Article

Note: Pursuant to a lease for property located at 1-7 Waterloo Rd., Macquarie Park, New South Wales, Australia, Westpac (Issuer) issued a bank guarantee in favor of Bivami Pty Ltd (Beneficiary/Lessor) for the account of Universal Press Pty Ltd (Applicant/Lessee). Subsequently, Beneficiary/Lessor sold the property to Australian Executor Trustees Ltd (Transferee), trustee for Hyperion Property Syndicates Ltd (Ultimate Proprietor). In addition, Applicant/Lessee's share capital was acquired by Sensis Pty Ltd. (Parent Company). There was, however, no transfer of the bank guarantee.

On the lease's expiration, Applicant/Lessee opted not to renew, and vacated the property. Claiming various breaches of the lease agreement, Transferee sued Applicant/Lessee. Shortly thereafter, Beneficiary/Lessor drew on the bank guarantee.

Parent Company then obtained from the Federal Court of Australia ex parte relief and an injunction prohibiting Issuer from honoring and Beneficiary/Lessor from making a drawing from the Federal Court of Australia based on Parent Company's assertions that Transferee "has prevailed on [Beneficiary/Lessor] to call upon the guarantee in circumstances where it can have no legitimate entitlement to do so" and that Transferee had failed to request a substitute bank guarantee at the time of transfer.

Transferee then made an interlocutory application to dissolve the injunction because of a "material non-disclosure and that [Transferee] ought to have been joined as party from the outset", and sought leave to file a cross-claim against Applicant/Lessee for failure to provide a substitute bank guarantee. Applicant/Lessee opposed the dissolution of the injunction, claiming that the drawing was unconscionable, sought an order "that one or more of three proposed questions be heard and determined separately". The Federal Court of Australia, Griffiths, J., ruled in Transferee's favor, joining it as party, dissolving the injunctions, and granting leave to file a cross claim, and denied Applicant/Lessee's request to hear the proposed questions separately.

Transferee argued that its rights were directly affected by the injunction because "it, as Lessor, has an entitlement to call on the bank guarantee...and that the exercise of that entitlement is precluded by the interim injunction." The Judge rejected this argument because Transferee "has not itself made that call because the banker's undertaking is not in its favour". However, the Judge did order that Transferee be made a party because "such joinder is necessary in order to ensure that all issues in dispute in the proceedings are able to be heard".

Transferee further argued that the interim injunction granted in favor of Parent Company should be dissolved because of a material non-disclosure. In seeking the interim injunction, Parent Company's senior counsel had stated, "The lease made provision for a substituting guarantee to be obtained, if so requested, in favour of any transferee of the reversion. That did not occur." Parent Company acknowledged that the statement was erroneous, and its solicitor admitted that "he had not been specifically instructed by his clients that no such request had been made" but argued that this non-disclosure was not material. The Judge ruled that there was no evidence that the statement was deliberate, but disagreed that the non-disclosure was not material because "the [Parent Company] themselves regarded the issue whether or not a substitute bank guarantee had been requested to be a material matter". Furthermore, Parent Company argued that Transferee waived its right to a bank guarantee because it was "apparently content to proceed without any bank guarantee". The Judge rejected this argument and ruled that "because of the non-disclosure, [the Judge that granted the ex parte interim injunction] may have been misled on a material matter relating to the [Parent Company's] own conduct. . . . These matters may have influenced the exercise of [that Judge's] discretion and also the court's decision".

Finally, Parent Company argued that should the interim injunction be dissolved because of material non-disclosure, a new injunction should be ordered because the "balance of convenience" weighs in its favor despite the possibility of unconscionable behavior. Parent Company contends that Beneficiary/Lessor would be unable to repay the amount of the bank guarantee should Parent Company succeed in its suit. The Judge disagreed because Ultimate Proprietor has undertaken to direct Transferee to apply the proceeds of the bank guarantee "against any claim for damages it is found or agreed is due to it or [Transferee] by [Applicant/Lessee] for breach of the Lease".

[JEB/rs]

Text: Clause 19 of the Lease as reproduced in the opinion states:

19.1 The Lessee shall deliver to the Lessor, on or before execution of this Lease, an unconditional Bank Guarantee to the amount specified in Item 16 to secure the Lessee's obligations under this Lease and losses and damages suffered by the Lessor pursuant to breach by the Lessee or termination of the Lease arising from such breach together with a copy of the Power/s of Attorney pursuant to which it is singed (sic).

19.2 The amount of the Bank Guarantee shall be increased after any Review Date to an amount equal to twelve months of the Rent agreed or determined following a Rent review and the Lessor's estimate of the Outgoings payable by the Lessee for the same period of twelve months. The Lessee will lodge with the Lessor a further or replacement Bank Guarantee to cover the difference between the Rent and estimated Outgoings payable over a period of twelve months and the amount currently held as Bank Guarantee within 21 days of the Rent being agreed or determined pursuant to the provisions of Clause 4.3. If there is a change in the person's who are the Lessor, the Lessee shall on the Lessor's request provide a substitute Bank Guarantee in favour of the then current Lessor.

19.3 The Bank Guarantee shall be in a form acceptable to the Lessor.

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 of any other obligation, term, condition or covenant under the Lease,

19.4.1.2 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.

19.5 The Lessor shall be entitled to recover Rent and damages for breach of covenant or arising from termination of this Lease without being limited to the amount secured under the Bank Guarantee.

19.6 Any demand made shall not in any way be deemed to constitute a waiver by the Lessor of any default, breach or non-observance by the Lessee and shall not prejudice any other right of the Lessor arising from such default, breach or non-observance.

19.7 Should any amount of the Bank Guarantee be demanded from time to time by the Lessor as aforesaid then the Lessee shall upon demand by the Lessor and within twenty-one (21)days from the date thereof provide to the Lessor a further Bank Guarantee for the amount so demanded (in a form acceptable to the Lessor) in order to reinstate the amount of the Bank Guarantee to an amount equal to the amount shown in Item 16, or to any amount equal to Rent for the number of months specified in Item 6.

19.8 The Lessor shall return to the Lessee the Bank Guarantee three months after expiry or termination of this Lease subject to the Lessee vacating the Premises and otherwise complying with its Obligations under the provisions of this Part have come into operation.

Text: Clause 1.2 contained the following definitions:

1.2.1 Bank Guarantee means an unconditional undertaking or guarantee from an Australian bank in favour of the Lessor in a form and content acceptable to the Lessor to enable the Lessor to be paid on demand an amount up to the sum referred to in Item 16 in total in one or more drawings and containing no expiry date.

...

1.2.17 Lessor means the person referred to as the Lessor on the front page of this Lease and includes his successors and assigns or, being a person, his executors, administrators and assigns and where not repugnant to the context, the Lessor's servants and agents.

Bank Guarantee: In regard to the Bank Guarantee, the opinion provided:

The undertaking continues until the occurrence of the first of the following events:

(a) Westpac receiving written notification from Bivami that the amount covered by the undertaking is no longer required by Bivami;
or
(b) the undertaking being returned to Westpac;
or
(c) Westpac paying some or all of the capped amount.

The banker's undertaking in favour of Bivami as Favouree contains the following statements:

Should Westpac be notified in writing purporting to be signed by or for and on behalf of the Favouree that the Favouree desires payment to be made of the whole or any part or parts of the Sum, it is unconditionally agreed that such payment or payments will be made to the Favouree forthwith without reference to the Applicant and notwithstanding any notice given by the Applicant to Westpac not to pay the same. Provision always that Westpac may at any time without being required to do so pay to the Favouree the Sum less any amount or amounts it may previously have paid under this undertaking or such lesser sum as may be required and specified by the Favouree and thereupon the liability of Westpac hereunder shall immediately cease and determine.

The Favouree shall not assign or transfer all or any part of its rights under this undertaking without the prior written consent of Westpac.

Should Westpac in its discretion consent to the assignment or transfer of this undertaking then, unless the context requires otherwise, the words ''Favouree'' shall include each such assignee or transferee.

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