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ARTICLE · 30 JUNE 2020

Legal Developments In Construction Law - June 2020

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There are guarantees, and there are on demand bonds, but how do you tell the difference?

United KingdomReal Estate and Construction
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1. Guarantee or on demand bond? How can you tell?

There are guarantees, and there are on demand bonds, but how do you tell the difference? A Scottish court faced with this question applied the legal principles set out in English cases, in summary that:

  • unlike a guarantee, a first demand bond is in principle autonomous of the underlying contract - liability may arise simply on a conforming demand within the validity of the instrument;
  • what the instrument is labelled, common terms such as a principal debtor clause, or terms imposing primary liability and the use of words such as "on-demand", may be of limited value in determining its legal nature. The practical question is whether the instrument is effectively payable on demand, with or without supporting documentation: this can only be ascertained by examining its terms;

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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