In our earlier article, “Performance Bonds – Call Me?”, we noted that employers have become increasingly willing to call on-demand performance bonds in recent years – and that contractors may decide to challenge such calls in court. We also flagged that the grounds on which a court will actually intervene are narrow. The Technology and Construction Court’s recent decision in TTSJV W.L.L. and Others v Bapco Refining B.S.C. [2026] EWHC 2047 (TCC) is a useful illustration of just how narrow.
The Facts
TTSJV, a joint venture of Technip Energies, Técnicas Reunidas and Samsung E&A, was engaged under a $4.2 billion EPC contract to modernise BapCo’s oil refinery in Bahrain. A dispute arose over delays following an explosion at the site. BapCo rejected TTSJV’s extension of time claims and called on the performance bond – issued by HSBC Bank Middle East – for $484.4 million in delay liquidated damages. TTSJV applied urgently under Section 44 of the Arbitration Act 1996 to restrain the call pending LCIA arbitration.
The Legal Test
In our earlier article, we noted that, as a matter of English law, an injunction would traditionally only be granted where the demand is obviously fraudulent, and that in more recent times there has been movement towards granting an injunction in situations where it has been established that the employer is precluded from making the demand by the terms of the underlying contract. In this case, TTSJV tried to argue for a lower threshold – a “strongly arguable case” that the contract had been breached. Pepperall J rejected that approach, holding that the applicant must clearly establish that the beneficiary is contractually precluded from making the call. A seriously arguable case is not enough. If the contract does not positively prevent the call, the court will not step in. Consequently, the challenge to the bond call failed on that basis.
Attacking the Underlying Entitlement
In any event, the judge considered the submissions made for TTSJV that there was a seriously arguable case that BapCo had no underlying entitlement to liquidated damages under the EPC contract. All of TTSJV’s arguments failed, but two arguments are of particular interest.
- TTSJV argued that the liquidated damages regime amounted to an unenforceable penalty. The EPC contract permitted BapCo to take over and operate parts of the refinery before completion, but without any corresponding reduction in the liquidated damages payable. TTSJV argued that this made the regime penal. It is a superficially attractive argument – if the employer is already benefiting from partial operation of the plant, why should it be able to recover the same damages as in the period before partial take over? But Pepperall J applied the strong presumption from Cavendish Square v Makdessi [2015] UKSC 67 that liquidated damages provisions negotiated between sophisticated, well-advised parties are enforceable. The argument was, at best, “potentially arguable”, but failed to establish a seriously arguable case.
- In our earlier article, we stressed that the issuer of a performance bond will only pay out under a bond if presented witha valid demand, and that employers should ensure they comply strictly with all procedural requirements. Here, TTSJV tried to turn that principle against BapCo: it argued thedemand failed to include thestatement of breach required by Article 15(a) of the Uniform Rules for Demand Guarantees (URDG). But on a proper construction of the bond documentation, the prescribed form only required BapCo to identify the EPC contract – not to set out the details of its claim. In any event, Article 15(a) expressly permits the required statement to be provided in a separate accompanying document, which BapCo had done. The lesson for employers is the one we identified before: make sure to get the paperwork right to avoid your call being successfully challenged on procedural grounds.
Practical Takeaways
For employers thinking about making a call, TTSJV v BapCo is reassuring. If your demand is procedurally compliant and there is no fraud, the courts are very unlikely to intervene. This will be the case even where the contractor can argue that calling the bond breaches the EPC contract. The case also underscores a point we made in our earlier article: the potential for a contractor challenge should be properly considered, but such challenges will, by design, only succeed in narrow circumstances. Employers should prepare for challenges by contractors but should not be unduly deterred by that prospect.
For contractors, the lesson is that a strong case on the merits of the claim to liquidated damages will not, by itself, provide a basis to challenge a bond call. The question is whether the contract positively prevents the call from being made. The clearest lesson from TTSJV v BapCo is that this protection needs to be built into the contract at the outset. If TTSJV’s EPC contract had stated expressly that, for example, a call on the performance bond was precluded in specified circumstances (e.g., during a phase of the dispute resolution procedure), it would not have needed to rely on arguments about penalty clauses or procedural non-compliance and would have known with more certainty at what point the risk of a valid bond call could materialise. If the restriction is clear and unambiguous, the court can enforce it. That is the narrow doorway this case leaves open.