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Note: Yuanda Australia Pty Ltd (Subcontractor) contracted with John Holland Pty Ltd (Contractor) to construct the façade of a hospital building. The contract required Subcontractor “to provide security for performance of its obligations under the contract, which may be an approved security in the form of a bank guarantee.” To satisfy this provision, Subcontractor obtained two bank guarantees in the amount of AUD 1,660,000 each. A dispute arose regarding installed panels that were deemed defective and required replacement. The cost associated with this process was in excess of the bank guarantees. Contractor/Beneficiary then drew on the bank guarantees, and the solicitor of Subcontractor/Applicant stated an intention to file for an injunction on the drawing of the bank guarantees. However, Contractor/Beneficiary successfully drew on the bank guarantee and deposited the money into its account before the injunction was filed.

Shortly after the drawing on the bank guarantees, injunctive relief was approved, which “restrained [Contractor/Beneficiary] from taking any step, or any further step, to exercise its rights” provided by the terms of the subcontract, which further stated that “the injunction operated until after judgement in the action or further order.” As worded, the injunction prevented utilization of the proceeds of the drawings. The Supreme Court of Western Australia, Mitchell, J., dismissed Subcontractor’s application for further injunctive relief.

Subcontractor argued that the contract contained “an implied contractual promise not to convert the bank guarantees into cash, except for the alleged purpose.” The Judge, however, observed that the contract allowed Contractor/Beneficiary to “convert the security to cash at any time.” The Judge reasoned that Contractor/Beneficiary was entitled to draw on the bank guarantees to compensate for the replacement of the façade panels and the damages caused by the delay in the project. The Judge found that Subcontractor/Applicant did not establish a sufficient case as to the alleged implied limitations of the provision of the subcontract that allowed Contractor to “convert the security into cash at any time and may utili[z]e the security to pay for any costs, expenses or damages which [Contractor/Beneficiary] claims that it has incurred.”

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