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Following the submission of the notice of practical completion by the architect, Applicant/Contractor requested the return of one of the guarantees under contractClause C7, but Beneficiary/Project Manager refused, claiming that not all conditions had not been met. Applicant/Contractorthen sued Beneficiary/Project Manager to enjoin it from receiving the proceeds of the guarantee. The Victorian Civil and Administrative Tribunal, Civil Division, Vassie, A., Senior Member, denied the injunction.

Applicant/Contractor contendedthat Beneficiary/Project Manager could not claim proceeds from the guarantee because it could notprove damages, asserting that “irrespective of any defects that there may be in the works or of any delay that there may have beenin completing the works, [Beneficiary/Project Manager] could not have suffered any loss under the contract that would entitle it to have any recourse to the bank guarantees.”To support this assertion, Applicant/Contractor reasoned that it is “[Owner], which has entered into contracts of sale of residential apartments, and it is [Owner], which owns any lots that remain unsold.” Further, Applicant/Contractorcontendedthat Owner could not recover proceeds under the bank guarantee because it was not a party to the bank guarantee.

The Judge rejected Applicant/Contractor’s arguments, stating that a developer can show damages even if it was not itself liable for defects, and that the damage was the lack of full contractual performance.

The Judge then noted that an injunction is not usually the proper remedy under a guarantee. To determine whether an injunction was appropriate, the Judge utilized a balancing testto determine whether the risk of injustice would be greater if the injunction were not granted. The Judge concluded that there was a greater risk of injustice if the injunction were granted.

Finally, the Judge addressed the ambiguity over the interpretation of the word “each” in Clause C7. It read:

The owner’s entitlement to security will be reduced by 50% of the amount of security then held within 28 days after each of the following has occurred: (a) the architect issues the notice of practical completion; and (b) the rectification and completion of all defects or incomplete items notified to the contractor at or prior to practical completion.

Applicant/Contractor contended that the proper interpretation was that the two conditions in the clause were independent of each other, meaning that half of the security would be returned when the first condition was met, and then another half when the second condition was met. Beneficiaryargued, however, that the word “each” really meant “both,” meaning that half of the security would be returned when the two conditions were both met.

The Judge reasoned that while Applicant/Contractor might be correct that “each” was different from “both” when looking only at the clause itself, in the context of the larger document, it was clear that the intention was for the security to be returned only after both conditions had been met.

In a subsequent application, Beneficiary/Project Manager applied for an order demanding that Applicant/Contractor pay for Beneficiary/Property Manager’s costs regarding the injunction litigation. The Victorian Civil and Administrative Tribunal, Civil Division, Vassie, A., Senior Member, ordered Applicant/Contractor to bear Beneficiary/Property Manager’s costs, reserving costs that may go to future litigation.

Text: The contract contained the following clause regarding the bank guarantees:

“C7: The owner’s entitlement to security will be reduced by 50 % of the amount of security then held within 28 days after each of the following has occurred: (a) the architect issues the notice of practical completion; and (b) the rectification and completion of all defects or incomplete items notified to the contractor at or prior to practical completion.”

[JK/ARB/KEC]

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