Reneging on a promise? Rejecting demands under advance payment bonds under English law

10/06/2020

It is commonplace in construction projects, either off- or on-shore, for an employer to seek protection for any advance payments made to a contractor or for a failure to perform. These will often be in the form of “on demand” or “unconditional” payment guarantees or bonds from a bank or other financial institution. Under English law, these differ from traditional or "true" guarantees in that they impose an obligation on the bank to pay upon receipt of a written demand. Unlike a true guarantee, the beneficiary does not have to demonstrate a breach or other default in respect of the underlying contract. As such, they provide much greater security to an employer.

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