UK Construction and Law
Court refuses to stop a $484m bond call and settles the test for restraining a beneficiary
By Staff Writer | 13 August 2026
A contractor consortium on a Bahrain refinery upgrade failed to hold back a demand on its performance guarantee, and the Technology and Construction Court chose between two competing lines of its own authority.
The judgment was handed down on 4 August 2026. It concerns the modernisation of an existing oil refinery in Bahrain under an engineering, procurement and construction contract dated 2 February 2018, at a price of US$4,211,000,000. The contract is governed by the law of England and Wales, and disputes go to arbitration in London.
The employer says the contractor missed a completion milestone on 26 October 2025, and claims delay liquidated damages up to the contractual cap of US$484,406,323, being 10 per cent of the adjusted contract price. The contractor says it is entitled to extensions of time, largely because of an explosion on 2 May 2025, when a hydrogen leak from an over pressured hydrocracker unit ignited and three workers were killed. That claim was rejected on 3 May 2026, and the contractor has said it will pursue it in arbitration.
On 18 May 2026 the employer demanded the delay damages. On 21 May it called the performance guarantee. The contractor asked the arbitral institution for an emergency arbitrator the same day, and came to court because it feared the bank would pay before Eid began the following Monday.
The court accepted the application was urgent enough to be heard before proceedings were even issued, and then refused every ground on which the contractor asked it to intervene.
Two lines of authority, one of them now abandoned
The contractor argued that an injunction is available where there is a strongly arguable case that the underlying contract precludes the beneficiary from calling. The employer argued that the applicant must positively establish there was no entitlement to draw down.
The point mattered because the decisions of the Technology and Construction Court had drifted apart. One line held that a strong or seriously arguable case would do. Another held that nothing short of a clearly established contractual bar, or a seriously arguable case of fraud, will justify interfering with an instrument long described as the lifeblood of international commerce.
a seriously arguable case of breach of the underlying contract is not sufficient to justify injunctive relief to restrain a beneficiary from drawing down funds on a performance bond
Mr Justice Pepperall
The judge preferred the stricter view, agreeing with the analysis in MW High Tech Projects UK Ltd v Biffa Waste Services Ltd and with the earlier reasoning in Permasteelisa Japan KK v Bouyguesstroi. He declined to follow the contrary conclusion in Doosan Babcock Ltd v Comercializadora de Equipos y Materiales Mabe Limitada, and held that Simon Carves Ltd v Ensus UK Ltd, read properly, does not support the looser test either.
There is a warning in the judgment for anyone drafting an urgent application. The passage from Simon Carves put before the court in the contractor's skeleton argument was not what the judge in that case had said. The court accepted the apology and treated the error as unfortunate rather than deliberate, but recorded that judges hearing applications at speed and without notice must be able to rely on counsel citing authority accurately.
Four grounds, four answers
The penalty argument turned on a clause allowing the employer to use the works before take over and keep the revenue, with no corresponding reduction in delay damages. The court held that the starting presumption is strongly against striking down a negotiated damages regime between commercially sophisticated parties, that this was a modernisation of a working facility rather than a new build, and that the contractor had at most an arguable case, not an established one.
The compliance argument failed on the documents. The prescribed form of demand did not require the employer to set out the alleged breaches, and the placeholder relied on was the only space in which the underlying contract could be identified. In any event, the applicable uniform rules allow the supporting statement to sit in a separate document, and one had been provided.
The due and payable argument failed because no clause suspended liquidated damages while an extension of time claim was unresolved. The court pointed to a term requiring both parties to give effect to a determination even where a notice of dissatisfaction has been served and the dispute is pending in arbitration. The fourth ground, that the retention bond was not security for delay damages, was abandoned once the employer took the court to the annex that said it was.
The lesson is old and keeps having to be relearned. A contractor who wants protection against a bond call buys it at the drafting stage, in the words of the bond and the contract, not at the door of the court three days before a bank holiday.