The banks appealed findings as to their liability to pay out under on-demand guarantees they had given in respect of stage payments for the construction of a ship. It was claimed that the delivery times had not been met, and the builder was in default. The demand was certified by the buyer’s bankers who had funded the purchase. The banks said that payment was only demandable after the result of an arbitration was received.
Held: ‘On demand’ guarantees, where the demand was supported by a bona fide certificate, should be given effect on their terms. There was nothing in the agreement to support any requirement to delay satisfaction of the guarantee pending the result of the arbitration, and: ‘where in international transactions a bond or guarantee is expressed to be payable upon demand, in the absence of clear words indicating that liability under it is conditional upon the existence of liability or the part of the account party in connection with the underlying transaction, the guarantee is intended and should be construed as an independent guarantee entitling the beneficiary to payment simply against an appropriately worded demand accompanied by such other documents (if any) as the guarantee may require.’
Lord Justice Simon Brown Lord Justice Tuckey And Lady Justice Hale
 EWCA Civ 1806,  1 All ER (Comm) 142,  1 Lloyd’s Rep 617,  1 LLR 617,  CLC 397
England and Wales
Cited – Trafalgar House Construction (Regions) Ltd v General Surety and Guarantee Co Ltd HL 4-Jul-1995
The main contractors for the construction of a new leisure complex for a borough council entered into a subcontract for the groundworks. The subcontractor and the appellants provided a Bond for 10 percent of the value of the subcontract on condition . .
Appeal from – Gold Coast Ltd v Caja De Ahorros Del Mediterraneo and others ComC 2-May-2001
Cited – Esal Commodities v Oriental Credit Ltd CA 1985
The parties disputed whether a letter was a performance bond or a guarantee. The words of the instrument were: ‘We undertake to pay the said amount on your written demand in the event that the supplier fails to execute the contract in perfect . .
Approved – IE Contractors v Lloyd’s Bank CA 1990
Documents were issued by a bank and described as ‘performance bonds’ for damages up to specified amounts. The difficulty arose from the unusual form and language of the documents. The wording of the operative clause: ‘We undertake to pay you, . .
Cited – Marubeni Hong Kong and South China Ltd v Ministry of Finance of Mongolia CA 13-Apr-2005
A letter was written by the Mongolian Ministry of Finance guaranteeing payment for textile plant and machinery to be supplied to a Mongolian company. A letter from the justice minister confirmed the authority of the finance minister to sign the . .
Cited – Van Der Merwe and Another v IIG Capital Llc ChD 13-Nov-2007
The parties had entered into a debt factoring agreement, under which repayment was sought of some $30m, and the claimants were said to have guaranteed the loan by the factor to their company. The court was asked whether the guarantors had the same . .
Cited – Rainy Sky SA and Others v Kookmin Bank ComC 29-Oct-2009
The claimants sought summary judgment under an advance payment bond issued by the defendants in connection with certain shipbuilding contracts. . .
Lists of cited by and citing cases may be incomplete.
Updated: 05 June 2022; Ref: scu.167839