Tetronics (International) Ltd v HSBC Bank Plc

Injunctions restraining payment under autonomous bank guarantees are available only in the narrow fraud exception. The claimant must show that it is seriously arguable that the only realistic inference is that the beneficiary could not honestly have believed in the validity of its demand, that the bank knew of the fraud, and that the balance of convenience favours relief. The final requirement presents an extremely high hurdle and ordinarily requires extraordinary facts. A valid call remains a prerequisite to payment, but disputes under the underlying contract ordinarily cannot justify restraining the bank. The court must assess the balance of convenience afresh where material evidence emerges after an interim decision. An applicant seeking urgent relief without notice must make full, fair and accurate disclosure.

Tetronics sought continuation of an urgent injunction restraining HSBC Bank plc from paying £3.08 million under an advance payment guarantee called by BlueOak Arkansas LLC. The guarantee supported a supply contract governed by New York law, while the guarantee was governed by English law.

Tetronics alleged that BlueOak’s second demand was invalid and fraudulent, and that HSBC knew of the fraud. The injunction was initially granted without notice and continued on the evidence available at the first return hearing. After a draft judgment, further evidence concerning Tetronics’ financial position and submissions to an ICC Emergency Arbitrator was admitted. The central issues were whether the fraud exception applied, whether the balance of convenience favoured continuation, and whether the injunction should be reconsidered.

1. Fraud exception. The court applied the test stated in Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31: it had to be seriously arguable that the only realistic inference was that BlueOak could not honestly have believed in the validity of its demands, that HSBC was aware of the fraud, and that the balance of convenience favoured an injunction.
2. Validity and autonomy. The guarantee required a compliant demand received by the bank. A dispute under the underlying contract did not ordinarily affect HSBC’s autonomous obligation. The demand adequately identified the alleged breaches, and, on the evidence ultimately available, the authentication requirement was satisfied.
3. Fraud and knowledge. Unchallenged evidence and contemporaneous documents showed that BlueOak had previously represented that there were no grounds for a demand, later agreed that the plant had been delivered in accordance with the contract, and then made demands alleging known breaches. The court found a cogent and compelling case of fraud. The H&H legal opinion and Tetronics’ communications were sufficient to put HSBC on notice of the fraud before it decided whether to pay.
4. Balance of convenience. Although the evidence available at 31 January 2018 presented extraordinary facts and supported continuation, the later evidence showed that Tetronics would not necessarily become immediately insolvent and that its shareholders could provide funds. The court therefore reconsidered the matter afresh and held that the balance favoured discharge.
5. Without-notice evidence and finality. An applicant seeking interim relief without notice owes a high duty of full, fair and accurate disclosure. Tetronics had failed to comply with that duty by presenting an incomplete account of its financial position. The injunction granted on 18 January 2018 was discharged.