Sumitomo Mitsui Banking Corporation Europe Ltd v Euler Hermes Europe SA (Nv)

An assignee’s entitlement to enforce a bond depends on compliance with the bond’s contractual assignment requirements. A general acknowledgment or waiver will not suffice where a non-waiver clause requires any amendment to the bond to be expressly identified. A non-waiver clause may itself be waived, but the alleged waiver must satisfy the contractual requirements for waiving that clause.

Whether a demand has been signed by the required officer is a matter of construction. Strict compliance principles applicable to letters of credit do not necessarily apply to performance bonds. A signature by a director of a company holding an adequate power of attorney may satisfy a requirement for signature by a director of the employer. An assignee permitted to enforce a retention bond may likewise make the demand through its authorised officer.

The claimant was security trustee for lenders financing a public-private partnership waste treatment facility. The project company had assigned to it the benefit of a performance bond and a retention bond issued by the defendant in connection with the construction contract.

The contractor’s guarantor entered administration, constituting an insolvency default or equivalent event under the bonds. The claimant demanded payment of the bond amounts shortly before the performance bond expired. The defendant refused payment, contending that the performance bond had not been effectively assigned because the claimant had not accepted the contractual repayment obligation, and that neither demand had been signed by the required officer of the employer.

The issues were whether the assignment of the performance bond was effective, whether the demands complied with the bonds, and what relief was available.

1. The court held that the assignment of the Performance Bond was ineffective against the defendant. Clause 9 required the assignee to confirm acceptance of the employer’s repayment obligation under clause 8. The claimant had never given that confirmation.

2. The Notice of Assignment did not create a binding contract varying that requirement. If contractual, the arrangement would have been bilateral between the employer and the defendant, and no consideration of legal value had been established.

3. The Notice of Assignment also did not operate as an effective waiver. Clause 12.2 required any waiver which amended, deleted or added to the bond’s terms to identify the affected terms expressly. The notice did not identify clauses 8 or 9, or the repayment obligation. Further, a waiver of the non-waiver clause itself would require an indication that the waiver was effective despite non-compliance with clause 12.2. The reasoning in Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 supported that conclusion.

4. Although the claimant could not obtain payment in its own name under the Performance Bond, it could seek declarations because it had a sufficient interest. The demand was a valid demand by the employer acting through the claimant under its power of attorney. The requirement for signature by a director of the employer was satisfied by a director of the attorney company signing within the scope of the power.

5. The Retention Bond had been effectively assigned. Its clause 6 contemplated assignment, and the bond was construed as permitting the authorised officer of a permitted assignee to make the demand. Alternatively, the signature made by the claimant’s director as attorney for the employer satisfied the requirement.

6. Declarations were made that the demand on the Performance Bond by the employer through the claimant as attorney, and the demand on the Retention Bond by the claimant as assignee, were valid demands.