• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Ingenium Legal
  • Home
  • Services
  • Our People
    • Shaun Bailey
    • Tania Vivoda
    • Stanley Martins
  • Experience
    • Energy & Resources
    • Health
    • Hospitality, Leisure & Retail
    • Government
    • Residential
    • Roads
    • Security of Payment
    • Transport
    • Water Infrastructure
  • Community & Memberships
  • Publications
  • For Clients
    • Your Secure Documents
    • Payments
  • Contact Us

May 31, 2018 By Ingenium.Legal

Mere mechanics? Performance security calls are not so simple

Santos Limited v BNP Paribas [2018] QSC 105

Performance securities issued by banks are commonly deployed on construction projects. They are said to be “as good as cash”. If Santos’ recent experience in the Queensland Supreme Court is a guide, that’s not universally the case. The autonomy principle – that the obligations of the bank under an unconditional performance security not be qualified by reference to the terms of the underlying contract – is well embedded in Australian law. Even so, making a demand on a bank guarantee is more than a simple mechanical exercise.

The form of the demand was annexed to the performance security and included the words:

“Yours faithfully
……………….
Authorised signatory of
Santos Limited”

At issue was whether the actual demand was compliant with the annexed demand because it did not purport to be signed by an authorised representative of Santos. The actual demand was signed by a person (over their typed name) whose position in the company was then described. So, was that sufficient to establish that person to be the authorised signatory of Santos?

Where it is of critical importance that the bank pay only upon a complying demand and that a complying demand must strictly comply with the requirements of the security instrument, the signature coupled with the description of the signatory’s position, according to the Court, did not amount to a representation that he was so authorised. The position description did not represent anything about the signatory’s authority:

“…There is no room for documents which are almost the same, or which will do just as well. Business could not proceed securely on any other lines. … the principle of strict compliance applies after the instrument has been construed, and it is not a rigid rule. It must be applied intelligently, not mechanically” (Court’s emphasis)

On the bank’s summary judgment application, the Court was satisfied that the absence of a statement that demonstrated the authority of the signatory was not a mere mechanical omission. The bank was not obliged to pay because the demand did not comply with the requirements of the performance security.

While the time for appeal has not yet expired, his Honour Mr Justice Jackson’s reasons provide helpful reminder that calling on a performance security is a serious step. No matter how simple such a demand might appear at face value, each and every aspect of the demand will attract detailed scrutiny. Mechanical replication of the words on the page will not always suffice. Rather, one must discern, intelligently, the objective intention that those words seek to convey. If they show that the bank is concerned to establish appropriate authority, then be prepared to address that point before you make the call.

Shaun Bailey
Principal Lawyer
[email protected]
31 May 2018

Filed Under: News

Previous Post
Next Post

Primary Sidebar

Online Enquiry

.

    Footer

    Sydney based commercial construction law specialist, Ingenium Legal Pty Ltd is an incorporated legal practice with over 20 years professional experience in construction, engineering and development legal practice.  Shaun Bailey, our Principal Lawyer, has extensive experience as a specialist partner of a national top tier Australian legal practice.

    Our Experience

    • Energy & Resources
    • Government
    • Health
    • Hospitality, Leisure & Retail
    • Residential
    • Roads
    • Security of Payment
    • Transport
    • Water Infrastructure

    Our Advantages

    • Ingenuity
    • Experience
    • Industry understanding
    • Local knowledge
    • Project continuity
    • Value
    • Flexibility
    • Working with existing legal teams

    Connect With Us

    • Email
    • LinkedIn

    Contact Us

    • Shaun Bailey | Principal
    • Suite 2, 84 Princes Highway St Peters NSW 2044
    • +61 419 279 079
    • +61 2 9058 2905
    • Email Us
    • www.ingenium.legal
    • LinkedIn Profile

    Copyright © 2023 · Website hosting by Lift Legal Marketing · Log in