CASE UPDATE: Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657

An "on demand" performance bond imposes a primary obligation on the issuer (normally a bank) to pay in circumstances where the principal has failed to perform the contract and the beneficiary sends it a written demand. There is no need for the beneficiary to first sue the defaulting party and to prove a breach of contract.

The English courts are traditionally reluctant to grant a principal an injunction to restrain the beneficiary from making a demand. It has been established that an injunction may be granted where there is a fraudulent demand (and the court is satisfied that the issuer knows that the demand is fraudulent). In a recent case, though, a principal sought to prevent a beneficiary from seeking payment under a bond in circumstances where no fraud was alleged.