Liberty Mercian Ltd v Cuddy Civil Engineering Ltd & Anor

Where a contractual obligation to provide a performance bond has become practically impossible to perform in its original form, the court may, in an appropriate case, order substituted performance giving the claimant equivalent rights. That may include payment of the bond sum into court. The court should not compel a party to enter into an arrangement involving an imprudent or financially insufficient bondsman. Specific performance of an obligation to obtain collateral warranties may remain appropriate despite the proposed warrantor’s insolvency or dissolution where the remedy may still provide a useful, insured benefit and enforcement would not involve difficult or uncertain litigation.

The claimant sought specific performance of contractual obligations requiring the first defendant to provide a performance bond and two collateral warranties. Earlier judgments held that the contract was made with the first defendant, that the relevant obligations survived termination, and that the first defendant was in breach: [2013] EWHC 2688 (TCC) and [2013] EWHC 4110 (TCC).

The court had previously directed the first defendant to use its best endeavours to obtain the bond and warranties. The bond could not be obtained in the contractual form. A possible alternative bond involved a substantial cash deposit with an unrated insurer. The proposed warrantor for the collateral warranties had been dissolved, although there was evidence that insurance might exist. The issues were whether specific performance, substituted performance, and the appropriate costs orders should be granted.

1. Performance bond. The first defendant had complied with the order to use its best endeavours. On the evidence, obtaining a bond in the contractual form was, in practical terms, impossible. The court nevertheless held that specific performance may be granted by substituting an alternative performance which gives equivalent rights, where the original obligation remains enforceable and specific performance would otherwise be appropriate.
2. Payment into court. The court had jurisdiction under section 19 of the Senior Courts Act 1981 to order payment into court as a procedural mechanism giving effect to substituted performance. Such an order would not create a new substantive right. The sum would stand as security on terms equivalent to the bond, with liberty to apply and provision for repayment if proceedings were not commenced within six months.
3. Alternative bond. The proposed bond from Evolution was not suitable. It required a £420,000 deposit with an unrated Gibraltar insurer, which could access the deposited money on terms giving rise to reasonable financial concerns. The court would not compel a financially prudent party to enter such an arrangement. The appropriate relief was therefore an order that £420,000 be paid into court as substituted performance.
4. Collateral warranties. The dissolution of Quantum did not make specific performance useless on the evidence. There was evidence of possible professional indemnity insurance, and the matters raised by Quantum did not involve disputed facts or difficult questions of law. Specific performance was therefore ordered against the first defendant in respect of the warranties.
5. Costs. The claimant was ordered to pay the first defendant’s costs of the 3 April 2012 hearing and 65% of the defendants’ costs up to September 2013. The first defendant was ordered to pay 50% of the claimant’s costs up to 3 April 2012 and the claimant’s costs thereafter. The claimant was to pay £50,000 on account of costs.

First-instance judgment. The judgment describes earlier decisions in the same proceedings at [2013] EWHC 2688 (TCC) and [2013] EWHC 4110 (TCC).