The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:
This Practice Note deals with on demand guarantees and bonds. (It does not deal with conditional guarantees and bonds which are usually provided by insurance companies and are outside of the scope of this Practice Note.)
On demand guarantees and bonds are typically provided by banks at the request of their customers as a form of quasi-security for contractual obligations which the bank's customer has entered into with a third party.
This Practice Note summarises:
the purpose and common uses of on demand guarantees and bonds
the distinction between:
on demand guarantees and bonds, and
guarantees in the traditional sense of the word
the structure and parties in on demand guarantee and bond transactions
the key characteristics of on demand guarantees and bonds, and
the standard rules and practices that are commonly incorporated into on demand guarantees and bonds
The terminology surrounding on demand guarantees and bonds can be confusing. On demand guarantees and on demand bonds typically perform the same function and share the same characteristics. On demand guarantees and on demand bonds are also referred to as 'first demand guarantees' or 'first demand bonds'. For ease of reference, they are referred to as 'on demand guarantees/bonds' in this Practice Note.
On demand guarantees/bonds are a means of securing payment or other obligations.
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