Hutchison 3G UK recently had a brush in the British courts with Israeli software house Team Telecom International (TTI). The dispute centred on a performance bond. TTI had a contract with the British telecoms arm of Hong Kong's Hutchison Whampoa Group to provide software to manage Hutchison's new 3G network in Britain. Performance bonds put up by suppliers' banks have been a way of life in the Hong Kong construction industry for many years, but they are increasingly found in high-value information technology projects. In large commercial projects, a customer dealing with a new supplier for the first time will often require some form of performance guarantee or 'bond' from a trusted third party such as a bank. Bonds enable customers to make upfront project-stage payments to suppliers safe in the knowledge that they will be repaid if a supplier fails to perform. Bonds also help the suppliers' cash flow. The customer presents documents and certificates to the bank, which must make a fixed payment to the customer based on the supplier's failure to meet the terms of the project. The bond assures that the customer gets some or all of the payments back on demand, without having to wait for lengthy disputes with the supplier to be resolved. The supplier is not a party to the bond itself, which is between the bank and the customer directly, but the supplier will be vitally concerned if the customer makes a call on the bond. If the supplier's bank meets the call then the supplier's account will be immediately debited the paid-out amount of the bond. What if the parties dispute whether the supplier has breached its project obligations and the customer calls on the bond before the dispute is resolved? Can the supplier stop the call from being made? In the Hutchison-TTI case, the agreement required Hutchison to make payments to TTI at specified project 'milestones', starting with an advance payment of more than ?1 million (HK$12.9 million). Under this structure, Hutchison would always have paid for more than it had received from TTI until the project's completion. So Hutchison required TTI to arrange a performance bond in case TTI failed to perform, subsequently leaving Hutchison out of pocket. When work by TTI was delayed for reasons which were in dispute, Hutchison terminated the agreement and told TTI that it was going to call the bond. TTI regarded this as a breach of the project agreement by Hutchison. Knowing the implications of a payout on its cash flow, TTI prepared to file a writ against Hutchison and rushed to court for an interim injunction to restrain Hutchison from making the call while the case went to trial. English and Hong Kong courts normally grant interim injunctions to preserve the status quo in the run up to trial on well-established tests. The applicant must usually show that it will suffer irreparable harm if the injunction is not granted prior to trial. If the restrained party later wins the case, so that the applicant was never entitled to an injunction, that party can be compensated in money terms. If either party is bound to suffer some irreparable harm, whichever way the court rules pending trial, the court considers the overall 'balance of convenience' in deciding what to do. However, the courts recognise that reliance upon financial arrangements like bonds, letters of credit and standby payments is vital for much of the economy to function. The court in the Hutchison case applied a series of English, Australian and Singapore rulings on bonds from construction and international trade cases. The court confirmed that TTI must show 'clear evidence' that the call amounted to 'fraud or bad faith' on the Hutchison's part. While TTI might have been able to show that it would suffer harm if the call proceeded, it could not show fraud or bad faith on Hutchison's part and the court rejected TTI's application. The Hutchison case is a strong indicator that the courts rarely interfere with performance bonds and other standby payments. Suppliers need to proceed carefully when negotiating performance bonds. Once a bond is in place it will be very difficult to restrain a call, whatever the nature of the dispute. Edward Alder is joint head of the CMT Group at Bird & Bird in Hong Kong. E-mail: Edward.email@example.com .