Interlocutory injunction application – recourse to bank guarantees - approach where proper construction of a contract is in issue – serious issue to be tried – balance of convenience – inadequacy of damages
This case is a current statement of the treatment that will be accorded to an application for interlocutory injunction in relation to recourse to bank guarantees where the correct construction of a contract is disputed.
Lend Lease Services Pty Ltd (plaintiff) sought an interlocutory injunction to restrain Sugar Australia Pty Ltd (defendant) from seeking recourse to bank guarantees provided by the plaintiff as security for its performance of a modified version of the General Conditions of Contract AS 4910-2002 for the supply of equipment with installation (Construction Contract).
Clause 5.2 of the Construction Contract required the defendant, where seeking recourse to the security provided by the plaintiff, to make a 'claim' for these entitlements, and to 'act reasonably' in doing so. The construction of this clause was at the heart of the dispute.
Vickery J granted the injunction sought.
His Honour initially considered whether the court was required to make a final determination of the proper construction of clause 5.2, concluding that, whilst that course was open to the court, it was not bound to make a final determination. His Honour declined to make a final determination as the question of the interpretation of a clause of the AS 4910-2002 was of such precedential effect to the industry that it warranted a proper trial.
With regard to the interlocutory injunction application, his Honour found that, applying the principles stated in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57:
- there was a serious question to be tried, specifically concerning:
- the proper construction of clause 5.2;
- whether the words 'acting reasonably' invite an objective analysis of the defendant's conduct in seeking recourse to security, and, if they do, whether the plaintiff has established that the defendant was not acting reasonably in seeking recourse to security; and
- the defective qualities of the recourse notice issued by the defendant;
- damages would be an inadequate remedy in the absence of an injunction should the plaintiff ultimately be vindicated, specifically because, as the plaintiff submitted:
- it would in all likelihood suffer irreparable reputational damage and experience an impaired ability to secure finance in future; and
- should the defendant be allowed to call upon the bank guarantees, there was a substantial risk that the funds would be dissipated and that the defendant would be unable to fulfil any ultimate award of damages in favour of the plaintiff; and
- the balance of convenience favoured the award of the injunction as his Honour was not satisfied that there would be 'more than minimal inconvenience to Sugar Australia' arising from the award of the injunction pending trial.