A reminder of how hard it is to prevent pay-outs on English-law governed on-demand performance bonds

A familiar scenario

In CR Construction (UK) Company Ltd v Barclays Bank PLC [2026] EWHC 202 (TCC), the Employer, Northern Gateway (FEC) No. 7 Ltd, engaged CR Construction (UK) Company Ltd as Contractor to design and build a mixed residential and commercial development in Manchester under an amended JCT Design and Build 2016 Contract. The Contract required the Contractor to provide an on-demand performance bond equivalent to 10% of the contract sum, which Barclays Bank PLC issued.

The project encountered difficulties and the Employer issued a notice of termination. The Contractor disputed this but accepted the notice as a repudiatory breach entitling the Contractor to treat the Contract as terminated. Subsequently, the Employer issued a demand calling for a bond pay-out to cover its approximately £2.5 million liquidated damages claim.

The Contractor sought an interim injunction against the bank to prevent payment, arguing that:

(a) the Employer was not entitled to any sums under the bond because the Contractor disputed the amount claimed in the demand;

(b) the demand failed to comply with the requirements necessary for it to be valid; and

(c) the Employer's repudiatory breach discharged the bond.

A familiar result

The TCC refused the interim injunction, thus allowing the bond pay-out call to succeed. In doing so, His Honour Judge Stephen Davies reminded parties that:

1. Injuncting a call is easier than injuncting a pay-out

Applying principles from Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC), the court distinguished between an injunction against a bank from paying out on a bond and an injunction against an employer calling a bond. The latter may fail where a contractor demonstrates a "strong case" that the underlying contract "clearly and expressly prevents" such a demand. For the former, only clear evidence of fraud (a high bar to surmount) will restrain a pay-out.

Here, the Contractor had neither made the Employer a party to the application nor alleged fraud against the bank, rendering the Contractor's application untenable from the outset.

Notwithstanding that the application was bound to be unsuccessful, and mindful that the Contractor might seek an injunction against the Employer, the court considered the full merits of the Contractor's application but found that the Contractor had not satisfied the test for the granting of an interim injunction as damages would be an adequate remedy and the balance of convenience favoured upholding confidence in the performance bond system.

2. Inconsequential omissions do not invalidate a substantively compliant demand

The bond required any demand to be accompanied either by a certified copy of a court judgment, or an arbitral or adjudication award, or by a certificate from the Employer confirming the Contractor's breach "purported" to be signed by the employer's agent and "purportedly based on the non-performance of the Contractor", which the bond said the bank could rely on as "conclusive evidence … as to any liability of the Contractor".

A certificate from the employer's agent accompanied the demand. The Contractor argued both were invalid. The demand's letterhead was not in the Employer's name (making it unclear that the demand was "from" the Employer), and the demand and the certificate had neither company information about the Employer in the footer nor an express statement regarding the signatory's capacity.

These defects were immaterial. Since "the question whether a particular demand meets the contractual requirements is a matter of construction in each case", and here the bond required only that the demand and certificate "be given by or come from the Employer", it was clear that both were intended to be given by the Employer. The bond also required that the certificate be "purported" to be signed by the employer's agent. The bank was entitled to rely on an apparently compliant document without further independent confirmation and had no reason to doubt the signatory's capacity.

3. An underlying contract's termination does not automatically discharge the bond

The Contractor argued that by accepting the Employer's alleged repudiatory breach, the bond and underlying contract had been discharged, contending that the bond's provision that "No termination of the Construction Contract, shall reduce the [bank's] liability" applied only to contractual termination and not to discharge at common law following acceptance of a repudiatory breach.

The Court was "wholly unpersuaded" that this provision should be limited in scope, noting that a reference to "termination … is just as apt to cover the discharge of a contract by one party accepting the repudiatory breach of the other as it is to cover the exercise of a contractual right of termination".

On-demand bonds: a checklist of practical steps

Contractors should:

(a) negotiate bond wording carefully and re-read it in termination situations. Without clear drafting, discharge of an underlying contract will not release the bank from its obligations;

(b) assume the bank will pay, once an employer has made a valid demand;

(c) focus strategic efforts on directly and promptly challenging the employer's entitlement to damages through the underlying contract's dispute resolution mechanism;

(d) be realistic about prospects of stopping a pay-out due to small and inconsequential formatting errors in demand documents; and

(e) make interim injunction applications against the correct parties; compared with injuncting a bank, a court can examine more circumstances when considering an injunction preventing an employer from calling a bond.

Employers should:

(a) ensure demands comply with any formal requirements set out in the bond. Although minor errors are unlikely to be determinative, they invite challenge and delay; and

(b) remember that to prevent a call by an employer, a contractor need only establish a strong case that a call is prohibited by the underlying contract; no evidence of fraud is necessary.

Authored by Sian Walker and Mark Crossley.