Civil Engineering Reference
In-Depth Information
of the demand, subject to any monetary limit to the bond itself and subject to the
demand complying with the terms of the bond. This means, for example, that the
rules described above applying to conditional guarantees in respect of variations to
the underlying contract do not apply to on demand bonds.
Given the onerous liability on the part of the bondsman in the event of a purported
on demand bond being called, it is not surprising that one of most common challenges
to a demand is that the bond is not an on demand bond at all and so cannot be called
without liability under the underlying contract first being established. In answering
the question as to whether a bond is on demand or conditional, the terms of the rele-
vant document must be construed objectively. A statement within the document that
thebondisondemandisnotbyitselfconclusive.
In
WS Tankship II B.V
.v.
he Kwangju Bank Ltd and another
(2011), it was held
that the advance payment guarantee under consideration was an on demand guar-
antee having regard to a proper construction of its wording. No special words were
necessary for the instrument to constitute an on demand guarantee, and the absence
of wording typically found in an on demand guarantee, such as 'unconditionally' and
'primary obligor' was of marginal relevance.
The issue was also considered in
Wuhan Guoyu Logistics Group Co Ltd and another
v
. Emporiki Bank of Greece SA
(2012). Reversing the decision at first instance, the
Court of Appeal held that where, as in this case, the instrument included wording
which was indicative of it being both an on demand and a conditional guarantee, the
courtwouldnotadoptanapproachbasedonthehighestnumberof'pointers'tooneor
the other. Instead the correct approach was to consider whether the instrument satis-
iedthefourcriteriaspeciiedin
Paget's Law of Banking
(13thedition(2007),para34.4)
and, if it did, there would be a presumption that the instrument was an on demand
bond. These criteria are that the instrument: (1) related to an underlying transaction
between parties in different jurisdictions; (2) was issued by a bank; (3) contained an
undertaking to pay 'on demand'; and (4) did not contain clauses excluding or limiting
the defences available to the guarantor. Even though the relevant instrument did not
meet the fourth criterion, since it met the others, the court held that it was indeed an
on demand bond. his case is helpful insofar as it provides some certainty that, where
theinstrumentmeetsallormostofthefourcriteria,thereisapresumptionthatit
will be construed as an on demand bond. However, that does not mean to say that
where the instrument satisfies only one criterion, namely, an undertaking to pay 'on
demand', that it will necessarily be found to be a conditional guarantee. In these cir-
cumstances, it seems we are thrown back to an objective construction of all the terms
and, at the very least, this highlights the importance of clear and precise wording.
Where the formal requirements of an on demand bond are not complied with in
relation to the making of a demand, for example where the creditor fails to follow a
stipulation in the bond that any demand must be accompanied with copies of notices
to the contractor relating to the breach, then the bondsman may be entitled to refuse
to respond to the demand, see
AES-3C Maritza East 1 EOOD
v
.CreditAgricoleand
Another
(2011).
The creditor may also be bound to comply with any restrictions in the underlying
contract in respect of making demands under the bond. In
Simon Carves Ltd
v
.Ensus
UK Ltd
(2011), the court granted an interim injunction restraining the creditor from
