Article

Factual Summary: Under Australian law, Hotel Group was responsible for maintaining security in favor of Responsible Entity, which managed an investment trust. The security was provided in the form of a bank guarantee for AUD 660,000. When Hotel Group went into receivership, Responsible Entity was owed management fees of AUD 186,342.32. To obtain these fees, Responsible Entity drew on the bank guarantee, and Hotel Group and Insolvency Receiver moved for an interlocutory injunction. The injunction was denied.

Legal Analysis:

1. Injunction; Unconscionability; LC Fraud or Abuse

The Judge noted that a court will not enjoin honor of an "unconditional guarantee" unless "the person seeking to call on the guarantee is acting fraudulently", "the person seeking to call on the guarantee is acting unconscionably in contravention of s 51AA of the Trade Practices Act 1974", or "the beneficiary would be acting in breach of a contractual promise in favour of the person seeking the injunction not to call on the guarantee."

Receiver argued that the statute requiring security intended that funds only be available to investors and not to the investment manager. The judge concluded that the purpose of the security included payment of all fees.

Although noting that the balance of convenience favored granting the motion since any monies paid are unlikely to be recovered, the Judge noted that there was no serious basis for challenging the drawing on the bank guarantee, reciting, "Parties are entitled to expect courts to give effect to unconditional bank guarantees unless there is a serious question that one of the exceptions to their operation applies."

[JEB/vjm/mkg]

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