MW High Tech Projects UK Ltd & Anor v Biffa Waste Services Ltd

Late on 26 January 2015 the first claimant made an urgent application ex parte to restrain the defendant from calling upon a retention bond and to require the defendant to countermand any steps it had already taken to call upon the bond. At that hearing I issued a temporary injunction in the terms requested by the claimants, and gave directions for a return date on 30 January. I also directed that the second claimant be added as a party. The second claimant is the first claimant’s parent company and was added so as to ensure that there was substance to support the undertaking in damages which was then given on behalf of both claimants. As will become apparent, the second claimant had some involvement in the facts underlying this dispute. I will refer to the first claimant as “M+W” and the second claimant as “M+W gmbh”. I will refer to the defendant as “Biffa” and to the provider of the retention bond, Euler Hermes Kreditversicherung AG, as “Euler”. Biffa complied with my interim order, but applied on 30 January 2015 to set it aside. At the end of the hearing, I gave my decision, which was to set aside the interim injunction. This judgment sets out the reasons for that decision.

In 2010 West Sussex County Council contracted with Biffa for the management and disposal of waste generated in its area. The contract was a Materials Resource Management Contract dated 28 June 2010 (“the MRMC contract”). One of the requirements of the MRMC contract was that a waste treatment plant (“the Plant”) should be designed and constructed near Horsham. On the same day, Biffa entered into a contract with M+W for the design, construction, installation, commissioning and testing of the Plant (“the EPC Contract”). The time for completion of the contract was determined by reference to what were called ATC tests, ATC dates and ATC longstop dates. They were defined to include the following. ATC1 “means the certificate issued by the Independent Certifier confirming that the ATC1 tests had been passed”. ATC1 date “means the date that the ATC1 tests were passed, as stated in the ATC1”. Planned ATC1 date “means the date specified in the EPC delivery plan on which the ATC1 date is scheduled to be achieved, as adjusted from time to time in accordance with this contract”. ATC longstop date “means the date 10 months from the planned ATC1 date”.

The relevant provisions of the EPC Contract were as follows. Clause 11.2.1 stated:

“The Contractor shall complete the Works…ensuring that ATC1 is achieved on or before the Planned ATC1 Date;…”

Clause 22 provided for liquidated damages for delayed completion. Clause 22.1 provided:

“If ATC1 has not been issued by the Planned ATC1 Date, the Employer shall issue a notice in writing the Contractor to that effect.”

Clause 22.3 provided:

“Subject to Clause 22.4, provided a notice has been issued under Clause 22.1 (and has not been cancelled), the Contractor shall, upon the Employer’s demand, pay or allow to the Employer liquidated damages, at the relevant rate stated in Clause 22.8, from the relevant Planned ATC1 Date up to and including the ATC1 Date.”

Clause 22.7 said:

“The Employer may (at any time after demanding the same) deduct liquidated damages arising under this Clause 22 from any sum due or to become due to the Contractor under this Contract. Further or alternatively, the Employer may recover the same from the Contractor within eight (8) Business Days of the Employer’s demand.”

Clause 22 did not, as sometimes occurs, state that the contractor would become liable to liquidated damages at any time before when they fell to be allowed or paid. Instead, the natural meaning of the words of clause 22.1 and clause 22.3, when taken on their own, was that the employer’s, issuing of a notice in writing pursuant to clause 22.1 was merely a prerequisite to being entitled to demand liquidated damages at a later date. No obligation to pay or allow liquidated damages to the employer arose unless and until a demand was subsequently made under clause 22.3. This natural meaning was consistent with clause 22.7, which stated that the employer may “(at any time after demanding the same)” deduct liquidated damages arising under clause 22;” and, later in the clause, that the employer may recover liquidated damages from the contractor “within 8 business days of the employer’s demand”.

Clause 43 required M+W to procure parent company guarantees (by clauses 43.1 to 43.2(a)), a performance bond (which is not directly relevant to the present application (clause 43.3) and a retention bond (clause 43.5), which is directly relevant. The parent company guarantee and the two bonds were required to be in the form set out in schedules 18, 24 and 28 respectively.

Clause 43.6 is central to M+W’s argument and provided as follows:

“It shall be a condition precedent to the Employer’s right to make a call upon either the Performance Bond or the Retention Bond that the Employer has first called upon the Parent Company Guarantee…in respect of the same matter. In the event that the Guarantor has not accepted in writing each and every aspect of such a call on the Parent Company Guarantee…made by the Employer, including any requirement to make payment within ten (10) Business Days of receipt of a notice from the Employer pursuant to Clause 1 of the Parent Company Guarantee…then such condition precedent shall be discharged.”

While the requirement that the employer “has first called upon the parent company guarantee” is not qualified or explained further, it is obvious that such call may be controversial, because the second sentence contemplates that the guarantor may not accept each and every aspect of the call. Where that happens, the condition precedent is discharged.

Clauses 49 and 50 provided for Termination on Contractor Default and for the compensation that would be payable in that event. Clause 49.1 said:

“If a breach falling within limb (k) (failure to achieve ATC1 by the ATC1 Longstop Date) of the definition of ‘Contractor Default’ has occurred, this Contract shall terminate on the day after the ATC1 Longstop Date.”

said:

“If a Contractor Default other than that referred to in Clause 49.1.1 above has occurred and the Employer wishes to terminate this Contract, it must serve a Termination Notice on the Contractor.”

Contractor Default was defined and included as limb (k) “A failure to achieve ATC1 by the ATC1 longstop date”. As indicated in clause 50.1, Schedule 10 set out a detailed arrangement for what was to happen in the event of termination. Part II dealt with what was to happen on termination for Contractor Default. Where, as in this case, the EPC Contract was terminated prior to issue of the ATC1 having been achieved, clauses 1.2.2 to 1.2.9 apply. Clause 1.2.2 set out a formula for determining what the contractor is to pay to the employer “by way of compensation and damages”. One of the constituent elements of the formula was “Y” which was defined as follows:

“Y is the total damages for delay in respect of the Works calculated as follows:

(i)

the liquidated damages (if any) for which the Contractor is liable pursuant to Clause 22 prior to the Termination Date and which have not been paid;

(ii)

the liquidated damages (if any) that the Contractor would have been liable for had it not been for the termination of this Contract, such liquidated damages being based on the state of progress of the Works as at the Termination Date as measured against the Works Programme and the Planned ATC1 date.”

Clause 1.2.3 to 1.2.9 of Schedule 10 provided that the cost to complete and delay damages, as defined by the Schedule, would be the amount calculated in accordance with the formula “as agreed by the parties, or as determined by an independent expert”. In the absence of agreement, the independent expert was to produce a compensation statement containing a reasonable estimate of the cost to complete and delay damages that will determine the amount payable. By paragraph 1.3.5 of Schedule 10, interest would be payable at Libor plus one per cent from the termination date to the actual date of payment.

Returning to the main body of the EPC Contract, the continuation of obligations on termination was provided for by clause 3, which stated:

“3.1.1

The termination of this Contract is without prejudice to the rights, obligations and liabilities of the Parties accrued prior to termination.

3.1.2

The termination of this Contract for any reason shall not affect the continuing rights and obligations of the Parties under this Clause and Clause 14.11 (Duty to Mitigate),…Clause 73 (Notices),…and Schedule 10 (Compensation on Termination), or under any other provision of this Contract which is expressed to survive termination or which is required to give effect to such termination or the consequence of such termination.”

It is common ground that the rights, obligations and liabilities of the parties “accrued prior to termination” in clause 3.1.1 are in contrast to the “continuing rights and obligations” in clause 3.1.2, which are those rights and obligations which had not accrued prior to termination, but which accrued after it. Schedule 10 is included in the list of continuing rights and obligations that are not affected by termination. Clause 22 (liquidated damages) and clause 43 (parent company guarantees) are not.

Clause 3.1.2 does not in terms state how the rights and obligations that are not included in the list shall be affected. That must be a matter for the interpretation of the contract as a whole, including clause 3.1.1. Clause 57 provides for remedies as follows:

“57.1

Subject to Clause 57.5 and without prejudice to any remedy which may arise or has arisen in favour of the Contractor under this Contract before or after termination of this Contract…the compensation to be paid to the Contractor pursuant to the provisions of Schedule 10 (Compensation on Termination) shall be the Contractor’s exclusive remedy as against the Employer under this Contract in connection with and arising from the termination of this Contract and vice-versa.”

Clause 57.5 said:

“Nothing in this Clause 57 shall prevent either Party from seeking injunctive relief or specific performance or other discretionary remedies of the court.”

Finally, clause 73.1 provided that:

“Any demand, notice or other communication given in connection with or required by this Contract shall be made in writing and shall be delivered to, or sent by ... first-class post.”

The Guarantee

The parent company guarantee was in the form of an agreement between Biffa and M+W GmbH. Clause 1 of the parent company guarantee provided as follows:

“The Guarantor as primary obligor hereby absolutely irrevocably and unconditionally guarantees to the Employer the due and punctual performance by the Contractor of all the obligations on the part of the Contractor under or pursuant to the Contract (“the Terms”) and agrees that if the Contractor shall in any respect commit any breach of or fail to fulfil any of the Terms, then the Guarantor will within ten (10) Business Days of receipt of a notice from the Employer setting out details of the breach perform and fulfil in place of the Contractor each and every term in respect of which the Contractor has defaulted, or which is unfulfilled by the Contractor. The Guarantor shall be liable to the Employer for all losses, damages, expenses, liabilities, claims, costs or proceedings which the Employer may suffer or incur by reason of the said failure or breach.”

This is a form of guarantee under which the guarantor would be entitled to take every point of defence that would be open to the primary obligor. It is therefore significantly different in kind from on-demand retention bonds, which typically are regarded as akin to cash, the precise meaning of a given bond, of course, being a matter of construction of its terms.

The retention bond in this case was made between Euler and Biffa in the form set out at Schedule 28 of the EPC Contract. It was in conventional form.

The procedure for calls on the bond was set out at clause 3.1 as follows:

“The Employer may from time to time make a written demand upon the Surety signed by a director of the Employer, stating:

(a)

that the Contractor has failed to perform or observe any of its duties and/or obligations arising under or in connection with the Contract, and/or has committed a breach of any provision and/or has failed to fulfil any warranty or indemnity set out in the Contract and/or has failed to satisfy any of its liabilities under or in connection with the contract and/or an Insolvency Event has occurred; and

(b)

the amount claimed by the Employer.”

Clause 3.2 reads:

“The Surety shall within 7 days of receipt of any such demand served from time to time by the Employer pay to the Employer the amount demanded to the extent that such amount together with the amount(s) of any previous payment(s) by the Surety to the Employer under this Bond does not in the aggregate exceed the Maximum Sum.”

Clause 4.2 was a “conclusive evidence” clause, which stated:

“Any demand made by the Employer in accordance with clause 3 shall be conclusive evidence that the sum stated in such demand is properly due and payable to the Employer under this Bond…”

Clause 5.1(f) provided that:

“The Surety acknowledges and agrees that the obligations of the Surety under this Bond shall not be impaired, reduced, discharged or otherwise affected by reason of any of the following:…(f) termination of the Contract or of the Contractor’s employment under it;…”

The Factual Background

The factual background is not significantly in dispute. For reasons that are not relevant here, the planned ATC1 date (26 June 2013) remained unchanged but the ATC1 longstop date was extended to 5 December 2014. It is common ground that ATC1 was not achieved by 5 December 2014. The reasons why it was not achieved are disputed and cannot be resolved here. It is clear, however, that the failure to achieve ATC1 by 5 December 2014 has the appearance of satisfying limb (k) of the definition of “Contractor Default”, so that, in accordance with clause 49.1.1, the EPC Contract would terminate on 6 December 2014. On 6 December 2014, Biffa duly wrote to M+W to confirm that, in its view, a breach falling within 11(k) had occurred, and the EPC Contract had therefore terminated on 6 December 2014.

M+W did not and does not accept that Biffa is entitled to rely upon clause 49.1.1, or on limb (k) of the contractor default; But it accepts and asserts that the EPC Contract has been terminated, its case being that Biffa has committed a repudiatory breach of the EPC Contract, which M+W accepted by a letter sent on 8 December 2014. Before that, on 5 December 2014, Biffa sent a letter to M+W demanding payment of liquidated damages payable from 26 June 2013 to 5 December 2014 “in accordance with clause 22.3 of the EPC Contract”, calculated in the sum of £2,387,388. Biffa asserted that it was entitled to recover that amount from M+W within 8 business days of the demand. The letter was sent by email and first-class post. Clause 73 does not permit the effective service of documents by email, requiring delivery, sending by hand or by first-class post or facsimile, and continuing rights and obligations arising under it are stated by clause 3.1.2 not to be affected by termination of the EPC Contract. Although the notice demanding payment of liquidated damages was sent at a time when the EPC Contract was still in being, Biffa accepts for the purposes of this application that the notice is deemed to have been duly served on 12 December 2014, by which time both parties contend (both for different reasons) that the contract had terminated.

On 10 December 2014, Biffa responded to M+W’s letter of 8 December, refuting the suggestion that it had committed a repudiatory breach of the EPC Contract, and reasserting that the contract had terminated as a consequence of the contractor’s default under limb (k). It went on to say that it was “entitled to recover the costs that it will incur in completing the project, plus liquidated damages, less any amounts already paid or to be paid to M+W in accordance with Schedule 10 of the EPC Contract”. Later in the letter, when talking about any claim that M+W might have, Biffa referred to Schedule 10 as providing M+W’s “exclusive remedies”. It did not state in the letter that Schedule 10 would provide Biffa’s exclusive remedies, but it concluded its letter by saying:

“Biffa is now taking steps to assess its entitlement in accordance with Schedule 10 of the EPC Contract to compensation on the termination of the EPC Contract for contractor default”.

On 29 January 2014, Biffa wrote to M+W GmbH, making a call in accordance with clause 1 of the Parent Company Guarantee. That letter was sent by facsimile. The basis for the call was clearly set out and was predicated on the assertion that M+W was required to have paid liquidated damages in accordance with clause 22 of the EPC Contract, and that it should have done so pursuant to the demand made in the letter of 5 December 2014, to which I have referred above. This is clear from the following passages in the letter:

“Biffa provided written notice to Neil Pailing at M+W on 26 June 2013 confirming that the ATC1 was not issued by the Planned ATC1 Date in accordance with clause 22.1 of the EPC Contract. Clause 22 of the EPC Contract confirms that, where M+W fails to achieve ATC1 by the Planned ATC1 Date, liquidated damages are payable by M+W to Biffa at a rate of £31,413 per week. Please find enclosed a copy of Biffa’s notice of 26 June 2013.

There has been no extension of time to the Planned ATC1 Date of 26 June 2013. Biffa therefore wrote to David Greggan and Roy Meakin at M+W on 5 December 2014 demanding payment of the liquidated damages payable from 26 June 2013 to 5 December 2014 in the sum of £2,387,388 in accordance with clause 22.3 of the EPC Contract. Please find enclosed a copy of Biffa’s letter of 5 December 2014.

On the basis that M+W has not made the demanded payment to Biffa within 8 business days of the deemed service of this demand as required under clause 22.7 of the EPC Contract M+W has therefore failed to make the required payment within the contractually prescribed timeframe under the EPC Contract.

M+W has committed a breach and failed to fulfil the terms of the EPC Contract in relation to liquidated damages. Biffa therefore notifies M+W Group of this breach and requests that M+W Group, in accordance with clause 1 of the Parent Company Guarantee, perform and fulfil M+W’s obligation to make payment of the liquidated damages sum of £2,387,388 to Biffa.”

On 14 January 2015, Biffa wrote to Euler demanding payment under the retention bond. It is this demand that has given rise to the present applications. Once again, the basis of Biffa’s demand was clearly set out. It relied upon the asserted obligation on the part of M+W to pay liquidated damages under clause 22 of the EPC Contract, pursuant to the demand made upon M+W by the letter of 5 December 2014, but expressly recognises that the letter was deemed to be served on 12 December 2014. It asserts that payment of the liquidated damages so demanded was due on 24 December 2014 and has not been made. It then records the fact of its call on the Parent Company Guarantee by the letter of 29 December 2014, to which I have referred, and states that the making of the call by that letter satisfies the condition precedent under clause 43.6 of the EPC Contract. It then states that M+W GmbH had failed to make any payment under the Parent Company Guarantee, and that it “therefore demands payment of the maximum sum available under the retention sum of £1,953,702 in respect of the liquidated damages payable by M+W under the EPC Contract”. (Should this matter go further, a copy of the letter should be treated as being incorporated as annexed to this judgment).

On 21 January 2015, solicitors acting for M+W wrote to Euler, summarising their objections to the call or to payment being made. On 23 January 2015 Euler informed M+W that they would delay for a short (but undefined) period pending M+W’s application to the court. It was in those circumstances that M+W brought its application before the court on 26 January 2014.

M+W recognises that the retention bond is in the form of a typical on-demand bond, payment of which can only be restrained on limited grounds, and that Biffa has purported to make a call on the retention bond. It also recognises that Biffa purported to call on the Parent Company Guarantee, which the parties are agreed is a condition precedent to Biffa’s right to call on the retention bond. It is also common ground that M+W GmbH did not accept the call on the Parent Company Guarantee in writing within 10 business days of receiving it. Under clause 43.6 the effect of such non-acceptance would be that the condition precedent is discharged. However, M+W submits that Biffa should be restrained from pursuing a call on the retention bond, because the purported call on the Parent Company Guarantee was not “valid” and, therefore, did not constitute a call within the meaning of clause 43.6 of the EPC Contract so as to satisfy the condition precedent to a call on the retention bond.

Biffa’s purported call on the Parent Company Guarantee is alleged to be invalid on two separate grounds. The first ground is that the contractual basis expressed by Biffa for calling on the guarantee was not one that was open to it to make. In summary, M+W contends that it was not open to Biffa to assert an entitlement to liquidated damages falling due under clause 22 as justifying the purported call on the guarantee, because no demand for liquidated damages had been made before the EPC Contract terminated. The second ground is that the contractual basis expressed by Biffa for calling on the guarantee, namely an entitlement to liquidated damages under clause 22, was contrary to the basis Biffa was simultaneously adopting in relation to the “automatic termination” of the EPC Contract. In summary, M+W says that because Biffa asserts that the EPC Contract had been terminated, and said in its letter of 10 December 2010 that it was “entitled to recover the costs that it will incur in completing the project plus liquidated damages less any amounts already paid or to be paid to M+W in accordance with Schedule 10 of the EPC Contract”, it is not now open to it to assert an entitlement to liquidated damages under clause 22 of the EPC Contract. The reason underlying this submission is that the provisions of Schedule 10 of the EPC Contract supersede the provisions of clause 22 on and after termination, so that it is inconsistent to pursue a claim under clause 22 when Biffa has already asserted that Schedule 10 is operative.

The word “valid” does not appear anywhere in the contractual structure relating to the Parent Company Guarantee, or how to call upon it. When pressed to explain what is meant by “valid”, Mr Moran QC for M+W first suggested that it meant “a call that corresponds to the meaning of ‘call’ in clause 43.6”, which is entirely circular. His final formulation was that “valid” meant “a demand that has a basis contractually and is not being made when an opposite contractual route is being pursued”. Understood in this way, he submitted that it should be implied into the condition precedent that a call on the Parent Company Guarantee was “valid”.

The relevant principles are those that determine when it is open to a party in the position of M+W to interfere with the process by which bonds such as the retention bond are called and paid. The applicable principles are largely not in dispute, but revisiting them is briefly necessary. The frequently revisited starting point is the decision of the Court of Appeal in Edward Owen v Barclays Bank [1978] QB 159 at 171, where Lord Denning MR adopted the language of Kerr J in RD Harbottle (Mercantile) Ltd v National Westminster Bank [1978] QB 14:

“It is only in exceptional cases that the courts will interfere with the machinery of irrevocable obligations assumed by banks. They are the life-blood of international commerce. Such obligations are regarded as collateral to the underlying rights and obligations between the merchants at either end of the banking chain. Except possibly in clear cases of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration as available to them or stipulated in the contracts. The courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. In this case, the plaintiffs took the risk of the unconditional wording of the guarantees. The machinery and commitments of banks are on a different level. They must be allowed to be honoured, free from interference by the courts. Otherwise, trust in international commerce could be irreparably damaged.”

Those principles have been repeated many times – see for example Bolivinter Oil SA v Chase Manhattan Bank [1984] 1 WLR 392 at 393C-D. In Sirius International Insurance Co v FAI General Insurance Limited & Others [2003] EWCA (Civ) 470 May LJ said at paragraph 26:

“Letters of credit are an important commercial means of providing cash or security for those who in return provide goods or services. Typically a seller agrees to sell goods to a buyer. The buyer establishes a letter of credit with a confirming bank in favour of the seller. The terms of the letter of credit spell out the circumstances in which the beneficiary – the seller – is entitled to draw it down. The terms will typically include presentation to the bank of specified shipping and insurance documents and the like. The bank's concern is to be satisfied that the terms of the letter of credit are fulfilled, whereupon the bank is obliged to pay the beneficiary. Because the letter of credit is, subject to its terms, the equivalent of cash, the bank is not concerned with any disputed question, not within the terms of the letter of credit itself, which may arise under the underlying sale contract between the seller and the buyer, as for instance, if the goods were said to be defective or to have arrived late – see generally United City Merchants v. Royal Bank of Canada [1983] 1 A.C 168 at 183. This is also the effect of Article 3(a) of the ICC Uniform Customs and Practice for Documentary Credits (1993 Revision) which was incorporated in the letter of credit in this case. Absent fraud by the seller presenting documents to the confirming bank seeking payment, the court will not restrain a bank from paying a letter of credit which is payable according to its terms, nor a beneficiary from seeking payment – see Group Josi Re v. Walbrook Insurance [1996] 1 Lloyd's R. 345 at 360-1. Nor, again absent fraud, will the court restrain a beneficiary from drawing on a letter of credit which is payable in accordance with its terms on the application of a buyer who is in dispute with the seller as to whether the underlying sale contract has been broken – see for both these propositions the Deutsche Ruckverischerung case at 1030 where Phillips J considered the authorities. This is the autonomous nature of letters of credit. By means of it, banks are protected and the cash nature of letters of credit is maintained. There is no authority extending this autonomy for the benefit of the beneficiary of a letter of credit so as to entitle him as against the seller to draw the letter of credit when he is expressly not entitled to do so.”

This passage is of particular relevance because of its emphasis that a beneficiary will not be restrained from calling on a bond simply because there is a dispute as to whether the underlying sale contract has been broken. At paragraph 27 and following of Sirius, May LJ pointed to the particular facts of that case, where the contractual structure required the beneficiary to obtain consent in writing before drawing down:

“To that extent the letter of credit was less than the equivalent of cash and Sirius' security was correspondingly restricted.” [see paragraph 27].

A recent reiteration of these principles is to be found in Wuhan Guoyu Logistics Group Company Limited & Another v Emporiki Bank of Greece Sa (No 2) [2013] EWCA (Civ) 1679, [2014] 1 All ER (Comm) 817 at paragraphs 21 and 22, where Tomlinson J said:

“21.

explained by Lord Diplock, the rationale for this well-understood and long-hallowed approach is that the guarantee is intended to be an autonomous contract, independent of disputes between the seller and the buyer as to their relative entitlements pursuant to the different contract between themselves. That same rationale underlies the equally well-established analysis that the underlying contract between seller and buyer, or between beneficiary and the party at whose instance the guarantee is procured, is subject to an implied term that the beneficiary will account to the other party to the underlying contract to the extent to which the beneficiary has been over-compensated by the guarantor…

22.

As I indicated at the outset, these principles underlie the basis upon which international trade is routinely financed. They are completely inimical to the implication of a trust impressed upon the monies in the seller's hands by reason of circumstances arising after accrual of the seller's completed cause of action under the guarantee. It is critical to the efficacy of these financial arrangements that as between beneficiary and bank the position crystallises as at presentation of documents or demand as the case may be, and that it is only in the case of fraudulent presentation or demand by the beneficiary that the bank can resist payment against an apparently conforming presentation or demand.”

The facts of Wuhan are of interest, because by the time the case reached the Court of Appeal it had been established in separate arbitral proceedings that the basis of the call was contractually unjustifiable, and that decision was final and binding. Despite that, the Court of Appeal held that the beneficiary was entitled to summary judgment on his call upon the bond and declined to impose a trust in favour of the bank.

There are two established exceptions to the rule that the court will not intervene. The first is where there is obvious fraud known to the bank. That is not alleged here. The nearest that M+W gets to alleging fraud is to characterise Biffa’s conduct as “cynical”, and it is not alleged that even this cynicism was known to Euler. The second exception is where the terms of the underlying contract preclude the beneficiary from making a call – see Sirius at paragraphs 27 and 30.

There have to date been two matters of principle that have been developed in relation to this second exception. The first is referred to at paragraph 27 of Sirius, and is that the beneficiary’s right to drawdown must be precluded by the expressterms of the underlying contract. There is to my mind no principle or reason why the beneficiary’s right could not be precluded by an implied term in the contract. What should matter is whether the right to drawdown is clearly precluded by the terms of the underlying contract, whether they be express or implied. The second is that, when considering whether or not to grant an injunction, it is not sufficient that there is a seriously arguable case that the beneficiary was not entitled to draw down. It must be positively established that he was not entitled to draw down under the underlying contract – see the judgment of Ramsey J in Permasteelisa Japan KK v Bouyguesstroi and Bank Intesa SpA [2007] EWHC 3508 (QB). If and to the extent that the subsequent decisions of Aikenhead J in Simon Carves v Ensus [2011] EWHC 657 (TCC) or Edwards-Stuart J in Doosan Babcock v Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3201 (TCC) suggest that a less rigorous test is to be applied, I respectfully consider that the views of Ramsey J should prevail as being in accordance with the substance of the decisions of higher authority, to which I have referred. It seems to me, both on principle and authority, that the only established exceptions to the rule that the court will not intervene should be where there is a seriously arguable case of fraud, or it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract.

It is important to note the scope of this second exception as developed in the authorities to which I have referred. The question is whether the contractual structure precludes the right to draw down, the most obvious example being a case such as Sirius, where drawdown was not permitted without the consent of the other parties. What has not been expressly considered is whether the court can or should intervene if it is positively established that the asserted substantive breach of the obligations under the underlying contract, upon which the beneficiary relies as the context for the call, is unfounded. That is what M+W is effectively trying to achieve by its first ground of objection. It wishes to establish that the call on the Parent Company Guarantee was based on an unjustified reliance on clause 22 of the EPC Contract and is therefore not to be regarded as a call on the Parent Company Guarantee at all for the purposes of calling the retention bond. It therefore wishes to undermine the procedural requisites to calling on the retention bond by attacking the substantive basis for the call on the Parent Company Guarantee.

I accept Biffa’s submission that there is no justification for implying a term that the call on the Parent Company Guarantee must be “valid” for a number of reasons. First, although the word “valid” has a disarming air of simplicity and precision, the formulation offered by Mr Moran QC shows that the implied term is uncertain in its formulation and its effect. An implied term that a demand on the parent company must “have a basis contractually” is imprecise in failing to distinguish whether the demand is put forward in reliance on contract terms, or whether the contract terms in reliance upon which the demand is made in fact justify the demand. If it is the former, it would be inapplicable in any case where a demand is stated to be made on a contractual basis however tenuous. But the latter is unacceptable, given that a call on a Parent Company Guarantee may be controversial, in the sense that the parent can take every defence available to the primary obligor, and may win in the end. On the latter interpretation of Mr Moran’s definition, if it was subsequently to be held that the parent had a good defence, the call would retrospectively be seen to be without a contractual basis, and would therefore not satisfy the condition precedent for calling on the retention bond. Such a conclusion would eliminate the perceived benefits of on-demand retention bonds and is unacceptable. I would therefore reject Mr Moran’s implied term, on the basis that its scope is uncertain.

Second, the EPC Contract terms relating to the condition precedent work adequately without the addition of the word “valid”, so that a need for business efficacy cannot be relied upon to justify the implication. The requirement imposed by the express terms of the contract is that Biffa should “call upon the Parent Company Guarantee in respect of the same matter”. That is readily comprehensible and entirely workable, since the concept of calling upon a guarantee is well known and readily understood without further elaboration. There may be ample scope for argument in some circumstances about whether or not Biffa has in fact done enough to be described as having called on the guarantee, but that is not this case. Here, what is said is that although what Biffa did satisfies the linguistic, formal and procedural requirements for making a call on the Parent Company Guarantee, the call should be discarded, because the underlying claim is not well founded. Even if the call in this case could be described as “ill founded”, there is no suggestion that it was fraudulent, and there is nothing new or remarkable in calls on guarantees being controversial, objectionable, or misconceived. There is, to my mind, no reason in favour of imposing any further qualification on the requirement that there be a call on the Parent Company Guarantee, and potent reasons against it. It would encourage protracted satellite litigation at short notice to try and establish whether or not the call on the Parent Company Guarantee was not merely controversial, but misconceived; and such an approach is inconsistent with a typical approach to the acknowledged end point, which is a call on the retention bond. The notion that there should be a preliminary dispute about whether the underlying demand is justifiable goes directly against the normal approach to on-demand bonds: pay now, argue later.

For these reasons, I prefer the approach of Biffa, which is to characterise the condition precedent as giving the parent company the opportunity to pay the underlying demand without recourse to its bankers via the retention bond. Just as the reputation of the banker may be affected by its willingness to honour its retention bond, a willingness which is not in question in this case, so the parent may (although apparently not in this case) think it commercially desirable to accept the demand on its Parent Company Guarantee, rather than letting Biffa go to the next stage of calling on the retention bond.

A further difficulty for M+W is that it is not plain that the contractual basis upon which the call on the Parent Company Guarantee was made is in fact misconceived or wrong. While I would agree that the natural meaning of clause 22, when read on its own, is that liability only arises when the demand is made, Schedule 10 creates a difficulty for M+W. The damages for delay in respect of the works, (“y”), include “the liquidated damages, if any, for which the contractor is liable pursuant to clause 22 prior to the termination date and which have not been paid”. On M+W’s interpretation of clause 22, read on its own, then an employer’s failure to make a demand before termination means (as Mr Moran QC confirmed) that prior to and at termination the contractor has no liability pursuant to clause 22. Accordingly, the sum claimable in respect of delay up to the date of termination would be nil. Because I have concluded that the word “valid”, as defined, should not be implied, it is not necessary to reach a concluded view on the interplay between clause 22 and Schedule 10, but, as things stand, I am not persuaded that M+W has shown clearly that no liability to liquidated damages had arisen. I therefore conclude that M+W’s first ground fails.

The relevant principles can be shortly summarised by reference to Wilkin and Villiers: The Law of Waiver, Variation and Estoppel at paragraph 6.03, and see Lissenden v Bosch [1940] AC 412 at 429, per Lord Atken. The doctrine of election of remedies does not apply in the circumstances of this case. What has happened since 5 December 2014 is that there has been complete disagreement about the consequences of ATC1 not having been achieved by that date. Biffa has asserted that there has been automatic termination. M+W asserts that Biffa has acted in repudiatory breach. Even if, which it is not necessary to decide, M+W were to be correct in its submission that Biffa was wrong to rely upon clause 22 once the contract has terminated and that its references to relying upon Schedule 10 were correct, it remains the case that what is payable under Schedule 10 is described as “liquidated damages pursuant to clause 22”. Mr Moran was constrained to accept that if this dispute were to be pleaded out, it would be open to Biffa to plead its claim for compensation for delay in the alternative, relying either on clause 22, or on Schedule 10, or on both. That correct concession demonstrates the reality of the present position, which is that this dispute is at an early stage of development and that Biffa has not irrevocably opted for one remedy or another.

For these reasons, M+W has shown no grounds upon which it could be right to restrain Biffa from pursuing its call upon the retention bond. It is therefore not necessary to consider the balance of convenience or the adequacy of damages, and I will not do so, except to say that M+W has not shown that damages would be an inadequate remedy, for the reasons set out at paragraph 7.2 of Biffa’s skeleton argument.