An unconditional bank guarantee is widely regarded as being “as good as cash”. However, calling on a bank guarantee requires strict compliance with the wording of the guarantee.
The recent case of Santos Limited v BNP Paribas  QSC 105 demonstrates just how “strict” an approach banks are entitled to take on demands on such instruments.
The brief background to this case is as follows:
Jackson J found the Mr Simpson’s signature coupled with the description of his position did not amount to a representation that he was an authorised signatory of Santos.
As the bank guarantee required that BNP make payment immediately on receipt of a notice in writing in the form of a letter signed by an authorised signatory and the letter was limited to Mr Simpson’s signature along with a description of his position, this did not represent an authority to sign as it did not fulfil strict compliance obligations under the terms of the bank guarantee.
Accordingly, Jackson J held that BNP’s refusal to accept the demand under the bank guarantee was justified as that the issuer of a bank guarantee should only accept documents that strictly comply with the stipulated requirements.
This case is a timely reminder of the importance in ensuring that parties strictly comply with the provisions of a bank guarantee or any other form of performance security. This case also gives comfort to banks and financial institutions in knowing that they are entitled to take a “strict” approach to demands for payment under such instruments.
Elliot Raleigh, Partner, Melbourne
Asmaa Hasanein, Lawyer, Melbourne