PERFORMANCE BONDS AND GUARANTEES: CONSTRUCTION OWNERS AND PROFESSIONALS BEWARE
Performance bonds and guarantees have been the subject of considerable litigation in recent years in not only the United Kingdom but also some other common law jurisdictions. The aim of this research is to identify the issues most commonly in dispute and the legal principles governing their resolution. Possession of knowledge of the issues and principle should alert the construction and engineering industries and their legal advisers to the matters that need serious attention in the drafting and negotiation of these instruments. Clarity in the legal principles should also contribute to a reduction in litigation. The issues identified include whether an instrument is a conditional or an on-demand bond, the effect of failure on the part of the beneficiary to give notices, availability of an injunction to restrain the surety from paying after a call has been made by the beneficiary, availability of an injunction to restrain a beneficiary from receiving payment after a demand has been made, availability of an injunction to restrain a beneficiary from making claim, availability of a Mareva injunction to freeze the fruits of a call, meanings of certain phrases used in the instruments, and a duty to account for proceeds of a call. The principles governing their resolution were also identified. Particular attention must be paid to any ambiguity whether a surety is liable is always construed in the surety's favor, and prejudicial conduct by the beneficiary releases the surety unless the instrument provides expressly to the contrary.
Construction Contract Bonds
The surety industry and its procedures are unfamiliar to many project owners, design professionals, and contractors. This lack of knowledge often leads to misunderstandings and disputes. This paper outlines significant issues related to surety contract bonds and is the second part of a study focused on the surety industry. Regulation of sureties providing surety contract bonds is described, and factors influencing premiums are discussed. Rate tables compiled by the Surety Association of America are presented with example premium computations. Typical disputes arising from surety contract bonds are also outlined. Special concerns currently confronting the surety industry are described along with alternatives to surety bonding.
Law in a law-governed union (Recht in einer Rechtsunion) : the Court of Justice of the European Union and the free law doctrine
The Court of Justice of the European Union characterizes the Union as a Rechtsunion: a law-governed union. The conception of “the law” in Article 19 paragraph 1 of the Treaty on European Union transcends the Treaties, according to the Vice-President of the Court of Justice, Koen Lenaerts. This thesis demonstrates with reference to the work of Georg Jellinek that the Union is a non-sovereign state and, with reference to the work of Eugen Ehrlich in particular, that the state-based perception of law is a misperception. Not all production of law is reserved to the state and not all law is state-recognized law. There is extra-state law. It has been alleged that the Court of Justice of the European Union has had “a free law attitude”. The author discusses the free law doctrine developed at the beginning of the twentieth century and has made literal translations of writings in German, French and Italian by the main representatives of the free law movement. The free law doctrine provides a descriptive framework for the case-law of courts. The author describes the creation by the Court of Justice of four constitutional principles of Union law through its case-law. He concludes that every court is, to quote Hermann Kantorowicz, praeter legem law-creatively active and has, in that sense, a free law attitude. The decisions of judges are often volitional decisions. How the law will be applied should be predictable but volitional decisions, because they are unpredictable, are inconsistent with the principle of legal certainty. In the Union and its member states the judiciary and not the statute or “the law” is pre-eminent. The author suggests how the concept of law should be defined in a material Rechtsunion. He argues that societal legal norms could be provided with an appropriate position consistent with the principle of legal certainty by making the validity of a societal legal norm contingent on its material lawfulness.