Performance Bonds and the high bar for interim injunctions

Briefing

Background

This article discusses the recent judgment in Northern Gateway (FEC) No.7 Ltd v CR Construction (UK) Co Ltd [2026] EWHC 202 (TCC).

Back in September 2021 Northen Gateway (FEC) No.7 Ltd (the employer) entered into a development contract with CR Construction (UK) Co Ltd (the contractor) for the design and construction of 634 residential units with associated amenity spaces and commercial units as part of the Victoria Riverside project in Manchester. As is typical for similar developments, the contractor was required to provide a performance bond in favour of the employer (the bond). The bond was issued by Barclays Bank plc (Barclays), and provided that where the contractor failed to pay any debt, damages or other sum of money due to the employer under the development contract to the employer, Barclays would, upon request, make that payment in accordance with the terms of the bond.

While the reasons for the failure are disputed, it was common ground between the parties that the contractor had failed to meet two sectional completion dates. In relation to these failures, the employer's agent, Arcadis, rejected requests from the contractor for an extension of time and served non-completion notices. Following the second failure, in February 2025, Arcadis also issued a notice of liquidated damages requiring the contractor to pay a sum of around £3 million to the employer. The following day, Arcadis issued a notice of termination on the contractor, purportedly in accordance with the contract. At the point this application came before the court, the contractor continued to dispute the employer's failure to grant any extensions, its demand for liquidated damages and its termination of the contract.

Towards the end of 2025 a demand was sent to Barclays under the bond, requesting payment in the amount of approximately £2.5 million. The contractor applied to the court for an interim injunction against Barclays to restrain it from making any payment to the employer.

The contractor claimed there were three separate grounds on which it was entitled to obtain an injunction:

that the demand was not made in accordance with the terms of the bond
that the bond had been discharged by the repudiatory breach of the employer seeking to terminate the contract prior to the demand being made
that nothing was yet due under the bond as the sum demanded was disputed and in any case the employer held sufficient monies as a retention under the contract to set-off the amount demanded.

Barclays claimed the only basis on which an injunction could be granted was if there had been a fraud of which it had notice, which didn't apply here. In any event, none of the three grounds put forward by the contractor had any merit, and even to the extent they did, as damages would be an adequate remedy for the contractor here, the court should refuse an injunction.

Judgment

The court dispatched with the contractor's request for an injunction reasonably swiftly and for reasonably technical reasons.

The question of whether or not an issuer could be restrained from paying out under a bond was previously summarised in Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657(TCC) which held that the court should not act to prevent a bank from paying out under a bond if the conditions of the bond had been complied with unless material fraud is established at final trial or there was clear evidence of fraud at the without notice or interim injunction stage.

While the avenues for obtaining an instruction against the issuer of a bond are limited, it may be appropriate for the court to grant an injunction restraining the beneficiary from calling on the bond if the beneficiary was not entitled, on a proper construction of the underlying contract, to have made its demand.

The contractor here had not made out, nor attempted to make out, an allegation of fraud against Barclays such that the court had to dismiss the application sought. Given that the contractor had not made the employer party to its claim or applied for an interim injunction against the employer, the court would not grant an injunction on this basis either.

The court was conscious of the "difficulty" that might arise if, as a consequence of its application for an injunction against the bank being dismissed, the contractor sought another injunction against the employer, so for completeness the court continued to assess the remaining arguments put forward by the contractor:

The first argument was that the demand was not made in accordance with the terms of the bond. This required consideration of the provisions of the bond dealing with the procedure for making demands, requiring "notice in writing given by the Employer" and either (i) a court judgment, arbitrator's award or an adjudicator's decision; or (ii) a "certificate from the Employer", in each case confirming a breach. A number of issues were highlighted by the contractor here, including that the demand sent to Barclays was sent on a different company's letterhead, signed by someone identified only as a "regional general manager", erroneously referred to the employer as being a company registered in England and Wales and required payment of the sum demanded under the bond into an account in the name of a different entity. The court's view was that this was "somewhat careless and introduce[d] some initial element of doubt", but if considered "as a whole, by reference to their content and their substance rather than with undue formality", noting that the bond didn't prescribe a specific form and having regard to publicly available information, there was no real doubt that a demand and a certificate had come from the employer and broadly fulfilled the requirements under the bond.
The second argument was that, by seeking to terminate the contract, the employer had committed a repudiatory breach of the contract. The contractor had accepted that breach and therefore the contract had been discharged, meaning no claim could then be made under the bond for a sum due under the now defunct contract. This required the court to consider clause 2.2 of the bond, which stated that "No termination of the Construction Contract…[or] termination of the Contractor's employment under the Construction Contract, shall reduce the liability of [Barclays] under this Deed". The contractor argued this would only apply to a termination of the contract in accordance with its terms and not a discharge on repudiatory breach – in the latter case the bond would lapse. The court was not convinced, and indeed found there was "no obvious reason" that a reference to termination should be read in such a narrow sense and "every reason" why termination should be given its ordinary meaning, which would be broad enough to include the discharge of a contract following repudiatory breach. Disputes over whether the termination of a construction contract is lawful (and therefore whether a wrongful termination amounts to a repudiatory breach) are commonplace and it would be surprising if the bond was only expected to survive a contractual termination but not discharge following repudiatory breach.
On the final argument, weight was given to the fact that the bank was entitled to rely on a written notice and certificate given by the employer that a sum was due from it under the guarantee. This was seen as inconsistent with a need for the beneficiary to have fully and finally established the liability other than so far as required to make the certification. The court squarely rejected the suggestion that the provision in the guarantee providing that the employer was not entitled to recover from Barclays any more than it would have been entitled to recover from the contractor, net of any set-off, meant that the bank was prohibited from paying out a sum in excess of the net amount due to the contractor as a result of any right of set-off asserted.

The imposition of an interim injunction is a fairly serious matter and the court needs to be persuaded, prior to the matter having been heard at a full trial with all the attendant documentation, arguments and evidence, that the party requesting the injunction has a strong case and on balance the potential harm that may be done if the respondent's conduct were to go ahead unrestrained could not be adequately cured with damages. Turning to the contractor's arguments, at most the court found these suggestions "arguable" and its case neither "strong" not "unusual", but "fairly typical", and certainly did not consider the contractor would have had the strong case it would have required to obtain an interim injunction against the employer, if, indeed, such an injunction had even been sought. The court was further unconvinced by the arguments put forward by the contractor as to whether damages were an adequate revenue. Ultimately it seemed the contractor was destined to fail on every ground, however it cast its application.

Comment

For those of us who are sometimes maligned for spending our working day challenging sloppy documentation, championing formality and the importance of rigid adherence to contractual terms, what might stick out most here is the low bar applied by the court in this application in finding a valid demand had been made on the guarantee.

It is clear however that, as well as the detailed legal reasoning articulated by His Honour Judge Stephen Davies in his judgment, some regard was had to a broader policy point. Performance bonds like the one issued here by Barclays are used extensively throughout the commercial sphere, including in the construction sector, and the whole point of them is that the beneficiary has pretty much cast iron certainty that, on production of the required documentation, the issuer will pay out with no detailed consideration of the merits of the claim and any underlying dispute, effectively making them as good as cash. If an English court were to grant an injunction restraining a bank from paying out on a bond in the context of a fairly commonplace contractual dispute like this one, it would send shockwaves through the industry. As such, on this occasion, we can let the careless approach slide!

As well as affirming the strength of performance bonds as a commercial instrument, the judgment is further evidence of the very high bar that must be cleared for an interim injunction to be sought.