In Kronstruct Pty Ltd v UAG Toorak Pty Ltd [2026] VSC 213, the Supreme Court of Victoria considered whether to grant an interlocutory injunction restraining a principal from seeking recourse to an unconditional bank guarantee.

UAG Toorak engaged Kronstruct to design and construct a mixed residential and commercial development (Contract). Kronstruct provided UAG Toorak security and retention money. Pursuant to clause 5.6 of the Contract, UAG Toorak was entitled to have recourse to the security in certain scenarios, including “in respect of loss, damage or current liability claimed by UAG Toorak”.

Following concerns about unpaid subcontractors, the parties entered into a deed of undertaking and guarantee dealing with outstanding subcontractor debts and payment requirements (deed of undertaking).

UAG Toorak gave notice to Kronstruct of its intention to seek recourse to the retention money and to call on the security pursuant to clause 5.6 of the Contract, asserting that Kronstruct had failed to make payment in accordance with the requirements of the deed of undertaking, which caused UAG Toorak to suffer loss and damage. Kronstruct sought an interlocutory injunction restraining UAG Toorak’s recourse to the security and retention money.

One of the key issues before the Court was whether a breach of the deed of undertaking resulted in loss or damage claimable by UAG Toorak under the Contract. The Court held that:

• there was a serious question to be tried as to whether a breach of the deed of undertaking was a breach of the Contract; and
• even if there had been a breach of the Contract, UAG Toorak’s claim to loss and damage was not seriously arguable on the facts. Specifically, the Court observed that part of the amount alleged to be outstanding had been paid to subcontractors with UAG Toorak’s knowledge and assent.

Given the above, the Court was satisfied that:

• there was no foundation to UAG Toorak’s claimed recourse to the security;
• UAG Toorak’s alleged loss was not seriously arguable; and
• the balance of convenience favoured granting the interlocutory injunction restraining UAG Toorak’s recourse to the security.

The decision can be found here.