Mitigating the Risk of Unfair Calling on Demand Guarantees in the Sri Lankan Market

Abstract

This paper argues that the inherent characteristic of demand guarantees coupled with the issuer's obligation to honour the beneficiary when demanded, creates the potential for unfair calls under demand guarantees which is a rather important risk for the applicant. An examination of the Sri Lankan common law position reveals the limited scope for judicial intervention in restraining unfair calls under demand guarantees. The objective of this paper is to present two strategies for mitigating the risk of unfair calling whilst retaining the on-demand character of the guarantee: (I) The issue of the guarantee subject to the latest Revision of the International Chamber of Commerce's Uniform Rules for Demand Guarantees (commonly referred to as URDG, Revision 758) which requires the beneficiary to submit a statement of breach along with the demand for payment. (II) The incorporation of a fast-track 'Adjudication' clause within the guarantee itself, which requires the beneficiary to submit his claim to an adjudicator prior to making the demand for payment.