Article

Note: To secure its performance under an engineering contract, Fluor Australia Pty Ltd. (Contractor/Applicant) obtained a AUD 55,000,000 performance security entitled “Bank Guarantee” issued by BNP Paribas (Issuer) in favour of Santos Limited (Beneficiary). Paragraph (a) of the Bank Guarantee provided that Issuer “unconditionally and irrevocably undertakes to pay on demand and without deduction or set off any sum or sums which may from time to time be demanded by the Beneficiary up to a maximum aggregate sum of ... (Security Amount).” The Opinion is silent as to whether the Bank Guarantee was subject to practice rules. Paragraph (c) of the Bank Guarantee provided:

Should [Issuer] receive a notice in writing in the form of the letter attached to this Bank Guarantee (amended as applicable), purporting to be signed by an authorised representative of the Beneficiary, that the Beneficiary desires payment to be made of any part of or the whole of the Security Amount, [Issuer] must make that payment to the Beneficiary immediately without reference to the Contractor and notwithstanding any notice given by the Contractor not to pay same. [Emphasis added]

Beneficiary made a demand for payment which both referenced and included an attached copy of the Bank Guarantee. It provided account details of Beneficiary and was signed:

Santos Limited – GLNG Upstream Project
[signature]
Rob Simpson
General Manager Development

Issuer dishonoured the demand and Beneficiary sued Issuer for wrongful dishonour. Both parties moved for summary judgment. The trial court granted summary judgment in favour of Issuer. Beneficiary appealed. The Supreme Court of Queensland, Court of Appeal, Holmes, Fraser and Morrison, JJ., affirmed.

The trial court granted summary judgment in favour of Issuer concluding that the demand for AUD 55,000,000 failed because it “did not amount to a representation that Rob Simpson [Beneficiary Signatory] was an authorised representative…of [Beneficiary]”; in other words, “the demand did not constitute a notice in writing purporting to be signed by an authorized representative of [Beneficiary] in compliance with paragraph (c) and Annex A.”

On appeal, Beneficiary argued that the trial judge erred on the basis that “[a]ll that [Issuer] had to be concerned with was the appearance of what purported to be a signature by an authorised representative; whether or not the signer was in fact authorised was immaterial.” Beneficiary contended that by construing the demand for payment as literally and restrictively as Issuer insisted would be contrary to the commercial realities underlying the instrument which was to “provide an instrument which was ‘as good as cash’”. In opposition, Issuer argued that Beneficiary “was required to give notice in the precise form of the draft letter which was annexed to the guarantee.” At trial, the parties had agreed that, as a matter of law, no particular form of the demand was required. Issuer also argued that, “even if literal adherence to the form were not necessary, the requirement of purported authority combined with the form of the draft demand led to a construction of the requirement as entailing an express statement of authority.”

The appellate court noted that the drawing conditions found in paragraph (c) of the guarantee required that the demand: (1) be a notice in writing by Beneficiary that it sought payment; (2) in the form of the draft letter (Annex A); and (3) purport to be signed by an authorized representative of Beneficiary. Thus, the appellate court reasoned that paragraph (c) “must be read with the draft letter, which sets out the content of the required notice.” Moreover, the appellate court stated that “an intelligent application of the strict compliance principle did require [Issuer] to look for a statement of the signatory’s authority.” The appellate court concluded that the representation of “General Manager Development” only suggested that Beneficiary Signatory “held a particular position in the company and said nothing as to his authority in that role. The letter of demand contained no statement of his authority to sign on [Beneficiary]’s behalf. For [Issuer] in the absence of such a statement to resort to inference would have been to disregard the requirement for strict compliance.”

Comment: The outcome of this decision reflects standard practice as document examiners favour demands expressly stating that the signatory is “authorized”. See IIBLP’s Model ISP98 Form 1.Whether the standard of strict compliance “applied intelligently, not mechanically” will come to mean a recognition of standard international banking practice remains to be seen. Cf. ICC Doc. No. 470/1261, Notes on the Principle of Strict Compliance, https://iccwbo.org/publication/icc-banking-commission-executive-committee-issues-paper-notes-on-the-principle-of-strict-compliance/.

Text of Demand:

18 December 2015

Our Ref: STO-BNP-EPC-L-006

BNP Paribas
Group Operations – Guarantees
Level 4, 60 Castlereagh Street
Sydney, NSW, 2000 Australia

[…]

Attention: Head of Operations

Dear Sir or Madam,

Performance Payment Security – Bank Guarantee No 120054 – Gladstone LNG Upstream Project EPC Contract

We refer to the above noted Bank Guarantee (copy appended) issued by you in our favour dated 8 January 2014 and with an expiry date of 31 December 2015 (Amendment No. 2).

We hereby demand payment under the Bank Guarantee of Australian Dollars Fifty-five Million only (AUD 55,000,000.00).

Please make payment of this sum to the account of Santos Limited per the details below:

Bank: ANZ Bank, 121 King William Street, Adelaide SA 5001

BSB: 015-010

Account: 8374-78516

Account Name: Santos Limited Payments Account

Capitalised words and expressions used in this demand shall have the same meanings as are ascribed to them in the Bank Guarantee.

Yours sincerely,
Santos Limited – GLNG Upstream Project
[signature]
Rob Simpson
General Manager Development

Text of Annex A:

(insert Santos Limited letterhead)

To: BNP Paribas 60 Castlereagh Street
Sydney NSW 2000

date:

Attention: Head of Operations

Dear Sir/Madam Contractor - Bank Guarantee

We refer to the Bank Guarantee issued by you in our favour and dated 30th January, 2012 in relation to the EPC Contract.

We hereby demand payment under the Bank Guarantee of (insert amount).

Please make payment of this sum to the account of (insert) at (account number).

Capitalised words and expressions used in this demand shall have the same meanings as are ascribed to them in the Bank Guarantee.

Yours faithfully

……………….

Authorised signatory of

Santos Limited

[MJK]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.