The Technology and Construction Court (the “Court”) has handed down an important judgment on when the courts will intervene to prevent payment under a performance bond. In CR Construction (UK) Company Limited v Barclays Bank plc & Northern Gateway (FEC) No. 7 Limited, the Court reaffirmed the strict approach taken to on‑demand bonds and the very narrow circumstances in which injunctive relief will be granted.
The Contractor’s application to restrain payment under the bond was ultimately rejected.
Background
CR Construction (UK) Company Limited (the “Contractor”) entered into a JCT Design & Build Contract in September 2021 with Northern Gateway (FEC) No. 7 Limited (the “Employer”). As is common in major residential developments, the Contractor procured a performance bond issued by Barclays Bank plc (the “Bank”) securing a portion of the contract sum.
Following termination of the contract in early 2025, the Employer issued a demand under the bond for liquidated damages and the Contractor applied to the Court for an interim injunction restraining the Bank from making payment under the bond.
The Contractor’s key arguments
The Contractor argued that it was entitled to obtain an injunction because:
- the demand did not comply with the formal requirements as set out in the bond;
- nothing was due under the bond as liquidated damages were disputed, and retention monies withheld by the Employer should be set off; and
- the Employer’s conduct amounted to a repudiatory breach of the contract which the Contractor had accepted thereby bringing the bond to an end.
The Court’s determination
The Court observed at the outset that the application, in the form presented, could not succeed. Injunctive relief restraining payment under an on‑demand bond is available only in very limited circumstances, most commonly where fraud is alleged. No allegation of fraud had been made in this case.
Nevertheless, the Court went on to consider the Contractor’s substantive arguments.
Validity of demand
The Contractor argued that the Employer’s demand was invalid because it appeared on “Far East Consortium” letterhead rather than using the Employer’s full corporate name. The Court rejected this argument. Under the bond, the only requirement was that the demand and the accompanying certificate be issued by the Employer. Compliance with that requirement was a matter of substance, not the precise form of the letterhead used.
The Court was satisfied that the demand was in fact made by the Employer and that it met the bond’s procedural requirements. Importantly, and as expressly required by the bond, the demand was accompanied by a certificate countersigned by the Employer’s Agent.
Bond payment not affected by Contractor’s liquidated damages challenge
The Contractor also argued that nothing was payable under the bond because it disputed the Employer’s entitlement to liquidated damages. The Court rejected this argument. Under the terms of the bond, the Bank was obliged to pay once it received a compliant demand supported by a certificate stating that sums were due from the Contractor. Under the bond wording, that certificate was treated as conclusive for the purposes of the Bank’s payment obligation. The Bank was therefore not required to investigate the underlying contractual dispute.
The Court emphasised that any challenge to the Employer’s entitlement to liquidated damages needed to be pursued directly against the Employer through the contractual dispute resolution process, for example, through adjudication. The Employer was entitled to act on its notices unless and until they were overturned, and if the Contractor later succeeded in adjudication, the Employer would be required to repay any sums wrongly claimed.
Alleged discharge of the bond
The Contractor also argued that the bond had been discharged because it had accepted what it alleged was a repudiatory breach by the Employer under the contract. The Court rejected this argument. The bond expressly provided that no termination of the contract would reduce the Bank’s liability under the bond. The Court held that the word “termination” should be interpreted in its ordinary sense, which includes a contract coming to an end following acceptance of a repudiatory breach.
The Court further observed that it would be surprising if the bond was intended to remain effective following a contractual termination but not where the contract ended as a result of one party accepting the other’s repudiatory conduct. On that basis, the bond remained in force.
Balance of convenience weighed against granting an injunction
In addition to finding that the Contractor had failed to show that damages would be an inadequate remedy, the Court observed that the balance of convenience lay against granting an injunction. In particular, it noted that restraining payment under the bond would disrupt the Employer’s cashflow and risk wider reputational consequences for the performance bond market.
Key takeaways
Although each case will turn on its specific facts and the wording of the relevant bond, it is clear from the judgment that only clear and compelling evidence of fraud will justify an injunction preventing an issuing bank from paying out under an on‑demand bond.
The decision also reinforces the Court’s consistent reluctance to interfere with the operation of on‑demand instruments. The message is straightforward, if a contractor wishes to challenge an employer’s entitlement to sums whether relating to liquidated damages or otherwise it must pursue those arguments through the applicable contractual dispute resolution procedures.
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