Ziggurat (Claremont Place) LLP v HCC International Insurance Company Plc

A performance bond drafted as secondary liability may nevertheless create liability for an unpaid contractual debt arising after the contractor’s insolvency. A breach is not required where the bond’s wording independently covers such a debt. Alternatively, non-payment of a debt ascertained under the building contract constitutes a breach capable of triggering the bond.

The contractual ascertainment procedure need not be preceded by proceedings or agreement with the insolvent contractor. However, the amount notified by the employer is not necessarily conclusive: the surety may advance any challenge that would have been available to the contractor.

The claimant employed County Contractors (UK) Ltd under a JCT 2011 building contract. The defendant issued a performance guarantee bond. County suspended the works, became insolvent and entered a company voluntary arrangement. The claimant completed the works, calculated a debt under clauses 8.7.4 and 8.7.5 of the building contract, and demanded payment under the bond.

The claimant sought declarations concerning whether insolvency alone could trigger liability, whether the contractual accounting exercise established the recoverable sum, and whether proceedings against County were first required. The defendant resisted the first two declarations. The third was agreed.

1. Construction of the bond. The bond was a secondary-liability instrument, but clause 2 was a specific, homemade provision intended to cover sums payable following the contractor’s insolvency. Reading it as merely definitional would deprive it of practical effect. The unpaid debt therefore fell within the bond without a separate breach being required.
2. Alternative breach analysis. If clause 1 nevertheless required a breach, County breached the building contract by failing to pay the debt calculated and demanded under clause 8.7. The bond covered that breach, subject to its maximum liability.
3. Effect of insolvency and termination. Clauses 8.5 and 8.7 of the JCT form required the ascertainment process to operate following insolvency, whether or not the employer had given a termination notice. Belated arguments about the validity of an earlier termination did not prevent that process. The decision in Wilson and Sharp Investments Limited v Harbour View Developments Limited [2015] EWCA Civ 1030 supported that conclusion.
4. Ascertainment and challenge. Completion of the contractual accounting exercise was sufficient to permit a claim against the surety. The claimant did not first need a judgment against County or County’s agreement. The notified figure was not conclusive, however. The defendant could challenge its accuracy to the extent that County could have done so.
5. The claimant succeeded in substance on Declarations 1 and 2, although the declarations as drafted were inaccurate and were to be reformulated. Declaration 3 had been agreed.

First-instance decision. The judgment does not state any prior appellate history.