There is a persistent stream of judgments where guarantees that are plainly on-demand guarantees are declared enforceable as such. In matter after matter, allegations of fraud are not proved by those trying to prevent payment under the guarantees. A common theme is that “unconscionability and the development of the common law” is raised despite this defence having no place in our law, which has been confirmed by the Constitutional Court. Insurers and banks who issue on-demand guarantees have refined their wording and know how to draft guarantees when clients require on-demand guarantees.

Despite fruitless arguments by those seeking to avoid payment on an on-demand guarantee, punitive costs orders against the applicants are uncommon. Unfortunately, the delay caused by failed litigation is often a bigger advantage than the downside of a special costs order.

Insurers and banks involved in these proceedings should reconsider their usual approach to abide by the court’s decision, leaving it to the parties to the underlying contract to fight it out. It is understandable that the guarantor cannot and should not get embroiled in a fight about whether there is underlying contract performance, fraud, or unconscionability. It is important, however, that guarantors assert the on-demand nature of their guarantees and contribute to firm jurisprudence in this regard in the hope of curbing some of the attempts to attack patently compliant on-demand guarantees.