The High Court will soon consider whether errors on the face of
bank guarantees (or at least misdescription of the beneficiaries)
can be corrected. This is an important practical issue, as it is
not unknown for there to be errors in formal details in bank
guarantees and similar documents.
Historically, bank guarantees have been governed by the doctrine
of strict compliance and autonomy which confines the interpretation
of a bank guarantee to the four corners of the document. The New
South Wales Court of Appeal took a wider approach and construed a
bank guarantee by reference to the identifying features of a
related document. In doing so, the Court corrected the name of the
beneficiary of the bank guarantee and required the bank to honour
the obligation under the agreement. This decision arguably erodes
the historical position. The High Court will consider whether the
Court of Appeal's approach was correct.
The Court of Appeal decision allows superficial errors in bank
guarantees, which sometimes occur, to be corrected. However,
looking beyond the corners of the agreement imposes a greater onus
on the banks when issuing and honouring bank guarantees. This may
change the "cash like" properties that define bank
History of the proceedings
Nebax Constructions (Australia) Pty Ltd
(Netbax) entered into a construction contract with
the New South Wales Land and Housing Corporation
(Corporation), a body corporate established by the
Housing Act 2001 (NSW). Nebax was required to provide security of
At Nebax's request, ANZ issued two bank guarantees in favour
of the non-existent entity "New South Wales Land & Housing
Department". This does not appear to have been Nebax's
Nebax entered liquidation and was in breach of its contract with
the Corporation. The Corporation demanded payment under the bank
guarantees, which ANZ declined to pay as the Corporation was not
the named beneficiary. The Corporation sought a declaration that
the guarantee should construe the Corporation as the beneficiary or
appropriately rectify the document.
The trial judge (Kunc J) construed the reference to "New
South Wales Land & Housing Department" as a reference to
the Corporation and therefore required ANZ to pay the demanded
amount to the Corporation.
That decision was appealed, not by ANZ, but by the guarantors of
Nebex's obligations to ANZ. The Court of Appeal dismissed the
appeal. Emmett AJA, with Bathurst CJ and Ward JA agreeing, held
that Kunc J was correct to construe the bank guarantees as he did.
Emmett AJA1 drew a subtle distinction. His Honour suggested that,
in general, it would be impermissible to construe a bank guarantee
by reference to the terms of other documents. On the other hand, it
might be permissible to interpret a bank guarantee in light of the
identifying features of other documents (here, the names of the
parties) or even particular clauses of them, where they are
referred to in the bank guarantee.
On 5 May 2016, Nettle and Gordon JJ granted Simic and the other
guarantors special leave to appeal the Court of Appeal's
decision. In accordance with the High Court's current practice,
this was done on the papers. Written submissions have been filed,
and the appeal has been set down to be heard on 20 July 2016.
Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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