IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 527 OF 1996

Between:

GREGORY LAWLOR
Plaintiff

And

NATIONAL BANK OF FIJI
Defendant

Mr. G. Leung for Plaintiff
Mr. W. Clarke for Defendant

JUDGMENT

By writ of summons dated 28 October 1996, the plaintiff Gregory Lawlor (‘Lawlor’) claims as follows against National Bank of Fiji (‘NBF’) under a Performance Bond (‘Bond’) dated 28 January 1994:

(i)	Judgment in favour of the plaintiff in the sum of $100,000.00, together with interest thereon at the rate of 13.5% per annum from 29 November, 1994 to date of payment of judgment monies, or at such rate and for such period as this Honourable Court considers just; and

(ii)	Costs of the action to be taxed on an indemnity basis; 

The Statement of Claim sets out as stated below the circumstances which led to the making of the claim:

1)	The plaintiff is and was at all material times a businessman of Suva trading as "Mollie Dean Cruises".

2)	The defendant bank is a body corporate existing pursuant to the National Bank of Fiji Restructuring Act, 1996, and was at all material times in the business of a trading bank.

3)	On 28 January, 1994 the defendant bank executed and delivered to the plaintiff as obligee a Performance Bond by which it guaranteed payment to the obligee of an amount not exceeding the sum of $100,000.00 conditioned for the due performance by the debtor Donald Pickering & Sons Enterprises Ltd (receiver and manager appointed) of a contract in writing between the debtor and the plaintiff dated 8 July, 1993 for the construction and delivery by 28 November, 1994 as provided for in the contract of a dive vessel for the plaintiff.

The Plaintiff will at the trial refer to the Performance Bond for its true meaning and effect.

4)	The said debtor failed to fulfill the conditions of its contract.

Particulars of Breach

Failure to deliver to the plaintiff a dive vessel constructed, fitted out and completed in accordance with the contract dated 8 July, 1993.

1.	The plaintiff has demanded from the defendant the sum of $100,000.00 under the Performance Bond and has provided particulars in support of the demand but the defendant has neglected or refused to pay to the plaintiff the sum of $100,000.00.

Particulars of Demand

Notice to the defendant dated 28 November, 1994;

Notice to the defendant dated 4 September, 1996.

2.	The plaintiff is entitled to claim, and the plaintiff does claim, from the defendant the sum of $100,000.00 pursuant to the terms of the Performance Bond dated 28 January, 1994.

3.	Further, pursuant to statute, the plaintiff is entitled to, and claims to recover interest on the $100,000.00 at the rate of 13.5% per annum from 29 November, 1994 to date of payment of judgment monies, or at such rate and for such period as this Honourable Court considers just.

In its Statement of Defence the NBF admits that it did execute the bond but it expired on 30 November 1994. It says that the "issue of completion and delivery was based upon a number of factors which both the Plaintiff and Donald Pickering & Sons Limited ("The Contractor") had to comply with under the contract and revised specifications, drawings and variations".

The Amended Statement of Defence, inter alia, is as follows:

4.	THE Plaintiff with the intention of defrauding the contractor and the Defendant issued a demand dated the 28th of November, 1994 by alleging that the contractor had failed to perform the terms and conditions of the contract by failing to deliver the vessel as provided for in the contract. This was a misrepresentation because the vessel was not due to delivery at the time of the demand.

5.	THE Defendant further says that it had notice of the misrepresentation from the contractor who had disputed the allegation of failure on its part to fulfil the terms of the contract prior to 30th November, 1994.

6.	IN response to paragraph 5 of the Statement of Claim the Defendant denies that it is now indebted to the Plaintiff in the sum of $100,000.00 or any amount at all. The Defendant further states that any obligations that it may have had finished with the expiry of the Performance Bond and the non complaince of the conditions of the Bond. The effect of any demand made on 28th November, 1994 was negated by the conduct of the Plaintiff in accepting a compromise arrangement with the debtor. The demand of 4th September, 1996 was made out of time.
ALTERNATIVELY the Defendant says that the Plaintiffs demand of 28th November, 1994 was waived by the Plaintiff’s subsequent actions in resolving its differences with the contractor and subsequently requesting and obtaining from the Defendant an extension of the Performance Bond.

7.	FURTHERMORE the Defendant says that the Plaintiff was estopped from relying on the Demand dated 28th November, 1994 since the Defendant acted in reliance of the Plaintiff’s representations and extended the Bond and therefore its liability.

8.	THE Defendant denies the allegation made in paragraph 7 of the Statement of Claim and refutes any claim for interest as this was not specially provided for in the Bond. The Defendant further refutes the rate of interest.

The NBF prays that Lawlor’s Claim be dismissed with costs on an indemnity basis.

Agreed Facts and issues

The agreed facts and issues are as follows (as per minutes of Pre-trial Conference - pages 52-53 of pleadings):

(i)	That the Plaintiff is and was at all material times a businessman of Suva trading as "Mollie Dean Cruises".

(ii)	The Defendant bank is a body corporate established pursuant to the National Bank of Fiji Restructuring Act, 1996, and was at all material times in the business of a trading bank.

(iii)	The Defendant executed and delivered to the Plaintiff as obligee a performance bond by which it guaranteed payment to the obligee of an amount not exceeding the sum of $100,000.00 conditioned upon the due performance by the debtor Donald Pickering & Sons Enterprises Ltd (receiver and manager appointed) of a contract in writing between the debtor and the Plaintiff dated 8 July, 1993 for the construction and delivery by 28 November, 1994 of a dive vessel for the Plaintiff.

(iv)	The Plaintiff has demanded from the Defendant the sum of $100,000.00 under the performance bond and has provided particulars in support of the demand but the Defendant has refused to pay to the Plaintiff the sum of $100,000.00.

Issues: 

1.	Whether the Defendant is liable to pay the Plaintiff the sum $100,000.00 in respect of the performance bond issued by the Defendant to the Plaintiff dated 28 January, 1994 including:

2.	Whether the Plaintiff is entitled to interest on the principal $100,000.00 from 29 November, 1994 to date of judgment. If so, at what rate of interest?

Consideration of the issues

In this matter there are two separate agreements. One is the ‘contract proper’ between Mr. Donald Pickering (the builder) and the owner of the vessel to be built, namely Gregory Lawlor. The second, which is the subject-matter of this action and is contested is the ‘Performance Bond’ (the "Bond").

The claim in this case is under the Bond and the question for the Court’s determination mainly is whether Lawlor is entitled to invoke the provisions of the Bond on the facts and circumstances of this case.

Performance bond

Since the focal point in this case is on the Bond, its contents I think ought to be stated right at the outset before I discuss the issues arising out of it in the light of the evidence before me.

The Bond is as follows:

PERFORMANCE BOND

Dated this 28th day January 1994

BETWEEN:	DONALD PICKERING & SONS ENTERPRISES LTD T/A UNITED ENGINEERS of Walu Bay, Suva
("The Debtor)

AND:	MR GREGORY LAWLOR of Lami t/a MOLLIE DEAN CRUISES
("The Obligee)

AND:	NATIONAL BANK OF FIJI a body corporate duly constituted under the National Bank of Fiji Act, 1973 and having its principal office at Suva in Fiji (hereinafter referred to as "the Bank")

A.	Debtor has entered into a Contract ("the Contract") with the Obligee whereby the Debtor has undertaken to:

CONSTRUCTION OF DIVE VESSEL

B.	It is a term of this Contract that the Debtor execute a Performance Bond guaranteed by a bank, whereby the bank undertakes to pay to the Obligee the sum of: FJD100, 000 (FIJIAN DOLLARS ONE HUNDRED THOUSAND ONLY) being N/A% of the Contract Price such amount being payable in the event of a failure on the Debtor’s part to fulfil the terms of the Contract.

C.	The Bank has at the Debtor’s request agreed to provide the Performance Bond on the following terms and conditions.

IT IS HEREBY AGREED BETWEEN THE PARTIES THAT:

1.0.	EXTENT OF GUARANTEE

1.1.	The Bank will guarantee the payment to the Obligee of an amount not exceeding FJD100,000 (FIJIAN DOLLARS ONE HUNDRED THOUSAND ONLY) in the event of the Debtor, in default of his obligations, failing to fulfil the conditions of his Contract.

1.2.	The Bank’s liability will at no time exceed the amount specified under Clause 1.1 or extend to the performance of any of the terms and conditions of the Contract.

2.0.	COMMENCEMENT AND EXPIRY

2.1.	This Guarantee shall come into force on the commencement date of the Contract i.e. on 28th January 1994 and expiring on 30th November 1994.

2.2.	This Guarantee shall lapse upon the happening of any of the following events, the completion of the Contract by the Debtor or the payment of the guaranteed amount by the Bank on the terms and conditions specified herein or where an alteration is made to the substantial terms of the Contract without obtaining the Bank’s consent.

3.0.	MODE OF CLAIM

3.1.	(a).	All claims shall be in writing and are to be made immediately upon being advised of the Debtor’s failure to fulfil the terms of the Contract; and

4.0.	INDEMNITY

4.1.	The Debtor undertakes to reimburse the Bank upon demand for making any payment whatsoever under the terms, of this Bond regardless of whether or not the Obligee was genuinely justified in making claims thereunder and/or upon demand to provide the Bank with cash or collateral which in the Bank’s view is sufficient to cover its total liability under this bond and further authorises the Bank to offset any of his accounts, request further securities, upstamp existing securities, or take whatever action in its absolute discretion deems necessary in order to recover the same.

4.2.	The Debtor further agrees to indemnify and hold the Bank harmless from any and all consequences which may arise or result from the issuance of this Bond.

The Performance Bond was signed by all the parties to the Bond, viz., the ‘debtor’, (Donald Pickering) the ‘obligee’ (Lender) and the ‘Bank’ (National Bank of Fiji).

I shall now consider the issues before me.

Performance Bond and the law as to performance bonds

Performance bonds have been common in construction contract, which this case is, as a means of guaranteeing the financial viability of the builder and the builder’s ability to perform his obligations under the construction contract. Performance bonds are of two types as follows as stated in "The Modern Law of Guarantees" by O’ Donovan & Phillips:

"The first type is a conditional performance bond, whereby the guarantor only becomes liable upon proof of a breach of the terms of the principal contract by the builder, and the owner sustaining loss as a result of such breach. The guarantor’s liability, therefore, will only arise in the usual way as a result of the principal’s default. The second type of performance bond is an unconditional or "on-demand" performance bond which is so drafted that the guarantor will become liable merely when demand is made upon him by the owner.

As I see it, in this case the Bond is of the first type as is evident from the provisions of clause 1.2 of the Bond (supra). In considering the issue, the terms of the Bond or guarantee need to be carefully scrutinised to ascertain if the obligation of the guarantor/Bank is unconditional in the sense that the obligation arises merely upon demand being made by the owner/Lawlor. There is always the possibility, as in the present case, that it is subject to the express or implied condition that the guarantor is to be liable if there is a breach of the principal contract and the courts will not construe the guarantee as being unconditional unless that is clearly the proper construction (Wood Hall Ltd v The Pipeline Authority (1979) 53 A.L.J.R. 487. Usually the unconditional nature of the guarantee is clearly expressed as in Edward Ewen Engineering Ltd v Barclay’s Bank International Ltd [1978] 1 Q.B. 159 where the guarantee was expressed payable on demand without proof of conditions.

On Performance Bonds I would like to refer to the following passage from Halsbury 4th Ed. Vol 3(1) para 256:

A bank which gives a performance guarantee must honour that guarantee according to its terms; it is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contractual obligation or not; nor with the question whether the supplier is in default or not; and, subject to the fraud exception, the bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions. A performance bond is virtually a promissory note payable on demand, and certainly has much more of the characteristics of a promissory note payable on demand, and certainly has much more of the characteristics of a promissory note than of a guarantee. The bank is simply concerned to see whether the event has happened upon which its obligation to pay arises. (emphasis mine)

For the purposes of this case it is clear that, as stated above, the ‘event’ has to happen upon which the NBF’s obligation to pay arises. I shall deal with evidence in this regard viz the happening of the event a little latter in my judgment.

This is a document, which has the intentions of the parties in regard to the performance of the seller’s duty, where, if the seller fails to perform, he will undertake to pay a percentage of the full contract price, which is guaranteed by the seller’s bank. This is the principle in the cases cited by both parties in Edward Owen (supra) and R.D. Harbottle (Mercantile) Ltd v National Westminster Bank Ltd & Others [1978] 1 Q.B. 146 

In Owens (supra) it was held:

"that a performance bond stood on a similar footing to a letter of credit and a bank giving such a guarantee must honour it according to its terms unless it had notice of clear fraud;...."

Lord Denning MR in Owen (supra at 169) states in great detail the law as to performance bonds which I consider is pertinent to the issue before me that I ought to refer to a few passages in this regard from that case. He says, inter alia, that:

A performance bond is a new creature so far as we are concerned. It has many similarities to a letter of credit, with which of course we are very familiar. It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit. That was clearly stated in Hamzeh Malas & Sons v British Imex Industries Ltd ([1958] 2 Q.B. 127 at 129. Jenkins LJ, giving the judgment of this court, said:

‘... it seems to be plain that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes on the banker an absolute obligation to pay, irrespective of any dispute which there may be between the parties on the question whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers’ confirmed credits are of that character, and, in my judgment, it would be wrong for this court in the present case to interfere with that established practice.’

To this general principle there is an exception in the case of what is called established or obvious fraud to the knowledge of the bank. The most illuminating case is of Sztejn v J Henry Schroder Banking Corporation (1941) 31 NY Supp 2nd 631 at 633 which was heard in the New York Supreme Court in 1941. After citing many cases Shientag J said this:

‘It is well established that a letter of credit is independent of the primary contract of sale between the buyer and the seller. The issuing bank agrees to pay upon presentation of documents, not goods. This rule is necessary to preserve the efficiency of the letter of credit as an instrument for the financing of trade.’

The passages I have referred to hereabove clearly set out the bank’s liability on a ‘performance guarantee’. In the case before me the Plaintiff is entitled to demand upon the debtor being in default of his obligations failing to fulfil the conditions of his contract.

The case

In this case, the Builder (Mr. Pickering) has executed a performance bond with his bank (NBF), who undertook to pay the owner/buyer $100,000 in the event of any failure to fulfil his terms of the contract i.e. to build the boat according to the terms of the contract (specifications). The owner may demand $100,000 from the NBF who had guaranteed the money on behalf of the builder. How they arrived at the amount ($100,000) or the percentage of the contract price (about 20%) to be paid for the performance bond is a matter between the buyer and seller or the builder and owner. This is a term of the Bond. 

The intention in the Bond is that the beneficiary/plaintiff should be assured payment by the issuing bank irrespective of the solvency of the other party, or any dispute that may have arisen between the parties.

In this case upon failure to fulfil the terms of the Bond upon demand by the Plaintiff the Bank was required to immediately pay up to the Plaintiff the sum under the Bond. In this case when the Bond is called up, the Bank has recourse to its client the debtor/Pickering as provided under clause 4.1 of the Bond. Hence, as held in Owen (supra), the bank must honour the performance bond according to its terms.

Evidence

Although this was a straightout claim under the Bond, it turned out to be a lengthy trial because the defendant hotly contested the claim. In view of the nature of the Defence, the defendant adduced evidence to show that the alleged breach of the terms of the building contract between the Plaintiff/Lawlor and the builder/Pickering was not of such a nature to give rise to invoking the provisions of the Bond on the part of the Plaintiff.

Bearing in mind the law on the subject of performance bond, I do not see the necessity to traverse the whole of the evidence for the determination of the issue before me. However, I should go through some of the salient features of the evidence particularly when it has been adduced and come to some findings of fact particularly whether there was a failure on the part of the builder to perform his obligations under the contract.

The Plaintiff testified that he made a demand on 28 November 1994. The boat was to have been ready within 8 months by about March/April 1994 (Exhibit 12) which shows that even with Pickering’s assurance that the boat would be ready around November 1994, Plaintiff did not take possession until April/May 1995 which is almost 2 years after the contract was signed.

I agree with Mr. Leung when he said in his submission as follows:

4.2.	It is clear from the evidence that at the time Lawlor made his demand of November 1994, Pickering was already in substantial breach of the contract [give examples] Lawlor was the owner. It is very clear from the evidence that all was not well at the yard. Lack of experience and competence [expand evidence of Colin Dunlop] Concerns raised with the Builder. Substantial moneys borrowed to finance the boat’s construction. Owner’s list itemised hardware he was to supply. Obvious worry was that the job wasn’t being done properly and wouldn’t be finished on time. Commercial usage of boat and advance bookings from dive customers. He was already hiring another boat at the time as the Sere ni Wai wasn’t completed. Time essence of the contract. He knew best in terms of his needs and requirements. In his evidence, if he had hung around waiting for delivery the boat might still be there unfinished. He was pro-active and took the initiative to "take possession". The boat wasn’t actually delivered.

4.3.	Substantial rectification work undertaken. < examples > he testified that he is still doing up the boat. Huge financial cost. Came out of the Plaintiff’s pocket. Moneys from the bond would have mitigated the situation considerably.

4.4.	........

5.0.	Chitty: "Clear evidence is needed that the beneficiary’s demand is fraudulent to the knowledge of the bank is to be restrained from paying under such a guarantee or bond, but this does not mean that all possible explanations other than fraud must be totally ruled out. It means that fraud must be the only ‘realistic inference.’" [emphasis added] Para 5018

I have given careful consideration to all the evidence in this case. I find that there have been many failures on the part of the debtor/Pickering under the Bond to carry out the terms of the contract. These failures include: late delivery (time of the essence), no insurance, no certificate, failure to complete and/or complete properly evidenced by a rectification of works carried out by owner/Lawlor costing him about $400,000, failure to construct in workmanlike manner and lack of diligence, despatch and expedition.

In the circumstances I hold that NBF is required to pay under the Bond and its remedy is against the debtor in regard to which there is ample provision under the Bond.

The Plaintiff has quite rightly made a demand under the Bond but the Defendant has failed to pay. 

I shall now deal with the issue under the following heads:

(i).	Agreement

Further to what I have said above, Performance Bond which is the focus of this case can be classified as a ‘collateral agreement’, which is something that stands side by side with the main contract, springing out of it and fortifying it. The purpose is to enforce a promise but for which the main contract would not have been made. [See Webster v Higgin [1948] 2 All E.R. 127; and Shanklin Pier L.D. v. Detel Products L.D. [1951] 2 KB 854.

Mr. Pickering (The builder/seller) has undertaken through his Bank to pay Mr. Lawlor $100,000 if he failed to fulfil his promise under the contract to build the vessel according to specification. This is the agreement in the Performance Bond which is collateral to the main contract. There is no dispute as to the existence of this agreement but the execution of the payment under the agreement has been the gist of the matter before the Court as stated hereabove.. The court has looked at the express words of the agreement. If there is failure on the part of the builder to fulfil his obligation under the contract the provisions of the Bond can be invoked by the Plaintiff/owner.

(ii).	Interpretation

When an agreement is in writing, the discovery of what was written normally presents no difficulty and its interpretation is a matter exclusively within the jurisdiction of the Court. (Bowen LJ in Bentsen v. Taylor (No.2) [1893] 2 QB 274). So the Court is not bound by concessions made by a party as to the meaning of the contract as in Bahamas International Trust Co. Ltd. v. Threadgold [1974] 3 All ER 881.

The case in hand regarding the Performance Bond agreement was an agreement in writing and there was no dispute as to the express words used in regard to the parties’ intentions. As such, the court shall interpret the agreement in the Performance Bond to resolve the dispute. On the facts, as I have found, the Builder is in breach of his obligations, hence the Plaintiff is entitled to make a demand under the Bond and which he quite rightly did.

(iii).	Obligations

The builder/seller or Mr. Pickering is the Debtor on the Performance Bond agreement and he was obligated to execute the agreement with the creditor/the Bank (NBF) to guarantee the payment of $100,000 to the Buyer/Owner or Mr. Lawlor. In the instant case the Builder failed to fulfil his promise in the main contract i.e. to build the vessel according to the terms and conditions of the contract. The Builder’s obligation was also to indemnify the Bank of his failure. These obligations are provided under Clauses A, B, C and 4 (4.1 and 4.2) of the Performance Bond Agreement (Exhibit P2).

The obligor/undertaker or the National Bank of Fiji was obligated to guarantee the payment of the $100,000 to the obligee/buyer (Mr. Lawlor) within the time frame stated (28th Jan. 1994 to 30th Nov. 1994) immediately upon being advised of the Debtor’s failure to fulfil the terms of the contract.

These obligations are provided under clauses 1 (1.1 and 1.2) and 2(2.1 and 2.2) of the Performance Bond.

(iv).	Condition

The condition for the Performance Bond to operate or to be payable are illustrated under clause B and clause 1 of the bond which read:

B.... "in the event of a failure on the Debtor’s part to fulfil the terms of the contract:

(1.1)	.....in the event of the Debtor, in default of his obligations, failing to fulfil the conditions of his contract." 

It is clear that the condition is meant for the Debtor alone. There were arguments raised by the debtor, Mr. Pickering and also by the Bank through their solicitor that the owner/obligee (Mr. Lawlor) was also to be blamed for the failure of the debtor, but the express words of the Bond pointed at the Debtor alone.

The Bank and also Mr. Pickering have pleaded that Mr.Lawlor had contributed to the delay which was the cause of the default.

It should be clear that the claim in the writ of summons is not for damages but for the performance bond and therefore the Court has to confine itself to the contents of the Bond.

In Edward Owen (supra) at page 171 Lord Denning said:

"A bank which gives performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracted obligation or not; nor with the question whether the supplier is in default or not." 

The condition expressed in the Performance Bond has to be the deciding factor for the claim made by the Plaintiff.

(v).	Breach

The Bond only covers for any breach created by the debtor (Mr. Pickering) as discussed above. There is nowhere in the agreement which states that any breach by the obligee has to be taken into consideration.

The breach in this instance only covers the agreement on the bond and not on the contract as a whole, where damages are to be claimed.

Kerr J in Harbottle Ltd. (supra) at QB 146 said;

".....the Courts will leave the merchants to settle their disputes under the contracts by litigation or arbitration. The Courts are not concerned with their difficulties to enforce such claims; these are risks which the merchants take. They must be allowed to be honoured free from interference by the Courts..."

So, we are only dealing with the performance bond issue which should be honoured as they are the lifeblood of commerce and to do otherwise would render irreparable damage to the trust in the commercial aspect of the Banks.

It is sad to note that the Bank itself (NBF) which created the Performance Bond does not understand to what the document relates.

In light of the evidence produced before the court, it is clear that the Builder (Mr. Pickering) has not fulfilled the terms of the contract and therefore the agreement whereby the Performance Bond can be claimed is achieved, and the bank should honour it as guaranteed.

(vi).	Remedy

The remedy is clear cut and has been provided for in the document (performance bond). Clause 3.1 of the Bond provides:

"All claims shall be made in writing and are to be made immediately upon being advised of the debtor’s failure to fulfil the terms of the contract".

According to the evidence, Mr. Lawlor had demanded the payment of the $100,000 on the 28th of November, 1994 which was 2 days before the expiry date of the Bond. Authorities cited revealed that the Bank has to honour its undertaking on the conditions provided. Obviously there was no condition except for the non fulfilment of the contract by the debtor, which the obligee rightfully claimed.

In my view, the Bond was payable on demand made by the obligee on the 28th of November 1994. The bank had an obligation and had guaranteed such payment and should honour such undertaking. To do otherwise would create a total twist in the commerce or business field of the bank and which may wreck the whole economic standing of the community by the setting of a new precedent that renders the Bond a void document that cannot be enforced.

(vii).	Further Developments

After the demand of 28 of November 1994 the Bank made enquiries instead of honouring its undertaking as expressly stated under Clause B of the Bond.

Looking at the agreement between the parties, clause 1.2 states "the Bank’s liability will at no time exceed the amount specified under Clause 1...1 or extend to the performance of any of terms and conditions of the Contract."

It is clear at the outset that this bond shall be effected under the condition set out above i.e. does not exceed $100,000; and that the performance bond should not extend to the terms and conditions set out in the contract.

Based on these, Mr. Lawlor has made his demand, yet the Bank decided to extend the period to September 1995 in the circumstances stated in evidence.

Two things are evidently clear and that is, the Bank either did not know what it wrote on the document or, it does know but chose not to honour it. It was desirable for the National Bank that it should uphold the commercial dealings of its clients.

(viii).	Extension of the performance Bond

In giving evidence Mr. Lawlor denied that he consented or played an active role in the extension of the bond from November 1994 to September, 1995. This is despite the fact that his solicitor was making the deals with the Bank and the Builder. 

It looks like Lawlor’s solicitors (Howards) were making deals without his consent and this was not clarified during the trial. The testimony of Mr. Lawlor was that he never gave his consent to the extension and he had stuck to his demand made on the 28th of November 1994.

There are two issues to raise:

1.	Is the extension legal according to the terms of the Performance Bond agreement?

2.	If it is legal, was it enforceable?

According to clause 1.2 of the Bond, the Bank will be under no liability or "extend to the performance of any of the terms and conditions of the Contract".

Therefore, the extension was void.

At clause 2.2 of the Bond, it expressly states that the guarantee to pay $100,000 

"shall lapse where an alteration is made to the substantial terms of the contract without obtaining the Bank’s consent".

Even though the Bank consented to the alterations giving rise to the extension of the period to September 1995, the obligee had already lodged his demand before such consent.

Therefore such extension was void.

The Court cannot enforce anything that is void or illegal of the agreements between the parties regarding the extension of the Bond; it cannot be enforced on the principle that they are conditional or what can be also termed "subject to contract".

As was produced in evidence before the court, the Bank gave conditions, Mr. Lawlor’s solicitors gave conditions and as such, the agreement cannot be enforced or in simple terms, there is no contract. The parties have not been bound until some further event thus making the agreement uncertain and of no effect thus unenforceable. [Lee Parker v Izzet (No. 2) [1972] 2 All ER 800]. The contract is suspended until the happening of a stated event (Pym v. Campbell, [1856] 6 E & B 370). In our case, such conditions or the happening of the stated events which were given by the Bank and Lawlor’s solicitors have not been finalised or met. There has to be a total agreement to the meeting of those conditions so as to render the contract enforceable. 

Hence there was no contract due to uncertainty.

Conclusion

The Bond is a collateral agreement which is usually honoured and enforced in courts when it is given. The Bank’s obligation has been summed up succinctly in the following paragraph from the judgment of Roskill L.J. in Howe Richardson Scale Co. Ltd. v Polimex - Cekop and National Westminster Bank Ltd [1978] 1 Lloyd’s Rep. 161:

"Whether the obligation arises under a letter of credit or under a guarantee the obligation of the bank is to perform that which it is required to perform by that particular contract, (Performance Bond), and that obligation does not in ordinary way depend on the correct resolution of a dispute as to the sufficiency of the performance by the seller to the buyer or by the buyer to the seller as the case may be under the sale and purchase contract; the bank here is simply concerned to see whether the event has happened upon which its obligation to pay has arisen. The Bank takes the view that that time has come and that it is compelled to pay; in my view it would be quite wrong for the 

Court to interfere with Polimex’s apparent right under the guarantee to seek payment from the bank, because to do so would involve putting upon the bank an obligation to inquire whether or not there had been timeous performance of the seller’s obligation under a sale contract." (emphasis mine) 

The National Bank of Fiji had undertaken and guaranteed the payment of $100,000 in the event the Debtor fails to fulfil his obligation on his part of the contract and that was exactly what it should have done when the demand was made in November 1994.

The matter in hand deals with the Performance Bond and not the contract between Mr. Pickering and Mr. Lawlor. Simply, the obligee is seeking to enforce his right from the bank over an agreement he had signed and which he is entitled to have.

The conditions for the payment have been proved in Court. The debtor has defaulted and the Bank should pay and that is all there is for it. In Edward Owens’s (supra) at page 171, Lord Denning M.R. said:

"All this leads to the conclusion that performance guarantee stands on a similar footing to a letter of credit".

Further at page 169, he said:

"It has been long established that when a letter of credit (performance bond) is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of credit are satisfied.

Any dispute between the buyer and seller must be settled between themselves. The bank must honour the credit"

The problem that arose was due to the fact that the Bank had been unnecessarily involved in the matter between the builder and the owner when it is just supposed to stick to its part of the agreement. Any dispute between the parties can be taken through litigation and claim for damages, but that is between them and not the Bank. All the bank has to do in this circumstance is to pay the obligee and debit the debtor’s account, then the debtor may sue the owner to recover the amount provided he has a case. [See Owen’s case and Harbottle’s case].

In my view, this is a simple case for the issue of performance bond and this is not the forum to specify claims and damages because the $100,000 agreement is all we are after i.e. whether it should be granted or otherwise. Calculations and estimation can be litigated by the parties (builder and owner) in another writ of claim and not in this one.

Mr. Lawlor is entitled to his right in the Performance Bond and the Bank and Mr. Pickering can sort out their problem amongst themselves even if they will have to sue Mr. Lawlor.

There have been arguments raised in regard to the extension of the period of the Performance Bond and the issue of estoppel. I am of the view that this is a non issue in regard to the claim made by the plaintiff, which is the $100,000 demand based on the Performance Bond document.

For these reasons, Mr. Lawlor is entitled to his demand of 28 of November 1994.

There will therefore be judgment for the Plaintiff against the Defendant in the sum of $100,000.00 under the Performance Bond with interest thereon at the rate of $4% p.a. from 29 November 1994 to date of payment. I award costs against the defendant which is to be taxed if not agreed.

D. Pathik
Judge

At Suva
31 May 2000