Warranties: Impossibility to perform

Whilst undertaking my usual (albeit somewhat belated) review of the recent TCC judgments I stumbled upon Liberty Mercian Ltd vs Cuddy Civil Engineering Ltd & another (October 2014) which caught my eye as it was unusual. It was a case regarding specific performance rather than the usual matter of damages and it dealt with the proposition  of impossibility to perform.

In short, the claim was brought by Mercian requesting that Cuddy provide the specific performance of providing a performance bond and warranties. The history of the case appears to be that the contract was terminated (it is not clear by whom and is not important for this article) but by a first judgment the performance of providing the performance bond and the warranties survived the termination. A second judgment was subsequently provided that required the specific performance of the bond and the warranties, however this was provided upon the basis that provision of these obligations would not prove to be impossible.

The third judgment was to decide whether it was impossible for Cuddy to provide the performance bond

This then, the third judgment, was to decide whether in fact it was impossible for Cuddy to provide the performance bond in accordance with the second judgment, which essentially required the documents to be provided in accordance with the original contract conditions.

It appears that Cuddy went to some length to obtain a performance (one subsequently appeared to redact that offer) and these were upon the terms of Cuddy providing a cash deposit for the full sum and various other unfavourable conditions. In particular it appears that the bondsman who made the only offer available was not terribly credible and could have deducted sums at will from the deposited sum and held it in an account of its choosing. The judgment decided that it was not commercially prudent and no commercially aware party would enter into such bond. Hence the alternative of substituted performance was provided.

The final conclusions reached were that Cuddy had to pay a sum of £420,000 into the court as substituted performance and that it had to enter into warranties. In addition there were various other costs orders.

I have encountered impossibility clauses in the past and I have been involved in dispute proceedings and various negotiations interpreting these clauses either in absolute terms or in commercially reasonable terms. This case, as most are, is clearly fact specific but I think it is useful knowledge to understand that the judiciary can interpret impossibility clauses in terms of whether a prudent party would undertake the lengths necessary to discharge the condition.

Ryan Greening is a director at Bennington Green