High Court Refuses To Grant Injunction Against Bank Preventing Payout Under Performance Bond

The decision confirms that where there is a compliant demand and no allegations/evidence of fraud, the court will not prevent a bank from fulfilling its obligations under such a bond 

The High Court has dismissed an application by a construction company for an interim injunction seeking to restrict a bank from making a payment under a performance bond following a demand made by its employer after the termination of its contract due to defaults: CR Construction (UK) Company Ltd v Barclays Bank Plc [2026] EWHC 202. 

Although set in a non-financial context, the decision will be of wider interest to financial institutions that issue performance bonds as part of their trade finance business. The decision is a timely reminder of the obligations that a financial institution will owe under such bonds. It reaffirms the well-known autonomy principle, which requires the issuing financial institution to treat demand instruments as independent undertakings, enforceable according to their terms and unaffected by underlying contractual disputes (save in exceptional cases of fraud of which the financial institution has notice).  

The decision highlights that where a defaulting party seeks an interim injunction against a financial institution to prevent it from fulfilling its obligations in relation to a compliant demand under an on-demand performance bond, without any allegations/evidence of fraud, the court will uphold the autonomy principle. However, where a defaulting party seeks an interim injunction against the beneficiary, there might be wider grounds for preventing payment (e.g. if the underlying contract to the bond contains a clear contractual term preventing the beneficiary from making a demand). Consequently, if a defaulting party obtains such an injunction, this may temporarily suspend the bank's liability under the bond. That said, the decision underlines that obtaining such an injunction will not necessarily be straightforward as: (i) in any case, the defaulting party will be required to establish that they have a strong case that the beneficiary is contractually prohibited from making a demand; and (ii) the court will be sensitive to the wider reputational and market consequences of such an injunction on the performance bond market.

We consider the decision in more detail below.

Background

The dispute arose out of a construction project in Manchester. In 2021, Northern Gateway (FEC) No.7 Limited (the Employer) and CR Construction (UK) Company Limited (the Contractor) entered into a contract for the design and construction of multiple residential units. The contract required the Contractor to provide a performance bond in favour of the Employer. Barclays Bank plc (the Bank) agreed to provide the bond. 

In 2025, following several defaults by the Contractor, the Employer's agent issued a notice of termination. The Employer then made a demand under the bond for nearly £2.5 million in respect of liquidated damages. 

The Contractor disputed the termination of the contract and applied for an interim injunction to prevent the Bank from making payment under the bond.

Decision

The High Court dismissed the Contractor's application.

The key aspects of the decision that will be of interest to financial institutions are set out below.

Injunction against a bank

The court considered and agreed with the suggestion that the only basis on which an injunction could be granted against the Bank would be a case of fraud of which it had notice, which was not contended for by the Contractor.

The court referred to the well-known test in American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1 for the grant of an interim injunction. The court also highlighted the general approach of the courts to applications seeking to provisionally restrain a party from calling on a performance bond or a surety from paying out under a bond (summarised in Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC)). However, the court drew a distinction between an application for an interim injunction against a: (i) bank, where clear evidence of fraud is required; and (ii) a beneficiary, where it is sufficient to establish a strong case that the beneficiary is clearly and expressly prevented under the underlying contract from making a demand on the bond. Further, the court found no authority stating in clear terms that an injunction may be granted against a bank on a wider basis than that applicable to beneficiaries.

In the present case, the Contractor had not and could not on the evidence make an allegation of fraud against the Bank. The Contractor also chose not to make the Employer a party to the claim or to its interim injunction application. In light of this, in the court's view, it was not sufficient for the Contractor to obtain an injunction to establish – even if it could – that the Employer was clearly and expressly prevented under the underlying contract from making a demand under the bond. 

Accordingly, the application against the Bank could not succeed and was dismissed.

Injunction against a beneficiary

While the claim against the Bank failed, the court considered on an obiter basis what the position would have been if the Contractor had pursued an injunction against the Employer (i.e. the beneficiary under the bond). 

Applying American Cyanamid and Simon Carves, the court considered whether the Contractor had a strong case that the Employer was clearly and expressly prevented under the construction contract from making a demand under the bond. After examining the terms of the bond, the court concluded that the Contractor did not have such a case, noting that:

1.  The demand complied with the bond’s documentary requirements, and any alleged technical defects were immaterial (including in relation to the format of the demand). The court also noted, by reference to Tetronics v HSBC [2018] EWHC 201 (TCC), that even where there is an allegation that the call was invalid, it is still not a good basis for an injunction against a bank - the bank is entitled to rely upon the autonomy principle unless the fraud exception applies.
2. Termination of the construction contract, whether through a repudiatory breach or otherwise, did not affect the Bank’s liability under the bond, given that the bond specifically contained a provision which stated that "No termination of the Construction Contract, and no termination of the Contractor's employment under the Construction Contract, shall reduce the liability of the Surety under this Deed".
3. While the bond operated as a guarantee rather than an indemnity and contained set off provisions, this did not create any independent right of set-off in relation to the Bank's obligation to pay out in accordance with the demand from the Employer. In effect, the Employer must give credit for any set off when making the demand, i.e. it should not seek from the Bank more than it is entitled to. Therefore, the onus is on the Employer to make an appropriate demand and not the Bank to deal with any set-off. 

Accordingly, in the court's view, the injunction against the beneficiary would have been refused as it would have failed at the first hurdle of the American Cyanamid test.

For completeness, the court also considered the remaining limbs of the American Cyanamid test. The court emphasised that the balance of convenience favoured refusing the injunction. This was because:

• The case was a fairly typical one which should proceed to substantive proceedings, rather than be dealt with by way of injunction. 
• The Contractor delayed in bringing a claim and was in a position to have challenged the Employer’s conduct and the issues in relation to the bond much earlier. Further, it did not act speedily even once it was aware that the Employer was going to make demands under the bond.
• There was no credible evidence of any irreparable damage to the Contractor if an injunction was refused.
• The wider reputational damage to the performance bond market, especially in the construction sector and the UK, was a very significant reason in itself and justified the refusal of the injunction (which was consistent with Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.