CR Construction (UK) Company Limited v Barclays Bank Plc

An interim injunction restraining payment under an on-demand performance bond will ordinarily be granted against the issuing bank only where fraud is alleged and supported by clear evidence. A strong case that the beneficiary was contractually prohibited from calling the bond may justify relief against the beneficiary, but does not ordinarily justify relief against the bank. The court construes the bond according to its terms, including any certification mechanism making a purported certificate conclusive evidence of liability. The autonomy and commercial importance of performance bonds weigh heavily against injunctions based on disputed underlying liabilities. Wider reputational and market considerations may also form a significant part of the balance of convenience.

The Contractor sought an interim injunction restraining Barclays Bank from paying £2,475,441.02 demanded by the Employer under a performance bond securing obligations under a construction contract. It also sought an order requiring the Bank to return money received under a counter-guarantee from Hongkong and Shanghai Banking Corporation Limited. The Employer intervened and supported the Bank’s opposition. The Contractor relied on alleged defects in the demand, discharge of the bond following acceptance of repudiatory breach, disputes about liquidated damages, and set-off. The Bank argued that the application was misconceived in the absence of fraud and that damages and the balance of convenience favoured refusal.

1. Application dismissed. The Contractor had not alleged, and could not establish on the evidence, fraud by the Bank. Under the applicable principles, an injunction against the issuing bank was therefore unavailable. The Contractor had also not joined the Employer as a defendant to the injunction application.
2. The approach in Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC) distinguishes relief against the bank from relief against the beneficiary. Against the beneficiary, a strong case that the underlying contract clearly and expressly prohibits a demand may suffice. Against the bank, clear evidence of fraud is required.
3. On the merits, clause 2.2 of the Bond was apt to include termination by acceptance of repudiatory breach. The Contractor’s contrary construction was only narrowly seriously arguable. Clause 5.1 made the Bank’s liability co-extensive with the Contractor’s net liability, but did not create an independent right for the Bank to investigate or apply additional set-off. Clause 5.3 made a purportedly compliant certificate conclusive evidence of the liability to which it related, including a specified sum.
4. The demand and certificate, read as a whole and without undue formality, were sufficiently shown to be given by or from the Employer. Any arguable defect was, in any event, insufficient to establish a strong case against the Bank.
5. Damages and the balance of convenience favoured refusal. The evidence of irreparable loss to the Contractor was largely assertion. The Employer would be deprived of immediate use of the money, and restraining performance would risk serious damage to confidence in the performance-bond market. This approach was consistent with Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31.
6. The relief concerning the counter-guarantee was also refused. HSB had already paid the Bank and had been reimbursed by the Contractor’s parent. HSB was not served or joined to the application, and no sensible basis for ordering repayment by the Bank was shown.