Strict compliance required when calling on performance security

The Court of Appeal of the Supreme Court of Queensland in Santos Limited v BNP Paribas [2019] QCA 11 has reinforced the requirement for strict compliance when making a demand for payment under a performance security.

We previously provided an update regarding the decision at first instance of Jackson J in the Queensland Supreme Court in Santos Limited v BNP Paribas [2018] QSC 105 (a copy of that update is available here). In that decision, Jackson J held that Santos Limited’s (Santos) demand for payment under an unconditional bond made to the relevant bank, BNP Paribas (BNP), was invalid because it had failed to expressly state that it was signed by an “authorised signatory” of Santos, as required by the performance security. Relevantly, the performance security required that any demand for payment must be “in writing in the form of the letter attached to this Bank Guarantee (amended as applicable), purporting to be signed by an authorised representative of the Beneficiary…”.

Santos appealed the decision on a number of grounds, including that the trial judge had erred in holding that the Santos signatory’s signature, together with his position description of ‘General Manager Development’, did not amount to the necessary representation of his authority.

In determining this issue, the Court of Appeal took a similar approach to the primary judge and applied the principle of strict compliance. Specifically, the Court held that the words “Authorised signatory of Santos Limited” in the draft letter attached to the performance security made it clear that an express statement of authority to sign was required when making a demand for payment. The Court of Appeal stated that BNP need only be concerned with whether the required representation appears on the face of the demand, and not whether the signatory had actual authority.

The Court of Appeal stated that the performance security did not require the demand letter to include the specific words “authorised representative” or “authorised signatory” but it did require a statement to that effect. The Court found that the Santos signatory’s signature, together with his position within the company, did not amount to a representation that he was an authorised representative or authorised signatory for the purposes of the security. Therefore, the demand did not comply with the terms of the performance security.

The appeal was dismissed with costs.

This decision reiterates the need for beneficiaries under performance securities to strictly adhere to the terms of the security when demanding payment.

The full decision can be found here.