CATERPILLAR MOTOREN GMBH & CO KG V MUTUAL BENEFITS ASSURANCE CO

[2015] EWHC 2304 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Teare, 31 July 2015

Advance Payment Bond - Performance Bond - Whether guarantee or on demand bond

CM entered into contracts to deliver two power plants in Liberia, and also entered into two sub-contracts with ICE for the provision of construction services. Under the sub-contracts, ICE was required to procure an Advance Payment Bond and a Performance Bond in favour of Caterpillar in respect of each the sums being US$1,460,235 and US$1,716,162. The bonds were issued by MBAC, an insurance company licensed in Liberia. The Advance Payment Bond stated that MBAC would "pay forthwith on demand" and "without reference to the Contractor". The Performance Bond stated that MBAC would pay "unconditionally, without any demur". Disputes arose between CM and ICE, and CP purported to terminate the sub-contracts. CP sought the return of its advance payments. ICE disputed the claims, and CP demanded payment from MBAC under the bonds. Teare J held that the Advance Payment Bond and the Performance Bond were, properly construed, on demand bonds and did not require proof of ICE's failure to perform its obligations.