Theoretical justifications for restraining “unconscionable” demands under on-demand guarantees

Abstract

Whilst English courts have adopted “fraud” on the part of the beneficiary calling under the guarantee as the sole ground upon which the enforcement of on-demand guarantees can be restrained, the Australian courts have adopted “unconscionability” as a separate ground from that of “fraud” for restraining the enforcement of such guarantees. Drawing upon the doctrine of “freedom of contract” and principles of “cost-benefit” in economics this article provides theoretical justifications for the Australian court’s divergence from the English law principles in matters restraining demands under on-demand guarantees.