How To Prevent Bank Guarantees Being Called Upon

Bank guarantees are a familiar presence in construction contracts. They are seen to be "as good as cash" and the holders of bank guarantees call on the guarantees when there is a dispute with a contractor or subcontractor providing the bank guarantee.

Bank guarantees are often expressly stated to be paid on demand without any condition precedents. The Court will generally not restrain payment of the bank guarantee, but there are a few circumstances where the Court may grant an injunction against calling of the bank guarantee. They are:

Fraud

A contractor may seek to restrain the calling of a bank guarantee in circumstances where:

1. the beneficiary may be calling on the security fraudulently; and / or