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Note: Ottoway Engineering Pty Ltd (Subcontractor/Applicant) contracted with Bluenergy CMC Pty Ltd (Contractor/Principal) to perform mechanical and piping installation work on two dewatering buildings in Western Australia. The parties entered into an Advance Payment Agreement by which Contractor/Principal advanced payment to Subcontractor/Applicant. In exchange, both parties agreed to a ten percent monthly deduction in payments to Subcontractor/Applicant. Shares of Contractor/Principal were owned by Evolve Industries Pty Ltd., which in turn was controlled by Troy Millen and Kelly O’Brien (Owners). Owners personally guaranteed the debts of Contractor/Principal to provide security for loans from Westpac Banking Corporation (Lender/Beneficiary).

To obtain advance funds, Contractor/Principal obtained a loan from Lender/Beneficiary under a Bill Facility. Pursuant to the Advance Payment Agreement, Subcontractor/Applicant obtained a guarantee from National Australia Bank (Guarantor) in favor of Lender/Beneficiary. Subsequently, Contractor/Principal and Subcontractor/Applicant entered into another agreement in October 2014 replacing the Advance Payment Agreement, under which the amount of the Guarantee was reduced. Contractor/Principal eventually became insolvent and was liquidated, causing Lender/Beneficiary to draw on the guarantee. Subcontractor/Applicant sought to enjoin payment and obtained an injunction, and ECAP Finance Pty Ltd and Owners petitioned for joinder (Petitioners for Joinder).

Petitioners for Joinder stated in an affidavit that they worked for Contractor/Principal, and that at the request of Contractor/Principal, Lender/Beneficiary issued two unconditional performance guarantees in favor of another company named Sino Iron. Contractor/Principal also secured a bank facility from Lender/Beneficiary in the amount of AUS 2,269,800. At the request of the Lender/Beneficiary, Petitioners for Joinder executed a joint and several personal guarantee and indemnity in September 2014 in favor of Lender/Beneficiary securing all amounts owed by Contractor/Principal. Almost 2 years later, Lender/Beneficiary demanded repayment from Subcontractor/Applicant under the terms of the personal guarantee. The Petitioners for Joinder argued that they had been directly and adversely affected by the injunction restraining the Lender/Beneficiary from receiving payment of the breach of the guarantee and sought dissolution of the injunction. The Federal Court of Australia, Besanko, J., denied the application and the Petitioners for Joinder appealed. On appeal, the Federal Court affirmed and allowed the temporary injunction to stand.

Petitioners for Joinder argued that the autonomy principle applied to the guarantee whether or not it was construed as a performance bond and that Subcontractor/Applicant therefore had no arguable case to restrain the enforcement of Lender/Beneficiary’s rights. Petitioners for Joinder also argued that the court misapprehended both the import and importance of their submissions concerning the effect of Subcontractor/Applicant’s allegations of fraud against Contractor/Principal.

The Federal Court of Australia, Charlesworth, J., dismissed the appeal and allowed the temporary injunction, reasoning that the issue of recovering the amount of the bank guarantee between Lender/Beneficiary and Guarantor was inconsistent with the autonomy principle, and that even if the court misapprehended the importance of their submissions on the allegations of fraud, this error would not have materially affected the identification of the central dispute between Subcontractor/Applicant and the Lender/Beneficiary.

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