Pacific Carriers Ltd v BNP Paribas

Pacific Carriers Ltd (the appellant) brought proceedings against BNP Paribas (the respondent) concerning a guarantee provided by the respondent to secure a loan made by the appellant to a third party, a company called Oceanlink. The dispute arose when Oceanlink defaulted on its loan obligations, and the appellant sought to enforce the guarantee against the respondent. The matter proceeded to the High Court of Australia.

The central legal issue before the High Court was whether the guarantee, which was signed by an individual purporting to act on behalf of BNP Paribas, was binding on the respondent. Specifically, the court had to determine if the individual had the actual or ostensible authority to bind the bank to the guarantee, given that the guarantee document itself did not contain a company seal and was not signed by two authorised officers of the bank as typically required by the bank's internal regulations.

The High Court held that the guarantee was binding on BNP Paribas. The court applied the principles of ostensible authority, finding that the bank had represented to Pacific Carriers Ltd that the individual had authority to sign the guarantee. This representation was made by the bank allowing the individual to act in a senior capacity and by providing him with documentation that facilitated the transaction. Pacific Carriers Ltd reasonably relied on these representations, and the bank was therefore estopped from denying the individual's authority. The court emphasised that the test for contractual interpretation is objective, focusing on what a reasonable person in the position of the promisee would understand the words and conduct of the parties to mean.

The appeal was dismissed.