargaining circumstances justified the arrangement. The court assessed additional completion costs at £268,830.
5. SAR was liable for liquidated damages of £200,000 up to termination, after allowing four weeks’ extension of time. No liquidated damages accrued under the contract after termination, although ordinary damages for subsequent delay were in principle recoverable. The rock-dredging and post-October 2001 loss-of-profit claims failed because the claimant would probably have postponed the work even if SAR had remained contractor.
6. The claimant’s loss exceeded the bond limit. Judgment was therefore entered against the defendant for IR£325,773.50, converted into euros at an agreed or subsequently determined rate, with interest to be agreed or argued.