Kronstruct Pty Ltd v UAG Toorak Pty Ltd & Anor [2026] VSC 213

1 The plaintiff, Kronstruct Pty Ltd, is a member of the Krongold Group of Companies. On or around 20 December 2024, Kronstruct Pty Ltd ('the Contractor') entered into a design and construct contract ('the Contract') with the first defendant, UAG Toorak Pty Ltd ('the Principal') for the design and construction of a mixed residential and commercial development comprising six apartments, a ground floor office, three basements and associated areas and facilities at 8 Wallace Avenue, Toorak, Victoria ('the project'). The second defendant ('the Superintendent') is the Superintendent appointed to administer the Contract.

2 The Contract is comprised of a series of documents including the formal instrument of agreement and general conditions. Its provisions require the Contractor to provide security, which relevantly comprised a National Australia Bank Ltd guarantee ('the Bank Guarantee') in the sum of $489,644.57 (which equates to 2.5 per cent of the Contract Sum), and retention money which, as at the date of the application, was held by the Principal in the sum of $795,049.13 ('the Retention Money').

3 By notice given on 31 March 2026 ('the Notice'), the Principal informed the Contractor that it intended to have recourse to the Retention Money held by it in the sum of $795,049.13 and intended to call upon the Bank Guarantee in the sum of $489,644.57 on and from 9 April 2026. The threatened recourse was based upon asserted breaches by the Contractor of a Deed entered into by the Principal and the Contractor on 25 February 2026 ('the Deed of Undertaking and Guarantee'), and the terms of the Contract, which breaches had caused the Principal to suffer loss and damage in the sum of $1,616,903.43 including GST, which equated to the sum of $1,469,912.21, excluding GST.

4 By summons filed on 7 April 2026, the Contractor seeks interlocutory injunctive relief restraining the Principal from calling up the Bank Guarantee and having recourse to the Retention Money.

5 The application was heard on 8 April 2026 and I reserved my decision. The Principal gave an undertaking to the Court that it would not act on the Notice until the application was determined.

6 The principles informing the grant of interlocutory injunctive relief, generally and specifically those restraining calls on Bank Guarantees, were not in contest. They are set out and considered below.

7 It is important to set out the facts and circumstances which give rise to the application. Those facts and circumstances, at first blush, seem somewhat complicated, but on closer analysis the complexity is more apparent than real.

8 The Contractor relied upon the affidavit of Neslihan Dastan dated 7 April 2026 ('the Dastan affidavit') and also tendered two further documents, an invoice from the Contractor dated 10 February 2026 addressed to Wallace Avenue Development for $697,201.27[1] and an email exchange between May Su, an employee of the Principal who worked in the accounts and administration department, and Abigail Chou from Align Law, who are the solicitors for the Principal, on which certain representatives of both the Contractor and the Principal were copied, along with relevant annexures. The relevant emails are dated 27 February 2026 and 2 March 2026.[2] The significance of the email exchange appears below. The Principal relied on an affidavit of its solicitor Kelvin Tay made 8 April 2026, but filed on 10 April 2026. In addition, both the Contractor and the Principal each filed outlines of argument, and the Court had the benefit of oral submissions from the parties.[3]

9 As stated above, the Contractor and the Principal entered into the Contract on or around 20 December 2024. Clause 5.1 specifies the documents comprising the Contract and cl 7.3 relevantly provides that the Contract may not be amended or varied, and shall not be construed as having been amended or varied, unless such amendment or variation is reduced to writing and signed by the parties.

10 The constituent contractual documents include the Australian Standard - Amended Form General Conditions of Contract for Design and Construct identified in AS 4300 - 1995 ('the General Conditions').

11 Section 5 headed 'Security, retention moneys and performance undertakings' includes cl 5.6, which reads as follows:

5.6 Conversion of security

The Principal may have recourse to security and may convert into money security that does not consist of money in respect of loss, damage or a current liability claimed by the Principal under the Contract or in respect of any amount which is certified as payable under the Contract which remains unpaid by the Contractor or the Principal has become entitled to exercise a right under the Contract in respect of the security or an event described in clause 44.11 has occurred in relation to the Contractor, and where:

(a) the party has given the other party notice in writing for the period stated in Annexure Part A, or if no period is stated, five days of the party's intention to have recourse to the retention moneys and/or cash security and/or to convert the security; and

(b) the period stated in Annexure Part A or if no period is stated, five days has or have elapsed since the notice was given.

Without affecting the Contractor's rights under clause 46.6, the Contractor has no entitlement to restrain or prevent and covenants with the Principal that it will not institute any proceedings or exercise any rights or take any steps whatsoever to restrain or prevent the Principal from having recourse to the security or the financial institution from providing recourse to the security to the Principal or to restrain or prevent the Principal from demanding or obtaining recourse to the security or in any way seek to restrain or prevent the Principal from exercising its rights under this clause 5.6 or otherwise under the Contract in respect of the security.

12 Relevantly, the General Conditions, as incorporated into the Contract, include cl 42 headed 'Certificate and payments' and cl 43 headed 'Payment of workers and subcontractors' which will be considered below.

13 For present purposes, it is sufficient to note that cl 43.2 of the General Conditions obliges the Contractor to pay all amounts payable to its subcontractors promptly when due. Clause 43.3 provides that if the Contractor fails to comply with cl 43.2 or fails to provide to the Superintendent a statutory declaration or documentary evidence as the case may be, the Principal may withhold payment of moneys due to the Contractor until the statutory declaration or documentary evidence is received by the Superintendent. Clause 43.4 headed 'Direct payment' provides, relevantly, that where the Contractor fails to comply with cl 43.2, the Principal may, on behalf of the Contractor, make the payment directly to the subcontractor, in which case, the amount so paid shall be a debt due from the Contractor to the Principal, which may be set off against, and deducted from, any amounts payable on account of the contract sum.

14 On 25 February 2026, the Contractor and the Principal executed two further deeds, a document entitled 'Side Deed' ('the Side Deed'), and the Deed of Undertaking and Guarantee.

15 Given the dispute, it is necessary to examine the terms of the Side Deed and the Deed of Undertaking and Guarantee in some detail.

16 The background to the Side Deed included paragraph B which records the wishes of the parties to, 'amongst other things (including in response to various payments that are due and payable to various Third-Party Subcontractors but remain unpaid by the Contractor), implement a structured payment administration mechanism to ensure transparency, subcontractor payment discipline and financial risk management on the terms set out in this Deed'.

17 Further, paragraph C of the background to the Side Deed provides that the parties have agreed to certain terms in relation to the Contract and the Project as set out in the deed.

Notwithstanding anything else contained in the Contract or otherwise, the parties agree the following:

(a) on and from 23 February 2026 (Effective Date), all payments that are required to be made by the Principal to the Contractor under or in connection with the Contract (including any Certified Amount) shall be paid by the Principal to the Principal's lawyers' Trust Account (Trust Account), being the following...

(b) funds paid pursuant to paragraph (a) into the Trust Account (Trust Monies) may only be paid out of the Trust Account in accordance with this Deed;

(c) prior to any payment of Trust Monies out of the Trust Account, the Contractor shall prepare a Payment Run Schedule (being a trade letting schedule) which must provide a reconciliation of any amounts paid and/or owing to any Third Party Subcontractors against the Certified Amount and include or attach the following information and/or documents ...

(d) ...

(e) this sub clause applies only to any claim for payment made by the Contractor under Clause 42.2 of the Contract. Any claims made by the Contractor under Clause 42.2 of the Contract must be separately identified in the Payment Run Schedule and be supported by an invoice for the relevant unfixed plant and materials from the relevant Third-Party Subcontractor. ...

19 As is apparent from cl 2(a) and (c), those clauses refer to Certified Amount. That term is defined in cl 1.1 as meaning 'any amount payable under the Contract including as determined in a Payment Schedule under Clause 42 of the Contract'.

20 Clause 3 records an acknowledgment and agreement by the parties that, notwithstanding anything in the contract, including cl 5.8, the Principal shall only be obliged to release to the Contractor the second Bank Guarantee (referred to in cl 5.8 of the Contract) upon the later of 30 April 2026 and the Satisfaction Date (sub-para (a)). The Satisfaction Date is defined by reference to cl 2(i), which is the date on which the Principal confirms in writing that it is satisfied that all Third Party Subcontractors have been paid all amounts that are or may be due and payable and the Contractor has complied with its obligation to make payment under cl 2 of the Deed of Undertaking and Guarantee.

Inconsistency

Nothing in this Deed shall be deemed to, or have the effect of:

(a) reducing or limiting any of the Contractor's obligations or liabilities under the Contract; and/or

(b) waiving any of the Principal's rights or entitlements under the Contract.

As and from the Effective Date, the Contract will (subject to the preceding paragraph):

(c) be read and construed subject to the terms and conditions of this Deed; and

(d) if there is any conflict, apparent conflict, discrepancy, ambiguity or inconsistency (Inconsistency) between the terms and conditions of the Contract and those of this Deed then this Deed will, to the extent of the Inconsistency, prevail.

Any inconsistencies shall be resolved by the Superintendent in accordance with this clause. The parties shall comply with any directions of the Superintendent in relation to or arising from such resolution.

22 Clause 5.5 headed 'Ratification' provides that 'this deed is supplemental to the Contract and, except as otherwise expressly provided to the contrary, the Contract is expressly ratified and confirmed'.

23 The parties to the Deed of Undertaking and Guarantee include not only the Principal and the Contractor, but Lionel Krongold and Wayne Krongold, who are described as guarantors.

24 Clause 2 of the Deed headed 'Undertaking' reads:

2 UNDERTAKING

The parties acknowledge that:

(a) as at the date of this Deed, there are certain amounts (including but not limited to those amounts set out in Schedule 1) (Amounts Owing) that are due and payable to various subcontractors, suppliers, tradespersons and / or consultants (including novated consultants) in connection with the work under the Contract (including but not limited to those referred to in Schedule 1) (Third-Party Subcontractors) which remain outstanding; and

(b) the Amounts Owing as at 28 February 2026 is at least $1,469,912.21 (exclusive of GST).

The Contractor agrees to, and undertakes to the Principal that it shall, pay the balance of all Amounts Owing that is outstanding as at 28 February 2026 to all Third-Party Subcontractors (to the reasonable satisfaction of the Principal and the Superintendent) by 5pm on 27 March 2026.

The Contractor acknowledges that if it does not comply with its obligation in the preceding paragraph, then the Principal shall suffer loss and damages arising out of, or in connection with, that breach..

25 Clause 7 of the Deed of Undertaking and Guarantee headed 'Inconsistency' is in relevantly identical terms to the Side Deed, save that the reference to Effective Date in the Side Deed is replaced with the words 'as and from the date of this Deed'.

26 The Deed of Undertaking and Guarantee was executed on 25 February 2026, which is in fact two days later than the Effective Date, notwithstanding that the Side Deed was also apparently executed on 25 February 2026. Nothing seems to turn on this.

27 Schedule 1 to the Deed of Undertaking and Guarantee comprises a two-page document, the first of which listed a number of trades said to be owed a 'grand total of $836,093.21' with the amounts owing to each of those trades listed under a heading 'Additional urgent funds overdue'. The second page lists five trades and the individual amounts said to be owing, which gave rise to a grand total of $633,819 with the amounts owed to each of those trades appearing under the heading 'Jan claim'.[4]

28 The evident need for the arrangements documented by the Side Deed and the Deed of Undertaking and Guarantee was an admitted failure on the part of the Contractor to pay all amounts due to subcontractors. This occurred, according to Ms Dastan, because of certain difficulties that arose from the integration of a new enterprise resource planning system which was mishandled by a now former employee, whose employment was terminated on 21 January 2026.

Correspondence after the Side Deed and Deed of Undertaking and Guarantee

29 On 27 February 2026, Ms Su from the Principal emailed the Principal's solicitors and copied, inter alia, various employees of the Contractor, including relevantly Charlie Dillon and Ms Dastan in relation to progress claims numbered 12 and 12.1 advising that the NAB had released funds totalling $868,904 into the solicitors' trust account by two payments, one for claim 12 of $697,202 and the second for claim 12.1 of $141,702 and that an additional amount of $30,000 had been transferred into the trust account by Krongold (a total of $868,904). The figure of $697,202 bears evident similarity to an invoice sent by the Contractor to 'Wallace Avenue Development' dated 10 February 2026 of $697,201.27,which specified a due date of 24 February 2026. Receipt of the email was acknowledged by the solicitor's email of 2 March 2026 sent to Ms Su to which Mr Dillon and Ms Dastan among others were copied. The solicitor's email attached payment remittances for 5 identified contractors and the amounts provided to each with relevant invoice numbers identified. The names of the contractors were those set out in the second page of the schedule to the Deed of Undertaking and Guarantee and the amounts paid to each were of very similar amounts to those set out in the schedule.[5]

30 On 3 March 2026, Mr Dillon, a senior contract administrator at the Krongold Group, sent an email to the Superintendent's representative, Mustafa Ujjainwala, which attached a proposed claim for the month of February 2026 for the sum of $338,491.04 (exclusive of GST).

31 Mr Ujjainwala responded on 6 March 2026 requesting copies of the relevant statutory declaration and consultant statements in order to permit the assessment of the claim under the Contract. They were provided by Mr Dillon on 10 March 2026, albeit the statutory declarations were not signed. Mr Ujjainwala responded in short order querying the fact that the statutory declaration was not signed and noting that the statement was for the January claim and not the February claim.[6] On 11 March 2026, Mr Dillon sent Mr Ujjainwala an email which stated, inter alia, that the 'stat dec is being completed in the background, can you issue assessment of claim'.

32 On 17 March 2026, Mr Ujjainwala sent an email to Mr Dillon stating that 'without receipt of the stat dec, our assessment (QS and SI) stands at $0 certified. Can you please confirm if Kronstruct intends to issue stat dec by mid-day today orelse (sic) we will close this Feb claim as certified $0'. He sent a further email later that day noting that 'with no stat dec issued, we are assessing the claim certified as $0'.

33 On 18 March 2026, Mr Dillon forwarded the statutory declaration for the February claim to Mr Ujjainwala.

34 Following receipt of the statutory declaration on the same day, Mr Tom Kane, a quantity surveyor, queried the increase in the outstanding amount owed to subcontractors from 'circa 866K (excl. GST)[7] previously adivsed (sic) to circa $1.35 million (excl. GST)'. He requested advice as to why there had been such a significant increase in the amounts owing since the January claim report and inquired as to the timeframe to pay the outstanding moneys.

35 On 18 March 2026, Glenn Chiang, who is a principal of Align Law, the solicitors acting for the Principal, emailed Mr Dillon and Ms Dastan, copying in the Superintendent, among others, noting the existence of the Side Deed and the Deed of Undertaking and Guarantee, and specifically cl 2 of the Deed of Undertaking and Guarantee by which the Contractor was required to pay the balance of all amounts owing outstanding as at 28 February 2026 to all third party subcontractors to the reasonable satisfaction of the Principal and the Superintendent by 5pm on 27 March 2026. The email stated that in order for the Principal and the Superintendent to be reasonably satisfied that the obligation has been satisfied, the Contractor was required to provide the following evidence of satisfaction by 5pm on 27 March 2026; all bank transfer receipts evidencing payments to third party subcontractors, all claims and invoices from third party subcontractors, statutory declarations, etc. The email continued by demanding copies of that information, together with additional information said to be required to be provided under the Side Deed.

36 On 19 March 2026, Mr Dillon responded with a detailed email to Mr Kane,[8] responding to Mr Kane's query of 18 March 2026:

Hi Tom,

In answer to your queries, as per various discussions and communications with the Principal and its legal representatives, we note as follows:

In January, 2026 - we identified irregular conduct by our former Financial Controller which did not align with the company's governance standards and financial management protocols. Following investigation, that employee's employment was terminated immediately (late January, 2026).

We have since taken immediate corrective steps to stabilise the finance function, including:

...

This review has been ongoing. However, we are actively working to quantify and reconcile any discrepancies. It is during this process of undertaking proper reconciliations of all business accounts we have identified further discrepancies. We are still in the process of reconciling accounts across the business and it may be that further adjustments are made (reducing this number where there has been incorrect/misallocated data entries by the Financial Controller). However, in the interest of rebuilding trust and ensuring that we provide a true and correct Statutory Declaration as at the date of the Statutory Declaration, we have provided the numbers we currently have in our system..

We confirm there is a side deed which we understand the bank has requested in ensuring that the funds are placed into the Principal's solicitors' trust account for payment on or by 27 March 2026. This will cover any outstanding payments to those subcontractors.

37 On 20 March 2026, Mr Kane responded to Mr Dillon thanking him for the email and requesting confirmation that 'as at 20 March 2026, as far as you are aware, monies owing to subcontractors is $1,353,834 (excl. GST) as per the statutory declaration provided dated 18 March 2026 with no further change to the stated figure anticipated'.

38 Mr Dillon provided the confirmation sought and requested that the February claim be assessed 'so invoice can be raised and payment to trust facilitated'. The relevant statutory declaration was that of Wayne Krongold made 18 March 2026, in which Mr Krongold relevantly deposed that 'As at 18th March 2026 of progress claim No. 14 the total amount payable by the Contractor to all subcontractors in respect of work under the contract is $1,353,833.75 + GST'.

39 On 24 March 2026, the Superintendent issued progress payment schedule number 14 ('PS 14') which attached a payment certificate for the period ended February 2026 for works undertaken during that relevant claim period. The email, which accompanied the payment certificate, stated that 'the net amount payable to Principal by Contractor as per attached certificate is $1,334,671.41 plus GST, subject to the terms of the Contract'. The attached certificate set out the relevant calculations which included a deduction for amounts payable to subcontractors in the amount of $1,353,833.75, but after making allowances for other adjustments, resulted in an amount for payment of $1,468,138.55, including GST.

40 The certificate deducted the amount of $1,334,671.41, added GST to it and purported to certify that the Contractor owed the Principal the sum of $1,468,138.55.

41 On 26 March 2026, Ms Su, a representative of the Principal, emailed the Contractor referring to 'signed letter of Undertaking and the money owing to subcontractors & also Charlie's email relating to Direction of Payments to the Sub-Contractors before 5pm on Friday, 27th March 2026'. The email continued:

The amount owing is to be credited into our lawyer's trust account (Align Law).

Attached, please find the copy of Charlie's spreadsheet with added (highlighted) columns noting the difference between Charlie's directed amount versus invoices billed. We have cross-checked with Charlie yesterday and his instruction is to direct the payment to the subcontractors as per his 'Directed Amount by Charlie' in his spreadsheet.

Himali: Please ensure the incoming funds to our trust account is sufficient to pay the owing subcontractors. Please note that due the above different amounts directed by Charlie against all the invoices provided, you have to reconcile your invoices after the payments made for our reference.

As per the Side Deed, we require this payment direction spreadsheet to be signed off by your PM, Joseph Macula and the superintendent, Mustafa Ujjainwala prior to Align Law upload the payments by Friday 27th March 2026, 5pm.

(emphasis added)

42 Himali DeSilva responded by an email sent the next day (27 March 2026) to Ms Su. The email referred to the Deed of Undertaking and Guarantee and particularly cl 2 before then continuing as follows:

For clarity, the reference to "Amounts Owing... outstanding as at 28 February 2026" is intended to capture:

• amounts relating to work performed and invoiced up to and including January 2026; and

• amounts which had fallen due and remained unpaid as at 28 February 2026.

It does not extend to amounts incurred during February 2026 which only become due and payable in March 2026 (or thereafter).

In other words, the operative date is the position of the account as at 28 February 2026, and the obligation is confined to amounts that were actually due and outstanding at that point in time, rather than amounts which may arise or become payable subsequently. ...

Accordingly, without a fixed reference point, the "Amounts Owing" would remain fluid and incapable of final determination. For that reason, the clause must be read as fixing a clear point in time (28 February 2026) against which the outstanding position is assessed. We also note that this interpretation was discussed and agreed with the Principal's legal representatives at the time the terms of the Deed were negotiated.

Accordingly the amount outstanding as at 28 February, 2026 is EX GST $1,353,833.75 which is inclusive GST should be $1,489,217.13 as per the attached document.(when we run the AP trial balance by job the report runs EX GST , and when we process the payment batch only the GST get included).

On 19.03.26 Charlie and I reviewed the individual AP ledger based on that list and prepared a payment batch to send to you ...

Once the funds have been received into the trust account, please proceed with the payment to the creditors listed in the attachment tab 1. The payments should be made in accordance with the amounts specified, totalling $1,490,866.30.

Please confirm once all payments have been completed then we can send the remittances out.

43 On 30 March 2026, at 4pm, Mr Chiang from Align Law emailed Mr Dillon and Ms Dastan, among others, noting that the time for the making of the payment under clause 2 of the Deed of Undertaking and Guarantee had passed and noting that he had not received a response to his email dated 18 March 2026. He advised that unless he received a response to the email by midday the next day providing the information requested, his client would proceed on the basis that the Contractor was in breach of clause 2 of the Deed of Undertaking and Guarantee.

44 Ms Dastan deposes to the fact that on 31 March 2026 at approximately 3.30pm, the Contractor transferred $1,353,833.75 into the trust account of the Principal's solicitor. This amount was said by her to be 'in accordance with the statutory declaration and the full reconciliation'. This is a little odd given that the reconciliation stated that this was the GST exclusive amount with the GST inclusive amount being $1,489,217.13.[9] Ms Dastan's evidence needs to be read in light of her email sent that day at 4.06 pm, which is referred to below.[10]

45 By the Notice served at 4.00pm on 31 March 2026 pursuant to cl 5.6 of the Contract, the Principal gave notice that it intended to have recourse to the Retention Money held in the sum of $795,049.13 and intended to convert the Bank Guarantee from the NAB in the sum of $489,644.57 into money and retain it, after five days from the date of the Notice, that is, on and from 9 April 2026.

46 The Notice asserted that the Contractor had failed to comply with cl 2 of the Deed of Undertaking and Guarantee, and in so doing, had breached the terms of that Deed and the terms of the Contract. The Principal claimed that the Contractor's breach of the Deed of Undertaking and Guarantee and of the Contract had caused the Principal to suffer loss and damage, such loss and damage being the sum of $1,616,903.43, which was said to be the amounts owing (of $1,469,912.21, plus GST).[11]

47 Amounts owing was then defined in para 9 of the Notice by reference to schedule 1 of the Deed of Undertaking and Guarantee. Paragraph 7 of the Notice referred to the Principal and the Contractor entering into the Deed of Undertaking and Guarantee, but importantly included these additional words 'the Deed varied the Contract by adding the terms contained in the Deed into the Contract'.[12]

48 The Notice recited the part of cl 2 of the Deed of Undertaking and Guarantee where the Contractor agreed to, and undertook to the Principal that it shall pay the balance of all amounts owing as at 28 February 2026 to all third party subcontractors to the reasonable satisfaction of the Principal and the Superintendent by 5pm on 27 March 2026, and the part of cl 2 by which the Contractor acknowledged that if it did not comply with that obligation, then the Principal shall suffer loss and damage arising out of, or in connection with, that breach. It then recited the following events:

(a) On 18 March 2026, the Principal, through its solicitors, wrote to the Contractor requesting, among other things, proof of payment of the amounts owing to the Third-Party Subcontractors by no later than 5pm on 27 March 2026 (para 11 of the Notice);

(b) The Contractor did not respond to the correspondence of 18 March 2026 (para 12 of the Notice);

(c) At no time before, at or after 5pm on 27 March 2026 has the Contractor confirmed in writing that it had paid the Amounts Outing (sic) to the Third-Party Subcontractors and provided the Principal and the Superintendent evidence that it has paid the Amounts Outing (sic) to the Third-Party Subcontractors (para 13 of the Notice);

(d) On 30 March 2026, the Principal, through its solicitors, wrote to the Contractor, requesting provision of the information sought in its correspondence dated 18 March 2026, by no later than 12pm on 31 March 2026, failing which, the Principal would proceed on the basis that the Contractor had failed to comply with its obligations under clause 2 of the Deed of Undertaking and Guarantee (para 14 of the Notice);

(e) The Contractor did not respond to the correspondence of 30 March 2026 (para 15 of the Notice).

Notably, the Notice made no reference to either Ms Su's email of 26 March 2026 or any payment into the trust account.

49 At 4.06 pm on 31 March 2026, 6 minutes after the Notice had been sent, Ms Dastan emailed Mr Chiang attaching a 'remittance of the sum paid in satisfaction of the Deed'. The email continued 'Furthermore Nicole Chow[13] has confirmed to Ashley Krongold that the sum has been received by your firm prior to your sending of this Notice. Please confirm the notice is withdrawn or otherwise we will immediately be taking steps to prevent your client from having recourse to security'.

50 Although the actual remittance is not exhibited, at 7.56 pm on 31 March 2026, Mr Chiang of Align Law, emailed Ms Dastan confirming receipt of 'the amount of $1,489,217.13 into the trust account'. His email continued '...this amount reflects the amount certified by the Superintendent in Payment Certificate No. 14 for 'Outstanding Debt owing to Subcontractors by Contractor as per Stat Dec (being $1,353,833.75) plus GST thereon. This amount is also the amount contained within the Excel Spreadsheet entitled 'Wallace March payrun batch in Jobpack for payables outstanding as at 28.02.26 xlsx'.[14] It follows that we consider the payment made today to be satisfaction of the amount payable by you under Payment Certificate No. 14'.

51 Mr Chiang's email is accurate insofar as it asserts that $1,489,217.13 is the GST inclusive equivalent of $1,353,833.75, and is also accurate insofar as it suggests that it is consistent with the statutory declaration.[15] The last part of the email reflecting a characterisation of the payment as one made in 'satisfaction of the amount payable by you under Payment Certificate No. 14' is problematic given that the payment certificate issued by the Superintendent sought payment of $1,468,138.55 inclusive of GST and not $1,489,217.13. As the payment schedule makes clear, whilst the schedule makes allowance for the $1,353,833.75 as a deduction from moneys otherwise due to the Contractor, it also incorporates a further adjustment based on the value of work completed, less previous payments certified, in coming to a net figure.[16]

52 On 2 April 2026, the Contractor emailed a letter to the Principal, copied to the Superintendent, responding to the Notice.

53 Relevantly, in the letter, the Contractor asserted that the Deed of Undertaking and Guarantee did not amend or otherwise affect the parties' rights under the Contract and that any breach of the Deed of Undertaking and Guarantee did not constitute a breach of the Contract.[17]

54 Otherwise, the response asserted that the loss and damage alleged to have been suffered by the Principal by reason of the breach of the Deed of Undertaking and Guarantee was made up of money alleged to be due and payable to third party creditors of the Contractor.

55 The Contractor asserted that the demand for payment for the alleged loss or damage was not bona fide because:

(a) it was with respect to third party creditors of the Contractor; and

(b) before the Notice was served, the moneys were deposited into the Principal's lawyers' trust account, as instructed, and that any purported failure to pay the third party creditors directly was due to the conduct (or lack of) by the Principal.

56 The Contractor then recited the following matters:

(a) On 20 March 2026, and following the Contractor undertaking a reconciliation process to identify what amounts were outstanding to third party subcontractors (as contemplated by clause 2 of the Deed of Undertaking and Guarantee), the parties affirmed that the amount of $1,353,834.00 (ex. GST) / $1,469,912.21 (inc. GST) was due and owing to third party subcontractors ('the Reconciled Amount');

(b) On 24 March 2026, the Superintendent accepted the Reconciled Amount and issued PS 14, which certified the payment of Reconciled Amount to the Principal. The Superintendent's purported certification did not comply with clause 42 of the General Conditions of the Contract and includes the Reconciled Amount;

(c) On 26 March 2026, the Principal accepted the Reconciled Amount and directed that this sum be paid into its lawyers' trust account[18] ('the payment direction');

(d) On 31 March 2026, the Contractor paid the Reconciled Amount into the Principal's solicitors' trust account and thereby satisfied its obligations under cl 2 of the Deed of Undertaking and Guarantee;

(e) On 31 March 2026, the Contractor emailed the Principal's lawyers and requested that they confirm that the security notice be immediately withdrawn;

(f) in response, the Principal's solicitors, inter alia, confirmed receipt of the Reconciled Amount and disputed that the Contractor had complied with the Deed of Undertaking and Guarantee, and instead claimed that the Contractor's payment was paid pursuant to PS 14, and further, that the Contractor had failed to provide the Principal with the relevant evidence required under the Deed of Undertaking and Guarantee.

57 The Contractor otherwise asserted that the claim was mala fide in that PS 14 was not prepared in accordance with the Contract, and that the sum alleged to be payable as due and owing to the Principal was at all times known by the Principal and the Superintendent to be owing to third party subcontractors who were creditors of the Contractor. Further:

(a) The payment direction provided for the moneys to be paid into the Principal's lawyers' trust account for the purposes of paying the third party creditors of the Contractor;

(b) The Contractor reconciled the full amount owing to the third party subcontractors as at 28 February 2026 in the terms of the Reconciled Amount, which amount was accepted by the Principal, the Superintendent and the quantity surveyor, all of whom accepted that the amount was owing to the third party subcontractors and not the Principal;

(c) The Principal issued the payment direction and the Contractor complied with the obligations and transferred the Reconciled Amount in full;

(d) The Principal could not bona fide claim receipt of the Reconciled Amount as a payment to itself.

58 Separately, the Contractor asserted that any purported breach of the Deed of Undertaking and Guarantee (which was denied), was not a breach of the Contract which contained separate enforcement mechanisms, and that in those circumstances, recourse to the security was mala fides.

59 The Principal, by its solicitors, responded to the Contractor's response by a further email sent 7 April 2026. The response confirmed that the Notice would not be withdrawn. The Principal reiterated the proposition that the Deed of Undertaking and Guarantee operated to amend the Contract, and referred to cl 7 of the Deed.

60 Secondly, the Principal by its solicitors wrote the following:

Perhaps most crucially, the Response continues to perpetuate the mistake that by the Contractor making payment of Payment Certificate 14, it has satisfied the obligation in clause 2 of the Deed. The Amounts Owing under clause 2 of the Deed are, at least, $1,469,912.21 plus GST, which is, at least, a total amount of $1,616,903.43. The payment made by the Contractor on 31 March 2026 was for an amount less than this, namely, $1,469,912.21, inclusive of GST. Not only was this the amount payable under Payment Certificate 14, it was also paid to the trust account of Align Law. This is contrary to the obligation in clause 2 of the Deed, which required payment to the relevant sub-contractor who has an outstanding invoice as specified in Schedule 1 of the Deed. These two reasons alone illustrate that the Contractor has not complied with clause 2 of the Deed.

61 The documents exhibited to Mr Tay's affidavit include three additional documents. First, it referenced an email from Mr Himali DeSilva from the Contractor which appeared in the bundle of the exhibits to Ms Dastan's affidavit,[19] which purported to attach a spreadsheet referred to in the body of Mr DeSilva's email. The Tay affidavit attached a copy of that spreadsheet ('the pay run spreadsheet'). The pay run spreadsheet identified the total creditors due as at 28.02.26 on both a GST exclusive ($1,353,833.75) and inclusive basis ($1,489,217.13). This is consistent with Mr Krongold's statutory declaration, and the amount transferred to the Align Law trust account on 31 March 2026. Mr Tay also analysed the pay run spreadsheet against the subcontractors listed in schedule 1 of the Deed of Undertaking and Guarantee and set out a number of differences.[20]

62 The exhibits to Mr Tay's affidavit also included a further document issued by the Superintendent headed 'Progress payment schedule #14 R2' dated 2 April 2026 which covered the claim period 1 February 2026 to 28 February 2026. This was the same period the subject of the Superintendent's progress payment schedule number 14 issued 24 March 2026.[21] This payment schedule must also be read in light of a tax invoice sent by the Principal to the Contractor dated 2 April 2026 numbered 00000084 for $688,939.45 (inclusive of GST) ('PS 14R'). The progress payment schedule on its face is supplemental to the certificate dated 24 March 2026 and provides for a further deduction of amounts due to the Contractor from the Principal of $688,939.45, hence the accompanying invoice. The summary of the payment certificate sets out an explanation as to how this amount was calculated by specifying that the amount takes account of the outstanding debt owing to subcontractors by the Contractor as per the email from Charlie (debt as on end of March 2026 of Contractor to subcontractors based on invoice summary Feb 2026 $599,308.59), less outstanding debt owing to novated architect variation as per invoice provided by BCS Studio which remains unpaid $27,000. The sum of these amounts totals $626,308.59. When GST is added to this amount, it gives rise to a total amount due for payment of $688,939.45. In the end, nothing seemed to turn on this document.

63 As noted above, the relevant principles were not in dispute. First, the applicant for interlocutory injunctive relief must show that there is a serious question to be tried. It must make out a prima facie case in the sense of demonstrating that there is sufficient likelihood of success at trial to justify the preservation of the status quo pending the determination of the parties' rights at trial in the circumstances. How strong the probability needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the relief sought.[22]

64 Secondly, the applicant must also establish that the balance of convenience favours the granting of an injunction. The Court should take whatever course appears to carry the lowest risk of injustice should it turn out to have been wrong in the sense of granting an injunction to a party who fails to establish its right at trial, or failing to grant an injunction to a party who succeeds at trial.[23] Incorporated within the consideration of 'balance of convenience' or sometimes considered as a separate matter, is the question of whether damages would be an inadequate remedy, meaning that unless the injunction is granted the applicant will suffer irreparable injury for which damages will not be adequate compensation.[24]

65 The questions are not to be considered in isolation from one another, but must be considered together. In considering where the lower risk of injustice lies, all relevant factors are to be weighed in the balance. The strength of the applicant's case and their chances of success may be a relevant matter when assessing the balance of convenience.[25]

66 In addition, where the applicant for interlocutory injunctive relief seeks an order restraining a beneficiary from calling on a performance bond such as a bank guarantee, additional considerations arise. The Court must, in the first instance, determine whether the clause providing for provision of a performance bond is to provide security for a beneficiary, or in addition, is also to act as a risk allocation device pending the final determination of a dispute between the parties. The identification of the commercial purpose of the clause in question may be such as to allocate the risk as to who shall be out of pocket pending resolution of the dispute. If the conclusion is reached that the provision requiring the performance bond operates as a risk allocation device pending the final determination of a dispute between the parties, such an interpretation is fundamental to a consideration of the justice of any interlocutory application made to restrain recourse to such a bond pending final determination of the issue. If an interlocutory injunction is granted, restraining recourse to the performance bond until the dispute is determined on a final basis, the grant of interlocutory injunctive relief will defeat the commercial purpose of the provision in question as it will reorder the agreed risk allocation as to who is to be out of pocket pending a final determination. Interlocutory relief granted in such circumstances has the capacity to amount to final relief, in that it completely defeats the commercial purpose of risk allocation prior to the final determination.[26] This affects the strength of the serious question that the applicant for interlocutory relief must establish.

67 The applicant for interlocutory injunctive relief may, nevertheless, obtain interlocutory injunctive relief, but only in limited circumstances, such as where the party in whose favour the performance guarantee has been given is acting fraudulently, or unconscionably, or contrary to a promise made not to call upon the performance bond.

68 In the latter case, breach of the contractual promise may be enjoined on normal principles relating to the enforcement by injunction of negative stipulations in contract.[27]

69 A fraudulent claim is one made in circumstances where the claimant knows that it does not have such an entitlement or if it does not act in good faith by, for example, capriciously selecting the amount called on.[28]

70 In FMT Aircraft Gate Support Systems v Sydney Ports Corporation,[29] Pembroke J said:[30]

[13] It is stating the obvious to say that a valid claim within the meaning of cl 5.2 must be non-fraudulent. In that sense, it must be a genuine claim. It adds nothing to say that it must be bona fide. On the other hand, despite occasional suggestions to the contrary, I am satisfied that a mere honest or bona fide "belief" in a claim is insufficient: cf Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136 at [102]. The test could not be subjective honesty or bona fides. More is required. A claim that is irrational and misconceived could not justify recourse to the security simply because the claimant had an honest, but wrongheaded, belief in the correctness of its claim. Equally, it is inappropriate to insist that the claim be "genuine and fair" as the plaintiff submitted. And it is certainly not necessary that the claim be reasonable. Both would impose requirements on the principal that could well be onerous and productive of disputes.

[14] What is required in my view is an arguable claim - one that is not specious, fanciful or untenable: Hughes Bros v Telede Pty Ltd (citations omitted). This is at least consistent with decisions that have held that an 'entitlement' for the purpose of such a clause will have been established even though there is a genuine dispute or serious issue to be tried as to the existence of the right which underpins the entitlement: Fletcher Construction v Varnsdorf (citation omitted).

[15] For my part, I think that the test of what is a "claim" for the purpose of a contractual provision such as clause 5.2 is relatively undemanding. An appropriate analogy is the criterion used for determining whether there should, or should not be, summary dismissal of a claim or proceeding: General Steel Industries v Commissioner for Railways (citation omitted). Such an approach would, in my view, reflect the commercial purpose and the allocation of risk which I have explained.

71 In FMT Aircraft, Pembroke J was dealing with a contract which permitted the principal to have recourse to security where the principal 'has any claim or entitlement to payment of damages, costs or an amount or debt due by the Contractor to it under this contract'.

72 The approach adopted by his Honour in FMT Aircraft was followed by White J of the Equity Division in the Supreme Court of New South Wales in Patterson Building Group Pty Ltd v Holroyd City Council.[31] His Honour summarised the approach followed by Pembroke J in this way:

It is clear that his Honour was saying that, leaving aside fraud, bad faith or unconscionable conduct, the principal who has a contractual right to enforce security because he claims to be owed money, will only be restrained from doing so if it is clear that there is no seriously arguable basis for that claim.

73 Assuming for present purposes that the clause permitting recourse to the security can be characterised as a risk allocation clause, the approach in FMT Aircraft and Patterson Building Group, imposes on the Contractor the burden of establishing that the Principal's asserted entitlement to recourse to the security in the present case has no seriously arguable basis. The Contractor did not demur from such a requirement; on the contrary, it submitted that the Principal's claim is irrational and misconceived.

The asserted entitlement to recourse to the Bank Guarantee and the Retention Money

74 By the Notice, the Principal sought recourse to the security pursuant to cl 5.6 of the Contract on the basis that the Contractor's breach of the Deed of Undertaking and Guarantee and of the Contract had caused the Principal to suffer loss and damage, such loss and damage being the sum of $1,616,903.43 which was said to be the amounts owing (of $1,469,912.21, plus GST).

75 It will be recalled that cl 5.6 of the General Conditions permitted the Principal to have recourse to security 'in respect of loss, damage or a current liability claimed by the Principal under the Contract or in respect of any amount which is certified as payable under the Contract which remains unpaid by the Contractor or the Principal has become entitled to exercise a right under the Contract in respect of the security or where an event described in cl 44.11 has occurred ...' subject to the Principal giving notice in the terms of sub-paras (a) and (b) of cl 5.6.[32]

76 Thus, the clause permits the Principal to have recourse to the security in four events: in respect of loss, damage or a current liability claimed by the Principal under the Contract; secondly, in respect of any amount which is certified as payable under the Contract which remains unpaid by the Contractor; thirdly, where the Principal has become entitled to exercise a right under the Contract in respect of the security; and fourthly, where an event described in cl 44.11 has occurred in relation to the Contractor.

77 Here, the Contractor sought to rely on the first basis of entitlement, viz, 'in respect of loss, damage or a current liability claimed by the Principal under the Contract'. The relevant breach of the Contract said to give rise to loss or damage under the Contract was a breach of cl 2 of the Deed of Undertaking and Guarantee. The first issue to be considered, therefore, is whether the breach of a clause of the Deed of Undertaking and Guarantee results in loss or damage claimable by the Principal under the Contract.

78 If the Principal can establish that a breach of cl 2 of the Deed of Undertaking and Guarantee amounted to a breach of the terms of the Contract, and that a breach of cl 2 occurred, the next issue is whether the claim for loss and damage in the sum of $1,616,903.43 so lacks rationality and proper conception that it is not seriously arguable.

Does a breach of cl 2 of the Deed of Undertaking and Guarantee amount to a breach of the Contract

79 The Contract defines the 'Contract' as meaning and including 'this formal instrument of agreement and the further Contract documents referred to in cl 5'. The further documents identified in cl 5.1 comprise:

(a) this formal instrument of agreement;

(b) the Contractor specifications and exclusions (if any) set out in the Clarifications Schedule in Annexure Part AB;

(c) the General Conditions (including Annexure Part A);

(d) the Principal's Project Requirements; and

(e) the Annexures and the further documents annexed to or expressly incorporated by reference in the Annexures to the General Conditions.

80 Clause 7.3 of the formal instrument of agreement provides that the Contract may not be amended or varied and shall not be construed as having been amended or varied, unless such amendment or variation is reduced to writing and signed by the parties. Similarly, the General Conditions of which cl 5.2 and 5.6 form part, both contain reference to the Contract, which is defined in the definitions section of the General Conditions to similar effect as the definition in the formal instrument of agreement. Thus, the definition in the General Conditions of the word 'Contract' 'means the agreement between the Principal and the Contractor and is comprised of the documents referred to in clause 5 of the formal instrument of agreement.

81 The Principal does not point to any breach by the Contractor of any of the written terms in the formal instrument of agreement or the General Conditions. Instead, it points to that part of cl 2 of the Deed of Undertaking and Guarantee which provided that the Contractor agrees to and undertakes to the Principal that it shall pay the balance of all amounts owing that is outstanding as at 28 February 2026 to all third party subcontractors (to the reasonable satisfaction of the Principal and the Superintendent) by 5pm on 27 March 2026. The Contractor accepts that it did not pay the balance of all amounts owing in the sense of those outstanding as at 28 February 2026 to all third party creditors by 5pm on 27 March 2026. It submits that there is good reason why it did not do so, to which reference is made below, but for present purposes, it is convenient to assume in the Principal's favour that there was a breach by the Contractor of that part of cl 2 of the Deed of Undertaking and Guarantee.

82 The Principal also relies upon the balance of clause 2 of the Deed of Undertaking and Guarantee which contains an acknowledgment by the Contractor 'that if it does not comply with its obligation in the preceding paragraph, then the Principal shall suffer loss and damages arising out of, or in connection with, that breach'.

83 On the face of it, and as the Notice implicitly accepts, the relevant breach is a breach of the Deed of Undertaking and Guarantee, not the Contract.

84 The Contract identifies the documents which comprise the Contract. They do not include the Deed of Undertaking and Guarantee. There is provision for an amendment to the Contract provided that the amendment or variation 'is reduced to writing and signed by the parties'.[33]

85 The relevant question then is whether the Deed of Undertaking and Guarantee constitutes a variation of the Contract.

86 Whilst the Deed is a document reduced to writing signed by the parties, it does not expressly purport to amend or vary the Contract. Further, and unlike the Side Deed executed at the same time, the Deed of Undertaking and Guarantee does not purport to alter or vary any existing terms in the contract.

87 The Side Deed by comparison, includes paragraph C in the 'Background' section, which reads 'The parties have agreed to certain terms in relation to the Contract and the Project as set out in this Deed'. Further, in cl 2 a reference to 'notwithstanding anything else contained in the Contract or otherwise, the parties agree the (sic) following' and then sets out additional terms for the making of payments under cl 42.2 of the Contract (see, for example, cl 2(e) of the Side Deed). Further, cl 3 contains additional or different arrangements relating to the release of the second Bank Guarantee referred to in cl 5.8 of the Contract, as well as containing additional rights of set-off in favour of the Principal (cl 5.12). The Side Deed (but not the Deed of Undertaking and Guarantee) includes cl 5.5 which provides that 'this Deed[34] is supplemental to the Contract, and, except as otherwise expressly provided to the contrary, the Contract is expressly ratified and confirmed'.

88 The only relevant indicia in the Deed of Undertaking and Guarantee which suggests that it may amount to a variation of the Contract, such that the terms are subsumed into the Contract, is cl 7 (drafted in relevantly identical terms to clause 5.4 of the Side Deed).

89 Clause 7 states that nothing in the subsequent agreement shall be deemed to, or have the effect of, reducing or limiting any of the parties' obligations or liabilities under the Contract (sub-para (a)) or constituting a waiver of the Principal's rights or entitlements under the Contract (sub-para (b)). Properly construed, this does not evince any intention to vary the rights and obligations under the subsisting Contract; rather, it points to the contrary.

90 Nor does the Principal obtain any assistance from the second part of the clause. The first part (sub-para (c)) which provides that the Contract will be read and construed subject to the terms and conditions of this Deed, is not more than a subsequent agreement by the parties that any interpretative exercise required in relation to the Contract will not be one which proceeds solely by reference to events at or at the time of entry into the Contract, but may have regard to subsequent matters. The second part, sub-para (d), which speaks to inconsistency between the terms and conditions of the Contract and those of the Deed of Undertaking and Guarantee, points in the contrary direction to that advocated by the Principal. If the terms of the Deed of Undertaking and Guarantee were such as to effect a variation of the Contract, there would be no inconsistency because the terms of the Deed of Undertaking and Guarantee had become part of the terms of the Contract.

91 Moreover, there are a number of contrary indicators in the Deed of Undertaking and Guarantee. First, the Deed deals with a specific and past topic only, the unpaid creditors as at 28 February 2026. This is in contrast to the Side Deed which adds something to, or alters, the Contract and has an on-going effect. Secondly, the acknowledgment by the Contractor that the Principal will suffer loss and damage if the Contractor does not comply with its obligation in the preceding part of cl 2 is an acknowledgment of the suffering of loss and damage arising out of, or in connection with, the breach of the Deed, not the Contract.

92 That acknowledgment assumes importance because of the scope of the guarantor's obligations and the undertaking from the guarantors. The guarantor's obligations and undertakings all relate to a guarantee (and a separate undertaking) of performance by the Contractor of obligations under or in connection with the Deed of Undertaking and Guarantee.

93 If the Principal's submission is correct, then the breach by the Contractor of the Deed of Undertaking and Guarantee is ipso facto a breach by the Contractor of the Contract such that it gives rise to a claim by the Principal for unliquidated damages for breach of the Contract. If that is so, it would appear to expand the scope of the guaranteed obligations from the expressly confined singular obligation under the Deed to the obligations of the Contractor under the Contract. That is clearly not the commercial purpose of this document, nor is it a conclusion reasonably open on the proper construction of the Deed of Undertaking and Guarantee. If the guarantor's obligations are confined only to those under the Deed of Undertaking and Guarantee, as they must be, then acceptance of the Principal's submission must carry with it the conclusion that the obligation imposed on the Contractor under cl 2 is both an obligation under the Deed of Undertaking and Guarantee and under the Contract, but that insofar as the guaranteed obligations are concerned, the due and punctual performance by the Contractor of all its obligations undertaking provisions contained in or applied in the Deed of Undertaking and Guarantee are limited to those in the Deed of Undertaking and Guarantee.

94 I do not accept that is a reasonable, in the sense of arguable, construction of the Deed of Undertaking and Guarantee.

95 It follows, therefore, that I accept that the Contractor has established that there is a serious question to be tried, that a breach of the Deed of Undertaking and Guarantee is not a breach of the Contract and hence, any breach does not fall within the ambit of cl 5.6 of the General Conditions.

96 This question is preliminary to the question of whether the Contractor can restrain the Principal's recourse to the performance bond. On one view, it does not require evaluation through the lens of a risk allocation clause such that it elevates the height of the hurdle required to be overcome by the Contractor seeking to restrain the call on the performance bond, to the height of the Principal's contention being one that is not seriously arguable. However, insofar as such a threshold applies, I am satisfied that the Contractor has met it.

97 However, and notwithstanding that conclusion, it is convenient to proceed on the basis that a breach of cl 2 of the Deed of Undertaking and Guarantee does give rise to a claim by the Principal for loss and damage under the Contract.

Is the Principal's claim on the Bank Guarantee and the Retention Money irrational and misconceived

98 I shall also proceed on the basis most favourable to the Principal that cl 5.6 is to be construed as if it were a loss allocation clause. That conclusion is relatively straightforward if the analysis proceeds solely through the prism of the Contract. It is not so straightforward if the Contract includes the terms of the Deed of Undertaking and Guarantee which include a further form of security in the form of a personal guarantee, but I shall assume in the Principal's favour that this makes no difference. Accordingly, in order for the Contractor to restrain the Principal's access to the Bank Guarantee and Retention Money on an interlocutory basis, the Contractor must establish that the Principal's claim to have suffered loss or damage as a consequence of the breach of the Contract (proceeding on the assumption, favourable to the Principal, that a breach of cl 2 of the Deed of Undertaking and Guarantee constitutes a breach of the Contract) is not seriously arguable because it is irrational and misconceived.

99 As noted earlier, the Notice was served at 4pm on 31 March 2026, and referred to amounts owing of $1,469,912.21, plus GST. The Notice was plainly prepared and then sent on the apprehension that the moneys required to be paid by the Contractor pursuant to cl 2 of the Deed of Undertaking and Guarantee by 5pm on 27 March 2026 to the third party subcontractors had not been paid at all. The last matter referred to in the Notice was the absence of any response to Mr Chiang's email of 30 March 2026, which stated that the Principal would proceed on the basis that the Contractor was in breach of cl 2 of the Deed of Undertaking and Guarantee absent a response by midday the next day. There was no response from the Contractor by that time. The Notice made no reference at all to the transfer into the Align Law trust account 30 minutes before the Notice was sent. The conclusion that the Notice was sent without knowledge of the transfer is irresistible.

100 Putting aside the Contractor's late transfer into the trust account, the preparation of the Notice might have been seen as understandable but for two important factors. The Notice makes no reference to, and appears to have been prepared without knowledge of, the email from Ms Su on behalf of the Principal to the Contractor sent 26 March 2026, in which Ms Su, after referring to the 'signed letter of Undertaking and the money owing to contractors...' (evidently a reference to the Deed of Undertaking and Guarantee), required that the amount owing be paid into the trust account of Align Law. Thus, the Principal, by Ms Su's email, directed the Contractor that the moneys owing to the subcontractors otherwise required to be paid pursuant to and in the manner specified by the Deed of Undertaking and Guarantee directly to the subcontractors, instead was to be paid into the trust account of Align Law. This is exactly what the Contractor did, albeit not until 31 March 2026 at approximately 3:30pm.

101 The second critical factor is that at the hearing of the Contractor's application, the Contractor tendered emails passing between representatives of the Principal, the Principal's lawyers, Align Law, and the Contractor,[35] which confirmed that the trade creditors who were identified on the second page of schedule 1 and whose debts were apparently the subject of the January claim had, in fact, been paid on 2 March 2026 and that the payments to the identified creditors had been effected by Align Law.

102 In other words, $708,388.55 of the amounts said to be owing, and which formed part of the loss and damage the subject of the Notice and the threatened recourse to the Bank Guarantee and the Retention Money, had been paid on 2 March 2026 by the Principal's solicitors with the knowledge and assent of both the Principal and the Contractor. Despite this, the total claimed in the Notice includes this component. After taking instructions, counsel for the Principal accepted that the Principal could not maintain any call on the Bank Guarantee and the Retention Money to the extent to which it related to the amounts owing to those creditors set out on the second page of schedule 1, who had in fact been paid by the Principal's solicitors on 2 March 2026.

103 The remaining part of the Principal submission that it suffered loss and damage proceeds on the following basis.

104 First, it says that the Deed of Undertaking and Guarantee imposed a separate and discrete obligation on the part of the Contractor to pay those subcontractors identified in schedule 1 to the Deed of Undertaking and Guarantee which sums totalled at least $1,469,912.21, exclusive of GST, by 27 March 2026 and those amounts were not paid to those creditors by that date or at all,[36] at least by the Contractor.

105 Secondly, the Principal then deals with the now-accepted payment into its lawyers' trust account on 31 March 2026 of $1,489,217.13 by saying that this was not an amount paid into the trust account for the purposes of facilitating the payment of subcontractors on the Contractor's behalf by the Principal via its solicitors, but instead, was a payment by the Contractor of the amount due to the Principal pursuant to the Superintendent's PS 14. This submission ignores two further critical matters; Ms Su's email of 26 March 2026 and the fact that the transferred amount of $1,489,217.13 was not, in fact, the amount payable by PS 14 which was $1,468,138.55. The assertion in Mr Chiang's email of 31 March 2026[37] that payment of the amount of $1,489,217.13 reflects the amount certified in PS 14 is a selective reading of PS 14, not the least of which because the amount paid is not the same as that purportedly payable by PS 14.

106 Even if one accepts that this was a proper deduction on the part of the Superintendent and permissible under the terms of the General Conditions, and that the payment of the $1,489,217.13 to the trust account can somehow be regarded as constituting a payment of the amounts sought under PS 14, the submission must still confront the fact that the Principal received the payment on 31 March 2026 for the outstanding debt said to be owing to the subcontractors but still seeks to argue that it has suffered loss and damage of $1,616,903.43 said to be the amounts owing under the Deed of Undertaking and Guarantee of $1,469,912.21, plus GST.

107 Acceptance of this submission requires there to have been two sets of amounts owing to the subcontractors, the 'at least $1,469,912.21 (exclusive of GST)' identified in schedule 1 to the Deed of Undertaking and Guarantee (which equates to $1,616,903.43 inclusive of GST) as well as the $1,353,833.75 (exclusive of GST), or $1,489,217.13, (inclusive of GST), paid into the trust account on 31 March 2026 (and in respect of which the GST‑exclusive amount formed part of the deduction in PS 14).

108 This submission too does not survive scrutiny. Whilst there is a degree of confusion as to the course of events, it is possible to distil what happened:

(a) The Side Deed[38] required that on and from 23 February 2026, all payments from the Principal to the Contractor would be paid from the Align Law trust account. Prior to any payments being made out of the trust account, the Contractor was to provide a payment run schedule (reconciling any amounts paid and/or owing to any third party subcontractors) with any difference between any certified amount and the amount due to the third party subcontractors to be paid directly by the Contractor (see cl 2 of the Side Deed).

(b) The Deed of Undertaking and Guarantee, also executed on 25 February 2026, separately specified that there were 'certain amounts... that are due and payable' by the Contractor to subcontractors including but not limited to those referred to in schedule 1 (which as at 28 February 2026 was at least $1,469,912.21 (exclusive of GST)) ($1,616,903.43, inclusive of GST).

(c) The Contractor agreed to pay the balance of all amounts owing (that is, the balance of those amounts that were outstanding as at 28 February 2026) to the subcontractors by 5pm on 27 March 2026 (cl 2). The Contractor acknowledged that the Principal 'shall suffer loss and damage' if those amounts were not paid.

(d) The amount specified in the Deed of Undertaking and Guarantee as being owed was imprecise viz 'at least $1,469,912.21'. Necessarily, the amount required to be paid on 27 March 2026 might differ from that amount, either because the amounts owing had been identified with more precision, or because some debts were paid in the period between the date of the Deed of Undertaking and Guarantee and 27 March 2026. In fact, $708,388.55 was paid by the Principal to the subcontractors on 2 March 2026. Hence, that component no longer formed part of the amounts owing.

(e) On 18 March 2026, Wayne Krongold, on behalf of the Contractor, made a statutory declaration which declared that as at 18 March 2026, the total amount payable by the Contractor to all amounts in respect of work under the Contract is $1,353,833.75, plus GST ($1,489,217.13 inclusive of GST). This was the amount now asserted to be owing by the Contractor to the subcontractors as at 18 March 2026. On any analysis, this superseded the estimate made in the Deed of Undertaking and Guarantee.

(f) When the quantity surveyor received the statutory declaration, he queried the increase in the amount owed from 'circa $866K (excl GST)' to $1,353,833.75'. It is not clear what figure the quantity surveyor is referring to but it bears similarity to the $836,093.21 on the first page of schedule 1 to the Deed of Undertaking and Guarantee, noting that it is now accepted that the creditors on the second page were paid by the payment on 2 March 2026.[39] In any case, the Contractor replied with provision of the run sheet which, inter alia, specified 'Total Creditors due as at 28.02.26 on Wallace EX GST'[40] in the amount of $1,353,833.75 (ex GST) and $1,489,217.13 (inclusive of GST).

(g) On 24 March 2026, the Superintendent purported to issue PS 14 which deducted $1,353,833.75[41] otherwise due from the Principal to the Contractor. The deduction is described as 'less outstanding debt owing to subcontractors by Contractor as per stat dec $1,353,833.75'. This is obviously a reference to the total creditors due as at 28.02.26 referred to in the run sheet and the statutory declaration.

(h) On 26 March 2026, the Principal's employee, May Su wrote to representatives of the Contractor (copying in, inter alia, other representatives of the Principal and Abigail Chou from Align Law but not Glenn Chiang), referring to the 'signed Letter of Undertaking and the amount owing to subcontractors' and stating that 'the amount owing is to be credited into our lawyer's trust account (Align Law)' and requesting that they ensure that 'the incoming funds to our trust account is sufficient to pay the owing subcontractors'.

(i) On 31 March 2026, the Principal sent the Notice which, among other things, asserted that the Principal had suffered loss and damage constituted by amounts owing of $1,616,903.43 inclusive of GST. This is clearly a reference to the GST inclusive figure of the estimated amount owing as at 28 February 2026 which constituted part of schedule 1, and is reflected in the Deed of Undertaking and Guarantee.

(j) On 31 March 2026, the Contractor paid the sum of $1,489,217.13 into the Align Law trust account in accordance with Ms Su's email of 26 March 2026.

109 Against that background, the claim now made by the Principal and referred to in the Notice that the Principal has suffered loss and damage in the amount of $1,469,912.21, plus GST, is irrational and misconceived. It has no seriously arguable basis, even if a breach of clause 2 of the Deed of Undertaking and Guarantee is a breach of the Contract (which I do not accept).

110 The Principal's claim in the Notice that the Contractor breached the terms of the Deed of Undertaking and Guarantee and the Contract by failing to make the payments due directly to the subcontractors by 5.00pm on 27 March 2026 ignores the fact that by Ms Su's email of 26 March 2026, the Principal required the payment to be made to the trust account of Align Law. It ignores the fact that part of the amount alleged to be outstanding in the Notice had in fact been paid to the subcontractors by the Principal's solicitors from the trust account with the knowledge and assent of the Principal and the Contractor on 2 March 2026. It ignores the fact that the payment was made by the Contractor to the Align Law trust account on 31 March 2026, as Ms Su directed, albeit 4 days late. The only breach that has arisen is that the payment was made 4 days late. The Principal has no obligation to pay the subcontractors and there is no evidence that it has done so. In those circumstances, any assertion that the Principal has suffered loss and damage in the amount of $1,616,903.43 is irrational and misconceived. The complaint that the Contractor failed to provide an adequate explanation regarding payment of those creditors is overstated in light of the payment made by the Principal's solicitors on 2 March 2026. To the extent that any subcontractors remain unpaid, that circumstance is attributable to the fact that the relevant monies continue to be held in the Principal's solicitors' trust account. Conversely, if those subcontractors have in fact been paid, it was the Principal, and in particular its solicitors, who were responsible for effecting the transfer.

111 Given that the only breach is a breach of the Deed of Undertaking and Guarantee and not the Contract, the Principal's claimed recourse to the Bank Guarantee and Retention Money lacks foundation. To the extent that the breach is of the Contract, and clause 5.6 is engaged, the claim of loss and damage of the amount asserted is misconceived and lacks proper foundation to the extent that the balance of convenience favours the grant of relief sought by the Contractor. Orders will be made accordingly. I will hear the parties as to costs.

[3] It should be acknowledged that the oral submissions from both parties were of high quality and were of considerable assistance, particularly in view of the urgency with which the matter was brought on.

[4] One of the creditors, Three Dimensional Construction, appears in both lists.

[5] The total for the 5 trade creditors on the second page of the schedule to the Deed of Undertaking was $633,819. The amount paid was $708,388.55.

[6] It seems that the statement provided related to January and not February as Mr Dillon's email suggested.

[7] The first page of schedule 1 to the Deed of Undertaking listed creditors with a 'Grand Total' of $836,093.21.

[8] The email was drafted with the assistance of Ms Dastan.

[10] See [49]-[50] below. Ms Dastan appears to have referred to the GST-exclusive amount said to have been transferred into Align Law's trust account, whereas the amount in fact transferred was the GST-inclusive sum of $1,489,217.13 (see the email from Mr Glenn Chiang dated 31 March 2026 at [50] below).

[18] Email from the May Su of the Principal to the Contractor and copying the Superintendent dated 26 March 2026.

[22] ABC v O'Neill [2006] HCA 46; (2006) 227 CLR 57, 82 [65] ('O'Neill').

[23] Bradto Pty Ltd v State of Victoria [2006] VSCA 89; (2006) 15 VR 65, 73 [35].

[24] Castlemaine Tooheys Ltd v South Australia [1986] HCA 58; (1986) 161 CLR 148, 153.

[25] See O'Neill (n 22) 82, [65]; Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd [2007] VSC 200, [48].

[26] See, inter alia, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812, 821, 826-7 and Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98, [19]-[35].

[27] See Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd (2008) 249 ALR 458 at [77]-[78].

[29] [2010] NSWSC 1108.

[31] [2013] NSWSC 1484, [48].

[33] See clause 7.3 of the formal instrument of agreement.

[35] Exhibit P2; see the email exchanges between Ms Chou of Align Law (representing the Principal) and Ms Su (Principal), dated 27 February 2026 and 2 March 2026, with various representatives of the Contractor, including Ms Dastan, copied into those communications.

[36] Save as to $708,388.55; see [102].

[38] Entered into on 25 February 2026; see [14] above.

[40] Page 29 to the exhibit bundle to Tay's affidavit.

[41] (which was the amount certified by Mr Krongold).