Briefing

Bonds: “No time to injunct” – When courts will block a bond payment

Bonds are very powerful performance security. That has again been illustrated by the recent Technology and Construction Court (TCC) decision in CR Construction (UK) Company Limited v Barclays Bank plc & Northern Gateway (FEC) No. 7 Limited [2026] EWHC 202 (TCC). The decision is a useful reminder of the limited circumstances in which English Courts will grant interim injunctions restraining banks from making payments to beneficiaries under performance bonds. This article examines the key takeaways from the decision for contractors seeking injunctions to restrain a bank from paying out under a performance bond.

The facts

The dispute related to a tri-partite performance bond (Bond) provided by Barclays Bank plc (Bank) on behalf of CR Construction (UK) Company Limited (the Contractor) in favour of Northern Gateway FEC (No. 7) Limited (Employer). The Bond was obtained under a contract between the Contractor and Employer for the design and construction of residential and commercial units in Manchester (the Contract). The Employer alleged that the Contractor had failed to meet the completion dates specified in the Contract, and on that basis claimed liquidated damages and terminated the Contract. The Employer then called upon the Bond in respect of those liquidated damages.

The Contractor sought a court order (interim injunction) preventing the Bank making payment under the Bond, on three grounds:

The Employer’s demand was not made in accordance with the requirements of the Bond.
The Employer’s termination of the Contract amounted to a repudiatory breach which the Contractor had accepted, and therefore the Bond had been discharged prior to the Employer’s demand.
There was nothing due under the Bond by reason of the Contractor’s entitlement either to dispute the sum claimed or to set off the retention monies withheld by the Employer under the Contract.

Despite each of the above grounds amounting to an allegation against the Employer and not the Bank, the Contractor did not join the Employer to the claim or seek to restrain the Employer’s demand itself. The Bank opposed the injunction, arguing that the only reason for an injunction to be granted would be a case of fraud of which it had notice, which was not contended for by the Contractor.

The decision

The Court dismissed the Contractor’s application.

The Court confirmed that, generally, it will not grant an injunction restraining the Bank (sometimes called the “surety”) unless there is clear evidence of fraud of which the Bank had notice. This differs from the slightly broader approach where a beneficiary is sought to be restrained where, in addition to fraud, a beneficiary can be restrained where the underlying contract in relation to which the bond was provided expressly prevents the beneficiary from making a demand in the circumstances.

On the evidence before it, the Court observed that the Contractor did not (and could not) make an allegation of fraud against the Bank. Accordingly, the Court did not need to consider whether any of the Contractor’s grounds amounted to a serious question to be tried and dismissed the Contractor’s application on this preliminary basis.

However, the Court did also address the test for imposing an injunction more generally as if the Contractor’s application had been brought against the Employer. This was expedient as it avoided the Contractor subsequently seeking an injunction against the Employer on the same grounds.

A party seeking an injunction must demonstrate three criteria. These, and the Court’s response to each in this case, are set out in the table below:

Table: Test for interim injunction and Court’s decision

Criteria
Criteria	Court’s Reasoning
There is a serious question to be tried.	None of the Contractor’s three separate grounds were strongly arguable so there was no serious question to be tried. For example, on the Contractor’s second argument (that termination discharged the Bond), the Bond included specific wording that stated the Bond would survive termination.
Damages would be an inadequate remedy if the Court refused to grant the injunction.	Either party may suffer serious financial difficulties depending on the Court’s decision. There was no compelling evidence, for example, that the Contractor would become insolvent if the Bank made payment in response to the demand, or that the Contractor would have problems obtaining future projects. Therefore, this criterion was not satisfied.
The “balance of convenience” lies in favour of granting the injunction.	• This was a fairly typical case in which an interim injunction is generally refused. It did not involve fraud or any other serious question to be tried. • The Contractor could have challenged the Employer’s conduct 11 months prior to the Employer’s demand but did not do so. • There was a risk of wide reputational damage to the performance bond market if courts began restraining banks from performing their obligations under a performance bond in circumstances such as this.

Key takeaways

There are several practical points to take from this decision:

However, given the widely applicable comments on the ‘balance of convenience’ in this case, it appears that any injunction attempt will be unlikely to succeed, except in very unusual cases..

Performance bonds, particularly on-demand bonds, are very effective performance security on construction projects, providing employers with ready-access to cash if the bond is triggered.

The English Courts recognise the commercial importance of a consistent, predictable approach to resolving disputes in relation to bonds, with limited grounds to avoid payment.

Contractors looking for more scope to debate whether payment is due under a bond should consider the possibility of using default bonds, where a demand on the bond or guarantee must be supported by a judgment or arbitral award identifying a specific liability. That will be unacceptable to many employers. A possible middle ground is that an adjudication decision – which can be obtained more quickly and at lower cost than the alternatives – in favour of the employer is enough to support a demand. However, this is not a panacea: the bond in this case involved this kind of ‘compromise’ wording.

Parties would be well-advised to set out clearly in their underlying agreement when a demand may be made on any relevant bond. Demands which do not comply with any stipulations imposed in the underlying agreement are more likely to establish a serious question to be tried, however the ‘balance of convenience’ remains a significant hurdle for contractors to overcome and a contractor would still have to establish that damages for the employer’s breach (calling on the bond when not entitled) would be an inadequate remedy.

If a contractor does want to inhibit a demand on an existing bond, any injunction attempt should be directed at the party making the demand, not the bank or surety. A contractor’s prospects of success will be bolstered by: a) bringing the injunction attempt at the earliest possible opportunity; b) presenting as much compelling evidence as possible that there is no underlying entitlement to the sums due; and c) demonstrating some hardship that would arise from allowing the call to proceed that could not be addressed by a future damages payment.