Courts have traditionally
treated an interlocutory application to restrain the calling upon or use of
money secured by a bank guarantee or other performance bond as being in a
special category.
The authorities were
summarised in Cerasola TLS AG v Thiess Pty
Ltd & John Holland [2011] QSC 115 as follows:
“On the basis
of those authorities, it is sufficient for present purposes to note that the
general rule is that a court will not enjoin the issuer of a performance
guarantee from performing its unconditional obligation to make payment. A
number of exceptions to that general rule have been identified. They are
identified in Clough Engineering at
[77] as:
(1) An
injunction will issue to prevent a party in whose favour the performance
guarantee has been given from acting fraudulently.
(2) An
injunction will issue to prevent a party in whose favour the performance
guarantee has been given from acting unconscionably in contravention of the Trade Practice Act 1974 (Cth).
(3) While
the Court will not restrain the issuer of a performance guarantee from acting
on an unqualified promise to pay if the party in whose favour the guarantee has
been given has made a contractual promise not to call upon the bond, breach of
that contractual promise may be enjoined on normal principles relating to the
enforcement by injunction of negative stipulations in contracts.”
See: also Otter Group Pty Ltd v Wylaars [2013] VSC
98 at [16] where the summary was referred to with approval.
This general rule is the
product of appellate authorities. See: Wood
Hall Ltd v Pipeline Authority (1979) 141 CLR 443, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1983] 3 VR
812; Bachmann Pty Ltd v BHP Power New
Zealand Ltd (1999] 1 VR 420 and Clough
Engineering Ltd v Oil and Natural Gas Corporation Ltd & Ors (2000) 249 ALR 458.
The rationale for the
general rule is that by providing for security to be given, the parties
implicitly agree that the party giving the security deposit shall be out of
pocket pending resolution of the underlying dispute.
In Clough,
the Full Federal Court said at [83] that “clear words will be required to
support a construction which inhibits a beneficiary from calling on a
performance guarantee where a breach is alleged in good faith, that is,
non-fraudulently.”
The Supreme Court of New South Wales in Universal Publishers Pty Ltd v Australian Executor Trustees [2013] NSWSC 2012 appears to have departed from the
general rule in circumstances where there were no clear words preventing the landlord
calling on the bank guarantee and there was no issue that the landlord was
acting in good faith.
In Universal
the tenant obtained an ex parte injunction restraining the landlord from
drawing on the bank guarantee. The proceeding then concerned whether the
injunction should be discharged.
Clause 19.1 of the lease required the tenant to
provide an “unconditional” bank guarantee to “secure the Lessee’s obligations
under this Lease”. Clause 19.4 provided
that:
“19.4. In the
event that the lessee:
19.4.1.1
defaults in the payment of Rent or in the performance or compliance of any
other obligations under this Lease; or
19.4.1.2
breaches any other obligation, term, condition or covenant under this Lease,
the Lessor is
hereby authorised to demand that the guaranteeing bank pay to the Lessor such
amount that (in the reasonable opinion of the Lessor) may be due to the Lessor
as a result of such default, breach or non-observance by the Lessee or
termination of the Lease pursuant to it.
The lease did not contain any negative stipulations
on the landlord’s right to call on the guarantee. The tenant disputed that there was any
breach. The landlord submitted that the authorities referred to above made it
clear that the existence of a dispute as to whether there was an actual breach
was not an answer to an invocation of the guarantee. See: para [21].
The Court determined that there had to be an actual
breach before the landlord could form an opinion as to the amount that might be
due. See: para [25]. As to whether there was an actual breach did not depend on
a judicial determination but on whether the tenant could establish that there
was a serious question to be tried about whether there was a breach. See: paras
[27] and [71].
The Court held that clause 19.1 did not provide for
an allocation of the risk as to who should be out of pocket while a dispute as
to the lessee’s asserted breach was determined. See: para [60].
The lesson from Universal is that the parties to a
lease should ensure that the provisions concerning the drawing down of the guarantee
specifically define the circumstances when the landlord can draw down on the
guarantee. In particular, solicitors acting for landlords should, rather than
relying on the general rule referred to above,
ensure that the lease refers to the landlord’s entitlement to draw down
on a guarantee where the landlord believes in good faith that the tenant has
breached the lease.
From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation
From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation
