Greenwoods secures US$100 million victory in Commercial Court demand bond dispute

The Greenwoods team was led by Euan Palmer, supported by Tom Christie, Lucy Baughan and Payal Patel, working alongside Goodwin Procter and counsel from Essex Court Chambers and One Essex Court Chambers.

The judgment represents an excellent outcome for CTT and provides important guidance on the extent to which a foreign court order can affect obligations under an English law-governed on-demand bond. It also reinforces a key principle of international commerce: where parties agree payment security in the form of an on-demand bond, English courts will be slow to permit attempts to avoid or delay payment.

The dispute

The case arose from the development of a 450MW combined-cycle gas-fired power plant in Mozambique.

As part of the project arrangements, contractor group TSK procured two on-demand bonds from Banco Santander S.A. in favour of CTT. The bonds were governed by English law and subject to the exclusive jurisdiction of the English courts.

Following a dispute concerning TSK’s purported termination of the underlying contracts, CTT made demands under the bonds in April 2025. Under their terms, Santander was required to make payment within five business days to the bank account identified in the demands.

Before payment became due, however, TSK obtained an interim injunction from a Spanish court restraining Santander from making payment under the bonds.

Santander argued that the Spanish injunction provided a complete defence to the claims brought by CTT and Citibank.

The key issue: where was payment required?

A central issue before the Court was the place where Santander’s payment obligation was required to be performed.

Santander argued that Spain formed part of the place of performance because the demands were submitted there and certain payment-related activities would occur there.

CTT successfully argued that the contractual obligation was straightforward: Santander was required to make payment to the bank account specified in the demands. That account was located in Mozambique.

Mr Justice Calver agreed.

The Court held that Santander’s contractual obligation was to make payment into the nominated Mozambican account. Any operational or administrative steps undertaken by Santander in Spain were merely preparatory acts and not part of the contractual performance itself.

That distinction was critical. Because payment was contractually required in Mozambique, the Spanish injunction did not prevent performance of the relevant obligation.

The Ralli Brothers defence fails

Santander sought to rely on the long-established “Ralli Brothers principle”, which may excuse contractual performance where carrying out an obligation would be unlawful in the place where it is required to be performed.

The Court rejected that defence.

Having determined that the place of performance was Mozambique rather than Spain, the Spanish injunction could not operate as a complete answer to the claim.

The judgment also contains useful guidance on the scope of the doctrine. Whilst not essential to the outcome, the Court indicated that an interim foreign court order may, in principle, be capable of engaging the Ralli Brothers doctrine where breaching that order would itself be unlawful under local law.

A further obstacle for Santander

The Court identified an additional problem with Santander’s position.

Even if the Spanish injunction had been capable of engaging the doctrine, Santander had taken no steps to seek its discharge.

The Court held that a party seeking to rely on the Ralli Brothers principle must demonstrate that it has made reasonable efforts to remove the legal obstacle preventing performance, or show that such efforts would have been futile.

Santander failed to do so. This provided a further and independent reason why its defence could not succeed.

Why the decision matters

The Court also refused Santander’s application for a stay of execution and a deferred payment, emphasising the commercial purpose of on-demand bonds and their role as instruments that are “akin to cash“.

That aspect of the judgment will be welcomed by beneficiaries, lenders and project sponsors alike.

For businesses operating in the construction, infrastructure and energy sectors, the decision reinforces the reliability of English law-governed demand guarantees and confirms that foreign court orders will not automatically excuse non-payment. It also highlights the importance of taking proactive steps where legal restrictions in another jurisdiction are said to prevent contractual performance.

Most importantly, the judgment delivered an excellent result for Greenwoods’ client and demonstrates the firm’s ability to guide clients through complex, high-value disputes involving multiple jurisdictions, significant sums and novel legal issues.

Greenwoods regularly advises on complex disputes involving guarantees, bonds, banking obligations and cross-border enforcement issues. To discuss any of the issues raised in this article, please contact a member of our Disputes team.