A Notice of Demand is the formal document that a beneficiary sends to a bank or guarantor to call security. It activates payment under a bank guarantee, bond, or similar financial instrument. The notice is a key tool in project finance, trade, and supply contracts where performance and payment risks exist.

Purpose and Role

The main purpose of a Notice of Demand is to trigger payment from the guarantor. In the case of a first demand and unconditional guarantee, the beneficiary does not need to justify the claim. The notice confirms that the beneficiary exercises its right under the guarantee. It assures that the bank or surety pays the demanded sum without delay. In conditional guarantees, the notice also references the specific breach or non-performance.

Key Elements

A well-drafted Notice of Demand contains several essential items. It must identify the guarantee number, issue date, and amount. The beneficiary clearly states the sum demanded in words and figures. The notice should name the applicant, beneficiary, and guarantor. It includes payment instructions, such as bank details for the transfer. Most notices also list the annexes that form the claim package, including the copy of the guarantee, statement of default, contract extracts, and proof of authority.

Practical Considerations

Beneficiaries must ensure that the wording of the notice strictly matches the terms of the guarantee. Banks follow a strict compliance approach and may reject claims that deviate. Notices should be signed by an authorised representative, and authority documents may be attached. Timing is critical, since most guarantees have an expiry date. Delivering the original demand to the guarantor before expiry is essential. Beneficiaries should also keep records of delivery, such as courier receipts or SWIFT messages, to avoid disputes.

Reference:

• International Chamber of Commerce (ICC)