Foreign injunctions and on-demand bonds: no Ralli Brothers escape route

Commercial Litigation | 28/10/2026

In Central Térmica de Temane SA v Banco Santander SA [2026] EWHC 2587 (Comm), the Commercial Court ordered Santander to pay approximately $90.8 million under two English law on-demand bonds, despite a Spanish interim injunction restraining payment. Mr Justice Calver held that Santander could not rely on the rule in Ralli Brothers, because the place of performance was Mozambique, where the beneficiary had specified its account for payment, not Spain.

Key Takeaways

Place of payment can be fixed by the demand. Where the bond requires payment "to the account specified in the relevant demand", the beneficiary's choice of account fixes the place of performance.
The bank's handling of the demand is only preparation. Receiving and processing the demand, and procuring the funds, merely prepare the bank to pay. They are not part of contractual performance.
Foreign court orders can in principle engage Ralli Brothers. There is no principled distinction between foreign court orders and foreign legislative or executive acts, as each is an exercise of sovereign authority.

Background

Central Térmica de Temane S.A. ("CTT") was the employer on a gas-fired power project in Mozambique. At the request of the contractor, the Spanish TSK Group ("TSK"), Banco Santander S.A. ("Santander") issued an advance payment bond and a performance bond (the "Bonds") in favour of CTT. It was common ground that the Bonds were autonomous demand instruments.

The Bonds were governed by English law and subject to the exclusive jurisdiction of the English courts. Demands had to be delivered to Santander's Madrid office. Payment, however, had to be made "to the account specified in the relevant demand".

On 3 April 2025, TSK purported to terminate the EPC contract for force majeure. The next day, CTT sent demands under the Bonds to Santander’s Madrid office for payment to its bank account in Mozambique (the “Demands”). Payment was due by 11 April 2025, but on 10 April 2025 a Spanish court granted TSK an ex parte interim injunction restraining Santander from making payment under the Bonds (the “Spanish Injunction”). Santander therefore suspended payment. The parties' Spanish law experts agreed that paying in breach of the Spanish Injunction would have exposed Santander to a high risk of civil and criminal liability in Spain. CTT's application in Spain to discharge the Spanish Injunction was dismissed, and its appeal against that decision is pending.

On 15 May 2025, TSK commenced a London-seated arbitration against CTT, as required by the Spanish Injunction.

CTT brought Part 8 proceedings against Santander seeking payment of $90,796,078.66 plus interest under the Bonds.¹

Santander accepted that the Demands were valid, but argued that:

the relevant place of contractual performance was Spain, where the Demands were delivered by CTT;
the rule in Ralli Brothers v Compania Naviera Sota Y Aznar² (“Ralli Brothers”) applied, so that it was prohibited from making payment under the Bonds; and
alternatively, enforcement of any order for payment should be stayed pending the discharge of the Spanish Injunction.

Decision

Mr Justice Calver found in favour of CTT and ordered Santander to make payment under the Bonds, notwithstanding the Spanish Injunction.

The rule in Ralli Brothers

In Ralli Brothers, freight for the carriage of a cargo of jute to Barcelona was to be paid in Spanish currency to a Spanish company. After the contract was made, the Spanish government set a maximum rate for freight which was much lower than the contracted amount. The receivers of the cargo refused to pay any amount in excess of the legal maximum, and the Spanish shipowners sued in London for the balance. The Court of Appeal held that they could not recover it, because payment above the maximum would have been illegal in Spain, the place of performance.

Mr Justice Calver’s review of the relevant authorities summarised the rule as follows:

While illegality under foreign law does not ordinarily relieve a party from performance of an English law contract, the rule operates as a narrow exception to this;
The illegality or unlawfulness must relate to the performance itself;
The performance of the contract had to require the performance of an illegal act in the place of performance – the rule would not apply if there was another, legal, way in which to perform the contract;
The rule only applied to situations where performance was illegal in the jurisdiction where performance must take place, not where the illegality related to a preparatory or equipping step for the performance (a distinction drawn in Celestial Aviation Services Ltd v UniCredit Bank GmbH, London Branch³);
Reasonable steps must have been taken to avoid the illegality/unlawfulness; and
The party seeking to rely on the illegality/unlawfulness must not have been at fault in the sense that it could have done something to bring about valid performance and failed to do so.

Mozambique, not Spain, was the place of performance

In determining the place of performance, Mr Justice Calver found that the starting point was Santander’s obligation under the terms of the Bonds, which was to make payment within 5 business days to the account specified by CTT in the Demands. Payment into the account in Mozambique by the contractual deadline therefore constituted performance of Santander’s obligation.

In adopting this approach, the Judge expressly distinguished the approach in LLC EuroChem North-West-2 v Société Générale S.A (“EuroChem”),⁴ in which the court started from the presumption that ‘the debtor must follow the creditor’ unless there was an express contractual term to the contrary – here, the Bonds did include such a term and so the place of payments (and therefore performance) was Mozambique.

The Judge also departed from the obiter analysis in EuroChem that the making of, and response to, demands were crucial elements of the issuer’s performance. He found that that analysis conflated the obligations of the issuer and the beneficiary: the beneficiary’s obligation was to make the demand, while the issuer’s only obligation was to make payment to the account specified. The fact that the Demands were received and processed in Spain did not matter, as those steps were merely preparatory to Santander’s contractual performance, i.e. payment.

As the place of performance of Santander’s payment obligations was Mozambique, where performance was not illegal, Santander could not rely on the rule in Ralli Brothers and was liable to make payment under the Demands.

The application of the rule in Ralli Brothers to the Spanish Injunction

The Judge made further, obiter, findings on the scope and application of the rule in Ralli Brothers to the present case.

First, the rule in Ralli Brothers was derived from international comity (i.e. respect for and deference to the laws of other sovereign states), and so should apply to performance that would be unlawful because it breached a foreign court order, such as the Spanish Injunction, and not just to performance in breach of foreign legislation. In reaching this conclusion, the Judge disagreed with the decisions in Litasco SA v Banque El Amana SA [2025] EWHC 312 (Comm) and Beneathco DMCC v RJ O’Brien Ltd [2025] EWHC 3079 (Comm).

Secondly, the burden was on Santander to prove that it had taken reasonable steps to have the Spanish Injunction discharged or that, had it done so, it would have made no difference to the outcome. Santander had made no effort to discharge the Spanish Injunction, and it had not proved that intervening in CTT’s discharge application would have made no difference. The Judge noted that the Spanish Injunction prevented Santander from honouring $90 million of on-demand bonds, which could have seriously damaged its international reputation, yet Santander’s apparent indifference may have made it more likely that the Spanish Injunction would be upheld.

However, the Judge rejected CTT’s further argument that Santander should have paid before the Spanish Injunction was granted. Santander was not in default before the payment deadline of 11April 2025 and could not be criticised for failing to pay before the debt fell due.

Only in special circumstances would an order to pay an on-demand bond be stayed

The Judge also refused Santander’s request to stay the order for payment under the Demands or for a deferred payment order, to allow it to seek the discharge of the Spanish Injunction. There had already been substantial delay in payment under the Demands, and it was not clear if or when the Spanish court would discharge the Spanish Injunction. Given the commercial function of on-demand bonds as the ‘lifeblood’ of commerce, the English court would not facilitate any further delay or uncertainty.

Commentary

This decision is a further reminder of the English courts’ commitment to the autonomy of on-demand bonds and of the narrowness of the Ralli Brothers exception. It also offers practical lessons for issuing banks.

First, issuers must beware of the governing law of the bond instrument. The Judge noted that Santander could have insisted on Spanish governing law, or a clause fixing Spain as the place of payment, but did neither. Issuers should also consider a force majeure clause suspending performance where it becomes illegal in their home jurisdiction, to avoid exposure to liability there, although beneficiaries are likely to resist this.

Secondly, issuers cannot remain passive. A bank relying on a foreign injunction must show, by evidence, that it took reasonable steps to have it discharged, and cannot rely on the beneficiary’s own challenge. Banks should consider promptly supporting any discharge application; otherwise they risk losing the Ralli Brothers defence and are unlikely to obtain a stay later.

¹ Citibank, N.A., London Branch was the second claimant. It was the security trustee for the project but had been mistakenly named as the beneficiary of the Bonds, and so participated in the claim and served its own demands as a precaution. Its claim fell away once Santander admitted that CTT was the beneficiary and had made valid demands.
² 1920] 2 KB 287
³ [2025] 1 WLR 196 at [105]
⁴ [2025] EWHC 1938 (Comm)