TTSJV W.L.L. & Ors v BapCo Refining B.S.C. (Closed)

For an urgent application supporting arbitration, the court may grant short-term relief under the Arbitration Act 1996 where the tribunal or emergency arbitrator cannot act effectively in time. The autonomy of performance bonds is strongly protected. Absent fraud, a seriously arguable breach of the underlying contract is insufficient: the applicant must clearly establish contractual preclusion from calling the bond. Partial take-over does not automatically make liquidated damages penal; the clause must be construed in context, respecting party autonomy, legitimate interest, certainty and proportionality. A supporting statement under article 15(a) of the Uniform Rules for Demand Guarantees may be separate from the demand. The application was dismissed.

TTSJV W.L.L. and three related companies applied before issuing arbitration proceedings for an injunction restraining BapCo Refining from drawing US$484,406,323 under a performance guarantee and from calling a retention bond. The EPC contract was governed by English law and provided for LCIA arbitration seated in London. BapCo claimed delay liquidated damages after an alleged failure to achieve a contractual milestone. The claimants relied on an extension-of-time claim following an industrial accident. The application raised four grounds: penalty, non-compliance with the guarantee, lack of a present entitlement to delay damages, and the scope of the retention bond. The central issues were whether urgent relief was available under section 44 of the Arbitration Act 1996 and whether the asserted contractual bars had been clearly established.

The application was dismissed and injunctive relief was refused.

1. Urgency and arbitral support. The court could entertain the application before proceedings were issued. There was a real prospect that an emergency arbitrator would not be appointed and able to grant effective relief before the bond funds were released. Any court order would therefore have been short-term, to hold the ring until arbitral action. The applicants had also acted reasonably in giving short notice under the Civil Procedure Rules 1998.
2. Performance bonds. The autonomy of on-demand banking obligations, identified in RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146 and Sirius International Insurance Co. v FAI General Insurance Ltd [2003] EWCA Civ 470, meant that an underlying contractual dispute was insufficient. The court adopted the approach in Permasteelisa Japan KK v Bouyguesstroi & Banca Intesa SpA [2007] EWHC 3508 (TCC) and MW High Tech Projects UK Ltd v Biffa Waste Services Ltd [2015] EWHC 949 (TCC): absent fraud, the applicant had to establish clearly that the beneficiary was contractually precluded from calling the bond. A seriously arguable breach was insufficient. The court declined to follow the less rigorous approach suggested in Doosan Babcock Ltd v Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3010 (TCC) and [2013] EWHC 3201 (TCC).
3. Penalty argument. Applying Cavendish Square Holding BV v Makdessi [2015] UKSC 67, the negotiated liquidated-damages provisions attracted a strong initial presumption of validity. The issue required a fact-sensitive assessment of legitimate interest, certainty, proportionality, party autonomy and the workability of the contractual machinery. Partial take-over without a reduction in the rate did not automatically make the clause penal. The applicants had not clearly established invalidity, nor even a strongly arguable case on the material before the court.
4. Compliance and payment grounds. Article 15(a) of the Uniform Rules for Demand Guarantees permitted the statement identifying the applicant’s breach to appear in the demand or in a separate signed document. The prescribed form naturally required identification of the EPC contract in its placeholder. The accepted existence of a supporting statement defeated the compliance argument. Clause 3.5(c) also appeared to require effect to be given to the rejection of the extension-of-time claim pending arbitration, and in any event the claimants had not shown even a strongly arguable case that the determination was wrong.
5. Retention bond. The contractual provisions permitted the retention bond to be called for claims for damages, including liquidated damages, subject to notice and non-payment. The objection that it did not secure delay liquidated damages had no merit and was abandoned.