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The Queensland Court of Appeal last week upheld a decision that a demand for payment under an unconditional bank guarantee was invalid because it failed to state expressly that it had been signed by an “authorised signatory” of the beneficiary. The case is yet another timely reminder of taking care to avoid the complications that can arise in demanding payment under security instruments.
This is the second decision in recent years reminding practitioners of the care that must be taken in matters concerning security instruments, such as bank guarantees. Many will recall the case in 2015 involving the issues with dates on letters of credit issued by ICICI Bank in favour of Griffin Energy Group.
The respondent, BNP Paribas, issued an unconditional bank guarantee in favour of Santos to secure performance by a contractor of its obligations under an engineering and construction contract. The terms of the guarantee required BNP to make payment to Santos if it received “a notice in writing in the form of the letter attached … purporting to be signed by an authorised representative” of Santos. The form of notice included the phrase “Authorised signatory of Santos Limited” under the space for the signature.
Santos delivered a letter of demand to BNP. The letter was signed, “Santos Limited – GLNG Upstream, [signature], Rob Simpson, General Manager Development”. No statement was included regarding the authority of Mr Simpson to sign for or on behalf of Santos. BNP refused to make payment.
Santos commenced proceedings to enforce the demand. Interestingly, both parties sought summary judgment. At first instance, Jackson J ruled in BNP’s favour and summarily dismissed the proceedings.
Last week, the Court of Appeal firmly upheld Jackson J’s decision. The Court followed the “strict compliance” principle enunciated by the High Court in Simic v NSW Land v NSW Housing Corporation (2016) 260 CLR 85, the purpose of which is to “relieve the issuer of the necessity to look beyond whether the party making the demand has met the stipulations of the performance security”.
The Court was careful to point out, though, that the “strict compliance” principle only applies to the “essential features” of the demand. The statement of authority to sign was clearly an essential feature in this case (it was one of only three matters that the instrument expressly specified as necessary). By contrast, the sign-off “Yours faithfully”, which was replaced with “Yours sincerely”, was inessential.
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