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Note: Michael Stuart Tincknell and Beth Terise Tincknell (Homeowners) engaged Duthy Homes Pty Ltd. (Contractor) to construct certain improvements to Homeowners’ estate. To secure its performance, Contractor obtained an AUD 115,00 bank guarantee in favor of Homeowners that “was to remain in place for the 12 month defects period following the date for practical completion”.

A dispute arose regarding completion of the project and Contactor sued Homeowners; Homeowners counterclaimed for breach of contract. Following a trial, the court entered a judgment in favor of Contractor for AUD 173,049.41. In a post-judgment hearing, the trial court entered orders regarding interest and costs and another order requiring Homeowners to return the bank guarantee to Contractor. Homeowners applied for an interlocutory stay of the trial court’s order. The trial court denied the application and Homeowners pursued an interlocutory appeal. The Supreme Court of South Australia, Nicholson, J., reversed.

The appeal was isolated to the question of whether the trial court correctly denied Homeowners’ application to stay the order to return the bank guarantee. To prevail, Homeowners had to demonstrate some risk of prejudice or significant damage as a result of the order since mere delay or obstruction would not suffice. The Judge reviewed Homeowners’ pending appeal of the trial court judgment based on “numerous grounds particularising a very large number of asserted building defects and failures” and noted that the “issues to be decided turn on quite complex technical and factual expert evidence.” In the event that the trial court judgment in favor of Contractor were reversed, “[Homeowners’] contractual entitlement to possess and retain the bank guarantee would be revived.” The Judge reasoned that “whether or not a stay of the obligation to return the bank guarantee is to be granted should turn on [a] balance of convenience factors.”

Factors in favor of Homeowners retaining the guarantee were (1) despite the complexity of the pending appeal, a resolution could be expected within the year; (2) the guarantee’s substantial value in context of the dispute; (3) absent possession of the guarantee upon a successful appeal, the “contractual protections [of Homeowners] might well be rendered nugatory” to the extent of the guarantee value; and (4) if successful on appeal and absent the guarantee, Homeowners could incur substantial costs in recovering damages. The Judge stated that the evidence offered by Contractor regarding the “true or effective cost to it of maintaining the bank guarantee is quite unsatisfactory”, and as a result did not “impos[e] on [Homeowners] an obligation to compensate [Contractor] for the prejudice it would suffer in the event that a stay proved not to be warranted.”

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