20 September 2019 - Post by:Sykes Mitchell
In Sumitomo Mitsui Banking Corporation v Euler Hermes, an assignment was not effective where a requirement for a confirmation had not been waived in compliance with a “no waiver” provision; but a power of attorney saved the day.
As part of a public private partnership scheme for the construction of a waste treatment facility in Derby, Euler Hermes provided a performance bond to the project company. At the same time, the project company entered into a debenture with the bank, under which it assigned the performance bond to the bank. The project company also appointed the bank under a wide ranging power of attorney.
The bank called on the bond following an insolvency event (both in its own capacity and as attorney for the project company). Euler Hermes did not pay arguing that the assignment was invalid. Under the bond, assignment to a “permitted assignee” required confirmation of specific payment obligations to be given. This had not happened.
The bank argued that a notice of assignment and acknowledgement sent by the project company and countered-signed by Euler Hermes constituted either:
- an agreement that the assignment was effective; or
- a waiver by Euler Hermes of its strict right to the confirmation.
The court rejected both arguments.
- Even if the notice of assignment contained the language of agreement there was no valuable consideration for it to amount to a binding contract.
- The no waiver clause stated “No waiver … shall be a waiver of a past or future default or breach, nor shall it amend, delete or add to the terms, conditions or provisions of this Bond unless … expressly stated in that waiver in the bond was effective to prevent”. This meant, the court held, that a waiver must clearly identify what “default or breach” was being waived or which terms were amended. The notice of assignment did not do this. A review of the authorities, including MWB v Rock confirmed this analysis.
The bank was saved by the power of attorney which allowed the court to make a declaration that the demand on the performance bond by the project company through the bank as the holder of a power of attorney was a valid demand.