Summary 

In Synergy Construct v GSA North Terrace [2025] SASCA 72, the Court of Appeal of South Australia granted an interim injunction restraining a principal from “cashing in” bank guarantees provided as security under a construction contract.

The decision is a useful reminder that, although an unconditional bank guarantee or insurance bond is often thought to be “as good as cash”, the terms of the construction contract may still restrict a principal’s right to have recourse to such forms of security.

Factual background

1. The principal, GSA North Terrace Pty Ltd (GSA), contracted Synergy Construct Australia Pty Ltd (Synergy) to design and construct a 36-storey student apartment complex in the Adelaide CBD. The construction contract was an amended form of the AS 4902—2000 Conditions of Contract (the Contract).
2. The recourse clauses in the Contract were amended from the standard form. In particular, clause 5.2 of the Contract provided:

Security shall be subject to recourse by the Principal at any time… to satisfy any bona fide Claim the Principal may have against the Contractor … (emphasis added)

3. However, the reduction and release clauses remained unamended from the standard form in AS 4902. In particular, clause 5.4 provided that:

A party’s entitlement otherwise to security shall cease 14 days after final certificate [under clause 37.4 of the Contract].

4. A dispute arose between the parties in respect of defective sewer stacks – in particular, whether those stacks had been rectified, and whether the defect liability period (as modified by the parties under an email exchange agreement) had expired.
5. On 5 December 2023, Synergy issued its final payment claim for $699,721.17, asserting that it had fulfilled all its obligations under the defect liability period.
6. On 22 December 2023, the Superintendent responded to Synergy by issuing a notice described as a “Final Certificate under clause 37.4”, certifying that a nil payment was payable to Synergy.
7. On 29 December 2023, Synergy issued a formal notice of dispute under the Contract challenging the Superintendent’s nil assessment and GSA’s continued retention of the bank guarantees (totalling $1,999,038) held as security under the Contract.
8. On 15 January 2024, GSA issued a response contending that Synergy’s final payment claim was not valid, the Superintendent’s response sent on 22 December 2023 was therefore not a final certificate (notwithstanding that the Superintendent had described it that way), and accordingly GSA had no obligation to return the bank guarantees. GSA further stated that it intended to have recourse to the bank guarantees to satisfy its claims in respect of the sewer stack issues.
9. Synergy commenced proceedings in the Supreme Court against GSA, seeking an interim injunction to restrain GSA from making a written demand on the bank guarantees.

Supreme Court decision

At first instance, the Court was not prepared to grant an injunction, holding that GSA’s right to have recourse for “any bona fide Claim” meant that the bank guarantees operated as a risk transfer device, such that Synergy was the party to be out of pocket pending the final resolution of any genuine disputed claim (in effect, a “pay now argue later” regime).

Court of Appeal decision

The Court of Appeal overturned the decision at first instance, holding that the case must be determined in accordance with “ordinary principles” relating to injunctive relief.

In this regard, the Court of Appeal held that there was a strong prima facie case that, by virtue of clause 5.4 of the Contract (noted above), GSA’s right to have recourse to the bank guarantees had expired.¹

In the circumstances, the Court of Appeal held that the balance of convenience favoured injunctive relief for the following reasons:

1. GSA did not point to any prejudice it might suffer if injunctive relief were granted. The terms on the face of the bank guarantees did not include any time limit or expiry date. If GSA were ultimately successful in its defect claims, it could therefore have recourse to the securities at that time.²
2. Synergy would suffer substantial prejudice if injunctive relief were granted, inhibiting its working capital, credit ratings, and ability to tender for and win new work.
3. Synergy had provided the “usual undertaking as to damages”.³

Key takeaways

The decision is an important reminder that “unconditional” bank guarantees and insurance bonds are not always as good as cash.

Care must be taken when drafting contract terms dealing with a principal’s rights to call on such forms of security, and when the security must be returned to the builder.

Depending on the contract terms, builders may be able to obtain a Court injunction preventing a principal from “cashing in” unconditional forms of security, especially where the defects liability period has expired.

This article was written by John Vozzo, Partner, Jonathan Davies, Special Counsel and Noel Williams, Associate.

¹ See [6], [87], [108].

² See [115].

³ See [69], [88] and [116]. That is, an undertaking to pay just compensation if the delay in GSA accessing the bank guarantees caused it loss.