An Acceptance Certificate may make an ‘On Demand’ Bond Null and Void

An ‘On Demand’ Bond can usually only be restrained in the case of fraud, but this is not always the case. This matter was recently considered in the case of Simon Carves Ltd (SCL) v Ensus UK Ltd [2011] EWHC 657.
The background to that case was that SCL was employed to build a bio ethanol plant in Teesside. SCL obtained a performance bond from the Standard Chartered Bank in a standard form in respect of the works. A Taking-Over Certificate was issued for the works on 17 February 2010, and at a later date an Acceptance Certificate was also issued. After this a problem with the design of the emission stacks (which formed part of SCL’s works) became apparent and as a result the emission stacks needed to be doubled in height.
Ensus issued a Defects Notice against SCL, and at a later date tried to make a claim on the On-Demand Bond. However, SCL sought an injunction against Ensus to prevent it from making a claim on the Bond. SCL relied upon Special Conditions 3.7 and 3.8 of the contract which said that once an Acceptance Certificate had been issued the Bond was to become ‘null and void’.
The court agreed that the Bond became ‘null and void’ upon the issue of the Acceptance Certificate and granted the injunction that SCL sought to prevent Ensus from calling on the Bond even though it was an On-Demand Bond.
The moral of this case is that if you wish to rely upon an On Demand Bond, ensure that it is not rendered null and void by the issuing of a document under the terms of the contract between the parties.

Don’t delay when pursuing a negligence action

If you don’t want to fall foul of the Limitation Act 1980, don’t be tardy in pursuing a negligence action. This matter was recently considered in the case of Renwick & Anor v Simon and Michael Brooke Architects & Ors [2011] EWHC 874.
The background to that case was that Mr & Mrs Renwick had decided to extend their house and to construct a large basement room known as the ‘Garden Room’. The work was carried out in 2001.
Soon after the Garden Room had been constructed, large volumes of water came in through the walls. Whilst the problem appeared to be related to the construction rather than the design of the Garden Room, Mr & Mrs Renwick wrote to the Architect on 19 February 2002 and said “.. we require the structural engineer to visit site and give us a considered report, failing this we will have no option to take legal action against him to have the whole job re-done”.
The structural engineer did visit the Garden Room, and produced a report on the remedial works required. Remedial works were undertaken, and patch repairs continued for several years thereafter.
Despite this, in the summer of 2008, water began accumulating under the floor of the Garden Room. After that time, further investigations were carried out, and in July 2010 proceedings were commenced against the Architect and the Structural Engineer for negligence in the design and/or supervision of the works to the Garden Room.
The Structural Engineer made its application to the court that the claim was statute barred (time-barred) by way of the Limitation Act 1980. The Limitation Act 1980 says that an action founded on tort or founded on a simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.
In this case, the court found that the cause of action was in 2002 when the problem was first apparent (and when Mr & Mrs Renwick had written to say that they may be forced to take legal action against the Structural Engineer) rather than in 2008 when the problem re-surfaced. Consequently, the court found that as the proceedings were not commenced until 2010 (i.e. 8 years after 2002) the claim was time-barred and could not proceed.
The moral of this case is that if you have made it clear that you consider that somebody has acted negligently, you need to act quickly otherwise your proceedings may fail because they are time-barred.

Don’t delay when pursuing a defects action

If you have ‘constructive knowledge’ of defective work, you need to act quickly. This matter was recently considered in the case of Clinton Eagle v Redlime Ltd [2011] EWHC 838.
The background to that case was that Redlime had formed a concrete slab for some kennels to be built on. The concrete slab was formed in 2000, and soon after the slab had been cast, Mr Eagle engaged another contractor to build kennels onto it.
In the late summer of 2006, Mr Eagle noticed that the render to the kennels had cracked, and a gap along a drain channel at the edge of the slab had opened up. Mr Eagle put this down to either a defect in the design or in the construction of the concrete slab. Mr Eagle commissioned a survey to be undertaken in respect of the concrete slab, and the report produced following that survey, which was issued on 16 November 2006, showed that the failure of the concrete slab was because the sections of the slab had not been adequately or properly tied together.
For various reasons, and despite the existence of the survey report, Mr Eagle did not commence proceedings against Redlime until 29 October 2009. When those proceedings were commenced, Redlime denied liability for the defect and also alleged that the proceedings were time-barred by section 14A of the Limitation Act 1980 which requires proceedings to be commenced within 3 years of a party having actual or constructive knowledge of a defect.
Mr Eagle argued that he did not know the details of the defect until 16 November 2006, and the proceedings were therefore commenced less than three years later (i.e. on 29 October 2009) and consequently the proceedings were not time barred. However, the judge found that Mr Eagle was aware of the defect in the concrete slab in the late summer of 2006. Mr Eagle therefore had ‘constructive knowledge’ of the defect before 29 October 2006. As a result of this the judge decided that Mr Eagle’s proceedings were time barred as they had been commenced more than 3 years after Mr Eagle had ‘constructive knowledge’ of the defect.
The moral of this case is that if you have ‘constructive knowledge’ of defective work, you need to act quickly otherwise your proceedings may fail because they are time-barred.