London theatre funded by Alan Sugar in legal case that could affect use of construction bonds

Hackney Empire, the theatre backed by Alan Sugar, is suing insurer Aviva for £1.1m over a construction dispute, which could affect the use of construction bonds.

The case concerns Aviva’s refusal to pay up when the theatre’s contractor and project manager, Sunley Turriff Construction (STC), went into administration in 2003 despite having agreed a £1.1m bond with the contractor.

The London theatre, which is funded by Lord Sugar, lodged a writ claiming the sum in damages from Aviva after STC went into administration during a £15m renovation of the venue.

In the writ Hackney Empire claims it is entitled to the sum on the grounds that STC defaulted on its building contract.

Aviva claims the contract became invalidated when the theatre forwarded a sum of £500,000 to STC to ease cash-flow problems at the company.

Work on the Victorian theatre started in September 2001 with Lord Sugar donating about £1.3m to the project. The Arts Council contributed £5m and the Heritage Lottery Fund nearly £4m.

STC had agreed to complete works by 2 September 2002 but the date was revised several times as the contractor - whose turnover averaged £100m - suffered diminishing margins. It was finally completed in 2004.

An agreement was eventually reached that Hackney Empire would assist STC with its cash-flow problems, resulting in a payment of £500,000 to STC.

Work halted when 80 workers walked off site after hearing STC had gone into administration.

Christopher Hill of law firm Norton Rose said the outcome of the case is likely to have a bearing on construction bonds.

“Essentially this case boils down to a bond covering a client in circumstances where one would normally expect it to do so - like when a contractor becomes insolvent,” he said.

“The type of third party product offered by Aviva in this case is one which has a high uptake in the construction industry. Depending on the outcome of this case insurers may market it at a higher price and increase the conditions.”

Aviva declined to comment.