Ottoway Engineering Pty Ltd v Westpac Banking Corporation (No 3)

Ottoway Engineering Pty Ltd sought orders to prevent Westpac Banking Corporation from enforcing a guarantee. The dispute arose from a construction project where the applicant was a subcontractor to the main contractor, CITIC Pacific Mining Ltd. The guarantee was provided by the applicant’s bank to the main contractor’s bank and secured the main contractor’s obligations to its bank. The applicant argued that the guarantee also secured its own obligations to the main contractor under a separate agreement. The court was required to determine the proper construction of the guarantee and whether Westpac engaged in misleading or deceptive conduct under the Australian Consumer Law.

The court examined the terms and conditions of the guarantee to ascertain its true nature. It found that the guarantee was a performance bond or demand guarantee, not a contract of suretyship. The primary obligation under the guarantee was the applicant’s bank to pay a specified amount upon a written demand, independent of the underlying agreements between the applicant and the main contractor. The court held that there was no underlying agreement between the applicant and Westpac, and thus Westpac had no obligation to make further inquiries into the conduct of the main contractor before calling on the guarantee. Furthermore, Westpac was not bound to pursue repayment of the amount secured by the guarantee through a term deposit also held by Westpac.

The court concluded that Westpac was entitled to take immediate action on the guarantee. The applicant’s argument that Westpac engaged in unconscionable conduct by asserting or relying on a legal right was dismissed. The court found that there was very limited scope for holding unconscionable conduct in a case involving a performance bond or demand guarantee. The respondent was not liable for misleading or deceptive conduct under the Australian Consumer Law.

ORDERS:
1. The respondent bring in draft minutes of order reflecting the conclusions in the reasons for judgment.