Not so fast: when can a contractor prevent a performance bond call?

Performance bonds act as an employer’s safety net. Once a call is made on an on-demand bond, the money usually flows. Contractors have long known that stopping a call before it happens is difficult. The Technology and Construction Court’s (TCC) recent decision in TTSJV v Bapco Refining is a reminder of just how difficult it is.

The background

Bapco employed TTSJV (a contractor consortium) to work on a US$4.2 billion oil refinery upgrade project in Bahrain. The contractor maintained that the works were substantially completed and argued that delays had been caused by matters for which it was entitled to extensions of time (particularly the consequences of a major hydrogen leak explosion at the refinery in 2025, for which it claimed that Bapco was responsible).

Bapco disagreed and claimed that the contractor had failed to achieve a key completion milestone, was not entitled to an extension of time and was therefore liable for delay damages of approximately US$484 million (the contractual cap). It then called on the on-demand performance bond. The contractor requested the appointment of an emergency arbitrator and applied to the TCC seeking an urgent injunction to prevent payment prior to the arbitration.

The contractor’s arguments

The contractor advanced several arguments. It said the delay damages provisions were unenforceable as a penalty because the employer could generate revenue from parts of the refinery already in operation while still claiming full delay damages, which was an unfair windfall. It also argued that the demand did not comply with the technical requirements of the bond call process, and that delay damages were not yet payable because its extension of time claims remained unresolved.

Underlying these arguments was a broader submission: the contractor said that, in order to be entitled to an injunction preventing payment prior to arbitration, it was enough to show a “seriously arguable case” that the employer was acting in breach of the underlying contract.

What did the court decide?

The court rejected the application to halt the call on the bond and allowed it to proceed.

The judge was not convinced by the contractor’s breach of contract arguments but held that, even if those arguments had been more convincing, a strong case for breach of contract is not the correct test to apply. The judge stated that for an injunction to stop a bond call, the contractor must be able to point to a contractual provision that clearly prevents the employer from making the demand in the circumstances that have arisen.

What might that look like in practice? There could be a requirement for a certificate to be issued before a call can be made, an express provision preventing the employer from calling the bond until a specified dispute has been resolved, or wording stating that the bond becomes void once a particular project milestone has been achieved. No such stipulations or equivalent requirements applied to the bond call terms under the contract in question.

Short of non-compliance with a contractual pre-condition, or fraud, the courts will generally not interfere with performance bonds.

Applying that test, the court concluded that none of the contractor’s arguments clearly established that Bapco was prohibited from calling on the bond. At best, some of the points could be described as arguable. The court held that this fell well short of the high threshold required to justify an injunction. 

On the compliance point, the court found that the demand followed the prescribed form and was made in accordance with the applicable rules.

Why does it matter?

The judgment is a reminder that on-demand performance bonds remain powerful security instruments. English courts continue to treat them as the commercial equivalent of cash and are reluctant to interfere with payment mechanisms that underpin major projects and international trade.

For contractors, the practical lesson is clear. Once an employer has made an on-demand bond call, stopping payment is exceptionally difficult. In many cases, the money will be paid first and the parties will argue about entitlement later.

The better opportunity to manage risk is at the contract drafting stage. Contractors should pay close attention to any provisions governing when a bond can be called and whether express contractual pre-conditions can be included. Where the contract expressly restricts the circumstances in which a demand may be made, the prospects of successfully stopping a bond call are much stronger.

If you are negotiating a new contract or facing a bond call on an existing project, it is important to get specialist legal advice as early as possible. The scope for challenging a bond call is narrow, but early involvement gives the best chance of utilising any contractual restrictions that may assist.

Key takeaways

The message from the TCC is straightforward: unless the contract clearly prevents the employer from making the demand, the money is likely to be paid first and argued about later.

It would not be enough to demonstrate a strongly or seriously arguable breach of the underlying contract. A genuine dispute about extensions of time or delay damages will not usually be enough to stop an on-demand bond call. Contractors must clearly establish that the employer had no contractual right to make the demand, unless fraud is involved.

Your strongest protection comes from the contract itself. Get the bond and contract wording right at the outset, and you give yourself a much better chance of stopping a call later.