A hotel developer is in dispute with a guarantee provider over recovering losses incurred when its contractor went bust

Hotel developer LPI (Hotels) is heading for a High Court showdown with Technical & General Guarantee Company in a row over a bond.

The row centres around a £7.9m contract to build a 135-bedroom hotel complex with restaurant, conferencing and leisure facilities at Leigh Sports Village in Wigan.

According to a High Court writ, LPI had to bring in another contractor to finish the job after Meadmanour Contracts, the original contractor, went bust. It is now demanding payment under the building bond it entered into with Technical & General in September 2007. However, Technical & General disputes its obligation to pay.

The bond guaranteed the performance of Meadmanour for a sum of up to £799,800. Work started in October 2007, after which LPI became concerned about slow progress and delays. In June 2008 LPI discovered that Meadmanour was facing a winding up petition brought by a contractor over a project on the Isle of Wight, and that its bank account had been frozen.

Believing this was not a long-term concern, LPI tried to help Meadmanour and allowed the project to continue. However, the work was not finished by the completion date of 7 July 2008, and a notice of non-completion was served. It became increasingly apparent that the contractor was struggling to complete the project because of its precarious financial position.

At a meeting on 21 July 2008, it became clear that Meadmanour was technically insolvent, and not in a position to trade. Meadmanour said it had no option but to stop all work on site, and work stopped that afternoon.

A new contractor, Larista, finished the project and Meadmanour was wound up on 28 July 2008.

LPI says it is entitled to the £799,800 guaranteed by the bond, and that its losses exceed £2.1m.

But Technical and General has not admitted liability under the bond. It says that according to the agreement, the sums are not due until a valid statement of account is produced, and that this is not possible until the defects liability period has expired.

LPI is seeking a declaration that the building contract with Meadmanour ended on July 21 2008 in circumstances which entitle it to recover £799,800 from its guarantee provider.