MW High Tech Projects UK Ltd & Anor v Biffa Waste Services Ltd

Courts will rarely restrain payment under an on-demand bond. Intervention is justified only where there is a seriously arguable case of fraud known to the bank, or where the underlying contract clearly precludes the beneficiary’s call. The contractual preclusion may arise expressly or by implication, but the prohibition must be clearly established rather than merely seriously arguable.

A condition precedent requiring a prior call on a parent company guarantee does not ordinarily require that call to be substantively well founded. A formal and procedurally compliant call is sufficient, even if the underlying claim is controversial or ultimately unsuccessful. The commercial purpose is preserved by the principle of paying first and arguing later.

The claimants sought an interim injunction restraining Biffa from calling on a retention bond provided by Euler. The application followed Biffa’s demand under the bond after the EPC contract for a waste treatment plant had terminated, or was alleged by the parties to have terminated in different ways.

The EPC contract made a prior call on the parent company guarantee a condition precedent to calling on the retention bond. Biffa had made such a call in respect of asserted liquidated damages. The claimants argued that the call was invalid because the liquidated-damages claim was unavailable after termination and because Biffa was pursuing inconsistent contractual remedies. The central issue was whether those objections justified restraining the on-demand bond.

1. Application dismissed. The interim injunction was set aside. M+W had not established grounds for restraining Biffa’s call on the retention bond.
2. The governing principles were those stated in Edward Owen v Barclays Bank [1978] QB 159 and RD Harbottle (Mercantile) Ltd v National Westminster Bank [1978] QB 14. On-demand bonds are autonomous from disputes under the underlying contract. The court should intervene only exceptionally.
3. The established exceptions are a seriously arguable case of fraud known to the bank, or clear contractual preclusion of the beneficiary’s right to call. Following Sirius International Insurance Co v FAI General Insurance Limited [2003] EWCA (Civ) 470, contractual preclusion may arise from an express or implied term. However, it must be clearly established that the call is prohibited. A seriously arguable case that the beneficiary is not entitled to draw down is insufficient.
4. The proposed implied requirement that the call on the parent company guarantee be “valid” was rejected. It was uncertain whether validity meant a contractual basis for the demand or substantive entitlement to the sum claimed. The latter interpretation would make the call retrospectively ineffective whenever the parent had a successful defence. It would also generate satellite litigation inconsistent with the commercial purpose of an on-demand bond.
5. The call on the parent company guarantee satisfied the linguistic, formal and procedural requirements of clause 43.6. The fact that the underlying claim might be misconceived did not invalidate it. Nor had M+W clearly established that no liability for liquidated damages had arisen under the interaction between clause 22 and Schedule 10. The argument based on inconsistent remedies also failed: Biffa had not irrevocably elected between its possible claims and could plead compensation for delay under clause 22, Schedule 10, or both.

Not an appeal. The judgment determined an application to set aside an interim injunction granted on 26 January 2015.