Arbitration Is No Bar For Bank Guarantees

In Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Ltd [2022] NSWSC 1125, Daewoo sought to prevent INPEX from calling on a bank guarantee. The Supreme Court ruled against Daewoo.

Under a construction contract, the Principal may be entitled to call on a bank guarantee, even while the parties are involved in arbitration.

The Court is unlikely to intervene on the "life blood of commerce" and restrict a party from calling on bank guarantees, unless presented with a strong or serious prima facie case.

Background:

INPEX contracted with Daewoo to construct a Floating Production Storage Offloading Facility (FPSO). Daewoo built the ship, but INPEX issued a claim for losses suffered due to Daewoo's alleged defects and delays.