Australia: Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98: Accss to security

Construction Law Update - October 2015



The case reaffirms the established Australian common law principles that were previously summarised in the Clough decision, namely that a principal's right of recourse to a contractor's bank guarantee securing a genuine claim under a construction contract will not be restrained unless:

  • the principal has fraudulently sought to have recourse against the bank guarantee;
  • the principal has acted unconscionably under the Australian Consumer Law in seeking to have recourse to the bank guarantee; or
  • the parties have contractually agreed that the principal will only be entitled to access the bank guarantee in particular circumstances, and the relevant circumstances fall outside
  • that agreement.44

Significantly, the Court of Appeal made it clear that it is incumbent on courts in determining interim injunction applications such as this to interpret the provisions that deal with accessing bank guarantees or other security, rather than deferring any such decision to the trial of the underlying disputes. This is particularly required where the purpose of the security is to allocate risk between the parties while the underlying dispute is finally determined. Failure by courts to interpret the provisions will deny the parties of the principal benefit of those provisions.

The facts

In 2007, Lend Lease Services Pty Ltd (Lend Lease) agreed to design, construct, supply and install a new refined sugar plant for Sugar Australia Pty Ltd (Sugar).45 It was agreed that Lend Lease would provide Sugar with security in the form of two unconditional bank guarantees for five percent of the contract sum.

Disputes arose during the works regarding the conduct of the principal's representative: Lend Lease asserted that the principal's representative had improperly suspended the work; Sugar asserted that Lend Lease had failed to comply with his directions. This resulted in both parties purporting to terminate the contract. Almost three years later, Sugar notified Lend Lease of its intention to cash the bank guarantees on the basis that it was entitled to recover amounts for completing the contract works and for rectifying defects. Lend Lease applied to the Victorian Supreme Court for an urgent interim injunction restraining Sugar from cashing the bank guarantees.

The Victorian Supreme Court (Vickery J) granted the injunction, which restrained Sugar from having recourse to the bank guarantees before the trial of the underlying disputes regarding the project, including Lend Lease's liability for the cost of completing the works and for defects in the work.46

Sugar appealed to the Court of Appeal, which reversed the Supreme Court's earlier decision and discharged the injunction. Therefore, Sugar was entitled to cash the bank guarantees without having to prove its underlying claims against Lend Lease.


The underlying purpose of bank guarantees

The Court of Appeal discussed the underlying purpose of security, usually in the form of bank guarantees, in the construction industry. Specifically, security operated in one of two ways. First, it acted as security for a valid claim where there were likely to be difficulties in recovering from the defaulting party (for instance, if the defaulting party had gone into liquidation). Secondly, it acted as a risk allocation device, determining which party would be worse off pending resolution of an underlying dispute.47

A court must determine which of these purposes the parties intended (although it could of course be both). If the purpose of the bank guarantee is to allocate risk pending resolution of an underlying dispute, then limiting a party's ability to cash the bank guarantees would deprive that party of the commercial bargain it made in the contract, thereby defeating the purpose of providing the bank guarantee.48

The performance bond provision

Part of the Supreme Court's original reasoning in granting the injunction was that there was a serious question to be tried as to the construction of the security provision itself.48 The provision in question was based on standard form contract drafting but had been amended to import a requirement that the principal act "reasonably" in seeking to cash the bank guarantee. Given the limited evidence available to the Court and the short time available to make the determination, Vickery J determined that he was not able to come to a final view on the operation of the provision. Such a determination would have to wait until the trial of the matter, when sufficient evidence would be available.

The Court of Appeal rejected this finding. Vickery J's failure to construe the recourse to security provision was an error in the exercise of judicial discretion. In the case of applications for interlocutory injunctions that restrained recourse to security, the Court should determine controversial issues of law if that determination is a necessary step in deciding whether an applicant is entitled to an injunction.50

If the security provision was intended to operate as a risk allocation device pending final determination of a dispute between the parties, then that intention must be fundamental to a consideration of the justice of an application made to restrain recourse to that bond pending final determination of the dispute.51 Failure to construe the provision, thus delaying the determination to the time the underlying dispute was resolved, would deprive the parties of the principal benefit of the provision that they bargained for.52

Importantly, the Court of Appeal acknowledged that the ordinary principles governing interlocutory injunctions applied to the present case notwithstanding the fact that these principles were being applied to "an unusual form of contract".53 This was particularly so if the commercial purpose of the bank guarantee was to allocate risk pending final determination of the dispute. Granting an injunction under these circumstances would be going against the purpose of the provision, which would be a substantial injustice.

The need to construe the clause to access the evidence

One of the purposes of the security provision was to allocate risk pending resolution of an underlying dispute. The qualification imposed by the provision only required the principal to act reasonably in asserting an entitlement, not that the entitlement be judged objectively valid. The provision thus allocated to the contractor the risk that the principal's claims might not ultimately be successful.54 Accordingly, the Court was required to construe the provision in order to give effect to the contract.55

The Court of Appeal held that the operation of the provision required that the principal act reasonably, in an objective sense, in making the claim the subject of the recourse, based on the facts and circumstances which it knew or ought to have known at the time concerning the validity of the claim.56 Further, claims were not limited to costs which had already been incurred, but included all damages or liabilities which may arise in the future as a consequence of the asserted breach.57

Having made that determination, the Court of Appeal was then able to assess whether there was a serious question to be tried as to whether the principal had complied with the provision in making the call on the bank guarantees. Based on the evidence submitted to the Supreme Court, the Court of Appeal found that there was a serious question to be tried as to whether the principal had acted reasonably in respect of some, but not all, of the amounts claimed in the recourse notice (which included amounts for costs to complete and to rectify defects). However, the amounts for which there was no serious question to be tried were greater than the amount for which Sugar sought to have recourse against the bank guarantees. Therefore there was no serious question to be tried as to whether the principal had acted reasonably in issuing the recourse notice.58

Balance of convenience

As to balance of convenience, Vickery J had determined that the balance of convenience favoured the granting of an injunction based, in part, on a finding that Lend Lease was likely to suffer reputational damage if the bank guarantees were cashed. Lend Lease had relied on two affidavits, one from the chief operating officer of Lend Lease Construction and Infrastructure and one from the group treasurer of Lend Lease, both stating that they considered a call on the bank guarantees would harm the reputation of Lend Lease.

The Court of Appeal rejected the argument that the issue of reputational damage was sufficient to tip the balance of convenience in Lend Lease's favour.59 The matters deposed by the Lend Lease witnesses were substantially assertions, and there was doubt that the existence of the dispute would have any reputational impact on Lend Lease. Further, by agreeing to the security provisions in the contract, Lend Lease had assumed the risk that a call may be made on the bank guarantees (and presumably, any reputational damage that my go with such a call).

The Court of Appeal's approach to balance of convenience issues is also likely it harder for contractors to resist calls on bank guarantees. The standard practice of submitting affidavits from the contractor's senior officers asserting probable reputational damage is no longer likely to be sufficient to obtain an injunction. Detailed evidence of actual reputational damage likely to be suffered will be required. This evidence will need to be of sufficient weight to dislodge the assumption that by agreeing to the security provisions in the contract, the contractor took the risk of the bank guarantees being called pending final resolution of the underlying disputes, and any reputational damage that goes along with such a call. VSCA/2015/98.html

See further the note in this update on the decision of the Queensland Supreme Court in Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2) [2015] QSC 173.


44 Ibid at [138], referring to the principles set out in Clough Engineering Ltd v ONGC (2008) ALR 458
45 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98
46 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2014] VSC 476 (Vickery J)
47 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [21], referring to Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 at 826–7 (Fletcher)
48 Ibid at [29]–[31]
49 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2014] VSC 476 (Vickery J)
50 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [53]– [54]
51 Ibid at [21]
52 Ibid at [29]
53 Ibid at [31]
54 Ibid at [37]–[38], [68]
55 Ibid at [65]
56 Ibid at [144]
57 Ibid at [147]
58 Ibid at [197]–[198], [230]
59 Ibid at [233]

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.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.