English court confirms high bar for resisting performance bond calls based on the underlying contract

Rachel Turner, construction and international arbitration expert at Pinsent Masons, was commenting on the decision in TTSJV WLL & Ors v BapCo Refining BSC. The dispute concerned the approximately US$4.2 billion modernisation of BapCo’s oil refinery in Bahrain.

The judgment addressed a recurring issue for contractors on major projects: whether a call on an on-demand bond may be restrained where there is an ongoing dispute over entitlement to make the call under the underlying contract.

Turner said: “The English courts have considered and clarified a point that is often subject to debate, which is, absent fraud, to what extent is the underlying contract relevant when a party seeks to restrain a call on an on-demand bond.”

“The traditional position has been that, to preserve the ‘lifeblood of international commerce’, these instruments operate on a ‘pay now, argue later’ basis. As such, it is commonly argued that the on-demand bond is completely independent of the underlying contract. The court has confirmed that, under English law, a lack of contractual entitlement to call the bond may, in principle, justify an injunction, however on very narrow terms.”

The dispute revolved around an engineering, procurement and construction (EPC) contract under which a consortium of contractors agreed to design, procure and deliver works to modernise BapCo’s refinery. The project was governed by English law and contained an arbitration agreement providing for disputes to be resolved under the London Court of International Arbitration (LCIA) rules.

A central issue arose after a major refinery explosion in May 2025, which the contractor said rendered parts of the site unusable, caused significant disruption and entitled it to an extension of time. BapCo, however, maintained that the contractor had failed to achieve key contractual milestones and claimed delay liquidated damages up to the contractual cap of 10% of the adjusted contract price, amounting to approximately US$484.4 million.

When BapCo called on a performance guarantee, the contractor commenced emergency arbitration proceedings and sought urgent court relief under section 44 of the UK Arbitration Act 1996 to prevent payment being made before an emergency arbitrator could intervene. The court accepted that it had jurisdiction to act because there was a real risk the funds would be paid before an emergency arbitrator could be appointed and provide effective relief under the LCIA rules.

Turner said: “The LCIA rules do not include reference to an ex parte preliminary protective order; the contractor therefore sought support from the English courts. Other institutions such as SIAC and ICC have recently updated their rules to include such a mechanism that offers urgent interim protection at the outset and before the involvement of the respondent.”

The court however ultimately refused to issue the injunction.

The court rejected the contractor’s argument that it was enough to show a “seriously arguable” or “strongly arguable” case that the other party may be in breach of the contract. To stop a bond call, a party must clearly show that the contract expressly prevents the beneficiary from making the demand.

Turner said: “The court held that any lack of entitlement must be clearly established and rooted in the contract itself. The test is not whether there is a seriously arguable case that a party lacks entitlement to make the demand. Rather, the restriction must stem from the express wording of the parties’ contractual arrangements.”

The contractor made three principal arguments in support of the injunction. It argued that the liquidated damages provision operated as an unenforceable penalty because the employer had received revenue whilst levying the liquidated damages; that the bond demand was technically defective; and that the liquidated damages claimed were not yet due and payable because its extension of time claims had not been resolved. The court rejected each argument.

Turner said: “Following this decision we are likely to see increasing applications for interim relief, both in support of arbitration and as standalone court applications. Global instability, project disruption, delay claims and the growing value of bonds and guarantees required, including relating to multi-billion dollar ‘mega projects’, are all contributing factors.”

“The extremely narrow scope to resist a bond call under English law endures but, in our view, remains an area of potential challenge and development. It is interesting to ponder whether in the same circumstances, had an ex parte preliminary protective order been available, that would have been granted. This may have been due to the greater flexibility afforded to an emergency arbitrator. However right now, businesses should bear in mind that under English law a seriously arguable case of breach may not be sufficient to resist a bond call.”

“Careful consideration should be given to the terms of performance guarantees, letters of credit and the underlying contract. Where firms intend to restrict when funds can be drawn down, they should consider including express provisions that clearly limit the circumstances in which a call can be made. Parties should also consider, when drafting their arbitration clause, whether the chosen arbitral rules provide mechanisms for obtaining urgent interim relief, such as ex parte preliminary protective orders.”