Aviva Insurance Ltd v Hackney Empire Ltd

Aviva Insurance Ltd v Hackney Empire Ltd

The payments of £750,000 made by Hackney Empire Limited to the contractor were not part of the contract sum nor certified as due under the contract, but were made under a separate side agreement. As such, these payments did not discharge Aviva from liability under the bond. The side agreement did not vary the construction contract in any material respect. Aviva remains liable under the bond for losses arising from the contractor's default, including damages for breach of contract, subject to the bond's limit.

Parties
Appellant: Aviva Insurance Limited; Respondent: Hackney Empire Limited
Jurisdiction
England and Wales
Judgment Date
19 December 2012
Procedural Posture
Civil Appeal / Appeal From High Court (technology and Construction Court) to Court of Appeal; Judgment on Preliminary Issues of Liability and Quantum
Outcome
Appeal dismissed
Legal Topics
Performance Bonds, Discharge of Surety, Variation of Contract, Advance Payments, Quantum of Damages
Contract Law Construction Law Suretyship Performance Bonds Discharge of Surety Variation of Contract Advance Payments Quantum of Damages

Case Brief

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Parties

Aviva Insurance Limited

Appellant

Hackney Empire Limited

Respondent

Procedural Posture

Civil Appeal / Appeal From High Court (technology and Construction Court) to Court of Appeal; Judgment on Preliminary Issues of Liability and Quantum

Legal Issues

  1. 1 Whether Aviva was discharged from liability under the bond due to extra-contractual payments by the employer
  2. 2 Whether the employer's conduct in making payments outside the contract prejudiced the surety
  3. 3 Whether the employer could recover damages for breach of contract after determining the contractor's employment under clause 27

Ratio Decidendi

The payments of £750,000 made by Hackney Empire Limited to the contractor were not part of the contract sum nor certified as due under the contract, but were made under a separate side agreement. As such, these payments did not discharge Aviva from liability under the bond. The side agreement did not vary the construction contract in any material respect. Aviva remains liable under the bond for losses arising from the contractor's default, including damages for breach of contract, subject to the bond's limit.

Court Disposition

Appeal dismissed

Orders

  • Aviva's appeal is dismissed; Aviva remains liable under the bond for damages up to the bond limit, subject to quantum determination.