In February, the Technology and Construction Court (TCC) gave judgment in the case of CR Construction (UK) Company Limited v Barclays Bank PLC and Northern Gateway (FEC) No. 7 Limited in respect of an interim injunction application against Barclays Bank PLC to restrain it from making payments under a performance bond.
Interim injunctions are temporary court orders made in the course of court proceedings, prior to a final trial, that require a party to refrain from a particular action.
Case background
In September 2021, Northern Gateway (FEC) No. 7 Limited and CR Construction (UK) Company Limited (CR) entered into an amended version of a JCT Design and Build 2016 contract for the design and construction of the Victoria Riverside development in Manchester.
Northern Gateway obtained a performance bond that secured CR's payment obligations, provided by Barclays.
CR failed to meet two sectional completion dates of 1 July 2024 and 17 February 2025, and as a result Arcadis, Northern Gateway's agent, issued non-completion notices and a notice of liquidated damages due from CR.
CR had made several applications for extensions of time under the contract, but they had not been accepted.
Instead, Arcadis issued a notice of default on 15 January 2025, and on 20 February 2025, it further issued notice of termination and notice of liquidated damages on the basis that the defaults had not been remedied.
CR strongly disputed the refusal to grant the extensions of time and the termination of the contract, arguing that the termination was itself a repudiatory breach of contract.
However, under the provisions of the contract, Northern Gateway was entitled to levy liquidated damages and treat the contract as determined until such time as it was either agreed by the parties to be otherwise, or an adjudicator or court determined otherwise.
Barclays prevented from paying bond
On the same day that the notice of liquidated damages was sent to CR, a demand was also sent to Barclays for payment of the sum specified as due for liquidated damages under the bond.
The bond stated that it would respond to debt or damages owed by CR and that it was not impacted by termination of the contract.
CR sought an interim injunction against Barclays to restrain it from making a payment to Northern Gateway. The bank argued that the injunction should not be granted.
The TCC ultimately refused CR's application for an interim injunction, preventing the bank paying out under the bond, finding that there was no serious case to restrain the bank from making such a payment and that in the event that CR was ultimately successful, damages would be an adequate remedy for CR.
Court's findings
This case endorsed the independence of bonds, confirming that in the absence of fraud, so long as the requirements of the bond are met, the bank is obliged to make payment.
As such, it was irrelevant in terms of the validity of the bond that the underlying contract was terminated, even in the event of wrongful termination.
The TCC also overlooked technical deficiencies in the notice given to the bank. The bond's terms simply 'required… "notice in writing given by the Employer" together with "a certificate from the Employer"', and as such, the TCC found that despite technical deficiencies in the notice, it was 'plain beyond any serious doubt that they were, in content and in substance, a demand and a certificate from the Employer'.
In addition, the TCC rejected CR's argument that Barclays should be prevented from paying the bond as Northern Gateway could use the retention money it already held, which exceeded the sum sought in satisfaction of the liquidated damages.
Instead, the TCC found that the bank was entitled to treat the demand it received as having incorporated any relevant setoffs.
Key takeaways
Although in the end the court upheld the bond, there are a number of important points to note. The case shows that the courts will not treat demands made under bonds with undue formality and that technical deficiencies in demands may be overlooked when it is clear the demands otherwise meet the requirements of the bond.
In addition, the courts may widely interpret terms that seek to save the validity of bonds when the underlying contract is terminated.
Finally, the decision reiterates that banks are entitled to assume that any demand made has taken into account any setoff available.
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