English court refuses injunctive relief to suspend a demand under a performance guarantee

An English court has refused to grant injunctive relief to suspend a demand under a performance guarantee in a high-value engineering, procurement and construction (EPC) dispute arising from a major oil refinery modernisation project in Bahrain. 

The Technology and Construction Court decision in TTSJV WLL & Ors v BapCo Refining BSC [2026] has clarified the limited grounds on which a court will intervene to restrain a guarantee call and affirms the resilience of liquidated damages clauses to penalty challenges under English law.

Performance guarantees

The case concerned a performance guarantee which may be given on-demand or on-default basis depending on the wording of the guarantee. For an on-default bond, an entitlement would generally have to be demonstrated before a call was made. This is as opposed to on-demand bonds which do not generally require any underlying entitlement to be demonstrated. On-demand instruments are usually more common in major international energy or infrastructure projects. They are less common in the UK domestic market where on-default bonds have historically predominated. However, on-demand bonds are gradually being used in major projects, reflecting a response to increased insolvencies in the UK construction sector and the growth of international employers entering the market. 

The grounds for injunctive relief to suspend a demand under a performance guarantee are limited to fraud or to cases where it is clearly established that the beneficiary is precluded from making the demand under the terms of the contract. A seriously or strongly arguable case of breach, which is seen as a lower threshold to obtain injunctive relief, of the underlying contract is not sufficient.

There remains a strong initial presumption that liquidated damages provisions negotiated between sophisticated commercial parties will not be treated as a penalty. In this case, potential factors relevant to the fact-sensitive analysis included the fact that this was a modernisation scheme and alleged concessions as to an entitlement to liquidated damages had already been made.

TTSJV v BapCo background

Bahrain Petroleum Company (BapCo) engaged TTSJV, a joint venture entity, under an EPC contract to design, engineer, procure, construct, test and complete a modernisation programme to upgrade BapCo's existing oil refinery in Bahrain for a price of US$4.21 billion. The contract was governed by the laws of England and Wales, with any disputes to be resolved by binding arbitration under the rules of the London Court of International Arbitration (LCIA), with London as the seat of arbitration.

BapCo asserted that TTSJV had failed to achieve a contractual milestone by 26 October 2025, entitling it to claim liquidated damages amounting to $484.4 million. TTSJV in turn argued that it was entitled to extensions of time. BapCo formally demanded payment of the liquidated damages under the performance guarantee on the basis that, once the completion date had passed, the right to liquidated damages had accrued. TTSJV resisted and requested that the LCIA appoint an emergency arbitrator and filed an urgent application for injunctive relief with the court.

Suspending a demand 

Following a review of preceding case law, the court held that there are only two established exceptions to the general rule that that the court will not interfere with a performance guarantee call are: where there is a seriously arguable case of fraud; or it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract.

The court therefore held that a seriously arguable case of breach of the underlying contract is not, of itself, sufficient to justify injunctive relief. Relief can only be granted, in addition to any grounds of fraud, where it is clearly established that the beneficiary was contractually precluded from making the call. BapCo argued that the right to liquidated damages had crystallised creating an obligation to pay on TTSJV, whereas their claim to entitlement to an extension of time was yet to be decided and therefore not crystallised. The court therefore found that TTSJV had not established that BapCo was precluded from making its demand:  there was no fraud, the liquidated damages were due and any extension of time which may arise had not yet been determined.

Liquidated damages 

The starting point is the Supreme Court's decision in Cavendish Square Holding BV v. Makdessi [2015], which established that a liquidated damages clause will only constitute an unenforceable penalty where it creates a secondary obligation imposing a detriment that is out of all proportion to the legitimate business interest it protects. This is a high threshold. The Supreme Court made clear in Cavendish that the mere fact that a clause operates to the financial disadvantage of the party in breach does not, of itself, render it penal.

TTSJV argued that, because the EPC contract provided BapCo an unjustified windfall by way of earlier use of the works and benefit of generated revenue, the clause did not protect a legitimate interest and was therefore penal.

The court held that the strong initial presumption must be against finding carefully negotiated liquidated damages provisions between commercially sophisticated parties to be an unenforceable penalty. At most, TTSJV had raised a potentially arguable case. 

TTSJV had therefore not clearly established that the liquidated damages clause was an unenforceable penalty, and accordingly BapCo would not be restrained on that basis from pursuing its demand under the guarantee.

Osborne Clarke comment

This decision is a useful reminder of two important points for those involved in large-scale international projects.

First, the decision provides a helpful clarification of the legal test for injunctive relief to restrain a call on a performance guarantee. The grounds remain narrow: fraud or clear establishment that the beneficiary is contractually precluded from making the demand. This is a high threshold that is deliberately calibrated to preserve the commercial utility of performance guarantees as instruments that operate substantially independently of the underlying contract. 

Obviously, crystallising the right to call on the guarantee is another, equally important matter, and entitlements such as liquidated damages will potentially crystallise automatically with an opportunity to unwind them later rather than all potential points in contention, such as extensions of time, having to be resolved before the entitlement is due. Those seeking to restrain a call will need to engage squarely with the wording of both the guarantee and the underlying contract.

Second, the case is a valuable affirmation of the post-Cavendish landscape in relation to liquidated damages. The strong initial presumption is that liquidated damages provisions carefully negotiated between commercially sophisticated parties will be upheld. The court expressly endorsed the importance of freedom of contract and the commercial benefits of an effective liquidated damages regime. Parties wishing to mount a penalty challenge should be aware that such arguments are unlikely to succeed at an interim stage and should be reserved for any substantive arbitral proceedings.