The Identity of the Beneficiary or Presenter Calling for Payment under Demand Guarantees: A Purposive Approach

Abstract

In practice issues may arise when a party other than the designated beneficiary makes a call for payment, leading to a non-conforming demand. This has threatened the commercial use of demand guarantees due to demands for payment being rejected for non-conformity. Notably, the party calling for payment may or may not be the designated beneficiary stated in the demand guarantee. It could be a third party or an authorised agent acting on behalf of the beneficiary or a party entitled to receive payment under the guarantee. Also, when the demand guarantee is transferred it is the transferee (the new beneficiary) who may sign and issue a demand for payment. This article undertakes a comparative analysis of the approach in South African and Australian case law and international instruments applicable to demand guarantees to address problems associated with the identity of the beneficiary. The approach followed in resolving such issues emphasises a purposive approach to compliance with the demand. A party other than the beneficiary can demand payment on behalf of the beneficiary if it has been authorised to do so. Imposing strict compliance would contradict well-established contract law and sound business practices. For this reason, if the parties do not wish it to be possible for an agent or a party other than the beneficiary to demand payment on behalf of the beneficiary, this should be stated in the guarantee itself. However, if the presenter of a demand is not the beneficiary but demands payment in its own right, it is suggested that a strict approach is entirely proper.