Article / 11 Feb 2025
In this article, we explore the case of ML Hart Builders Ltd (in liquidation) v Swiss Cottage Properties Limited [2022] EWHC 1465 (TCC) to understand the effect of a bond settlement agreement in relation to claims between employers and contractors.
Was the insolvent contractor entitled to insist on an account of the sums due to it under the contract or was it bound by the agreement between the employer and the surety?
The Claimant contractor, ML Hart Builders Ltd contracted with the defendant, employer Swiss Cottage Properties Limited (Swiss Cottage), to demolish a pub and design and build 14 flats and a commercial shell. The Contractor provided a bond from Aviva in the maximum sum of £332,500.
The Contractor entered into a Creditors’ Voluntary Liquidation and that insolvency automatically triggered various obligations under the contract. This included an obligation to draw up an account under clause 8.7.4 of the contract to ascertain the sum due to the Employer or the Contractor as the case may be.
The Employer claimed £435,175, however, the Contractor asserted that it was in fact owed £200,000. So, the contracting parties disputed the sums due.
The Employer made a claim against Aviva under the Bond and they reached a compromise (the Acceptance Agreement). The Employer agreed to accept £235,000 in full and final settlement of its claim under the Bond. The Contractor was not a party to the Acceptance Agreement.
The Contractor referred its claim to adjudication and asked the Adjudicator to determine the clause 8.7.4 account.
The Employer said there was nothing for the Adjudicator to determine because the Contractor was bound by the Acceptance Agreement and that constituted the clause 8.7.4 account.
It may come as a surprise that the Adjudicator agreed with the Employer.
The Contractor asked the Court to declare that the clause 8.7.4 accounting had not taken place, that the Adjudicator’s decision was wrong and that the Contractor was entitled to launch a fresh adjudication for a decision on the amount due.
The Court decided that the Adjudicator’s decision was wrong. The Acceptance Agreement did not amount to the clause 8.7.4 accounting as contended for by the Employer. So the Contractor was not estopped from seeking a clause 8.7.4 account.
The Court was referred to the case of Ziggurat (Claremont Place) LLP v HCC International Insurance Company PLC [2017] which it found ‘of great assistance’.
As there had been no ascertainment under clause 8.7.4 and the Adjudicator had declined to decide that point, there was nothing to stop the Contractor from launching a new adjudication to have the point decided i.e. it had not already been decided.
Following the insolvency of a contractor, the JCT form of contract requires an account to be drawn up setting out the financial position as between the contractor and the employer. Employers have in some instances (in this case and other reported cases) sought to avoid that accounting process.
The Court has yet again confirmed the importance of following the contractual procedure and drawing up the necessary account.
The surety was not a party to this action. The surety had reached a commercial settlement of the bond claim, as it was entitled to do.