On-demand bond – appropriate language and rebuttal of presumption

In a recent case [1] before the English High Court, a claimant’s application for summary judgment under a Deed of Guarantee and Indemnity was dismissed on the basis that (a) the instrument did not contain language appropriate to a demand bond; (b) as it was a transaction outside the banking context, the presumption, against the interpretation of the instrument as a demand bond had not been rebutted; (c) the respondent has a real prospect of successfully defending the claim.  In the process, Mr. Justice Blair considered and reiterated the following principles when construing whether a particular instrument was an on-demand bond.
  • That the difference between secondary liability and primary liability is not in itself decisive 
  • That the mere incorporation of a principal debtor clause will not usually suffice in itself to determine the nature of the contract  
  • There is no standard nomenclature by which such an instrument can automatically be classified however, and the authorities make it clear that the nature of the instrument in question is a matter of construction of the instrument as a whole without any preconceptions as to what it is. [2] & [3] 
  • That the absence of language appropriate to a demand bond in a transaction outside the banking context creates a strong presumption against the interpretation of the instrument as a demand bond [4] & [5] 
  • That the avowed purpose of the instrument and the overall context of the contractual arrangements may be relevant in determining whether on-demand type liability has been created [6] 
  • Conclusive evidence clauses will be interpreted strictly and any ambiguity resolved in favour of the guarantor
Reference:

[1] 2010 EWHC 1905 (Comm)
[2] Gold Coast Limited v Caja de Ahorros del Mediterraneo [2003] 1 AER (Comm) 142] at [15]
[3] IIG Capital Llc v Van Der Merwe & Anr [2008] EWCA Civ 542 at [7])
[4] Marubeni Hong Kong and South Chinas Limited v Mongolian Government [2005] at [30]
[5] IIG Capital Llc v Van Der Merwe & Anr at [8] to [9]). 
[6] (Hyundai Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2 Lloyd’s Rep 502 at 508)

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