The Victorian Court of Appeal has confirmed in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 that, in an interlocutory application for an injunction against a party seeking to rely on a performance guarantee, questions of construction of relevant clauses relating to the guarantee should generally not be deferred to trial, particularly where this may deprive a party of its agreed contractual right to call on the guarantee.

Facts

Sugar Australia Pty Ltd (appellant) appealed against a decision to grant an interlocutory injunction in favour of Lend Lease Services Pty Ltd (respondent) restraining the appellant from having recourse to two performance bonds provided under a construction contract.

General condition 5.2 (GC 5.2) of the contract provided that, when seeking recourse to the performance bonds, the appellant was required to make a 'claim' and to 'act reasonably' in doing so. This clause was an amended version of the standard AS4910-2002 provision.  At first instance, Vickery J held that the court was not bound to make a final determination on the proper construction of GC 5.2 and granted the injunction.

The appellant sought to have the injunction set aside.

Decision

Osborn, Ferguson and Kaye JJA unanimously upheld the appeal and set aside the injunction.

The court confirmed that on an application for an interlocutory injunction which raises questions of law (or construction), the approach of the courts has been to decide those questions unless, in the opinion of the court, time does not permit proper consideration of the questions or the determination requires a factual matrix that is not available at the interlocutory hearing. This is particularly so for performance guarantees where the commercial purpose of the guarantee may be to allocate which party would bear the financial risk pending resolution of a dispute (as the court considered was the case in this instance). Failure to make a determination in such cases may deprive a party of the commercial bargain it had made if it could not call on the performance guarantee until after the dispute was resolved.

The court found that the trial judge had, in the circumstances, erred in deferring the determination of the proper construction of clause GC 5.2 to trial.

In interpreting GC 5.2 the court found that the clause did not require the claim on the guarantee itself to be reasonable, just that the appellant was objectively 'acting reasonably' at the time the claim was made based on the information and facts known, or which ought to have been known, to it at the time. The court also found that the clause did not limit the right of the appellant to claim only in respect of moneys or liabilities already paid by or incurred the appellant.

Having determined the proper construction of GC 5.2 the court held that there was a serious question to be tried as to whether the appellant had 'acted reasonably' for all but three of the claims made by the appellant. However, the court did not agree that the respondent had established that the balance of convenience supported the granting of the injunction. In particular, the court was not convinced that allowing the appellant to call on the guarantee would cause the respondent significant reputational damage.