Australia: Kemp Strang acts for ANZ in successfully overturning decision on bank guarantees in High Court
Last Updated: 16 December 2016

Today the High Court delivered judgment in Simic v New South Wales Land and Housing Corporation [2016] HCA 47.

Kemp Strang has acted for ANZ during the course of the proceedings which were first heard before Justice Kunc in the New South Wales Supreme Court and by Chief Justice Bathurst and Justices Ward and Emmett on appeal.

The judgment overturns the previous decisions which held that misdescription of the name of a favouree of a bank guarantee did not preclude the intended favouree from calling on the guarantee. ANZ's position in the High Court was that these decisions were inconsistent with the principles of strict compliance and the autonomy principle that relate to bank guarantees. The High Court affirmed ANZ's position and held that these principles are fundamental to the efficacy of banking practice. The High Court also held that ANZ was entitled to refuse to pay out on the bank guarantees following the call from the misdescribed favouree.

The effect of the decision is that when dealing with bank guarantees:

  • if there is a misdescription of a favouree on a bank guarantee the issuing bank is entitled to refuse to pay out the bank guarantee;
  • the favouree and the issuing bank must strictly comply with the terms of the guarantees and there is no room for documents that are almost the same;
  • the issuing bank does not have to have regard to any underlying documents in determining whether to pay out on a bank guarantee; and
  • if it can be proven that the issuing bank intended to issue a bank guarantee to a particular party but that party is not the named favouree, that party can apply to the Court to seek to have the bank guarantee rectified.

A more comprehensive summary of the case will follow shortly. Click here to read the full judgment.

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