Performance bonds are a common feature of construction projects.
They provide assurance to employers that contractors will meet
their obligations and perform their work. If a contractor fails to
perform, the bond provides some protection from the consequent
damages if the contractor does not, or cannot, pay.
So far, so good. But what actually happens when the employer (or
another party, such as its lenders) calls on a bond? What happens
if the issuer of the bond – the bondsman – refuses to
pay out? A recent decision of the High Court in England and Wales
provides an excellent example of some of the pitfalls and how to
avoid them.
In Sumitomo Mitsui Banking Corporation Europe Limited v Euler
Hermes Europe a local authority was procuring waste treatment
facilities through a Public Private Partnership. Project Co entered
into a construction contract with the Contractor. The Contractor
was required to provide a performance bond and a retention bond to
Project Co. The
