The recent case of MW High Tech Projects UK Ltd and another v Biffa Waste Services Ltd [2003] EWCA Civ 470 has provided a reminder of the circumstances in which a court will and will not interfere with the calling of an on-demand retention bond.

The existing law, established in the case of Sirius International Insurance Co v FAI General Insurance Ltd [2003] EWCA Civ 470 will only permit the courts to intervene in the call of an on-demand bond if:

  • there is an arguable case of fraud; or
  • it can be definitively shown that the beneficiary is precluded from making a call by the underlying contract.

In MW High Tech v Biffa Waste, the contract stated that the employer could not call on an on-demand retention bond until it had first called upon the contractor's parent company guarantee. Biffa Waste had made such a call, but MW High Tech argued that the underlying contractual basis for making the call was incorrect, and it therefore followed that the call was not "valid".

Among other things, the court found no justification for implying a term that the call under the guarantee must be "valid". Having considered the arguments, the court reaffirmed that the second ground for judicial interference applied only when the underlying contract clearly precluded calling the bond. If a clear contractual preclusion could not be demonstrated, the court would not intervene simply because the alleged breach upon which the beneficiary relied was unfounded – to interpret and/or extend the law in that way would deprive an on-demand bond of substantial commercial benefit. In addition, business efficacy did not justify implying a term into the underlying contract requiring a "valid" call.

Accordingly, Stuart-Smith J lifted the interim injunction that prevented Biffa Waste from calling the on-demand retention bond.