PLR 2023 Lahore 1

Other citations:

2023 LHC 4474 (https://sys.lhc.gov.pk/appjudgments/2023LHC4474.pdf)

PLD 2024 Lahore 1 (https://www.pakistanlawsite.com/Login/MainPage)

[Lahore High Court]

Before Shams Mehmood Mirza, J

Messrs Paragon Technologies—Petitioner

versus

Sui Northern Gas Pipelines Limited and others—Respondents

Writ Petition No. 4534 of 2023, decided on 26^th May, 2023.

HEADNOTES

(a)   Civil Procedure Code (V of 1908) —

— O. XXXIX, Rr. 1 & 2 — Negotiable Instruments Act (XXVI of 1881), S. 5 — Application to restrain the encashment of unconditional bank guarantee — Interim injunction, refusal of — Scope — Petitioner seeks redress from High Court, challenging the decision of the District Judge who affirmed the Trial Court’s dismissal of its’ application to restrain the respondent from invoking the bank guarantee — The contractual arrangement between the petitioner and respondent involved the supply of items from the United States, with the petitioner obligated to furnish an on-demand performance guarantee — The bank guarantee, being unconditional and independent of the main contract, was supplied as per contractual requirements — Despite an extension in the supply period (by respondent) and amendments to the letter of credit, a dispute arose when respondent demanded late payment charges and called upon the bank guarantee after supply of items’ — The petitioner, contesting the claim, sought an interlocutory injunction from the Civil Court under the Arbitration Act, 1940, which was denied by both the Trial Court and the District Judge — The petitioner now petitions to High Court, challenging the adverse rulings and seeking relief — Validity — There’s a disagreement between the parties about whether respondent rightfully asked for late payment charges — The courts below rightly decided not to give an opinion on this dispute as it should be resolved by arbitrators — The guarantee in question is unconditional, meaning the bank had to meet respondent’s demand — The petitioner couldn’t show a strong reason to stop the guarantee payment temporarily, and there’s no proof of fraud by respondent — The claim that the petitioner didn’t break any terms of the contract needs arbitration for confirmation — There’s no evidence of financial trouble, and doubts about respondent’s ability to pay, if petitioner’s claim is ultimately accepted — Writ petition, being devoid of merit, is dismissed. [Para. No. 1, 2, 56 & 57]

Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Limited (PLD 2003 SC 191) relied.

EFU General Insurance Limited v. Zhongxing Telecom Pakistan (Pvt.) Limited etc PLD 2022 SC 809, Messrs National Construction Limited. v. Aiwan-e-Iqbal Authority PLD 1994 SC 311, Atif Mehmood Kiyani and another v. Messrs Sukh chain Private Limited, Royal Plaza, Blue Area, Islamabad and another 2021 SCMR 1446 referred.

(b)   Bank guarantee —

— The fate of an unconditional bank guarantee or a letter of credit being independent contracts is not dependent upon any dispute between the contracting parties and that payment thereunder has to be made if an unconditional undertaking has been made by the issuer — The payment obligation under both the instruments is dependent on documentary demands and the issuer is barred from making any determination of objective facts — This is called the autonomy principle — The premise on which this principle rests is that as between parties to documentary credit transactions a dispute related to the underlying transaction has to be pursued through a separate action for breach of the underlying contract and not by withholding payment under the letter of credit — “Pay first, sue later” is the core objective underlying the autonomy principle. [Para. No. 5]

Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Limited (PLD 2003 SC 191) referred.

(c)   Bank guarantee —

— The fundamental rule of payment under the bank guarantee independent of any dispute between the contracting parties is excepted only where fraud is alleged as against the beneficiary of the bond/guarantee and the bank has notice of such fraud. [Para. No. 8]

Bolivinter Oil SA v. Chase Manhattan [1984] 1 All ER 351 relied.

(d)   Civil Procedure Code (V of 1908) —

— O. XXXIX, Rr. 1 & 2 — Negotiable Instruments Act (XXVI of 1881), S. 5 — Application to restrain the encashment of unconditional bank guarantee — Interim injunction — Scope — In seeking an interim injunction, certain stringent criteria must be met by the applicant — Mere allegations of breaches in contractual obligations or claims of fraud and unfair conduct in the plaint are insufficient grounds for the applicant to succeed. In commercial cases involving breach of contract, the court should exhibit robust skepticism towards assertions that damages are an inadequate remedy; a determination in favour of damages signifies a refusal to grant an injunction based on the balance of convenience — The applicant faces insurmountable barriers and must demonstrate that the respondent’s conduct is of significant consequence, causing irretrievable harm, surpassing the autonomy principle — Moreover, the applicant needs to establish that, upon successful trial, restitution or compensation from the respondent would be unattainable — Clear proof of fraud and notice of such fraud by the bank are indispensable pre–requisites — These stringent conditions emphasize that mere contract breaches with counter allegations do not warrant exceptions to the non-interference rule, particularly in commercial cases where allegations of breach alone are insufficient — Furthermore, the applicant must assert an inability to recover the amount from the beneficiary upon trial success. [Para. No. 53]

Case law referred.

(e)   Civil Procedure Code (V of 1908) —

— O. XXXIX, Rr. 1 & 2 — Interim injunction — Scope — The three tests applied for grant of interlocutory injunctions are well established in almost all the jurisdictions — These tests require an applicant to demonstrate that (a) there is a prima facie case by which it is meant that the applicant must be able to demonstrate to the satisfaction of the Court that there is a serious question to be tried in the sense that the claim is not frivolous (b) it will suffer irreparable loss and injury in case the relief is denied to it or in other words granting an injunction could cause less harm to the defendant compared to the likely harm the applicant would suffer from the refusal of such injunction, and (c) the balance of inconvenience favours it — When deciding whether to grant an interim injunction, the court should focus on the legal nature of the right in question — This means considering the type of dispute and the specific legal principles involved before applying the three tests — While the guidelines are rooted in tradition and policy, they are not consistently applied across all cases — Different types of disputes, such as those involving property, public interest, or freedom of expression, may raise different concerns about irreparable harm compared to commercial disputes — Challenges in assessing damages, especially in cases with patents or trademarks, further complicate matters — The court must take all these factors into account, but it is challenging to specify a fixed set of considerations or assign specific weights to them, as each case is unique. [Para. No. 11 & 19]

American Cyanamid Co. v. Ethicon Ltd. [1975] 2 WLR 316; Hoffman LaRoche & Co. Ltd. v Secretary of State for Trade and Industry [1975] AC 295; Lewis v Heffer [1978] 1W.L.R. 1061; Series 5 Software Ltd v. Clark [1996] 1 All ER 853; NWL Ltd v Woods [1979] 1 WLR 1294; Merck Sharp & Dohme Corporation v. Clonmel Healthcare Limited [2019] IESC 65; Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596 relied.

State Transport Authority v. Apex Quarries Ltd., [1988] V.R. 187, 193 and City of Melbourne v. Hamas Pty Ltd., (1987) 62 L.G.R.A. 250, 261-262 referred.

(f)   Civil Procedure Code (V of 1908) —

— O. XXXIX, Rr. 1 & 2 — Interim injunction — Scope — The standards for grant (or refusal) of interim injunction as developed by the Courts involve sequentially an inquiry whether the plaintiff has demonstrated an arguable case and once that test has been met with the Court turns its attention towards the next two tests i.e. whether the harm will be irreparable in granting and denying the injunction and where the balance of inconvenience lies in the interim or which of the parties shall be at a disadvantage by the grant or denial of the injunction. Where the right asserted by the applicant is disputed or is in doubt, the balance of convenience becomes an important factor in grant or refusal of interlocutory injunction. Where the decision depends upon the consideration of the preponderance of inconvenience, the onus is upon the applicant to demonstrate that his inconvenience would exceed that of the respondent. [Para. No. 38]

(g)   Civil Procedure Code (V of 1908) —

— O. XXXIX, Rr. 1 & 2 — Interim injunction — Scope — The Court as a matter of principle ought not to delve deep into controversy between the parties to make a forecast about the outcome of the case and that it would be sufficient for the Court to decide that the applicant has put forward a case that is arguable or at least not a frivolous one and after making this determination to move to discover whether the balance of convenience favours the grant of the injunction by striking a balance between the interests of the applicant and that of the beneficiary — In doing so, the Court should bear in mind the extent to which damages are likely to be an adequate remedy and the ability of the other party to pay the same. [Para. No. 39]

Lansing Linde Ltd v. Kerr [1991] 1 WLR 251 (CA) relied.

(h)   Arbitration Act (X of 1940) —

—S. 20 — Application to file in Court arbitration agreement — Scope — Section 20 of the Arbitration Act, 1940 empowers the court to send the matter to arbitrators on fulfillment of the conditions laid down in the said provision — The courts in such a case exercise limited jurisdiction and are not concerned with the merits of the case except for ascertaining the existence of an arbitration agreement between the parties and a dispute having arisen thereunder. [Para. No. 38]

(i)    Arbitration Act (X of 1940) —

Sh. Usman Karim ud Din for the petitioner.

Umar Sharif Advocate for respondent along with Ahmad Sohail Khakwani Deputy Chief Law Officer, SNGPL.

Date of hearing: 26^th May, 2023.

JUDGMENT

Shams Mehmood Mirza, J:—The petitioner has approached this Court against the decision of the additional district judge upholding the judgment of the trial court which dismissed the application for restraining the respondent from making a demand on the bank guarantee issued on its behalf.

2.           The relevant facts of the case are that by a written contract Sui Northern Gas Pipelines Limited (SNGPL) employed the petitioner to supply certain items from United States of America. The petitioner was required to supply the items within the period stipulated in the contract. Pursuant to the terms of the contract inter se the parties, the petitioner was required to submit an on-demand performance guarantee. The petitioner supplied to SNGPL the bank guarantee from Askari Bank Limited in the due amount. The guarantee is in standard form and there is no dispute that it was unconditional in nature and had no link with the main contract between the parties. SNGPL by the terms of the contract was obliged to provide an operative letter of credit in favour of the petitioner which it did. At the request of the petitioner, extension in the period of supply was also made and necessary amendment was made in the letter of credit. After the supply of the items, SNGPL demanded late payment charges from the petitioner and on its refusal made a call on the bank guarantee. The petitioner disputed the claim of SNGPL and in order to restrain it from encashing the bank guarantee, approached the civil court under section 20 of the Arbitration Act, 1940 (the Arbitration Act) through an application for filing the arbitration agreement in the court. In conjunction with the main application, the petitioner also applied for interlocutory injunction in terms of section 41 of the Act from the court restraining SNGPL from making any demand on the bank guarantee. The trial court dismissed the application for interim injunction on 07.11.2022. The petitioner, feeling aggrieved, filed a revision which was also dismissed on 20.01.2023 by the additional district judge.

3.           Learned counsel submits that the petitioner had eminently made out a case for grant of restraining order in the facts and circumstances of the case which was not properly appreciated by the courts below. The petitioner submits that extension in the period of supply of goods was mutually agreed and that SNGPL had no right to demand late payment charges as it did not provide the operational letter of credit within the stipulated time. It is furthermore submitted that the petitioner shall suffer irretrievable injustice in case the performance guarantee was encashed. The learned counsel also placed reliance on the case of EFU General Insurance Limited v. Zhongxing Telecom Pakistan (Pvt.) Limited etc PLD 2022 SC 809 (EFU) to which I shall advert to in detail later in this judgment.

4.           Learned counsel for SNGPL stated that supplies were made by the petitioner beyond the period and that as per the terms of contract the petitioner was liable for late payment charges. While supporting the orders of the courts below, the learned counsel relied on the case of Shipyard K. Damen International v. Karachi Shipyard and Engineering Works Limited PLD 2003 SC 191 (Shipyard).

5.           It is worth looking at the legal nature of the on-demand guarantee as it is relevant to the extent to which payment on it can be restrained. I accept SNGPL’s characterization of the guarantee being unconditional, which, in all fairness, was not seriously disputed by the petitioner. Law is fairly well settled that the fate of an unconditional bank guarantee or a letter of credit being independent contracts is not dependent upon any dispute between the contracting parties and that payment thereunder has to be made if an unconditional undertaking has been made by the issuer. The payment obligation under both the instruments is dependent on documentary demands and the issuer is barred from making any determination of objective facts. This is called the autonomy principle. The premise on which this principle rests is that as between parties to documentary credit transactions a dispute related to the underlying transaction has to be pursued through a separate action for breach of the underlying contract and not by withholding payment under the letter of credit. “pay first, sue later” is the core objective underlying the autonomy principle. This is the proposition advanced by SNGPL that payment under the bank guarantee is autonomous from any dispute arising in relation to the underlying contract.

6.           Shipyard relied upon several judgments and cited the ratio thereof in paragraph No.7. Both the parties rely upon the said judgment to support their respective stance. The petitioner contends that the absolute rule laid down in the said judgment regarding payment under the bank guarantee regardless of the dispute between the contracting parties is subject to certain exceptions namely fraud and special equities. Learned counsel for SNGPL, on the other hand, refutes the stance of the petitioner by arguing that there was no cause for placing restriction on the right of SNGPL to receive amount under the bank guarantee.

7.           Paragraph 7 of the judgment in Shipyard’s case simply laid down the principles which were formulated in various judgments both from this jurisdiction and foreign for not interfering in unconditional bank guarantees/letters of credit. The actual ratio of the judgment is contained in paragraph No.23 of the judgment, which read as under:

23.   The law is thus settled that extraneous claims and counter-claims do not bar the enforcement of the bank guarantee. The enforcement depends upon its terms and conditions. If bank guarantees are unconditional, there is no other option for the bank and moreso, the bank would have no defence, when its guarantee is sought to be enforced. The guarantee as provided could be scanned to ascertain, whether it is conditional, unconditional or an autonomous contract by itself or otherwise? If it is found unconditional, except in cases where a fraud has been alleged and notice by the bank, the commitment is to be honoured by enunciating the general principal of non-interference by the Courts in respect of the bank guarantee and letter of credit, the Courts only intended that the international trade and commerce should function smoothly without interference from Court……

8.           The fundamental rule of payment under the bank guarantee independent of any dispute between the contracting parties is excepted only where fraud is alleged as against the beneficiary of the bond/guarantee and the bank has notice of such fraud. This exception is based on a passage from the judgment of Sir John Donaldson M.R. in Bolivinter Oil SA v. Chase Manhattan [1984] 1 All ER 351:

The unique value of such a letter, bond or guarantee is that the beneficiary can be completely satisfied that, whatever disputes may thereafter arise between him and the bank’s customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided that the specified conditions are met. In requesting his bank to issue such a letter, bond or guarantee, the customer is seeking to take advantage of this unique characteristic. If, save in the most exceptional cases, he is to be allowed to derogate from the bank’s personal and irrevocable undertaking, given be it again noted at his request, by obtaining an injunction restraining the bank from honouring that undertaking, he will undermine what is the bank’s greatest asset, however large and rich it may be, namely its reputation for financial and contractual probity. Furthermore, if this happens at all frequently, the value of all irrevocable letters of credit and performance bonds and guarantees will be undermined.”

It was furthermore held in the judgment that:-

The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank’s knowledge.

9.           The judgment in Shipyard’s case has been consistently followed by the Courts in this country. The Supreme Court in EFU, however, concluded that law in respect of performance guarantees has moved on and that law laid down in Shipyard needs to be revisited and updated. In this regard, the following observations were made which the petitioner seeks support from for overturning the orders of the courts below:

10. …………In one common law jurisdiction, Singapore, unconscionability is now a well established ground for the Court intervening to restrain payment (see O’Donovan and Philips, op. cit., para 13-049 and the cases gathered at f.n. 153). It may be that this is a ground which comes within the rubric of “special equities”. However, whether it does or not and if so should be made subject to any conditions or modifications such as are appropriate for our jurisdiction, remains yet to be seen. This and other developments in the law are to be determined in future cases. While Karachi Shipyard is clearly an important milestone in this area of the law, the High courts should not consider themselves as limited only to what may be regarded as falling strictly within the four corners of the decision. In commercial and corporate matters in particular the development of the law must continue apace and it should be recognized that the real engines of change are the high Courts. While of course always keeping Articles 189 of the Constitution is mind and adhering to the requirements thereof, the decision of this Court should, in these areas of the law, be regarded as being akin (to borrow a famous phrase from elsewhere in the law) to “living tree[s]”, “capable” of growth and expansion within [theirs] natural limits”.

              It is noted that the issue of encashment of bank guarantee was not directly involved in EFU rather the dispute between the parties related to the notice of demand under the advance payment guarantee and whether the notice fulfilled the condition laid down in the instrument of the guarantee.

10.         Before proceeding to discuss the authorities from the various jurisdictions, it would be instructive to take note of the provisions of the Arbitration Act which grant the power to the Court to issue interlocutory relief in such like cases as it shall have relevance to the observations made in EFU case. Section 41 of the Arbitration Act deals with the procedure and power of the court and insofar as it is relevant reads as under:

41.   Procedure and Powers of Court. Subject to the provisions of this Act and of rules made thereunder_

(a)    The provisions of the Code of Civil Procedure, 1908 (V of 1908), shall apply to all proceedings before the Court, to all appeals, under this Act, and

(b)    the Court shall have, for the purpose of, and in relation to arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, proceedings before the Court.

              Clause 4 of the Second Schedule of the Arbitration Act grants the power to the Court to issue interim injunctions. It is evident from the reading of the text of section 41 that the grant of injunction by the court in proceedings pending before it shall be governed by the provisions of the Code of Civil Procedure 1908 (the Code) whereas the court retains the power to issue interim injunction on basis of the power contained in the Second Schedule even when the matter has been referred to arbitration and proceedings are pending in that forum.

The Three-Pronged Test

11.         The grant of interim injunction for the period the proceedings remain pending before the court or the arbitrators is regulated by the provisions of the Code. The three tests applied for grant of interlocutory injunctions are well established in almost all the jurisdictions. These tests require an applicant to demonstrate that (a) there is a prima facie case by which it is meant that the applicant must be able to demonstrate to the satisfaction of the Court that there is a serious question to be tried in the sense that the claim is not frivolous (b) it will suffer irreparable loss and injury in case the relief is denied to it or in other words granting an injunction could cause less harm to the defendant compared to the likely harm the applicant would suffer from the refusal of such injunction, and (c) the balance of inconvenience favours it.

12.         The jurisdiction to grant interim injunction is designed to preserve the rights of the parties or to minimize irreparable loss of legal rights pending the trial. The adjudication on an application for grant of interlocutory injunction takes place at a time and on material not tested by cross-examination. Any interference with the position of parties prior to merit adjudication runs the risk of infringement with the due process standards and additionally the Courts are concerned with the likelihood of error that is significantly greater in interlocutory proceeding than on a merit investigation. In order to prevent the probability of mistake and its magnitude and to reconcile the above-mentioned competing considerations, the Courts have devised the three tests to regulate their discretion.

13.         Any discussion on this topic must start from the influential and famous case of American Cyanamid Co. v. Ethicon Ltd. [1975] 2 WLR 316 in which Lord Diplock went on to establish a detailed framework of principles for regulating the discretion of the Courts in granting interim injunction. He cast doubt on the utility of the first test which made it necessary for a plaintiff to establish a prima facie case, that is, that on the balance of probabilities it was more likely than not that the plaintiff would succeed at the trial of the action by holding that

Your Lordships should in my view take this opportunity of declaring that there is no such rule. The use of such expressions as “a probability”, “a prima facie case”, or “a strong prima facie case” in the context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The court must no doubt be satisfied that the claim is not frivolous or vexation; in other words, that there is a serious question to be tried. It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at trial.

              Lord Diplock went on to hold that unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, “the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.” In order to do that, Lord Diplock suggested to balance the outcome by hypothesizing in the following manner:

i.     If the plaintiff failed in obtaining the interlocutory injunction but succeeded at the trial, can he be adequately compensated by the award of damages for the loss caused to him by the failure to grant the injunction. In addition to that the Court must consider the ability of the defendant to pay damages. If that is so, interlocutory injunction normally should not be granted.

ii.    If the defendant is restrained by the injunction but ultimately succeeds at the trial, can he be adequately compensated for his loss by award of damages in pursuance of the plaintiff’s cross-undertaking and is the plaintiff good for his undertaking? If so, an interlocutory injunction should be granted.

iii.    Where a doubt exists as to adequacy of damages to either of the parties the court must consider all factors affecting the balance of convenience, which are infinitely variable and depend on the facts of each case. Where the case is evenly balanced, it is a counsel of prudence to maintain the status quo.

iv.    If the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on the hearing of the application. This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party.

14.         The judgment in American Cyanamid was predicated on the notion that a preliminary trial should not be held by the courts on material not tested by cross-examination. After it is established that there is a serious issue to be tried, the court as a matter of principle while considering an application for an interlocutory injunction should not attempt to anticipate the outcome of the case and instead should proceed to assess the balance of convenience test. This approach in American Cyanamid’s case has served as valuable guideline for the Courts in deciding the applications for interlocutory injunctions. The reasoning is clear that if the outcome of the case is unknown, a court must ensure that a party is not treated unfairly on account of the length of time it will take for the case to reach a final decision. In American Cyanamid, Diplock correctly observed that

save in the simplest cases, the decision to grant or refuse an interlocutory injunction will cause to whichever party is unsuccessful in the application some disadvantages which in ultimate success at a trial may show he ought to have been spared and the disadvantage may be such that the recovery of damages to which he would then be entitled either in the action or under the plaintiff’s undertaking would not be sufficient to compensate him fully for any of them.

15.         The expression ‘irreparable loss’ is stated by Lord Wilberforce in Hoffman LaRoche & Co. Ltd. v Secretary of State for Trade and Industry [1975] AC 295 to mean the following;

‘The object of [an interim injunction] is to prevent a litigant, who must necessarily suffer the law’s delay, from losing by that delay the fruit of his litigation; this is called ‘irreparable damage,’ meaning that money obtained at trial may not compensate him.’

              The Australian jurisdiction looks at this proposition by asking whether, in all the circumstances, it is just that the plaintiff should be confined to his remedy in damages (see State Transport Authority v. Apex Quarries Ltd., [1988] V.R. 187, 193 and City of Melbourne v. Hamas Pty Ltd., (1987) 62 L.G.R.A. 250, 261-262).

16.         Lord Diplock in American Cyanamid’s case explicitly undermined the immutable rule of establishing prima facie case before an interlocutory injunction could be granted. Not surprisingly, many judgments subsequently rendered criticized the abandonment of the prima facie test. Geoffrey Lane LJ in Lewis v Heffer [1978] 1W.L.R. 1061 went on to claim that ‘the rules in American Cyanamid were designed to cover a commercial situation where loss, hardship or misfortune could be compensated by payment of money.’ Laddie J in Series 5 Software Ltd v. Clark [1996] 1 All ER 853 concluded that the intent of Lord Diplock in American Cyanamid was to exclude consideration of the relative merits of the case only where there were intractable issues of fact or law involved. He remarked that “If, on the other hand, the court is able to come to a view as to the strength of the parties’ cases on the credible evidence, then it can do so.” In NWL Ltd v Woods [1979] 1 WLR 1294 Lord Diplock himself interpreted his decision in American Cyanamid by stating that:

[T]here is in my view nothing in the decision of this House in American Cyanamid … to suggest that in considering whether or not to grant an interlocutory injunction the judge ought not to give full weight to all the practical realities of the situation to which the injunction will apply.

17.         In Merck Sharp & Dohme Corporation v. Clonmel Healthcare Limited [2019] IESC 65, which involved a dispute between the parties over a patent, O’Donnell J. observed that the governing principle of balance of convenience test was adequacy of damages. He went on to hold that:

35. In my view, the preferable approach is to consider adequacy of damages as part of the balance of convenience, or the balance of justice, as it is sometimes called. That approach tends to reinforce the essential flexibility of the remedy. It is not simply a question of asking whether damages are an adequate remedy. As observed by Lord Diplock, in other than the simplest cases, it may always be the case that there is some element of unquantifiable damage. It is not an absolute matter: it is relative. There may be cases where both parties can be said to be likely to suffer some irreparable harm, but in one case it may be much more significant than the other. On the other hand, it is conceivable that while it can be said that one party may suffer some irreparable harm if an injunction is granted or refused, as the case may be, there are nevertheless a number of other factors to apply that may tip the balance in favour of the opposing party. This, in my view, reflects the reality of the approach taken by most judges when weighing up all the factors involved.

              In conclusion, O’Donnell J. laid down, amongst others, the following tests for grant of interim injunctions.

(a)    If there is a fair issue to be tried (and it probably will be tried), the court should consider how best the matter should be arranged pending the trial, which involves a consideration of the balance of convenience and the balance of justice;

(b)    The most important element in that balance is, in most cases, the question of adequacy of damages;

(c)    In commercial cases where breach of contract is claimed, courts should be robustly sceptical of a claim that damages are not an adequate remedy;

(d)    Nevertheless, difficulty in assessing damages may be a factor which can be taken account of and lead to the grant of an interlocutory injunction, particularly where the difficulty in calculation and assessment makes it more likely that any damages awarded will not be a precise and perfect remedy. In such cases, it may be just and convenient to grant an interlocutory injunction, even though damages are an available remedy at trial.

(e)    While the adequacy of damages is the most important component of any assessment of the balance of convenience or balance of justice, a number of other factors may come into play and may properly be considered and weighed in the balance in considering how matters are to be held most fairly pending a trial, and recognising the possibility that there may be no trial;

(f)    While a structured approach facilitates analysis and, if necessary, review, any application should be approached with a recognition of the essential flexibility of the remedy and the fundamental objective in seeking to minimise injustice, in circumstances where the legal rights of the parties have yet to be determined.

18.         Laddie J. in Series 5 Software Ltd v. Clark [1996] 1 All ER 853 and Nicolas J. in Uber Builders and Developers Pty Ltd v MIFA Pty Ltd [2020] VSC 596 summarised the governing principles applicable in cases where interlocutory relief is sought to restrain the calling of a bond as follows.

(1)    The grant of an interlocutory injunction is a matter of discretion and depends on all the facts of the case. The relief must be kept flexible;

(2)    The applicant for interlocutory relief must show there is a serious question to be tried if the matter were to progress to a final hearing;

(3)    The court must consider the extent to which damages are likely to be an adequate remedy for each party and the ability of the other party to pay;

(4)    The applicant must show that the ‘balance of convenience’ favours the granting of the injunction. This means that the court should take whichever course appears to carry the lowest risk of injustice should it be wrong in either granting or not granting the injunction;

(5)    The court must have a clear view as to the relative strength of the parties’ cases. Because of the practice adopted on the hearing of applications for interlocutory relief, the court should, however, rarely attempt to resolve complex issues of disputed fact or law;

(6)    the maintenance of the status quo, and

(7)    These questions and factors must be considered together and not as isolated issues.

19.         While making the determination at the interlocutory stage, the legal nature of the right involved must be central to any consideration of grant of injunction, which is another way of saying that the Courts must take into account the juridical nature of the dispute before entering upon any inquiry into the three tests. Although the guidelines are anchored in tradition and policy, it would be a fallacy to think that their application to cases is anything but uniform. A case involving immovable property or public interest/public safety or freedom of expression/speech would not give rise to the same concerns regarding the jural nature of irreparability as a commercial dispute arising out of a contract between the private parties. Moreover, considerable difficulties may arise in assessment of damages even in commercial disputes particularly in cases where patents or trademarks are involved in which case damages shall never be the fully adequate remedy. These are all variables that a Court would contemplate and examine in granting (or refusing) interim injunctions. It must, however, be stated that it is not possible to pinpoint all the matters required to be considered by the Court in determining where the balance lies let alone the relative weight to be attached to each of them as it will vary from case to case.

Singapore case law

20.         In Singapore, unlike jurisprudence in several other countries, the courts recognize unconscionability as a separate ground from fraud which when established would result into grant of injunction. Instead of citing a number of judgments from that jurisdiction, it would suffice to cite the following passages from the case of AES Façade Pte Ltd v. Wyse Private Limited [2018] SGHC 163 to understand the genesis of that ground.

17    Whereas the boundaries of unconscionability cannot and should not be precisely delineated (Mount Sophia at [35]–[38]), it is generally uncontroversial that the concept covers acts involving abuse, unfairness and dishonesty (Mount Sophia at [19], GHL Pte Ltd v Unitrack Building Construction Pte Ltd [1999] 3 SLR(R) 44). It has also been said that unconscionable conduct is “conduct of a kind so reprehensible or lacking in good faith that a court of conscience would either restrain the party or refuse to assist the party” (Raymond Construction Pte Ltd v Low Yang Tong [1996] SGHC 136 at [5]). It is clear that unconscionability would extend to facts not amounting to a finding of fraud, and as such is broader than the notion of fraud (Mount Sophia at [23]). That being said, it has also been cautioned that whilst unfairness is an important consideration in establishing whether there is unconscionability, not every instance of unfairness would amount to unconscionability (Eltraco International Pte Ltd v CGH Development Pte Ltd [2000] 3 SLR(R) 198 (“Eltraco”) at [30]). Further, the existence of genuine disputes between the parties is not sufficient per se to constitute unconscionability (Mount Sophia at [42], Eltraco at [32], LQS Construction Pte Ltd v Mencast Marine Pte Ltd and another [2018] 3 SLR 404 at [32]).

18    Apart from the factors that might justify a finding of unconscionability, it is also important to keep in mind the threshold for establishing its existence. It is undeniable on the one hand that abusive and oppressive calls may result not only in the beneficiary (in this case the first defendant) gaining an undeserved windfall but also severely curtail the liquidity of the obligor (here the plaintiff), and that this would have considerable adverse consequences for players in the construction industry (Mount Sophia at [27], JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 (“JBE”) at [11]). On the other hand, courts should also be slow to disturb the allocation of risk bargained for by commercially-minded parties, particularly since the nature of the performance bond might have been reflected in the bid price or other contractual terms (Mount Sophia at [25], Eltraco at [30]). The settled law, having regard to these competing interests, is one that strikes the necessary balance by requiring a strong prima facie case of unconscionability before the threshold for curial intervention is met. (Emphasis added)

21.         In Bocotra Construction Pte Ltd v Attorney-General [1995] 2 SLR(R) 262, the Court of Appeal dispensed with the test of “balance of convenience” propounded in the American Cyanamid Co v Ethicon Ltd ([1975] AC 396). The Court nevertheless warned that dispensing with the balance of convenience test would not make it easier to obtain injunction against an unconscionable call under a performance guarantee. It stated as follows.

In our opinion, whether there is fraud or unconscionability is the sole consideration in applications for injunctions restraining payment or calls on bonds to be granted. Once this can be established, there is no necessity to expend energies in addressing the superfluous question of ‘balance of convenience’ … we need only note that dispensing with consideration of the balance of convenience does not make an injunction any easier to obtain. Indeed, a higher degree of strictness applies, as the applicant will be required to establish a clear case of fraud or unconscionability in the interlocutory proceedings. It is clear that mere allegations are insufficient.

22.         The parties, however, soon got around the standard of unconscionability by putting in ouster clauses in the contracts. In CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another [2015] SGCA 24, the Singapore Court of Appeal was concerned with Clause 3.5.8 of the Performance Bond which, inter alia, restricted the contractor to seek a restraining order against the Developer from making any call or demand on the performance bond only in case of fraud. The issue before the Court of Appeal was whether parties can agree to exclude the unconscionability exception as a ground for restraining a call on a performance bond and whether clause 3.5.8 ousts the jurisdiction of the court and is void and unenforceable being contrary to public policy. The Court termed the clause in question as not attempting to restrict the party’s right to claim damages at common law rather the same amounted to limiting its right to an injunction in equity except in the case of fraud. The Court held that “such a clause is more in the nature of an exclusion or exception clause”. Repelling the observation of the court below that the scrutiny by the court of unconscionable conduct in the context of performance bonds on policy grounds cannot be displaced by agreement of the parties, it was held as follows:

40.   It is, of course, true (as the Judge correctly observed in the two passages just cited) that the development of the doctrine of unconscionability in the context of (abusive) calls on performance bonds centred on considerations of policy. It was motivated by the recognition that a performance bond could be used as an “oppressive instrument” (see the decision of this court in GHL Pte Ltd v Unitrack Building Construction Pte Ltd and another [1999] 3 SLR(R) 44 at [24]), which may cause “undue hardship” or “unwarranted economic harm to the obligor” (see the decision of this court in JBE Properties Pte Ltd v Gammon Pte Ltd [2011] 2 SLR 47 at [11]).

41.   It is important, however, to clarify the various conceptions of the concept of “policy” which were utilised both by the Judge as well as by this court – in order to clarify an ambiguity that has (unfortunately, in our view) arisen. The particular conception of policy that formed the basis for the unconscionability doctrine is quite different from the concept of public policy which underpins that category of contracts which are void and unenforceable as being contrary to public policy as such contracts seek to oust the jurisdiction of the court. Looked at in this light, the Judge’s observations in this third respect do not really support his conclusion to the effect that cl 3.5.8 is contrary to public policy inasmuch as it sought to oust the jurisdiction of the court.

              The Court of Appeal went on to hold that Clause 3.5.8 did not oust the jurisdiction of the court and that it was enforceable.

23.         With Asplenium the proposition that private parties in contracts can oust and thereby defeat the principle of unconscionability stood crystallized. It also became evident that the ground of unconscionability was not accorded the same status as that of fraud. Put simply, abusive calls in the contemplation of court was a matter of private law which did not violate public interest or public morality which are the foundation of public policy.

24.         It may be noted that nearly all judgments from Singapore jurisdiction on this subject relate to domestic construction industry. As per trade practices in this area, the contractor relies for its cash flow solely on the employer’s interim payments. The call made on the contractor’s performance guarantee often results in putting colossal pressure on its cash flows and such calls are often abused by the employers and are extremely oppressive. The jurisprudence developed in Singapore reflects the concern of the Courts regarding the possibility of abusive calls where it is a common practice for the owners to provide finance to the contractors subject to furnishing of a performance bond and the parties cannot be termed to be dealing at arm’s length. In JBE Properties Pte Ltd v Gammon Pte Ltd [2010] SGCA 46, Chan Sek Keong CJ delivering the decision for the Court of Appeal had this to say about the abusive calls.

This is particularly relevant in the context of the construction industry, where liquidity is frequently of the essence to contractors. In this regard, while the sum stipulated to be paid under a performance bond is usually pegged at only 5% to 10% of the contract price, this typically amounts to one or more progress payments under a building contract. In very large building contracts, the deprivation of a whole progress payment might well be fatal to the contractor-obligor’s liquidity. These concerns are by no means fanciful, as evidenced by the mechanisms evolved by the construction industry to ensure the quick settlement of disputes relating to progress payments.

25.         Although the Australian courts have accepted unconscionability as a separate ground for injunctive relief, that is based not on the common law but on section 51AA of Australia’s Trade Practices Act, 1974 which prohibits corporations from engaging in unconscionable conduct in trade and commerce.

Indian case law

26.         We may now turn to Indian jurisdiction and the jurisprudence developed by their Courts. The Indian jurisprudence holds that the beneficiary of an unconditional bank guarantee is entitled to make a demand on the bank irrespective of any pending disputes between the contracting parties and that the bank is bound to honour it notwithstanding any dispute raised by its customer otherwise the very purpose of such a bank guarantee would be defeated and that the courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The Courts have, however, created two exceptions to the general rule for not interfering in the demands made for calling bank guarantees i.e. fraud and special equities. The case of U.P. Cooperative (U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174) held that the exception of “special equities” must include an injunction to prevent injustice which was irretrievable and thus the expression “irretrievable injustice” was taken to be a specie of the “special equities” genus. This position was reiterated and echoed in the cases of U.P. State Sugar Corporation v. Sumac International Ltd 6 [1997] 1 SCC 568, Himadri Chemicals Industries Ltd v Coal Tar Refining Company 7 [2007] 8 SCC 110 and Mahatma Gandhi Sahakra Sakkare Karkhane v. National Heavy Engg. Coop. Ltd., (2007) 6 SCC 470 by stating that the scope of special equities was limited to events which would result in irretrievable harm / injustice / injury to one of the parties. Taking stock of its previous judgments, the Indian Supreme Court in Vinitec Electronics (P) Ltd. v. HCL Infosystems Ltd., (2008) 1 SCC 544 laid down the exceptions to be consisting of (a) fraud of an egregious nature, or (b) irretrievable injustice resulting to the parties, at whose instance the bank gave the guarantee, were the injunction not granted, or (c) special equities, of which the possibility of irretrievable injustice is itself one.

27.         The Indian Supreme Court in Standard Chartered Bank v. Heavy Engg. Corpn. Ltd., (2020) 13 SCC 574, however, took the position that special equities and irretrievable injustice can be treated as separate exceptions warranting injunction against invoking bank guarantee.

28.         Following the decision in Standard Chartered Bank’s case, the Dehli High Court in CRSC Research and Design Institute Group Co. v. Dedicated Freight Corridor Corpn. of India Ltd., 274 (2020) DLT 89 recognized the fact that the Supreme Court did not explain the scope and ambit of “special equities”. The judgement stated that:

Some scope for debate, however, arises, on the concept of “special equities”. The decisions of the Supreme Court – perhaps, advisedly – do not delineate, in precise contours, the ambit of the expression. Significantly, Fenner India Ltd regards “irretrievable injustice” as a specie of the “special equities” genus, whereas Standard Chartered Bank treat “special equities” and “irretrievable injustice” as distinct circumstances, either of which would justify injuncting the invocation of a bank guarantee (citations omitted).

              Having concluded that it is not possible to define these standards a priori, an attempt was nevertheless made by the Dehli High Court explaining the terms in the following manner:

(a)    “Irretrievable injustice” has to be of such a magnitude that would override the twin considerations of the terms of guarantee and the adverse effect from the grant of the injunction to the commercial dealings in the country.

(b)    “Special Equities” too must be so “special” so as to prevail over the aforementioned twin considerations, otherwise paramount while examining a prayer for injunction against invocation of a bank guarantee.

(c)    “Special Equities” cannot be conferred an elastic construction that would snap the rule.

29.         Inevitably, the appeal against the decision was heard and the judgment rendered therein [FAO (OS) (Comm) 123 of 2020 CRSC Research and Design Institute Group Co. v. Dedicated Freight Corridor Corpn. of India Ltd., 2020 SCC OnLine Del 1526] fell back on the judgment by Mukharji J in U.P. Cooperative (U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., (1988) 1 SCC 174) by treating special equities as a facet of irretrievable harm or injustice. While reiterating the traditional position of non-interference the Courts have taken in regard to unconditional bank guarantees, the Court made the following relevant observations.

7.     ……………(e) the Courts have carved out only two exceptions i.e. (i) a fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee – if there is such a fraud of which the beneficiary seeks to take the advantage, he can be restrained from doing so; fraud has to be an established fraud which the bank knows of and the evidence must be clear, both as to the fact of fraud and as to the bank’s knowledge; and, (ii) the second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned;…………the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country; it must be proved to the satisfaction of the Court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution.

16.   Fraud, as an exception to the rule of non-interference with encashment of BGs, is not any fraud but a fraud of an egregious nature, going to the root i.e. to the foundation of the bank guarantee and an established fraud…..

17.   Irretrievable injustice, as an exception to the rule of non-interference with encashment of BGs, is again not a mere loss, which any person at whose instance bank guarantee is furnished, suffers on encashment thereof. It is always open to such person to sue for recovery of the amount wrongfully recovered. What has to be proved and made out to obtain an injunction against encashment, is that it will be impossible to recover the monies so wrongfully received by encashment. There is not even a whisper to this effect, neither in the pleadings nor in the arguments. (Emphasis added)

English case law

30.         The position in English law regarding calls on the bonds may be summarised as follows.

(a)    Under English law bonds are comparable to ‘cash-equivalent’ instruments provided at the instance of the party who has agreed that it can be collected by the beneficiary. Injunction by the Court to restrain a bank from complying with its obligations would interfere with this principle.

(b)    By furnishing the bond a party agrees that the payment shall be made despite the existence of a dispute between the parties; and

(c)    the bank made a promise and generally the court will not use its coercive powers to cause a bank to dishonour its promise and thereby run the risk of damage to its reputation.

31.         Like other jurisdictions, the case law has created two exceptions which are firmly established in English jurisprudence (a) when the beneficiary has not complied with a condition precedent controlling the call on the bond; and (b) where a strong case of fraud has been established.

32.         Fraser J in Tetronics (International) Limited v. HSBC Bank PLC [2018] EWHC 201(TCC) referred approvingly to the following headnote appearing in the judgment rendered by the Privy Council in Alternative Power Solution’s case [2015] 1 WLR 697

in interlocutory proceedings the correct test for application of the fraud exception to the strict general rule that the court would not intervene to prevent a banker from making payment under a letter of credit following a compliant presentation of documents was whether it was seriously arguable that on the material available the only realistic inference was that the beneficiary could not honestly have believed in the validity of its demands under the letter of credit and that the bank was aware of such fraud.”………the expression ‘seriously arguable’ was intended to be a significantly more stringent test than good arguable case, let alone serious issue to be tried; that even where it was possible to establish the test for fraud as opposed to mere possibility of fraud, the balance of convenience would almost always militate against the grant of an injunction….

The Court went on to hold that

The reason for the fraud exception being so tightly limited are effective public policy ones concerning integrity of the banking system and the integrity of the banking instruments. In very general and high level terms, the possibility of underlying disputes between parties to international trade and supply contracts, and the resolution of such disputes, are at one particular level between the parties to those contracts. Banking instruments are of a different character entirely. They are at a higher level, will almost always have far simpler terms than the underlying contracts to which they relate, and are designed to and do provide ready and swift access to certain funds in the event that certain conditions are met. Mr. Lazarus invoked the spectre of damage to “UK Plc” and its banking system if interlocutory injunctions were used as a mechanism to interfere with, and frustrate, this approach to such instruments. That this is the approach of the courts is crystal clear, and has been for many years.

33.         In the case of Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657 (TCC), an attempt was made to formulate a less rigorous test. Akenhead J. was dealing with a case where the underlying contract between the parties provided that the bond was to become null and void upon the issue of an Acceptance Certificate except in respect of pending or previous claims. An Acceptance Certificate had in fact been issued to Simon Carves. A dispute arose as to whether any claims were pending or had previously been notified by the time of its issue. Simon Carves then sought an injunction restraining a call being made on the bond. Akenhead J on the evidence before him concluded that Simon Carves had made out a strong case that the bond was null and void and should have been returned to it. The injunction was accordingly ordered to continue. In arriving at this conclusion, Akenhead J observed that the failure to return the bond to the contractor may be considered to be a type of fraud. He went on to hypothesize a situation where a restraining order may be issued to restrain a call on an on-demand bond by stating as under:

One can pose this example: on a commercial contract in which there is a bond in favour of the beneficiary party, the parties reach a full and final settlement which expressly requires the bond to be returned to the other party and no further calls to be made on the bond. If the beneficiary party in those circumstances seeks to call on the bond, in breach of the settlement terms, the Court could properly restrain the beneficiary from doing either because it is committing a straight breach of contract or because it is or should be taken to be clear fraud by the beneficiary.

              The judgement took into account the previous authorities on the subject (Deutsche Ruckversicherung AG v Walbrook Insurance Co Ltd and others; Group Josi Re (formerly known as Group Josi Reassurance SA) v Same, and Sirius International Insurance Company v FAI General Insurance Ltd and others) for laying down the following principles regarding issuance of injunctions in relation to on-demand guarantees:

(a)    Unless material fraud is established at a final trial or there is clear evidence of fraud at the without notice or interim injunction stage, the Court will not act to prevent a bank from paying out on an on demand bond provided that the conditions of the bond itself have been complied with (such as formal notice in writing). However, fraud is not the only ground upon which a call on the bond can be restrained by injunction.

(b)    The same applies in relation to a beneficiary seeking payment under the bond.

(c)    There is no legal authority which permits the beneficiary to make a call on the bond when it is expressly disentitled from doing so.

(d)    In principle, if the underlying contract, in relation to which the bond has been provided by way of security, clearly and expressly prevents the beneficiary party to the contract from making a demand under the bond, it can be restrained by the Court from making a demand under the bond.

(e)    ……it would be necessary at this early stage for the Court to be satisfied on the arguments and evidence put before it that the party seeking an injunction against the beneficiary had a strong case. It cannot be expected that the court at that stage will make in effect what is a final ruling.

34.         A similar approach was applied in Doosnan Babcock v. Commercializadora de Equipos (“MABE”) [2013] EWHC 3201 (TCC) by granting an injunction to prevent the call on two on-demand type bonds. Edwards-Stuart J made the following observations regarding Simon Carves decision:

I accept that this decision has extended the law, but in my view it is done so adopting a principled and incremental approach that does not undermine the general principles applicable to interim injunctions to restrain a party making call under a bond. [Emphasis added]

35.         The judgment in Simon Carves and Doosnan Babcock showed that the Courts in order to grant injunction against a bond/guarantee were prepared to look at the dispute between the parties on the terms of the underlying contract in relation to which the security was furnished to ascertain whether the beneficiary can be restrained from making a demand under the bond/guarantee and for holding that it did not have a bona fide claim to payment under the underlying contract.

36.         The English Courts, however, soon made a retreat from the underlying contract exception created and followed in Simon Carves and Doosnan Bancock. In MW High Tech Projects UK Ltd v Biffa Waste Services Ltd [2015] EWHC 949)], Stuart-Smith J refused to consider the dispute in respect of the underlying contract as a basis for granting injunction. In doing so, he relied on the Court of Appeal judgment rendered in Wuhan Guoyu Logistics Group Co Ltd v. Emporiki Bank of Greece SA [2013] EWCA (CIV 1679] that reiterated the established law that on-demand bonds and similar instruments were autonomous contracts not dependent on disputes between the buyer and seller in respect of the underlying contract. Stuart-Smith J once again stressed that the

It seems to me, both on the principle and authority that the only established acceptance to the rule that the court will not intervene should be where there is a seriously arguable case of fraud, or it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract.

              He noted that it was not sufficient that “There is a seriously arguable case that the beneficiary was not entitled to draw down. It must be positively established that he was not entitled to draw down under the underlying contract.” The two exceptions where courts will intervene were stated to be as follows. “The first is where there is obvious fraud known to the bank…….The second exception is where the terms of the underlying contract preclude the beneficiary from making a call……”. In regard to the second exception, he went on to hold that

34.   There have to date been two matters of principle that have been developed in relation to this second exception. The first is referred to at paragraph 27 of Sirius (Sirius International Insurance Co v FAI General Insurance Limited & Others [2003] EWCA (Civ) 470), and is that the beneficiary’s right to drawdown must be precluded by the express terms of the underlying contract. There is to my mind no principle or reason why the beneficiary’s right could not be precluded by an implied term in the contract. What should matter is whether the right to drawdown is clearly precluded by the terms of the underlying contract, whether they be express or implied. The second is that, when considering whether or not to grant an injunction, it is not sufficient that there is a seriously arguable case that the beneficiary was not entitled to draw down. It must be positively established that he was not entitled to draw down under the underlying contract – see the judgment of Ramsey J in Permasteelisa Japan KK v Bouyguesstroi and Bank Intesa SpA [2007] EWHC 3508 (QB). If and to the extent that the subsequent decisions of Aikenhead J in Simon Carves v Ensus [2011] EWHC 657 (TCC) or Edwards-Stuart J in Doosan Babcock v Comercializadora de Equipos y Materiales Mabe Limitada [2013] EWHC 3201 (TCC) suggest that a less rigorous test is to be applied, I respectfully consider that the views of Ramsey J should prevail as being in accordance with the substance of the decisions of higher authority, to which I have referred. It seems to me, both on principle and authority, that the only established exceptions to the rule that the court will not intervene should be where there is a seriously arguable case of fraud, or it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract. (Emphasis added)

37.         The High Court in the case of Shapoorji Pallonji & Company Private Ltd v. Yumn Ltd & Standard Chartered Bank [2021] EWHC 862 (Comm) restated the established principle that in order for a Court to restrain a call upon an autonomous demand bond, it would need to be satisfied to an enhanced evidential standard {as stipulated in Ouais Group Engineering and Contracting v Saipem SpA [2013] EWHC 990 (Comm) and Salam Air SAOC v Latam Airlines Group SA [2020] EWHC 2414 (Comm)} that:

(a)   there was compelling evidence from which the only realistic inference to be drawn was that the demand was fraudulently made; or

(b)   there was clear evidence that the demand on the bond by the beneficiary is in breach of an express obligation contained in the underlying commercial agreement not to make demand other than in defined circumstances.

Analysis

38.         Having laid down the law specified in judgments from various jurisdictions, we may now turn our attention to the present case and to the observations made by the Supreme Court in EFU. The present case originated in civil court in terms of section 20 of the Arbitration Act which empowers the court to send the matter to arbitrators on fulfillment of the conditions laid down in the said provision. The courts in such a case exercise limited jurisdiction and are not concerned with the merits of the case except for ascertaining the existence of an arbitration agreement between the parties and a dispute having arisen thereunder. As noted above, the court has the necessary jurisdiction by virtue of section 41 read with the second schedule to grant temporary injunctions. This exercise of power has its roots in Order XXXIX Rules 1 and 2 of the Code. The standards for grant (or refusal) of interim injunction as developed by the Courts involve sequentially an inquiry whether the plaintiff has demonstrated an arguable case and once that test has been met with the Court turns its attention towards the next two tests i.e. whether the harm will be irreparable in granting and denying the injunction and where the balance of inconvenience lies in the interim or which of the parties shall be at a disadvantage by the grant or denial of the injunction. Where the right asserted by the applicant is disputed or is in doubt, the balance of convenience becomes an important factor in grant or refusal of interlocutory injunction. Where the decision depends upon the consideration of the preponderance of inconvenience, the onus is upon the applicant to demonstrate that his inconvenience would exceed that of the respondent.

39.         The central question facing the court is the extent to which it can go into the merits of the case involving complex factual issues in dispute at the interlocutory stage to identify which party has the better case particularly where the parties by agreement have agreed to refer the matter to arbitration. If the Court examines only the substance of the dispute for decision on the application, the other two tests become redundant. The classical model thus postulates that the Court as a matter of principle ought not to delve deep into controversy between the parties to make a forecast about the outcome of the case and that it would be sufficient for the Court to decide that the applicant has put forward a case that is arguable or at least not a frivolous one and after making this determination to move to discover whether the balance of convenience favours the grant of the injunction by striking a balance between the interests of the applicant and that of the beneficiary. In doing so, the Court should bear in mind the extent to which damages are likely to be an adequate remedy and the ability of the other party to pay the same. Staughton LJ in Lansing Linde Ltd v. Kerr [1991] 1 WLR 251 (CA) observed that “the main question is then one of lesser evil: will it do less harm to grant an injunction which subsequently turns out to be unjustified, or to refuse one if it subsequently turns out that an injunction should have been granted…”. Similarly, where the legal right claimed is not sufficiently clear to enable the Court to form an opinion thereon, the relevant convenience or inconvenience in granting injunction (or refusal thereof) to the parties should be considered. The Court, while exercising jurisdiction under section 20 of the Arbitration Act, can only go so far in determination of the so-called prima facie case test as the decision on the dispute falls within the jurisdiction of the arbitrators. It is thus imperative that the Courts must not make findings of fact or construe the provisions of contract between the parties particularly when they have expressly agreed to refer such dispute to arbitration. The Courts would do well to adhere to the guidelines provided by American Cyanamid’s and the subsequent supplementary conditions and refinements made through various judgments by the considering the two hypotheses and balancing the outcome for the grant of interlocutory injunction.

40.         As has been noted above, the English Courts have broadly speaking created two exceptions viz., fraud known to the bank and where the conditions precedent in the underlying contract precludes the beneficiary from making the call.

41.         The exception of fraud carved out by the Courts is founded on the well-known and universally accepted principle laid down by Lord Diplock in United City Merchants (Investments) Ltd. v. Royal Bank of Canada (1982) 2 W.L.R. 1039 by stating that “the exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application of the maxim ex turpi causa non oritur actio or, if plain English is to be preferred, ‘fraud unravels all’. The Courts will not allow their process to be used by a dishonest person to carry out a fraud.” Under the latter exception, the two principles developed by the Courts are that the terms of the underlying contract, whether they be express or implied, must bar the beneficiary to drawdown and that such a bar must be positively established. The second exception is once again predicated on some condition in the underlying contract on which the call on the bond is dependent. This exception is not relevant to the non-interference principle enunciated by the Courts as the parties agreed expressly that the beneficiary’s entitlement to make a demand was qualified or would be extinguished if certain events occurred. In such cases, the Court would have to determine disputes in respect of the underlying contract to decide if the claim could properly be made. It is axiomatic that this exception shall not apply in the case of an unconditional bond.

42.         These exceptions are of wide amplitude and coupled with the flexible tests for grant of interim injunction must suffice to cover a whole range of factual disputes regarding encashment of bank guarantees. The essential problem these guidelines must confront when dealing with calls on on-demand bonds is the principle of autonomy of contract. The Courts have treated this both as a legal principle and as a policy consideration. The legal principle dictates that the parties under the law must be able to bargain and agree upon the terms of their agreement by creating legal relationships as they desire. This is premised on the faith that both parties will freely come to an agreement that reflects their respective interests. In Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827 it was stated that “A basic principle of the common law of contract … is that parties to a contract are free to determine for themselves what primary obligations they will accept”. The law has, however, built barriers to unfettered freedom of contract by placing certain limitations which include that the objective of the agreement and the consideration thereof must be lawful. It logically follows that the Courts shall treat the bond as an independent contract which is autonomous from the resolution of any dispute arising in relation to the underlying contract. The policy considerations relate to trade and commercial certainty and the impairment the commercial instruments shall undergo if such injunctions are all too frequently granted. The Courts have granted due recognition to the fact that any restriction, even temporary, on payment under such bonds shall be disruptive of the contractual relationships essential to commerce (see Bolivinter Oil SA v. Chase Manhattan [1984] 1 All ER 351 and Wuhan Guoyu Logistics Group Company Limited v. Emporiki Bank of Greece Sa (No 2) [2013] EWCA (Civ) 1679, [2014] 1 All ER (Comm) 817). The Courts have thus consistently held that the twin pillars of the principle and the policy as outlined above shall always trump the tests for grant of interim injunction even though the remedy of injunction is rooted in equity and the Code itself makes it discretionary with the Court for allowing such remedy. The reasons for this are not hard to comprehend. A party which has provided a bond to another with an express condition that it shall have an absolute right to call on the bond which shall be independent of, and have no connection with, any dispute the parties may have under the underlying contract cannot plead to equity for issuance of a restraining order without doing violence to the terms of its own undertaking. This was the bargain that the party knowingly entered into, and the Courts will let it suffer for its consequences. Keane J. in Hibernia Meats Ltd v. Ministere de L’Agriculture (Unreported 16th February, 1984) commented that

……………It must be said, however, on the other side of the coin, that business firms who enter into contracts of this nature requiring the provision of unconditional guarantees by banks take the risk that they may have no remedy against their overseas customers other than an action in the foreign tribunal; and no remedy at all against the bank because of the unconditional nature of the guarantee.

              The authorities are clear that it does not fall in the domain of the Court to rescue a party from the consequences of its own judgment in entering into a contract under which it is liable to provide an unconditional guarantee. It is for this reason that the English Courts have laid down strict rules that it would be insufficient that “There is a seriously arguable case that the beneficiary was not entitled to draw down. It must be positively established that he was not entitled to draw down under the underlying contract” (see MW High Tech Projects UK Ltd v Biffa Waste Services Ltd [2015] EWHC 949 (TCC)). The rationale “for this well understood and well hallowed approach is that the guarantee is intended to be an autonomous contract, independent of disputes between the seller and buyer as to their relative entitlements pursuant to the different contract between themselves…” (see Wuhan Guoyu Logistics Group Company Limited & Another v Emporiki Bank of Greece SA (No. 2) [2013 EWCA (CIV) 1679).

43.         The Courts should also be mindful of the cautionary note by Harman LJ in Bridge v Campbell Discount Co Ltd [1961] 2 WLR 596 (at 605) in interfering in the bargain struck by the parties of their free will and consent.

Equitable principles are, I think, perhaps rather too often bandied about in common law courts as though the Chancellor still had only the length of his own foot to measure when coming to a conclusion. Since the time of Lord Eldon anyhow the system of equity for good or evil has been a very precise one, and equitable jurisdiction is exercised only on well-known principles….Similarly I rather deprecate the attempt to urge the Court on what are called equitable principles to dissolve contracts which are thought to be harsh, or which have turned out to be disadvantageous to one of the parties. It is pointed out in one of the cases cited to us yesterday (and Lord Nottingham’s observation in Maynard v Moseley (1676) 3 Swanst 651 at 655 is still true) that: ‘the Chancery mends no man’s bargain’…

44.         The legal reasoning only operates within the parameters of the dispute before the Court and is constrained by the legal principles developed over time by common law. Fidelity to the legal principles and their application to the dispute before the Court is the central task of adjudication. As has been noted by Michael Gvozdenovic “There is no authority with the Courts to invent, change, or advance legal doctrine without reference to established rules and principles that proceed by accepted methods of legal reasoning.”

45.         “Unconscionability” as a ground for grant of injunctive relief under Singapore case law is predicated solely upon the standard of proof of a “strong prima facie case” without any regard to the other two stages of inquiry i.e. irreparable harm and balance of convenience. The rationale for pegging the standard at strong prima facie case is the distinction the Singapore Courts make between the letter of credit and the performance bond. In JBE Properties Pte Ltd v. Gammon Pte Ltd [2010] SGGA 46, the Singapore Court of Appeal had this to say about the difference between the legal nature of the two instruments.

10 ……….Innterfering with payment under a letter of credit is tantamount to interfering with the primary obligation of the obligor to make payment under its contract with the beneficiary. Hence, payment under a letter of credit should not be disrupted or restrained by the court in the absence of fraud. In contrast, a performance bond is merely security for the secondary obligation of the obligor to pay damages if it breaches its primary contractual obligations to the beneficiary. A performance bond is not the lifeblood of commerce, whether generally or in the context of the construction industry specifically. Thus, a less stringent standard (as compared to the standard applicable vis-à-vis letters of credit) can justifiably be adopted for determining whether a call on a performance bond should be restrained. We should also add that where the wording of a performance bond is ambiguous, the court would be entitled to interpret the performance bond as being conditioned upon facts rather than upon documents or upon a mere demand, contrary to the dictum of Staughton LJ in IE Contractors Ltd v Lloyds Bank Plc and Rafidain Bank [1990] 2 Lloyd’s Rep 496 at 500.

46.         This approach is radically different from other jurisdictions which do not differentiate between the two securities. Reference may be made to Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB 159 in which it was held that law applicable to letters of credit applies with equal force to performance bonds on the premise that “the performance guarantee stands on a similar footing to a letter of credit”. The approach taken by the Courts in Singapore is not without its critics. Professor Nelson Enonchong in The Problems of Abusive Calls on Demand Guarantees [2007] MLCLQ 83 has attacked this ground on the basis that (a) the easy availability of injunctive relief shall undermine and destroy the commercial utility of on-demand bonds; (b) it may lead the Courts getting involved in disputes arising from the underlying contract which are liable to be resolved in separate proceedings; and (c) as a concept it is too vague and that recognizing it would bring uncertainty in the commercial transactions. The Court of Appeal in Dauphin Offshore Engineering & Trading v Private Office of HRH Sheikh Sultan bin Khalifa bin Zayed Al Nahyan [2000] 1 SLR 657 accepted that it was not possible to define unconscionability and that only broad guidelines can be given, and much would depend on the facts of the case. The principle of equitable fraud as explained by Lord Evershed MR in Kitchen v Royal Air Force Association [1958] 2 All ER 241 to the effect that the “………phrase covers conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other.” appears to be conceptually equivalent to the ground of unconscionability as developed by the Courts in Singapore. Arvin Lee in “Injuncting Calls on Performance Bonds: Reconstructing Unconscionability” SAcLJ 30 (2003) noted that “The second, and better, conception, is that the ground of unconscionability was enunciated as a narrow ground for an injunction, not as a broad policy factor underlying a cause of action.” The author furthermore notes the narrow interpretation of ‘unfairness’ given by the Court of Appeal in Eltraco International Pte Ltd v CGH Development Pte Ltd [2000] 4 SLR 290 (Per Chao Hick Tin JA) as follows:

In every instance of unconscionability there would be an element of unfairness. But the reverse is not necessarily true. It does not mean that in every instance where there is unfairness it would amount to ‘unconscionability’. That is a factor, an important factor no doubt in the consideration. It is important that the courts guard against unnecessarily interfering with contractual arrangements freely entered into by the parties. The parties must abide by the deal they have struck.

47.         As noted above, the Singapore Court of Appeal in Bocotra Construction while dispensing with the balance of convenience test nevertheless observed that unconscionability requires for its proof a higher degree of strictness as the applicant will have to establish a clear case in the interlocutory proceedings and that mere allegations shall not suffice. Our jurisprudence as developed through case law like many other jurisdictions does not treat “prima facies case” as conclusive or the sole determinant for the grant of interim injunction. The Courts in Singapore did not furnish any reason for excluding further inquiry in the other two tests. The principle of good faith was declared to be the primary characteristic of unconscionability in the context of on-demand bonds in Mount Sophia and unconscionability was held to be a label applied to unsatisfactory conduct tainted by bad faith. It was also stated that “A precise definition of the concept would not be useful because the value of unconscionability is that it can capture a wide range of conduct demonstrating a lack of bona fides.” The Court of Appeal in Mount Sophia examined the contours of the standard of proof of unconscionability that the applicant is required to establish by noting as under:

When determining if a strong prima facie case has been made out, the entire context of the case must be thoroughly considered, and it is only if the entire context of the case is particularly malodorous that such an injunction should be granted. We must emphasise that the courts’ discretion to grant such injunctions must be sparingly exercised and it should not be an easy thing for an applicant to establish a strong prima facie case.

              A contrast to the above statement can be made by the following opinion expressed by Lai Kew Chai J in Raymond Construction Pte Ltd v Low Yang Tong and Anor (1996) Suit No. 1715 of 1995 (Unreported) (HC), at para. 5

…………Mere breaches of contract by the party in question..…would not by themselves be unconscionable. Where breaches are alleged, there would generally be (counter allegations and) disputes when the case is heard before the court. It is obvious that unconscionability is an amorphous concept and that its core has not yet developed.

48.         Adrian SP Wong in “Restraining a Call on a Performance Bond: Should ‘Fraud or Unconscionability’ be the New Orthodoxy?” (2000) 12 SAcLJ 132 at page 187 had this to say about the deleterious consequence of all too frequent interference by the Courts in the performance bonds.

Clearly, not giving effect to the commercial purpose of a performance bond cannot be the function of the courts. If the courts adopt a liberal approach towards the restraint of calls on performance bonds, what residual utility can be left of the performance bond as an immediate form of secured payment usually for contractual damages? More likely than not, such liberalism may well force the construction industry and others who rely on the convenience and benefits of the performance bond to recoil and revert to greater use of security deposits or retention of progress payments in cash – a practice from which the performance bonds evolved in the first place.

49.         The Courts in Singapore also failed to furnish any reason as to why the striking the balance between the interests of the parties is not a valid and necessary tool for decision on the applications for grant of interim injunctions. Furthermore, the judgements do not satisfactorily answer the fundamental question as to why the on-demand bond that is akin to cash in hand or an easily realizable security provided by the applicant to the beneficiary in a free bargain should not be allowed to be availed of. After all it cannot be the purpose of obtaining such an instrument that the beneficiary would wait for final adjudication of the Court for resolution of the dispute that may arise between the parties. More significantly, the Court, as is evident from the passage quoted above from Mount Sophia, in order to arrive at a conclusion regarding the determination of good faith or lack thereof must undertake a thorough inquiry by minutely going through the entire facts of the case and the documents which would amount to holding of a mini-trial, a mischief to which Lord Diplock made a pointed reference to in American Cyanamid. It is also worth noting that the phrases fraud, unconscionability, special equities and irretrievable injustice are consequential expressions and any attempt to explicate them in the context of the dispute inter se the parties would require the courts to enter into the substance of the dispute on which any findings even at the interlocutory stage might potentially prejudice the case of either of the parties before the arbitrator(s). This problem was recognized by the Hon’ble Supreme Court in the case of Standard Construction Company (Pvt.) Limited v. Pakistan through Secretary M/O Communications and others 2010 SCMR 524 in which it was pertinently noted as under. …

The learned Judge of the High Court though referring the matter to the Arbitrator for adjudication of the main controversy which include the fulfilment or non-fulfilment of the conditions precedent even for the encashment of the bank guarantees, has gone deep and discussed minutely the various clauses, terms and conditions of the agreement, and other relevant document and their effect for arriving at his conclusion which, in the circumstances of the case, after referring the dispute to the Arbitrator would not be appropriate and uncalled for as such findings of the High Court would influence the proceedings before the Arbitrator…

50.         It is not easy for the Courts to decide which principle must tip the balance in favour of either of the parties and for this reason the “enhanced evidentiary standard” of fraud has been formulated [see Shapoorji Pallonji & Co Pvt Ltd v Yumn Ltd and Standard Charter Bank [2021] EWHC 862]. Even breach of a pre-condition on which the call is contingent must be clearly established [see Permasteelisa Japan KK v Bouyguesstroi and Bank Intesa SpA [2007] EWHC 3508 (QB)]. A similar approach is followed by Singapore Courts in applying the standard of unconscionability as is apparent from the judgments cited above.

51.         Another relevant consideration to be kept in mind is that the Court at the stage of interim injunction has before it material that has not yet been corroborated in evidence and that the facts in majority of cases are disputed and it is extremely difficult to attribute default on the part of either of the parties of their contractual obligations. The tension between exercising discretionary powers for grant of injunctions and protecting the integrity of the bargain struck by the parties as reflected by the term of the on-demand bond is the central thread running in all the judgments on the subject. How do Courts predict the outcome of the case at the interlocutory stage without striking a balance between the exercise of their discretion and the autonomy principle. What standard should apply to alter the existing contractual relationship between the parties pending the trial. Which principle, save for the exception of fraud, should or ought to defeat the autonomy principle and under what circumstances still elude the Courts. Any determination made at the interlocutory stage on the merits of the case by restraining call on the bond although not conclusive would tip the scales in favour of the party at whose instance such a bond was issued with the clear undertaking that payment thereunder shall not be dependent on any dispute in relation to the underlying contract. The judgments from Singapore that considered the merits of the case in determining unconscionability or unfairness on the part of one of the parties to the contract have never been able to furnish a satisfactory answer to the countervailing demands that the other two tests require.

52.         The guidelines for the grant of interim injunction formulated by the Courts, as outlined in the initial part of this judgment, are flexible, based on rationale criteria and have withstood the test of time. These guidelines enable the Court to adopt the course which would result in the lowest risk of injustice if it were wrong in either granting or refusing the injunction. Be that as it may, in matters where unconditional bonds are in issue, the Courts have repeatedly held that the efficacy of commercial instruments would suffer gravely if restraining orders were issued by the Courts preventing the beneficiary from drawing on bonds on a mere showing by the applicant that there is an arguable case regarding the invalidity of the claim. For this reason and by treating the on-demand bonds as independent contracts, injunctions are rarely granted restraining banks from paying under the on-demand bonds. In order for a claim to succeed against a bank, the facts must satisfy the fraud exception to the autonomy principle.

53.         The following rules may be outlined as mentioned in the judgments discussed above.

(i)    Mere allegations regarding breaches of contractual obligations in the plaint regarding fraud/unfair conduct shall be insufficient for an applicant to succeed in obtaining an interim injunction;

(ii)   In commercial cases where breach of contract is claimed, courts should be robustly sceptical of a claim that damages are not an adequate remedy; the determination that damages are a sufficient remedy means that the balance of convenience favours a refusal to grant an injunction.

(iii) The facts before the court must reflect the conduct of the respondent to be of such magnitude and consequence and the harm to the applicant to be of such irretrievable nature so as to override the twin considerations of the autonomy principle. This rule cannot be accorded an elastic construction such that it would snap the principle of autonomy;

(iv)  It must be demonstrated before the court that the applicant on being successful at the trial shall not be restituted/compensated by the respondent; and

(v)   The applicant must be able to clearly establish fraud and also that the bank has notice of such fraud.

              These are insurmountable barriers for the applicant to cross before a case can be made out before the Court for grant of injunction as is demonstrated by the authorities cited above which clearly establish that mere breaches of contract for which there are counter allegations shall not bring the case in any of the exceptions to the non-interference rule and that in commercial cases the allegation of breach of contract shall not suffice to claim that damages are not an adequate remedy. In addition to that the applicant must also plead that if it succeeds at the conclusion of the trial, it shall not be able to recover the amount from the beneficiary.

54.         The above rules notwithstanding, the judgments do show that Courts have intervened in cases where the applicant was successful in demonstrating incontrovertibly that the demand made on the guarantee was wholly without any valid basis or that the beneficiary is acting fraudulently or that the call on the bond amounts to fraud and that the damages shall not be an adequate remedy.

55.         Due consideration must also be given to the observations made by the Division bench of Dehli High Court in CRSC Research deploring the fact that the litigants were repeatedly seeking injunctions against encashment of bank guarantees notwithstanding the principles that were settled through case law. “…It cannot be lost sight of that by approaching the Court, the plaintiffs/petitioners, though not able to succeed ultimately, often succeed in delaying encashment, thereby gaining vital time, to favorably negotiate with the beneficiary of the guarantee…”. Resultantly, costs were imposed on the appellant @ 11% per annum on the amount of the guarantee for the period the stay order was issued by the Court till realization.

56.         This Court in deference to the observations made in EFU case has explored the law as it has developed in various jurisdiction since Shipyard. It is evident that the ratio laid down in Shipyard’s case still holds good in so far as the on-demand bonds are concerned. The law enunciated by the Courts in Singapore in relation to the ground of unconscionability is unique to that jurisdiction and has largely not been followed by other jurisdictions. It is also apparent that the judgment in Shipyard and the ratio laid down therein has not been overruled by the Supreme Court. In fact, the judgment in Shipyard and EFU were both authored by a three-member Bench of the Supreme Court. And it is not only Shipyard rather there are several cases decided by the Supreme Court in which judgements were rendered holding that the bank guarantee was an independent contract and if it was unconditional the payment thereunder had to be made regardless of dispute between the contracting parties (see Messrs National Construction Limited. v. Aiwan-e-Iqbal Authority PLD 1994 SC 311 & Atif Mehmood Kiyani and another v. Messrs Sukh chain Private Limited, Royal Plaza, Blue Area, Islamabad and another 2021 SCMR 1446). These judgments still hold the field and are binding on the High Courts by virtue of Article 189 of the Constitution of the Islamic Republic of Pakistan, 1973. Again, the direction in EFU to the High Courts to not to feel limited by the ratio of shipyard must surely be meant to have been addressed specifically to the learned Sindh High Court which enjoys original civil jurisdiction. The High Courts of the other provinces are handicapped in this regard as the cases are filed before the civil courts. By virtue of section 39 of the Arbitration Act, the decision to grant or refuse interim injunction is not appealable and accordingly the only course available to an aggrieved party is to avail the remedy of revision which in majority of cases would lie before the District Judge/Additional District Judge. Any party aggrieved by the decision of the District/Additional District Judge is required to approach this Court in the Constitutional jurisdiction. The scope of such jurisdiction just like revision is to correct errors of jurisdiction. A case such as this in which concurrent findings have been rendered by the courts below refusing to grant injunction leaves little jurisdiction with the Court to lay down the law. In the present case, there is a clear dispute between the parties as to the validity of the demand for late payment charges which is required to be adjudged by the arbitrators and the courts below rightly withheld any observations on the merit of the case. The guarantee in the present case is unconditional and thus the demand made by SNGPL was required to be met by the Bank. Both the Courts below rightly exercised the jurisdiction vested in them by following the law laid down in Shipyard.

57.         In light of the above discussion, the petitioner has not made out the case required for the purposes of considering whether interlocutory relief should be granted to restrain payment under the guarantee. In relation to the order refusing to grant injunction by the courts below preventing SNGPL from making a call on the guarantee, no case for fraud has been made out. The case put forward by the petitioner that it was not in breach of its obligations, which assertion SNGPL disputes, requires proof for its validity and adjudication in this regard shall be done before the arbitrator(s). The petitioner furthermore has not made any allegation about its prospective financial bankruptcy in case an injunction is refused. In any event, there does not appear to be any serious doubt about the financial position of SNGPL to pay the amount back to the petitioner together with compensatory costs should it succeed before the arbitrators in demonstrating that SNGPL could not have imposed late payment charges on it. In those circumstances, the petitioner has on facts and material before the Court failed to dislodge the burden of getting around the twin considerations underpinning the non-interference rule. This Court is accordingly not inclined to interfere in the orders of the courts below which do not suffer from any material irregularity. This writ petition being devoid of any merit is hereby dismissed.

Petition dismissed