| Date | 10 May 2000 |
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| Judgment | Koch Hightex GmbH -v- New Millennium Experience Company Limited CA 23 November 1999. |
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| The Issue | The effect of provisions stated to be "condition preceden" to rights and obligations under a contract. |
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| Implication |
Whilst a contract may refer to certain obligations as 'condition precedent', the court may not be willing to apply such wording in a manner which would defeat commercial common sense. |
printThe Millennium Dome is without doubt one of the most innovative and startling construction projects in recent history. Such projects cannot however be built without some measure of commercial conflict and it is no surprise to see some aspect of the project reported in the courts. An early and highly publicised conflict concerning the project involved a proposed supplier for the fabric skin for the dome itself, when the client chose to cancel an order it had placed with a German company called Koch Hightex. In November of last year the Court of Appeal had to consider one aspect of this dispute. Koch Hightex successfully tendered for the supply and fitting of the Millennium Dome roof and was instructed by a letter of intent to commence works. It was intended that the letter would be superseded by a formal contract subsequently to be entered between the parties. Works commenced and in June 1997 the Millennium Company, acting through its construction managers McAlpine/Laing Joint Venture, sent to Koch the trade contract, supplemental agreements and contract drawings for signature. Koch executed these documents and returned them in early July 1997. One of the clauses of the articles of agreement concerned the provision by Koch of a guarantee and performance bond in the following terms: 'As a condition precedent to any liability or obligation of the client under this trade contract, the trade contractor shall provide at its own costs a guarantee in the form outlined in schedule 3A and/or (as determined by the client) a performance bond in the form outlined in schedule 3B with a surety and/or guarantor to be approved by the client'. The documents executed and returned by Koch did not include the guarantee or performance bond. The construction manager wrote to Koch noting that the guarantee and performance bond and certain other of the scheduled documents were still outstanding and requested that these should be completed within 7 days. Koch wrote back enclosing some of the scheduled documents and giving an assurance that the guarantee and performance bond would be sent directly to the construction manager by the relevant sureties. That never happened. Indeed the following day Koch learned that the Millennium Company might be ready to award the roofing trade contract to one of their American competitors. Not surprisingly Koch immediately informed the sureties to suspend execution of the guarantee and performance bond until after the position had been resolved. Clearly it was thought at the time to be in no one's interest that those documents should be issued (with no doubt accompanying expense and fees) if the contract was not to proceed. Shortly afterwards the Millennium Company terminated the contract with Koch. Koch submitted a claim for breach of contract in the sum of £2.22 million. The Millennium Company rejected this claim and (although this particular argument was first raised 10 months after Koch originally made its claim) argued that it was under no obligation to make payments to the contractor under the terms of the trade contract, because the condition precedent with regard to the provision of the guarantee and performance bond had not been fulfilled. The Court of Appeal was unimpressed by this proposition. The arrangement contended for by the Millennium Company was to be regarded as commercial nonsense. It was being argued that when the Millennium Company executed the contract it ceased to be under any contractual liability to make payments under either the letter of intent or under the trade contract itself. According to this argument the Millennium Company was therefore in a position to serve a notice determining the trade contract without any obligation to make payment under the trade contract. The Millennium Company argued that this result arose from the fact that Koch had chosen at its own risk to continue to carry out works under the trade contract without having provided the performance bond and guarantee. The Court of Appeal regarded this argument as misconceived. The obvious purpose of the condition precedent in the trade contract was to ensure that the client, the Millennium Company, obtained the protection of the performance bond and guarantee at the outset of the commencement of the works by the trade contractor. What was intended was that those security documents should be provided either at the time when the agreement itself was executed or within a short time thereafter, otherwise the client would be entitled to treat the agreement as at an end. What the Millennium Company chose to do was to treat the agreement as continuing and to serve a notice of termination under it. They could not then rely upon the failure of Koch to obtain the guarantee and bond, since the service of the notice of termination made it impossible for the trade contractor to procure that the condition precedent was satisfied. By terminating the trade contract the Millennium Company had made it impossible for Koch to obtain the guarantee and performance bond. Accordingly the Millennium Company's defence based upon Koch's failure to provide a guarantee and performance bond could not be sustained and the appeal was allowed.
CJ-0018
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