Demand Bonds: In The UK, Less Is More

A recent case has opened a debate as to the drafting required to create a demand bond as opposed to a guarantee. If you are involved with issuing demand bonds or are a beneficiary under a document that purports to constitute a demand bond, you will need to look closely at the language used in such document to ensure a court will interpret it as such.

Summary

It is often a requirement of commercial arrangements that a third party agrees to stand behind a party to the main contract. This support can take many forms—an agreement to ensure that the party to the main contract duly performs or an entirely separate obligation to make good the failure to perform. The former is an example of a guarantee and the latter an example of a demand bond.