Civil Engineering Reference
In-Depth Information
that damages had been sustained by the employer and also as to the quantification of
those damages.
A conditional or default bond, unlike an on demand bond, is a cautionary obliga-
tion and so the principles applying to such obligations described in Section 23.1.4 will
apply to this type of bond.
hetriggersforcallingthebondshouldbeclearlysetoutinthebond.hesemay
include, for example, the employer establishing that the contractor is in breach of
contract and the extent of the damages arising from such breach; the insolvency of
the contractor; or presentation of an arbiter's award or court decree or possibly the
decision of an adjudicator pursuant to the 1996 Act, see
Beck Interiors
v
.Russo
.
23.2.5 The ABI model form bond
There are a number of standard forms of bond and one of the most commonly used
is the model form of the Association of British Insurers (ABI). This was published
in 1995 (and revised in 2004) primarily in response to the Court of Appeal decision
in
Trafalgar House Construction (Regions) Ltd
v.
General Surety and Guarantee Co.
Ltd
(1995), in which a form of bond then in common use (described by the Court
of Appeal as 'archaic') was treated effectively as an on demand bond, despite earlier
assumptions to the contrary. his decision was later overruled by the House of Lords,
which followed
inter alia
the decision of
City of Glasgow District Council
v.
Excess
Insurance Co. Ltd
(1986) that a performance bond in similar terms was a cautionary
obligation.
heABIbondprovidesthattheguarantorwill'satisfyanddischargethedamages
sustained by the employer as established and ascertained pursuant to and in accor-
dance with the provisions of or by reference to the contract'. Thus, the employer's
entitlement is linked expressly to the contract itself. If, as with most standard forms,
the contract contains a mechanism for ascertainment of loss and damages following
breach by the contractor, then this mechanism must be followed before any money is
payable under the bond. However, the wording of the bond does not go so far as to
state that the employer has to establish the amount of his loss, if necessary by going to
court or to arbitration, and it therefore leaves some uncertainty as to exactly at what
stage and in what circumstances the bond can be called.
The ABI bond expressly limits liability as to time and money. The expiry date for
makingacallonthebondisamatterfornegotiationbuttypicallythedatewillbe
stated as the date of practical completion of the works or the issue of the certificate of
completion of making good defects.
The bond contains a prohibition on assignation by the employer without the prior
written consent of the guarantor and the contractor. In practice, this can lead to dif-
ficulties where there is a change in the employer, either due to novation or because a
funder has stepped into the building contract on the employer's default. This partic-
ular difficulty can be overcome by inserting additional wording stating that the bond
will be assignable to any successor to the employer under the contract.
he ABI bond also makes clear that the bond operates as a guarantee, i.e. it is acces-
sory to the principal contract. Therefore, if there is no liability or limited liability
