The Outer House of the Court of Session has delivered an important ruling on the requirements for calling on a performance bond, rejecting arguments that a demand must achieve absolute precision in its wording and signatory details. The decision provides welcome clarity for beneficiaries of performance bonds in construction contracts and reinforces a commercially pragmatic approach to the interpretation of bond demand formalities.
Background
The pursuer, The Renaissance Club At Archerfield, LLP, entered into a contract with Taylor's Property Developments (Yorkshire) Limited for the design and build of a residential development in East Lothian. BVB Sureties Limited (“BVB”), a company incorporated in the British Virgin Islands, provided an on-demand performance bond in May 2024 guaranteeing the contractor's obligations up to a maximum of £1,251,638.80 to be paid on first written demand provided that the demand complied with the provisions of the performance bond.
When the contractor's performance fell short, the pursuer issued a written demand for the full bond amount in September 2025. BVB refused to pay, arguing that the demand letter failed to comply with the bond's requirements in two key respects: the detail provided about the alleged breaches, and the capacity in which the demand was signed.
How strictly must a bond demand comply with the prescribed form?
This was the central battleground. The bond required any demand to be "in the form set out in Appendix 1" and to state: that the contractor had failed to perform; in what respects it had failed; that the claimed amount was due as a result; and the amount claimed. The Appendix required insertion of "brief details of the breach".
The defender's arguments
BVB contended that the demand was fatally defective because it did not individually specify each factual matter giving rise to a breach and link each to a specific contractual clause. The demand listed breaches of three categories of contractual obligation and 18 instances of defective work, but used phrases such as "include, but are not limited to," suggesting further unspecified failures existed. BVB argued this left it unable to determine precisely what was being claimed and exposed it to the risk of arbitrary demands, undermining its ability to recover from the contractor.
In support, BVB relied heavily on the dictum from Equitable Trust Co of New York v Dawson Partners Ltd — that in the context of documentary credits, "there is no room for documents which are almost the same, or which will do just as well".
Why the court rejected those arguments
Lord Sandison took a notably pragmatic view. He acknowledged that "some degree of strictness" was required in assessing compliance with bond demand formalities, as established in South Lanarkshire Council v Coface SA. However, he firmly rejected the notion that this mandated forensic precision.
The court held that the bond required only "brief details" of the breach — not an exhaustive, clause-by-clause breakdown. The demand letter had done more than enough: it described the nature of the failures, identified specific contractual provisions said to have been breached, and provided 18 instances of defective work by way of supplementary detail.
Crucially, Lord Sandison drew on the decision in Ex parte Stanford, In re Barber and the maxim superflua non nocent — surplus material does no harm. He held that additional material in a demand letter only becomes problematic if it would produce a different legal effect from that which would follow if it were absent, or if it would mislead the recipient about some matter of significance. The non-exhaustive language ("not limited to") was simply an acknowledgment that other breaches existed but were not being relied upon for the demand — a reasonable commercial person would not have been misled by this.
Lord Sandison also pointedly observed that an on-demand bond does not anticipate the issuer investigating whether defects actually exist before paying. The defender was expected to pay on receipt of a compliant demand. A level of detail suitable for that investigative purpose was therefore not required.
Execution formalities: who can sign a demand?
The second line of defence concerned the signature. The bond's Appendix contemplated signature by a "Director OR Company secretary" of the beneficiary. Mr Gerald Sarvadi, a designated member of the pursuer LLP, signed the demand as "General Partner" — a term with no recognised meaning under the law of limited liability partnerships.
The defender's arguments
BVB argued that the signatory had to sign in a capacity demonstrating authority to bind the beneficiary, and that "General Partner" was not such a capacity. Further, the pursuer's attempt to supplement the demand with extraneous evidence about Mr Sarvadi's actual status was exactly the kind of "almost the same" argument deprecated in the case law.
The court's response
Lord Sandison went further than either party had invited him to. He declined to accept the shared assumption that any description of the signatory's capacity was strictly necessary at all. The only reasonable function of a signature on a demand letter, he held, was to indicate that it was issued by or on behalf of the beneficiary — and nothing more.
On the facts, the demand was issued on the pursuer's headed notepaper, stated its name, registration number and VAT number, was couched in the first-person plural, requested payment to the pursuer's bank account, and was signed by Mr Sarvadi as "General Partner". Lord Sandison remarked that a reasonable person shown the letter "would not only unhesitatingly answer that it appeared to have been sent by Mr Sarvadi on behalf of the pursuer, but would be left wondering why the question had even been asked". The word "Partner" was sufficient to indicate authority; the qualifying adjective "General" did not detract from it.
The court also emphasised the documentary nature of performance bonds and stated that what is required is “simply an appearance on the face of the demand letter as a whole that it has been issued by or on behalf of the beneficiary”. In this respect BVB could only refuse to pay if it knew (and not merely suspected) that as a matter of fact the signature was forged or the letter was otherwise attended by some fraud as to its issue. BVB had no positive reason to suspect or believe that the demand had not been properly issued on behalf of the pursuer and in such circumstances were obliged to take the letter at face value as having been sent on behalf of the pursuer.
Conclusions and implications
Demand formalities are not a paper fortress. The court has confirmed that the "strict compliance" doctrine does not require absolute precision. Where a bond calls for "brief details," that is what it means — not a comprehensive forensic inventory of every alleged breach. Solicitors advising bond issuers should not over-promise the protection that demand formalities will provide.
Surplus detail will not invalidate a demand. The superflua non nocent principle means that additional information, even if imprecise or non-exhaustive, will not render a demand non-compliant unless it changes its legal effect or misleads the recipient.
Execution clauses need careful drafting. The Appendix in this case was drafted with a limited company in mind and did not cater for an LLP beneficiary. Drafters should ensure that signature blocks and execution formalities are appropriate for the actual legal form of the beneficiary. Template forms should be adapted, not simply adopted.
Capacity descriptions are less important than appearance of authority. The court's analysis suggests that what matters is whether the demand, taken as a whole, appears on its face to have been issued by or on behalf of the beneficiary — not whether the signatory's title is technically correct.
Beneficiaries of bonds are provided some comfort. A commercially reasonable demand, which substantially follows the prescribed form and provides genuine brief details of breach (if required by the performance bond), will be upheld — even if it is not perfectly drafted.
Bond issuers should be cautious. Refusing demands on narrow technical grounds should be reviewed extensively. This decision suggests the courts will take a dim view of arguments that amount to searching for "specious reasons to deny the liability which [the issuer] had undertaken".
This decision is a reminder that whilst practitioners should still be seeking to achieve ‘strict compliance’ with the requirements of performance bonds the courts will not allow technical quibbles to defeat a demand that, on any reasonable reading, satisfies the requirements as set out in the performance bond.
The case also raises an interesting point on execution of documents, in absence of confusing presentation and evidence giving rise to actual suspicion of fraud or forgery the court may ask whether the document appears on the face to have been issued by or on behalf of the beneficiary, rather than whether the document demonstrates a strict and technically perfect description of that beneficiary.
It must be stressed however that this analysis is in respect of a demand letter only and only in the context of what the specific performance bond required. Care should be taken in applying the principles of the decision and application further than demand letters under performance bonds. A court will almost certainly look to take a stricter approach to signing formalities in contracts governed by legislation, such as the Requirements of Writing (Scotland) Act 1995. For more information on signing formalities of contracts get in touch with one of your CMS contacts
References
The Renaissance Club At Archerfield, LLP v BVB Sureties Ltd [2026] CSOH 67
Ex Parte Stanford. In Re Barber. (1885) 17 Q.B.D 259
South Lanarkshire Council v Coface SA [2016] CSIH 15
Equitable Trust Co of New York v Dawson Partners Ltd [1927] UKHL J0120-1
