RCR O'Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd[2016] QCA 185

Significance

Morrison JA of the Queensland Court of Appeal refused to grant an application for a mandatory injunction compelling a subcontractor to extend the expiry date of bank guarantees which were about to expire. In doing so, his Honour rejected arguments that the relief was necessary for the 'integrity of the litigation' (Advance Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [1997] HCA 24).

Commercial insights

It is very difficult to persuade the courts to compel a party which has provided bank guarantees to extend their expiry dates, particularly where the court has already made a finding that the party seeking relief is not entitled to call on those guarantees. Parties wishing to have recourse to guarantees should ensure they do so prior to their expiry.

Facts

The appeal related to the ability of Forge (in liquidation) (Contractor), to call on two bank guarantees. The guarantees were provided by RCR (Subcontractor) as security under a subcontract by which the Contractor engaged the Subcontractor to perform electrical work for the construction of the Diamantina Power Station.

The appeal was decided in advance of a trial of substantive disputes relating to extensions of time, liquidated damages and amounts certified as payable under the subcontract.

The Contractor had announced its intention to call on the guarantees and the Subcontractor disputed the Contractor's right to do so. The Subcontractor had then agreed to extend the expiry dates of the bank guarantees and the Contractor had undertaken not to call on them.

Byrne SJA of the Supreme Court decided that the Contractor was entitled to call on the bank guarantees. The Court of Appeal allowed an appeal of that decision and declared that the Contractor was not entitled to call on the bank guarantees.

Before the Court of Appeal released its reasons, and due to the impending expiry of the guarantees, the Contractor applied to the Court of Appeal for:

  • a stay of the order that it was not entitled to call on the guarantees; or
  • a mandatory injunction compelling the Subcontractor to extend the expiry date of the guarantees.

The extended expiry date was intended to allow the Contractor to seek special leave to apply to the High Court and (if leave was granted) for the High Court to determine the appeal.

The Contractor offered the usual undertaking as to damages.

Decision

Morrison JA of the Court of Appeal refused both applications. His Honour determined that the application for a stay would serve no purpose, as the bank guarantees were due to expire the next day.

In rejecting the application for an injunction, his Honour reasoned that:

  • the Contractor's entitlement had been determined by the Court of Appeal, it had not applied for special leave and its prospects of being granted special leave by the High Court appeared doubtful;
  • in this context, the Contractor would need to establish 'exceptional circumstances' to justify the grant of a mandatory injunction;
  • the Contractor was not likely to suffer 'irreparable harm' if the guarantees expired, as the Subcontractor had demonstrated it could meet a monetary liability to the Contractor;
  • the grant of the injunction would force a change in the contractual relationship between the parties, and between the Subcontractor and its bank; and
  • the Contractor had failed to demonstrate that the grant of an injunction was necessary to preserve the 'integrity of the litigation' simply because the expiry of the guarantees might take away any benefit that it might gain from applying for special leave.