Deficient Letter Of Demand Invalidates $55 Million Claim

By Jack Golding. Lawyer, MST Lawyers

It is common in civil litigation, and particularly in debt recovery claims, for a letter of demand to be sent before initiating court proceedings. These letters are now more important than ever in the era of the Civil Procedure Act 2010 (Vic).

The recent decision of Santos Ltd v BNP Paribas [2019] QCA 11 highlights the need to ensure that letters of demand are drafted appropriately and contain all the necessary elements to ensure that they are legally valid and achieve their intended purpose.

Background

BNP Paribas had provided Santos Limited (Santos) with a bank guarantee for $55 million to secure the performance of one of Santos’ contractors, Fluor Australia Pty Ltd.

The bank guarantee required BNP Paribas to pay Santos $55 million if BNP Paribas received a notice in writing in the form of a letter attached to the bank guarantee which “purported to be signed by an authorised representative of Santos Limited”. The draft letter attached to the bank guarantee had a signature line which contained the words “Authorised signatory of Santos Limited”.

On 18 December 2015 Mr Simpson on behalf of Santos sent a letter to BNP Paribas demanding payment of the sum of $55 million under the bank guarantee. The signature line of the letter contained the words “General Manager Development” under Mr Simpson’s name but did not contain the words “Authorised signatory of Santos Limited”.

BNP Paribas refused to pay the demand on the basis that the letter was defective because Mr Simpson did not purport to be an authorised signatory of Santos. Santos’ subsequent application for summary judgment on its claim for payment of the $55 million was dismissed because the letter did not contain the words “Authorised signatory of Santos Limited”. Santos appealed to the Court of Appeal.

The Court of Appeal’s Decision

Santos argued that Mr Simpson’s signature, coupled with his position description, amounted to the necessary representation of his authority and that the letter did not literally need to contain the words “authorised signatory of Santos Limited” to comply with the requirements of the bank guarantee.

The Court of Appeal did not accept this argument. Although the Court of Appeal considered that “strict adherence” to the form of the draft letter was not necessary, the terms of the bank guarantee did require that the letter contain a statement of the signatory’s authority. The fact that such a statement was absent from the letter meant that Santos had not complied with the bank guarantee. In reaching this conclusion, the Court of Appeal found that:

“Mr Simpson’s signature coupled with his position description did not amount to a representation that he was an authorised representative or authorised signatory. The words “General Manager Development” merely indicated that he held a particular position in the company and said nothing as to his authority in that role. The letter of demand contained no statement of his authority to sign on Santos Limited’s behalf.”

As a result, the Court of Appeal dismissed Santos’ appeal and upheld the first instance judgment in favour of BNP Paribas.

Lessons Learned

In civil litigation, letters of demand are often sent before proceedings are commenced. This decision highlights the issues that may arise in an otherwise meritorious claim if these letters are not drafted appropriately.

If you require assistance with letters of demand, please contact our Dispute Resolution and Litigation team by email or phone +61 3 8540 0200.