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Note: In connection with a contract to build an explosives compound, Kerman Contracting Proprietary Limited (Contractor) contracted with Marcon Proprietary Limited (Sub-Contractor) for it to build earthworks, road works, and storm water drainage. The agreement consisted of a chain of emails.

At Contractor’s request, Sub-Contractor provided two bank guarantees in its favor for a total of AUD 831,347.10. The parties had agreed that the guarantees would be returned at two separate times: “1 returned at PC and 1 returned at 30/06/2013.” The parties agreed that “PC” meant practical completion, but did not define practical completion or mention a date. The parties also agreed that construction would tentatively begin in May 2012. However, Contractor had problems negotiating the contract with the principal, so construction did not begin on schedule. When the start date was delayed, Sub-Contractor provided the guarantees without dates but labeled one “Deficiencies Period”, signifying that the guarantees were to be returned at separate times but left a question as to when. It appears that the guarantees were silent as to these matters. The opinion stated, “In each bank guarantee there was provision for the termination date of the guarantee to be inserted. In neither was any date inserted.”

When Sub-Contractor finished the work within the adjusted schedule but after 30 June, Contractor failed to return the guarantees. Eventually, Contractor determined that it had a claim against Sub-Contractor and drew the entire amount of both guarantees. Sub-Contractor objected and sued Contractor for breach of contract. Sub-Contractor moved for summary judgment in the trial court, but the Master denied the motion. Sub-Contractor appealed. The Supreme Court of Western Australia, Court of Appeal affirmed the denial in an opinion by Buss Newnes Murphy, JJA.

Sub-Contractor argued that the contract had been express about the dates and events when the guarantees were to be returned, and those dates had passed, signifying that Contractor should have already returned the guarantees. Contractor argued that practical completion meant its completion with the entire project, not Sub-Contractor’s portion. It argued further that 30 June 2013 was a calculation from May 2012 based on construction trade practice that guarantees were not released for twelve months after full completion to cover any deficiencies or repairs left in a Sub-Contractor’s work, a “deficiencies period”. Accordingly, it argued that the guarantees did not have to be returned.

The appellate court ruled that because both sides presented reasonable arguments that could be believed, these issues need to be resolved at trial.

[JAH]

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