This paper focuses on the practical issues which frequently arise in connection with Performance Bonds, illustrated by a number of decisions handed down by the courts in Hong Kong and England.
The paper analyses the different types of Bonds in common use, which principally divide into Demand Bonds and Performance Bonds and looks at the very different consequences which flow from that classification.
The paper also examines the scope and extent of the fraud / bona fides exception, which is often the only hope of defeating a call on a Demand Bond.
Two further points are worth noting in the paper. Firstly, since Bonds rarely contain an arbitration clause, there is a comparative wealth of decided cases in the courts. Secondly, since the important issues are usually brought to court and decided summarily rather than at a full and distant trial. Almost all the decided cases involve either applications for an interim injunction to restrain a call upon / payment under a Bond or involve applications for summary judgment or disposal on a point of law under RHC Order 14 or Order 14A. It is hence important to form a quick and accurate view of the strengths and weaknesses of the case. That this is not necessarily an easy task and is perhaps best illustrated by the fact that in a surprisingly large number of reported cases, the Court of Appeal came to a different conclusion to that of the court below.