UK: I've Been Expecting You, Mr Bond...

Last Updated: 30 August 2012
Article by Scott McKinnell and Tom Holroyd

A certain secret agent regularly makes his appearance on the small and large screen.

Bonds of the legal kind are also becoming more regular all year round, particularly with the current economic climate and concerns that many employers have as to the ability of contractors to perform contracts and their financial stability. If the contractor fails to perform as he is required to or becomes insolvent, then in principle the employer can recover a sum of money from the contractor.

With the economic downturn, on-demand bonds rather than performance bonds are becoming more popular. 

In theory at least, all an employer has to do if he has an on demand bond is make a call on the bond to release the funds usually by providing a written statement that the contractor is in default in someway.

Performance bonds however usually require the employer to show that the contractor's performance has fallen below a particular standard, which will in practice probably take longer and may require a court judgment, or an arbitrator's or adjudicator's award.

Until recently, the courts have enforced this strict nature of on-demand bonds. Generally only in cases of a clear fraud on the part of the employer could a contractor successfully challenge and prevent a call on an on-demand bond.

But the recent case of Simon Carves v Ensus shows that a more pragmatic approach may now taken by the judiciary. Not only did the court grant an injunction preventing the employer from calling on the on-demand bond but it dispelled the notion that a court would only prevent a call on such a bond in the case of fraud.

The situation seemed simple enough. Simon Carves Limited (SCL) was employed as a contractor by Ensus UK Limited (Ensus) to carry out works at a process plant in Teesside designed to produce bioethanol. Under the terms of the contract SCL was to provide a bond a security for its obligations. The bond was an on-demand bond to which certain conditions were attached. One of these conditions being that once Ensus had issued the Acceptance Certificate the bond was to become null and void regardless of how long there was left to run on it.  The Acceptance Certificate was issued and therefore as far as SCL was concerned the bond had become null and void.

But there was an added complication. The bond would only become null and void on the issue of the Acceptance Certificate if there were no pending or previously notified claims made by Ensus.

Ensus had issued a Take-Over certificate of the plant on 17 February 2010. In March 2010 there began to be complaints received from individuals in the area of foul smelling emissions which later became the subject of Enforcement Notices from the Environment Agency. Ensus notified SCL of these problems initially by a defect notice followed by a variation order before re-issuing the original defect notice again in June 2010. SCL undertook some work in relation to these notices but it seems that the work carried out was unsatisfactory. In spite of this, however, Ensus issued the Acceptance Certificate just fewer than two weeks before the on-demand bond originally was due to expire. There was disagreement between the parties as to who was to blame for the odour problems but in any case an agreement was reached that the bond would be extended (as provided for under its terms) until a final solution was reached. SCL reserved its position as to liability, Ensus carried out some remedial works and the bond was extended into 2011.

When the bond was due to expire again, by now well into February 2011, SCL brought an application for an interim injunction preventing Ensus from calling on the bond given that there were no pending or previously notified claims and therefore that the bond was null and void. Unbeknownst to SCL, however, two days before the hearing at which the injunction was granted, Ensus had made a call on the bond. SCL were then forced to make another application to seek a variation to the original injunction requiring Ensus to withdraw its demand on the bond. This was granted but only until the matter could be heard before the court in a full hearing.

At the full hearing the court had to decide whether Ensus were entitled to call the bond or whether the conditions within the bond itself meant that it was indeed null and void. The judge, Mr Justice Akenhead, had also to consider whether injunctive relief was available to cases such as this where there were no allegations of fraud. Also, if calls on on-demand bonds could be resisted in cases other than fraud was the court required to apply a stricter test that the usual principles for deciding whether or not to grant such relief?

Up until this point almost all cases that had been decided related to allegations of fraud. The very nature of on-demand bonds had made this the case since the employer does not have to prove default of the contractor, merely state that it has occurred. However the court in this case denied that injunctive relief was only available in cases of fraud. It was held that the defect notices submitted by Ensus did not amount to a pending or previously notified claim for the purposes of the conditions attached to the bond. As such, and because SCL had reserved its position from the start, the bond was null and void from the date the Acceptance Certificate was issued. It was true that the bond had been extended pending the investigations into the odour problems but SCL had been unequivocal on reserving its position regarding the bond from the start. SCL had shown it had a serious issue to be tried and that it had a very strong case.

The court denied that a stricter test than the general principles governing injunctive relief need be applied and as such the injunction was to remain in place. In applying the general principles the court decided that SCL could not be compensated by damages. The damage to its commercial reputation, standing and creditworthiness if the bond was called upon would be difficult to quantify. But the preservation of the status-quo meant that the bond needed to be continued pending the outcome of odour investigations. Although Ensus had to withdraw its call on the bond and were prevented from calling for so long as the injunction continued, SCL also had to ensure that the bond did not expire until a final resolution of the odour problems had been reached.

So what does this mean for the future of on-demand bonds? Will we see more successful resistance to calls made on such bonds being upheld by the courts or will they shy away from this decision?

Given the current climate and the fact that every penny counts together with a potentially more pragmatic attitude on behalf of the judiciary we may well now see more resistance to calls on on-demand bonds. Whilst this will be good news to contractors, employers who accept on-demand bonds with conditions attached should be aware that if those conditions are not met and they do not comply with the proper procedures for calling on a bond, they may well find that the bonds are shaken but not stirred.  This promises to make 2012 an interesting year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.