When can a claim for payment under an on-demand bond be successfully challenged?

In CR Construction (UK) Company Ltd v Barclays Bank PLC [2026], the Technology and Construction Court (TCC) has recently dismissed an application by CR Construction (UK) Company Limited (the Contractor) seeking an interim injunction to restrain Barclays Bank plc (the Bank) from paying out under a performance bond pursuant to a demand made by Northern Gateway (FEC) No. 7 Limited (the Employer).

The judgment reaffirms that a contractor has no realistic prospect of preventing a bank from honouring a call on an on demand bond, absent fraud or failure to satisfy the formalities for such call. It also underscores the risks of seeking to challenge a bond call without naming the employer as a party.

The TCC considered a number of ancillary matters, including the operation of the counter indemnity, certain subsequent events under the Contract, the validity of the Employer’s demand, and the adequacy of damages and balance of convenience. As this update is focused on the TCC’s treatment of the Bond call, we have limited our commentary to those elements of the decision.

Background

The Contractor procured a bespoke performance bond (the Bond) from the Bank in favour of the Employer under a construction contract (the Contract). For reasons considered throughout this update, there does not appear to have been any doubt on the TCC’s part as to whether the Bond was on-demand or on-default instrument – it was implicitly accepted that the Bond was intended to be callable by the Employer on demand. 

The Employer issued a call on the Bond for liability owed by the Contractor in respect of liquidated damages under the Contract, prompting the Contractor to apply for an injunction preventing the Bank from making payment to the Employer. 

The Employer intervened but was not joined as a defendant by the Contractor, an omission that – albeit not fatal in this case – should serve as a cautionary tale to contractors to ensure the appropriate cause of action is pursued against the correct party when disputing a call on an on-demand bond. The TCC approached the application strictly as one seeking to restrain payment by the Bank, not the Employer’s entitlement to call the Bond.

Contractor’s Arguments

The Contractor’s application was presented on three principal grounds:

1. that the demand was not made in accordance with the requirements of the Bond; 
2. the Bond had already been discharged due to the repudiatory breach of the Contract; and 
3. no sums were due under the Bond because: (i) the Contractor disputed the quantum of the sum claimed; or (ii) the Contractor was entitled to set off retention monies withheld by the Employer.

Bank’s position

In respect of the Bond call itself, the Bank submitted that the claim was completely misconceived on the basis that on the authorities, the only ground on which an injunction could be granted against the Bank would be fraud by the Employer of which it had notice. 

The Employer, as Intervener, supported the Bank on such grounds. 

Court’s analysis

Fraud and the limits on injunctions against banks

Demonstrating the TCC’s acceptance that the Bond operated as an on-demand instrument, the TCC reaffirmed the well-established principle (citing Akenhead J in Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC)) that a bank issuing an on-demand bond must pay the amount called on by the beneficiary, save only where:

• the demand is fraudulent and the bank has notice of such fraud, and/or
• the demand fails to comply with any requirements for the same provided for under the bond.

The Contractor did not and could not on the evidence make an allegation of fraud against the Bank, nor did it allege that the demand made by the Employer failed to comply with the terms of the Bond. On that basis, the Contractor’s application could not succeed. 

It should be noted, this is not to say that fraud against the bank is the only circumstance in which a call on a bond could be prevented by injunction; however, this case reaffirms that the other circumstances relate only to restricting an Employer from advancing a claim, not from restricting a bank from paying such a claim once validly received. 

By failing to join the Employer to the application, the Contractor could not advance any substantive  arguments relating to contractual entitlement under the Contract.

Construction of the Bond

Clause 1 required the Bank to pay the “Due Amount” (comprising of “any debt, damages or other sum of money which the Contractor is or becomes liable to pay to the Employer under or in connection with the [Contract]”) specified in the Employer’s written notice, “subject to the terms of the [Bond]”. 

The Contractor’s application seemingly arose from a misinterpretation of the interaction between the Bond’s provisions, causing it to treat the instrument as an on‑default bond rather than recognising its true on‑demand nature. 

Clause 5.1 — Coextensive liability

Clause 5.1 of the Bond read as follows: 

“This Deed creates a guarantee and not an indemnity, and accordingly the Employer shall be entitled to recover no more under this Deed in respect of any matter than the Employer would be entitled to recover from the Contractor in respect of that matter, net of any set-off."

The Contractor argued that Clause 5.1 created an independent right of set‑off which limited the Bank’s payment obligations to a net amount reflecting any set‑off the Contractor was entitled to assert under the Contract, suggesting that (contrary to the nature of an on-demand bond) the Contractor has a separate, stand‑alone right for the Due Amount to be assessed with reference to the Contractor’s liability in the strict sense, and that the Bank must not pay any amount until the extent to which it could rely on those defences had been determined. The Contractor’s approach therefore rested on the premise that the Bond operated as an on‑default (not on-demand) bond.

The TCC made clear that this interpretation was wrong in the case of this particular bond. Whist the Judge accepted that Clause 5.1 meant that the Bank’s liability was co-extensive with that of the Contractor, given the other provisions of the Bond (to which we refer below), in this case the clause simply meant that the Employer should not advance a claim under the Bond for an amount which did not take into account any set-off which it was obliged at law to net off. It did not entitle the Contractor to argue that further set-offs should be applied by the Bank. 

Clause 5.3 — Conclusive evidence provision

Described by the TCC as lying “at the heart of this case”, reference is also made in the judgment to Clause 5.3 which set out the evidence requirements that were required to accompany any demand under the Bond.
Clause 5.3 of the Bond read as follows:  

“Any demand made by the Employer under this Deed must be accompanied by either:

• (a) what purports to be a certified copy of (i) a judgment of a court; (ii) an arbitrator's award; or (iii) a decision of an adjudicator, in each case against the Contractor in favour of the Employer under the [Contract]; or
• (b) a certificate from the Employer that is purported to be counter signed by the Employer's Agent, purportedly based on the non-performance of the Contractor, to confirm the Contractor's breach…” 

Clause 5.3 went on to state that “any one of [the documents referred to in parts (a) and (b)] shall be conclusive evidence for the purposes of this Deed as to any liability of the Contractor to which such judgment, or award or decision or certification relates."

The TCC was satisfied that a demand accompanied by the evidence required under Clause 5.3 was intended to constitute “conclusive evidence as to the Contractor's liability upon which the Bank can safely rely” as the Bond operated as an on‑demand instrument. The TCC highlighted the repeated use of the word “purported”, confirming that the Bank may rely on documents that appear compliant on their face without further enquiry. The Contractor’s attempt to interpret “liability” narrowly – effectively restricting calls on the Bond to only finally determined liability, an interpretation that would effectively recast the Bond as an on‑default instrument - was rejected. As noted by His Honour Judge Stephen Davies, the construction of Clause 1 “envisaged that the Due Amount [would] be a specified sum, even if a liability for damages, as otherwise it is difficult to see how the Bank would know what it had to pay and whether it was up the maximum amount or not”. 

This enabled the Employer to call on the Bond as an interim remedy even where the final quantum of liability remained in dispute or subject to accounting, dismissing the Contractor’s assertion that payment by the Bank could only occur once its liability had been finally determined under the Contract. 

TCC Decision

The TCC dismissed the Contractor’s application in full.

• No fraud was alleged or established.
• No strong case had been demonstrated regarding the validity of the demand.
• The failure to join the Employer meant the Contractor could not challenge the Employer’s entitlement to call the Bond.

The Bank was therefore entitled to honour the demand.

Practical implications

Interpretation as a whole

This judgment underscores the importance of interpreting performance bonds holistically. A bond will rarely be defined by any single clause in isolation; rather, the Court will weigh how the provisions operate collectively and will give effect to the commercial purpose of the instrument as a whole. Where a bond contains wording that might, at first glance, suggest both on‑default and on‑demand characteristics, the Court will examine the full structure of the document to determine its true nature. Contractors should therefore take care, when providing security, to understand the character of the instrument and to consider its full terms in context in order to determine whether it is on demand or on default. 

Join the Employer

Although not determinative in this case, the judgment serves as a reminder that a contractor challenging the validity of a bond call will rarely succeed in proceedings against the bank, save where there is a demonstrable case of fraud of which the bank has notice. Where the contractor believes it has an entitlement to prevent a call by the beneficiary for a failure to comply with the underlying contract, the correct approach is to bring proceedings against the Employer and seek the appropriate relief restraining the Employer from making or maintaining the demand. 

Fraud remains the only path to restraining a bank from paying out under an on demand bond 

Fraud and non‑compliance with the bond’s formal demand requirements remain the only recognised grounds on which a bank can be restrained from paying under an on‑demand bond. Absent evidence of fraud or a failure to satisfy the bond’s specified conditions for making a valid demand, the bank’s obligation to honour the call is autonomous and the court will not intervene.

Effect of coextensive liability clauses

On the wording of the Bond in this case, the coextensive liability clause did not entitle the contractor to delay or restrict payment under an on‑demand bond simply because its underlying liability has not yet been finally determined or because it wanted to assert set‑off rights under the contract. Nonetheless, there may be cases where the terms of the bond in question contain a co-extensive liability clause which when read with the other provisions on the bond as a whole mean that the bond will be interpreted as an on default instrument. 

CR Construction (UK) Company Ltd v Barclays Bank PLC [2026]