The South Australian Court of Appeal in Synergy Construct Australia Pty Ltd v GSA North Terrace Pty Ltd atf GSA North Terrace Unit Trust [2025] SASCA 72 has granted an interim injunction restraining a principal from calling upon a contractor’s bank guarantees. A key issue was whether the time for returning the bank guarantees had already passed.

Background

GSA engaged Synergy to construct student accommodation on North Terrace, Adelaide, pursuant to the terms of a standard form design and construct contract (AS 4902-2000). Relevantly, the contract contained standard provisions as to security, which:

• required Synergy to provide GSA with bank guarantees in the amount of approximately $2 million;
• entitled GSA to have recourse to the security in specific circumstances, including to satisfy a bona fide claim it has against Synergy; and
• provided for a staged return of the bank guarantees following contractual milestones, with security to be reduced upon practical completion and the remainder to be released upon the issue of the final certificate.

On 13 April 2022, the Superintendent issued a certificate of practical completion. In January 2023, the Superintendent directed Synergy to rectify defects regarding the sewer stacks. Notwithstanding that Synergy considered the defect was caused by the building’s tenants, it agreed to rectify the defect.

On 5 December 2023, Synergy issued its final payment claim, which included costs associated with the sewer stacker and claims relating to the delayed release of the bank guarantees. In response, the Superintendent purported to issue the final certificate. Synergy formally disputed the Superintendent’s assessment in the final certificate and GSA’s continued retention of the bank guarantees in circumstances where the Superintendent had issued the final certificate. GSA responded contending that the final payment claim was invalid, the final certificate had not been issued, and advised Synergy that it intended to have recourse to the guarantees to satisfy a claim in respect of the sewer stack issues. Synergy instituted proceedings seeking declaratory and injunctive relief.

Decision

At first instance, while the trial judge found there was a serious question to be tried as to whether GSA had come under an obligation to return or release the guarantees, her Honour refused to grant an interim injunction on the basis that the balance of convenience favoured preserving the status quo. This was particularly given the bank guarantees’ function as a contractual risk allocation device to determine which party would be out of pocket pending resolution of a dispute. Synergy appealed the trial judge’s decision.

The Court of Appeal considered the large body of authorities on the question of when a party will be entitled to an injunction restraining a call on security. It observed that while many authorities refer to the importance of whether a bank guarantee was intended to be a contractual risk allocation device, this should not be determinative, and a court must still determine the injunction according to ordinary principles. A finding that an injunction was intended to operate as a risk allocation device, is not an answer in and of itself, but a step along the way in interpreting the principal’s rights to have recourse to the guarantee in the circumstances.

The Court of Appeal considered it especially relevant that in this case, there was a serious question to be tried as to whether or not the “risk allocation device” remained in operation, based on arguments as to whether GSA should have already returned the guarantees.

The Court of Appeal considered that the prejudice that Synergy would suffer if the guarantees were called upon, including material impacts to its cashflow for current projects and operations, as well as its credit rating, ultimately outweighed the potential prejudice to GSA. While the Court acknowledged that granting an interim injunction would temporarily deprive GSA of the “pay now, argue later” benefit of the bank guarantees, it was relevant that GSA would not lose the security benefit altogether as the bank guarantees would remain in place pending the court’s final decision.

The full decision can be found here.