Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd

In the Supreme Court of New South Wales, Court of Appeal, Lucas Stuart Pty Ltd (the applicant) sought to appeal an interlocutory decision concerning its entitlement to call upon performance bonds provided by Hemmes Hermitage Pty Ltd (the respondent). The dispute arose from a building and construction contract, where the respondent sought to cash in performance bonds based on alleged non-compliance by the applicant with a notice issued under the contract. The applicant contended that these calls on the bonds were contractually unjustified and would cause significant damage to its reputation and financial standing.

The Court of Appeal was required to determine whether the respondent's entitlement to call upon the performance bonds was conditioned upon the objective fact of material non-compliance by the applicant with its contractual obligations. Furthermore, the Court had to consider the test for granting an interlocutory injunction, specifically whether the applicant had demonstrated a serious question to be tried regarding the validity of the respondent's notice, whether the balance of convenience favoured the grant of interim relief, and whether damages would be an inadequate remedy for the likely harm to the applicant's reputation and financial standing.

The Court found that the primary judge had misconstrued the contract in his exercise of discretion. Applying the principles for granting an interlocutory injunction, the Court determined that there was a serious question to be tried as to the validity of the respondent's notice. The Court reasoned that further calls on the bonds, if contractually unjustified, were likely to increase the damage already suffered by the applicant, and that a restraint on such calls would tend to lessen the adverse impact. Consequently, the balance of convenience favoured the grant of interim relief, and damages were considered an inadequate remedy.

The Court allowed the appeal, set aside the orders of the primary judge, and granted an interlocutory injunction restraining the respondent from converting into cash any unconditional undertaking provided by the applicant, where such conversion was sought in reliance upon any failure, or purported failure, to comply with the terms of the notice dated 19 July 2010. The respondent was ordered to pay the applicant's costs of the motion and the appeal.