Getting bank guarantees right

The High Court has recently granted special leave to appeal a decision concerning the enforceability of a bank guarantee where a party is incorrectly described.

The decision

In Simic v New South Wales Land and Housing Corporation [2015] NSWCA 41 (Simic), the New South Wales Court of Appeal confirmed that errors in describing a party in a bank guarantee will not necessarily enable a bank to reject demands.

Simic involved a construction contract entered into between Nebax Constructions Australia Pty Ltd (Nebax) and the New South Wales Land and Housing Corporation (Corporation). The contract was secured by way of two bank guarantees from ANZ Banking Group Limited (ANZ). The Corporation was incorrectly described in the bank guarantee with a slightly different name and ABN.

When the Corporation ultimately made a demand on the guarantee, ANZ declined to pay on the basis the demand had not been made by the beneficiary specified on the instrument.

The Court of Appeal found that it was correct to have regard to the description of the parties in the construction contract in construing the bank guarantee. However, as the incorrect description of the Corporation in the bank guarantee could be understood to mean the Corporation, there was no question that the bank guarantees were enforceable.

What happens next?

The upcoming appeal could have important implications for all companies who use bank guarantees in the course of their business. The matter will be listed for hearing before the High Court in July 2016. We will keep you updated.

If you would like further information or have any queries about this article, please contact Justin Hill jhill@pageseager.com.au or Nicola Dobson ndobson@pageseager.com.au.

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