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The Power To Call On Bank Guarantees.

Publication: Mondaq Business Briefing
Publication Date: 03-NOV-08 		Format: Online
Delivery: Immediate Online Access
Full Article Title: The Power To Call On Bank Guarantees.(Clough Engineering Ltd.)(Oil and Natural Gas Corporation Ltd.)(Case overview)

Article Excerpt
Bank or performance guarantees are critical in the risk allocation between parties to construction contracts. The precise wording of the requirement for such a guarantee and form it should take are, however, often overlooked in negotiations. Given the number of guarantees typically required, contractors and principals should pay close attention to the basis of each guarantee and that their intention is accurately recorded in the contract. Failure to do so can be disastrous as the new Chief Justice of the High Court, Justice French, points out in the decision of Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136.

Background Clough Engineering Ltd (Clough) entered into a lump sum contract in the amount of US$215 million with Oil and Natural Gas Corporation Ltd (ONGC) for the development of oil and gas fields off the coast of Andhra Pradesh in India.

Clough, in accordance with the contract, provided unconditional and irrevocable performance guarantees in the amount of US$21 million from three Australian banks (CBA, HSBC and BNP Paribas). The contract provided that the guarantee would continue until either final completion or the extended date of...

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