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Shapoorji Pallonji and Co Private Ltd v Yumn Ltd [2021] EWHC 862 (Comm): A Case Study on Injunctions against Bond Calls
Shapoorji Pallonji and Co Private Ltd (Shapoorji) is an Indian engineering and construction company that was contracted by Yumn Ltd (Yumn), a Rwandan company, to build a power plant in Rwanda. The contract was based on a FIDIC standard form and governed by English law, with disputes to be resolved by ICC arbitration seated in Singapore. As part of the contract, Shapoorji issued a performance bond worth US$ 32 million in favour of Yumn, which was also subject to English law but under the jurisdiction of the English courts.
The project faced delays and Yumn claimed liquidated damages from Shapoorji, which Shapoorji disputed. Yumn then demanded the bond from the issuing bank, Standard Chartered. Shapoorji sought to prevent the payment by initiating two parallel proceedings: an emergency arbitration under the ICC Rules, and an application for an injunction under section 44 of the English Arbitration Act 1996 (EAA) in the English Commercial Court.
The main issue before the court was whether it should grant an injunction requiring Yumn to withdraw its demand on the bond and refrain from making any further demands pending the order of the emergency arbitrator. The court dismissed Shapoorji's application and held that the principles applicable to such an injunction were the same as those applicable to a prohibitory injunction against making or continuing a demand on a bond, which are well-established in English law.
The court applied the test laid down in *Edward Owen Engineering Ltd v Barclays Bank International Ltd* [1978] QB 159, which states that an injunction against a bond call can only be granted if there is fraud or unconscionability on the part of the beneficiary, or if there is a clear contractual restriction on the right to make a demand. The court found that none of these grounds were present in this case. Yumn's demand was not fraudulent or unconscionable, as it was based on its genuine belief that it was entitled to liquidated damages under the contract. Nor was there any contractual restriction on Yumn's right to make a demand, as the bond was an unconditional and irrevocable on-demand instrument.
The court also rejected Shapoorji's argument that it should apply a different and more lenient test in light of the emergency arbitration proceedings. The court held that it was bound to apply English law principles to an instrument governed by English law, regardless of whether the underlying dispute was subject to arbitration or not. The court also noted that there was no evidence that the emergency arbitrator would apply a different test or standard than those of the English courts, as long as the instrument was subject to English law.
The court's decision reaffirms the autonomy and sanctity of on-demand bonds under English law and confirms that injunctions against bond calls are exceptional remedies that require strong grounds to be granted. The decision also illustrates the interaction between emergency arbitration and court intervention under section 44 of the EAA and shows that the court will not defer to or deviate from its legal principles in favour of arbitration unless there is a clear reason to do so.
- The English Commercial Court dismissed an application for injunctive relief to prevent a call on a performance bond.
- The court clarified that an Emergency Arbitrator should not apply tests or standards different from those of the English Courts, as long as the instrument is subject to English law.
- The court clarified that the principles applicable to granting an injunction against the beneficiary from making a call on the bond are the same as those for a prohibitory injunction against such acts
