On-demand surety bonds: lessons in strict compliance

How much detail is enough when making a claim under an on-demand bond? In The Renaissance Club At Archerfield, LLP v BVB Sureties Limited [2026] CSOH 67, the Scottish courts considered the doctrine of “strict compliance” and whether it is as strict as its name suggests.

Background facts

This Scottish case concerned an on-demand performance bond issued by BVB Sureties Limited, a British Virgin Islands company (the “Surety”).

The Renaissance Club (the “Beneficiary”) engaged Taylor’s Property Developments (the “Contractor”) to design and construct a residential development in East Lothian.

To secure the Contractor’s obligations, the Surety issued an on-demand bond for £1,251,638.80 in favour of the Beneficiary.

The issues

The Beneficiary made written demand for payment which was delivered on 29 September 2025. The demand asserted that the Contractor had failed to perform the contract and listed several respects where the Contractor had failed, including defective works, failing to carry out and complete the works in a proper and workmanlike manner and failure to supervise. The demand included an 18-bullet-point list of instances of defective works.

The Surety defended the claim stating that the demand did not comply with the requirements of the bond, which were as follows:

4. Your demand under this Performance Bond must be received at the office of issuance of this Performance Bond provided below before Expiry and must be in the form set out in Appendix 1 attached to this Performance Bond stating:

• 4.1 That the Contractor has failed to perform the Contract in accordance with its terms and conditions;
• 4.2 in what respects the Contractor has so failed;
• 4.3 that as a result of such failure, the amount claimed is due to you; and
• 4.4 the amount claimed.

The Surety’s position was that the demand letter failed to specify each factual matter said to give rise to a breach of the contract and failed to specify which clause of the contract was said to have been breached. The demand letter also contained irrelevant information. Further, the letter was signed by a “General Partner”, a capacity not recognised in law, which did not comply with appendix 1 to the bond which stipulated “Director or Company Secretary”.

The decision

After reviewing the relevant authorities in relation to the general approach to the construction of documents, the Judge turned to the law relating to on-demand bonds and said that a demand had to be precisely that which the bond called for as explained in South Lanarkshire Council v Coface [2016] 3 WLUK 183:

“… implementation of the contract is normally conditional on the presentation of documents and nothing more; there is no means of checking whether performance is due by reference to underlying facts, and thus the documents must be exactly what is required by the contract. Moreover, a performance bond can be enforced by the beneficiary very easily, by the mere sending of documents, and there is therefore a danger that the right to call up the bond can be abused. Accordingly some degree of strictness is required… ”

The Judge considered the level of strictness against the background of the Surety’s objections that the demand letter did not specify each and every factual matter said to have given rise to a breach and each contractual clause said to have been breached. The Judge rejected the Surety’s submissions and decided that whilst some degree of strictness was required, the bond contemplated and allowed some degree of latitude in the form and content of the demand letter.

The Judge also rejected the Surety’s submissions that the demand letter contained superfluous information which meant that the Surety was misled as to the significant meaning of the demand letter. A reasonable commercial person reading the demand letter would have concluded that the Beneficiary was saying that specified contractual breaches had resulted in it suffering loss in the amount of c. £1.8m.

Turning to the capacity of the person signing the demand letter, the Judge considered that the only reasonable function of the signature to a demand letter was to indicate that it was issued by or on behalf of the beneficiary:

“Consistent with the long-standing general law on letters of credit and performance bonds, if a demand letter bears on its face to have been issued by or on behalf of the relevant beneficiary, then the bond issuer may refuse to pay on the ground that it was not so issued only if it knows (and not merely suspects) that as a matter of fact the signature is forged or the letter is otherwise attended by some fraud as to its issue (see e.g. Edward Owen).”

That was the test to be applied and in this case the demand letter was clearly sent by the Beneficiary. “The nature of the signature block provides no reason to resist the demand for payment apparently made on its behalf”.

Implications

It is interesting to see a case where a court has had to analyse the parties’ competing contentions as to what level of detail should – and should not – be included in a demand letter. The decision provides useful guidance on this issue, as well as on the formal requirements for signing a demand.

A common requirement in a bond is that the demand letter must be signed by a person of a specified seniority. It is also established law that a demand under an on-demand bond must comply strictly with the requirements of the bond. However, in this case, the Court may be regarded as having taken a rather liberal approach to the requirement for the demand to be signed by a director or company secretary.