Supreme Court holds Allianz Insurance liable to honour bank guarantee

Thursday, 27 February 2025 08:56 - - {{hitsCtrl.values.hits}}

In a judgment delivered on 25 February, the Supreme Court held that Allianz Insurance Lanka Ltd. was liable to pay Lagan International Ltd. on a bank guarantee issued by Janashakthi Insurance Company Ltd.

Janashakthi Insurance Company Ltd., as it was then, issued a bank guarantee to Lagan International Ltd. at the request of V Com Heavy Engineers Ltd. When Lagan International Ltd. made a demand upon the bank guarantee, Janashakthi Insurance Company Ltd. refused to make the payment.

Lagan International Ltd. filed action in the Commercial High Court upon the refusal of Janashakthi Insurance Company Ltd. to honour the demand. The Commercial High Court in the said case held with Lagan International Ltd., and Janashakthi Insurance Company Ltd. appealed to the Supreme Court.

Pending the decision of the Supreme Court, Janashakthi Insurance Company Ltd. was divided into two entities and Janashakthi General Insurance Ltd., which took over the liabilities of Janashakthi Insurance Company Ltd., was acquired by Allianz Insurance Lanka Ltd.

This judgment is in line with the countless judgments delivered both by Sri Lankan and foreign courts upholding the sanctity of bank guarantees, which are a lifeblood of commercial activities. Courts look favourably towards honouring and enforcing bank guarantees, except in the most exceptional situations.

The Supreme Court, in their well-reasoned judgement, has held with this long line of decisions and have furthered the practice of courts to ensure the proper operation of commercial activities.

Avindra Rodrigo, PC, with Aruna de Silva and Medhya Samarasinghe on the instructions of FJ&G de Saram, appeared on behalf of Lagan International Ltd.

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