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Ever since the 2011 case of Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC), the door to preventing a call on an On Demand Bond (also referred to as Performance Guarantees), by obtaining an injunction against the beneficiary pursuant to the underlying contract, has been more ajar than the historic case law perhaps indicated it should be. In the Simon Carves case, Akenhead J stated:
“In principle, if the underlying contract, in relation to which the bond has been provided by way of security, clearly and expressly prevents the beneficiary party to the contract from making a demand under the bond, it can be restrained by the Court from making a demand on the bond.”
This is arguably a dilution of the commercial value of an On Demand Bond. After all the classic test for preventing a bank paying out on an On Demand Bond is an extremely hard test to satisfy. It was Lord Denning who famously set out the test in the 1978 case Edward Owen Engineering v Barclays Bank International [1978] QB 159 as follows:
“The bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank has notice” [emphasis added].
As such there is a two-stage test. First, there has to be a clear fraud. Second, the person applying for the injunction needs to establish the bank was on notice of that fraud at the time the call was made. As such, injunctions being sought on this ground are likely to fail in all but the most exceptional of circumstances.
The rationale for this approach, as justified by the English courts, is that international trade would be permanently damaged if on-demand instruments such as On Demand Bonds and Standby Letters of Credit were not honoured. These instruments are frequently described as the “lifeblood of international commerce” (see RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146) and trust in them is therefore to be upheld as a matter of principle.
Accordingly, there are two broad strands of case law on how to prevent calls in respect of On Demand Bonds. These are namely: (1) the case law dealing with preventing a financial institution paying out where the fraud exception is firmly upheld; and (2) the case law dealing with applications to prevent the beneficiary of an On Demand Bond making a call in the first place pursuant to the underlying contract.
Since Simon Carves, it would be fair to say that case law involving bond calls has struggled to draw together the two strands of case law in a consistent fashion. Similarly, contractors faced with calls (and the damage to their financial standing where one occurs) have sought to rely on the logic in the Simon Carves case with various degrees of success. For example:
- in Doosan Babcock Ltd v Commercializodora de Equipos y Materiales mabe Limitada [2013] EWHC 3010 (TCC) and [2013] EWHC 3201 (TCC), Edwards-Stuart J cited Simon Carves and identified that a claimant “who wishes to restrain a beneficiary from making a demand under a bond must show that it has a strong case that, under the terms of the underlying contract, the beneficiary is not entitled to make a demand on the bond” (as summarised in TTSJV & Ors v Bapco); but
- in contrast, in MW High Tech Projects UK Ltd v Biffa Waste Services Ltd [2015] EWH 949 (TCC), Stuart Smith J “rightly noted that the Court of Appeal in Sirius made plain that a beneficiary is not to be restrained merely because there is a dispute as to whether there has been a breach of the underlying contract” (as again summarised in TTSJV & Ors v BapCo).
The August 2026 case of TTSJV v BapCo [2026] EWHC 2047 (TCC)[1] needs to be placed in this context because Mr Justice Pepperall clarifies, in a very well set out judgment, how the test laid down in Simon Carves (as interpreted or commented on in subsequent cases) should be implemented.
In TTSJV v BapCo, the EPC contractor was contracted to carry out an extensive and expensive upgrade to a refinery in Bahrain. They suffered delays resulting in a dispute as to whether liquidated damages were due and/or whether an extension of time should be awarded. Liquidated damages were demanded and shortly afterwards a call was made on the On Demand Bond in question for US$484,406,323.
The EPC contract was subject to English law and provided for LCIA arbitration but due to the short time scales an application was made to the English courts for an injunction while an emergency arbitrator was appointed. The injunction was made against BapCo rather than the bank who issued the On Demand Bond in question on the grounds that there was a “seriously arguable case of breach of the underlying contract”.
Drawing the disparate case law together (and noting the essential role of these types of instruments in commerce), Mr Justice Pepperall concluded:
“[25] In MW High Tech, Stuart-Smith J rightly noted that the Court of Appeal in Sirius made plain that a beneficiary is not to be restrained merely because there is a dispute as to whether there had been a breach of the underlying contract. The particular feature in Sirius that led to a different outcome was the contractual requirement that the beneficiary should obtain written consent before drawing down funds. Stuart-Smith J then confronted the tension in the authorities. He concluded, at [34]:
‘The second [principle] is that, when considering whether or not to grant an injunction, it is not sufficient that there is a seriously arguable case that the beneficiary was not entitled to draw down. It must be positively established that he was not entitled to draw down under the underlying contract – see the judgment of Ramsey J in Permasteelisa … If and to the extent that the subsequent decisions of Akenhead J in Simon Carves or Edwards-Stuart J in Doosan … suggest that a less rigorous test is to be applied, I respectfully consider that the views of Ramsey J should prevail as being in accordance with the substance of the decisions of higher authority, to which I have referred. It seems to me, both on principle and authority, that the only established exceptions to the rule that the court will not intervene should be where there is a seriously arguable case of fraud, or it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract.’
[26] I respectfully agree with that analysis. In my judgment, a seriously arguable case of breach of the underlying contract is not sufficient to justify injunctive relief to restrain a beneficiary from drawing down funds on a performance bond. Indeed, that was not what Akenhead J decided on a proper understanding of Simon Carves. Any doubt is, in my view, resolved by Akenhead J’s express agreement with Ramsey J’s conclusion in Permasteelisa. I therefore decline to follow Edwards-Stuart J’s conclusion that injunctive relief may be granted against a beneficiary on the basis of a seriously arguable case of breach of the underlying contract. In my judgment, relief can only be granted if TTSJV can clearly establish that BapCo was precluded from making the call in this case by the terms of the parties’ contract” [emphasis added].
So, it appears that the apparent “relaxation” of when an injunction can be obtained to prevent a call has not been followed in this most recent case. Indeed, an injunction will only be given where a call is clearly precluded under the underlying contract. This would certainly seem to sit more naturally with Lord Denning’s test for restraining a bank from paying out on a call and the English courts’ traditional emphasis on protecting international trade.
