International Construction Law Review
ON-DEMAND PERFORMANCE BONDS: IS FRAUD THE ONLY GROUND FOR RESTRAINING UNFAIR CALLS?
JOHN LURIE*
Senior Associate, Dechert LLP, London
Introduction
It is often asserted that fraud is the only ground for restraining unfair calls against on-demand performance bonds. Indeed, there is a view that it is extremely difficult to obtain injunctive relief in relation to unfair calls. This is not surprising given the high evidentiary burden required to establish fraud. Perhaps this partly explains the perception, particularly in England, that on-demand performance bonds are open to beneficiary abuse.1 Such perception has been fortified by experiences of on-demand forms containing little or no protection against unfair calls. It also results from the non-interventionist approach traditionally taken by English courts in relation to unfair calls.
However, fraud is not the only ground for restraining unfair calls against on-demand performance bonds. Indeed, fraud is just one of a growing number of grounds which may warrant injunctive relief against demands and/or payment. More recent cases also indicate an increasing willingness of the courts to grant injunctive relief. Therefore, the perception that such bonds are open to beneficiary abuse is now less justified.
On-demand performance bonds are popular in international construction and engineering projects and in domestic projects in certain countries such as Australia.2 However, they have not received such widespread acceptance in England. Contractors undertaking domestic projects in England have tended to persist with default performance bonds. From a legal point of view, the justification for this difference is diminishing. Indeed, a comparison of the law governing performance bonds in England and Australia reveals that similar protection against unfair calls is developing in both countries.
* john.lurie@dechert.com. Thanks are due to the Centre of Construction Law, King’s College London.
1 Bailey (2003) at 241. See the Bibliography, pp. 466–467, for the full details of this and other references.
2 The popularity of on-demand forms in Australia is highlighted by the fact that standard form construction contracts, for example AS 2124–1992, cl. 5.3, require such bonds to be “unconditional”.
[2008
The International Construction Law Review
444