Walton Construction (Qld) Pty Ltd & Anor v Venture
Management Resources International Pty Ltd & Anor  QSC
A recent decision of the Supreme Court of Queensland makes it
clear that cashing an unconditional bank guarantee is not always
straight forward, depending on the wording of the construction
contract which refers to bank guarantees or other security.
In the case in question a progress payment certificate was
issued by the superintendent certifying that $1.6 million was due
to be paid by the contractor to the principal. In arriving at the
$1.6 million payment to be made by the contractor to the principal,
the principal's estimate of the cost to rectify work
claimed to have been defectively performed by the contractor was
included along with an amount for liquidated damages.
The contractor applied to the Court for an urgent injunction
preventing the principal from proceeding to cash the bank
guarantee, arguing that there were a number of considerations which
meant that until the Court could properly consider all the issues,
the principal should not be allowed to cash the bank guarantee.
Those considerations included:
the contractor's argument that the calculation by the
superintendent of the amount that the contractor should pay the
principal for the principal's estimated cost of rectifying
defective work performed by the contractor was not properly
calculated. That was because the third party contractors who quoted
to perform the rectification work had not even inspected the work,
and importantly there was no evidence that any of the third party
contractors were actually willing to perform the work referred to
in their quotations – effectively they were not proper
quotations and only estimates
the contractor had disputed the Superintendent's
certification by referring the dispute to an expert determination
and the expert determination process had not been completed,
the contractor put forward evidence that if its bank guarantee
was to be cashed by the principal then it would suffer
"irreparable harm in respect of its reputation in the
On the hearing of the injunction application the Court granted
an injunction stopping the principal from proceeding to cash the
bank guarantee until there was a full hearing of all the matters
argued by the contractor. The full hearing of the matter is to
determine whether there should be an ongoing injunction restraining
the cashing of the bank guarantee, but importantly from the
contractor's point of view the principal was stopped from
cashing bank guarantees until a proper consideration of those
On the facts of this particular case, the contractor was able to
contact its lawyers and have the lawyers apply to the Court for an
urgent injunction prior to the principal getting the bank to pay
the money out under the terms of the bank guarantee: The lesson is
that it is very important for a contractor who knows that the
principal is about to cash its bank guarantees to promptly contact
its lawyers so an application for an urgent injunction can be made
before the bank has paid out the money to the principal. From the
principal's perspective this decision highlights the
benefits in exercising any entitlement to take recourse to security
However, if it is too late and the "horse has bolted"
(i.e. the principal has actually cashed the bank guarantee), there
have also been cases where a Court has been prepared to order the
principal to repay the monies to the contractor upon the contractor
providing a replacement bank guarantee: However, that type of
application also needs to be made promptly, otherwise it could be a
ground for the Court refusing to exercise its discretion to make
such an order.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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