Plaintiff v Defendant

1. On 23 October 2025, the plaintiff, L.U. Simon Builders Pty Ltd ('L.U. Simon'), sought an order permitting it to pay to the defendant, Cardigan Commercial Pty Ltd ('Cardigan'), the full amount the subject of two ANZ bank guarantees in substitution for the return of those guarantees, being:

(a) ANZ Guarantee No. GOP52252413418 ('First Bank Guarantee'); and

(b) ANZ Guarantee No. GOP52252033418 ('Second Bank Guarantee') (collectively, the 'Bank Guarantees').

1. The Bank Guarantees were provided by L.U. Simon ('Contractor') to Cardigan ('Principal') as Security pursuant to clause 5 of a design and construct contract executed on 20 May 2022 ('Contract') for the construction and development of a mixed-use building on land at 121-131 Cardigan Street, Carlton, Victoria, known as 'Argyle Square' ('Project').[1] As will be discussed further below, the Security is expressed to be provided for the purpose of ensuring the due and proper performance of the Contract.
2. In the ordinary course, the First Bank Guarantee is released at the time of Practical Completion and the Second Bank Guarantee is released to the Contractor following the Defects Correction Period. Practical Completion of the Project was certified as having been reached on 29 April 2025 (for Separable Portion 1) and on 9 May 2025 (for Separable Portion 2). The 12‑month Defects Correction Period under clause 35 of the Contract has been in operation since that time. As of 21 November 2025, Cardigan contends there are many defects which remain to be rectified.
3. The Bank Guarantees have been a subject of controversy between the parties for some time. L.U. Simon's proposed order in paragraph 1 above was contended to be appropriate to give effect to the decision of Sloss J in L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd ('Injunction Proceeding') dated 17 Oc[2]ober 2025.2 Her Honour's decision concerned an earlier injunction application brought by L.U. Simon in which it sought orders restraining Cardigan from having recourse to the Bank Guarantees and requiring Cardigan to return one of the Bank Guarantees.
4. At the conclusion of the hearing of the Injunction Proceeding on 17 September 2025, Cardigan agreed to extend its existing undertaking that it would not have recourse to the Bank Guarantees until the Court delivered its decision on the injunction application.[3] The undertaking was extended in the context of an offer by L.U. Simon to pay the monetary equivalent of the amount of the Bank Guarantees into Court.[4] The exchange between the parties on this point was helpfully summarised by Sloss J in her Honour's judgment:[5]

At the close of oral reply submissions, senior counsel for L.U. Simon noted that time was running and informed the Court that he has 'instructions to pay the money' - a reference to the Security (being the sum ... [the subject of the Bank Guarantees]) - into Court at the conclusion of the hearing that day, in essence as a pro tem way of effectively holding the status quo pending delivery of the Court's decision, and thereby avoiding any reputational risk to L.U. Simon arising from the guarantee being called on. However, senior counsel for Cardigan responded, stating that the course L.U. Simon proposed was not necessary as he had instructions 'to extend the undertaking' to the Court, to the effect that Cardigan will not take steps (or further steps) to have recourse to the security the subject of this proceeding before midnight on the day in which this Court delivers its judgment. Accordingly, that undertaking has remained in place.

1. On 17 October 2025, Sloss J refused to order the relief sought by L.U. Simon.[6] At the hearing of the delivery of her Honour's decision, Cardigan agreed to extend the undertaking not to call on the Bank Guarantees to 11:59pm on 23 October 2025. Following the handing down of her Honour's judgment and prior to 23 October 2025, L.U. Simon offered in correspondence to pay Cardigan the full value of the Bank Guarantees in exchange for their return. Cardigan refused to accept that offer. That refusal and the imminent expiry of the undertaking triggered the present dispute and brought about the need for an urgent hearing.
2. At the directions hearing before me on 23 October 2025 ('October hearing'), the parties made submissions concerning the proposed order sought by L.U. Simon relating to the Bank Guarantees. Cardigan opposed the order sought by L.U. Simon. To allow Cardigan time to put on material in support of its opposition to the order sought, I listed the dispute concerning the Bank Guarantees for further hearing on 21 November 2025 ('November hearing').
3. Given the history of the dispute regarding the Bank Guarantees and the fact the Bank Guarantees feature within the context of a much wider and more substantial building dispute concerning the Project, consistent with the Civil Procedure Act 2010 (Vic) ('CPA'), I did not require L.U. Simon to file a fresh summons in support of the order sought at the October hearing.
4. At the November hearing, L.U. Simon no longer sought to substitute the Bank Guarantees with cash (as another form of security), as set out in the proposed order in paragraph 1 above. Rather, L.U. Simon sought an order allowing it to pay to Cardigan, unconditionally, the amount of the Bank Guarantees in cash, following which Cardigan shall return the Bank Guarantees to L.U. Simon.
5. In addition to referring to the decision of Sloss J in the Injunction Proceeding and to certain of the materials before her Honour, the parties relied on the following materials at the October and November hearings:

(a) on behalf of L.U. Simon:

(i) bundle of email correspondence between the parties' solicitors dated 20 and 21 October 2025;

(ii) email from L.U. Simon's solicitor to the Chambers of Sloss J dated 21 October 2025;

(iii) submissions filed 19 November 2025; and

(iv) affidavit of Peter Bernard Devitt sworn 19 November 2025;

(b) on behalf of Cardigan:

(i) submissions filed 13 November 2025;

(ii) third affidavit of Graham Duncan Fraser sworn 13 November 2025; and

(iii) bundle of correspondence between the parties' solicitors dated 20 November 2025.

1. The parties agreed at the November hearing, and I accept and proceed on such basis, that there is no evidence of L.U. Simon experiencing any solvency issues.

1. At the outset of the November hearing, both Bank Guarantees remained in issue. Shortly after the hearing commenced, counsel for Cardigan informed the Court that his client had made, and makes, an open offer to give back the First Bank Guarantee in exchange for cash. Counsel explained this was on the basis that, in the ordinary course, the First Bank Guarantee would have been released at the time of Practical Completion, which occurred earlier in 2025.
2. I stood the matter down to enable the parties to discuss Cardigan's offer. A short time later I was informed that the parties had agreed to the exchange of cash for the release of the First Bank Guarantee and that no order would be required in respect of the First Bank Guarantee.
3. Given those developments, it became unnecessary to give further consideration to issues relating to the First Bank Guarantee. Whether it is open to L.U. Simon to require Cardigan to exchange the Second Bank Guarantee for cash remained in dispute.

1. Four issues separate the parties concerning the Second Bank Guarantee:

(a) whether L.U. Simon's proposal to exchange cash for the Second Bank Guarantee fell within clause 5.3 of the Contract;

(b) assuming clause 5.3 applies, whether Cardigan's discretion under that clause is qualified;

(c) whether the Contract includes an implied term that L.U. Simon can exchange the Second Bank Guarantee for cash at their discretion; and

(d) notwithstanding the above, whether the Court nevertheless has power pursuant to s 47(1) of the CPA and/or for the purposes of s 21 of the Australian Consumer Law ('ACL')[7] to order that L.U. Simon be permitted to exchange the Second Bank Guarantee for cash.

1. At the conclusion of the November hearing, Cardigan undertook that it would not call on the Second Bank Guarantee until the delivery of my decision.
2. For the reasons set out below, I have found that:

(a) L.U. Simon's proposal to exchange cash for the Second Bank Guarantee does not fall within clause 5.3 of the Contract;

(b) there is an implied term of the Contract that the Contractor may pay out the Security at the Contractor's discretion by paying to the Principal the amount of the Security in cash, less any part or parts that previously have been paid, following which the Principal is to release the Bank Guarantee/s to the Contractor and the Contractor shall have no obligation to provide replacement or other security;

(c) the CPA does not give the Court power to make the order sought by L.U. Simon; and

(d) the Court is not in a position to decide whether statutory unconscionability provides an alternative basis to order the release of the Second Bank Guarantee in exchange for cash.

1. Clause 5 of the Contract contains the key contractual provisions concerning the Bank Guarantees, being the Security under the Contract. 'Security' is defined in clause 1.1 of the Contract to mean:

an unconditional undertaking in a form approved by the Principal (the form in Annexure Part B is approved) given by:

(a) National Australia Bank Limited, Commonwealth Bank of Australia, Australia and New Zealand Banking Group Limited or Westpac Banking Corporation;

(b) a financial institution registered by the Australian Prudential Regulation Authority which has a credit rating of at least A by Standard & Poor's (Australia) Pty Limited and is approved by the Principal; or

(c) any other institution approved by the Principal which has a credit rating of at least A by Standard & Poor's (Australia) Pty Limited;

1. Clause 5.1 states that 'Security and performance undertakings are for the purpose of ensuring the due and proper performance of the Contract'. The clause further provides that the Contractor shall deliver the Security to the Principal by no later than the date of the Contract and maintain the Security in accordance with clause 5.
2. Clause 5.2 sets out when recourse may be had to the Security:

(a) Subject to providing the Contractor with 3 days' prior written notice of its intention to have recourse to the Security, the Principal may convert all or part of the Security into cash at any time and use the proceeds of the Security:

(i) in relation to any debt or money due or claimed to be due from the Contractor to the Principal under the Contract (including liquidated damages under subclause 34.7) or any cost, expense, loss or damage of any kind which the Principal has incurred or claims that it has incurred or might in the future incur in connection with what the Principal contends constitutes any act, default or omission of the Contractor; or

(ii) whenever the Principal is otherwise permitted to do so in accordance with the terms of the Contract, or if an event described in subclause 39. 11 occurs in respect of the Contractor.

(b) The Contractor must not take any steps to injunct or otherwise restrain:

(i) any issuer of any Security provided under subclause 5.1 from paying the Principal under that Security;

(ii) the Principal from taking any steps for the purposes of making a demand under any Security or receiving payment under any Security; or

(iii) the Principal using the money received under any Security;

even where the Contractor disputes the Principal's right to payment (including where dispute resolution proceedings have been commenced under this Contract).

1. Clause 5.3 specifies the process for a change of Security:

5.3 Change of Security

The Contractor may by written notice to the Principal request permission to substitute the form of Security. The Principal has absolute discretion in determining whether to accept or reject the request. If permission is granted, the Principal shall promptly release and return to the Contractor the original Security on receipt of the new form of Security.

1. Item 14(a) of Annexure Part A to the Contract (being the Contract particulars) provides that the 'Form' of Security for the purposes of clause 5 is '[u]nconditional undertakings as per [the] definition of Security', being the Bank Guarantees.
2. Item 14(f) of Annexure Part A provides that upon Practical Completion, the Contractor's Security will be reduced by 50%.
3. Clause 5.4 contemplates that Cardigan will release to L.U. Simon any remaining Security held by it following the issue of a Final Payment Schedule.
4. Item 32 of Annexure Part A specifies that the Defects Correction Period is 12 months. Following the expiry of this period, clause 37.4 sets out the regime for the issuance of a Final Payment Claim and Final Payment Schedule by L.U. Simon. Clause 37.4(g) provides that, once L.U. Simon has given Cardigan an executed 'Deed of Release - Final Completion' and 'Final Completion Certificates', within 10 business days after the issue of the Final Payment Schedule, Cardigan shall release any Security it holds to L.U. Simon.
5. The approved form of unconditional undertaking to which reference is made in the definition of 'Security' is located in Annexure Part B to the Contract. The approved form states that the 'Financial Institution' 'unconditionally undertakes to pay on demand any sum or sums which may from time to time be demanded by the Principal' to a maximum specified sum.
6. The undertaking to pay on demand is stated to continue until the occurrence of the first of the following events:

(a) the Principal gives notification that the relevant sum is no longer required;

(b) the undertaking is returned to the Financial Institution; or

(c) the Financial Institution makes payment to the Principal of the whole of the relevant sum or the balance outstanding.

1. The approved form states that, where the Principal has notified the Financial Institution in writing that the Principal desires payment to be made of the relevant sum, the Financial Institution is required to make such payment 'forthwith without reference to the Contractor and despite any notice given by the Contractor not to pay same'.
2. The approved form further provides that:

the Financial Institution may at any time without being required so to do pay to the Principal:

(a) the Sum less any amount or amounts it may previously have paid under this undertaking ; or

(b) such lesser sum as may be required and specified by the Principal;

and thereupon the liability of the Financial Institution hereunder shall immediately cease.

1. The undertaking in the approved form is expressed to be 'assignable to and chargeable by the Principal's Financier (as defined in the Contract), but otherwise, it is not negotiable, transferrable, assignable or chargeable and shall be returned to the Financial Institution immediately upon its expiry'.
2. The Bank Guarantees as executed are in substantially similar terms to those in Annexure Part B, discussed above. Relevantly, the Bank Guarantees, which record Cardigan as 'Beneficiary' and L.U. Simon as 'Applicant', expressly provide that ANZ has the right to terminate the undertakings 'at any time by paying the Beneficiary the Amount or the balance outstanding of the Amount, or any lesser amount that the Beneficiary may require'.

1. The nature of a bank guarantee was helpfully outlined by Rees J in Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd ('Daewoo'):[8]
   1. ... The term 'bank guarantee' has itself been described as 'a complete misnomer' and 'misleading' ... A more accurate description is an unconditional bond or 'performance bond' to pay money on demand up to a stated maximum amount, unqualified by the terms of the underlying contract between the party obliged to arrange the bank guarantee and the party entitled to call on it ...
   2. Bank guarantees have been described as 'as good as cash' or 'providing an equivalent to cash', awaiting only a demand before materialising as cash ...
   3. While the bank's obligation to pay on demand is unqualified, the terms of the underlying contract may impose contractual limits on a party's entitlement to call on the guarantee ... As Austin J explained in Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158 at 164:

... whilst the Court will not restrain the [bank] from acting on the unqualified promise to honour it, if the party in whose favour the bond has been given has made a contract promising not to call upon the bond, breach of that contractual promise may be enjoined on normal principles relating to the enforcement by injunction of negative stipulations in contracts.

... The Court will also injunct a call on a bank guarantee where the party making the call is acting fraudulently or unconscionably.

1. There are broadly two reasons why parties agree that a bank guarantee will be provided, as Callaway JA explained in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 at 826-827: (emphasis added)

One is to provide security. If it has a valid claim and there are difficulties about recovering from the party in default, it has recourse against the bank. The second reason ... is to allocate the risk as to who shall be out of pocket pending resolution of a dispute. The beneficiary is then able to call upon the guarantee even if it turns out, in the end, that the other party was not in default. ... It is a question of construction of the underlying contract whether the guarantee is provided solely by way of security or also as a risk allocation device. ...

1. In Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Windfarm Pty Ltd [2019] VSCA 318, the Court described the second reason - the 'risk allocation mechanism' - as providing a 'pay now, argue later' regime: at [14]. ...
2. As to whether a bank guarantee is intended to provide security or a risk allocation device, or both, the usual rules for construing commercial contracts apply ... The Court should construe the terms of an instrument read as a whole. ...

1. Cardigan's written submissions filed 13 November 2025 proceeded on the basis that L.U. Simon was seeking to substitute the Bank Guarantees for a different form of security, being cash. At the November hearing, Cardigan took me through the relevant contractual provisions to illustrate why L.U. Simon was not permitted to substitute the Second Bank Guarantee with cash at its discretion.
2. Cardigan drew attention to the overarching statement of purpose in clause 5.1 of the Contract and emphasised the distinction between the First Bank Guarantee and the Second Bank Guarantee. Item 14(f) of Annexure Part A of the Contract provides that the Contractor's Security is to be reduced by 50% upon Practical Completion, effectively requiring the release of the First Bank Guarantee. The Second Bank Guarantee relates to the 12-month Defects Correction Period, which is extant. Cardigan submitted that, ordinarily, such a guarantee is only released at the end of the Defects Correction Period, with the Second Bank Guarantee serving the 'function of securing or ensuring the ongoing performance of the works' under the Contract.[9] Cardigan further submitted that losing this guarantee would result in Cardigan compromising the 'leverage or pressure' it has been afforded under the Contract to ensure the proper and timely performance of ongoing defect rectification works.[10]
3. In its submissions filed 19 November 2025, L.U. Simon submitted that it:

does not impose any requirement on Cardigan to 'hold cash in lieu of the bank guarantees'. Cardigan is free to deal with the cash in the manner it chooses. ...

LU Simon is not seeking to replace one form of security with another. LU Simon does not require or even suggest that the cash it proposes to pay be held in a special account or on trust for LU Simon's benefit. How Cardigan deals with the cash is a matter for Cardigan, not LU Simon.

1. Referring to the decision of Digby J in Adcon Vic Pty Ltd v Icon Co (Vic) Pty Ltd (No 2),[11] L.U. Simon submitted that parties in the exact same position as L.U. Simon and Cardigan in this case regularly and readily pay and accept cash to prevent the encashment of bank guarantees.
2. At the November hearing, counsel for L.U. Simon submitted:[12]

We're not seeking to substitute security, we are not seeking to substitute the bank guarantee with cash. We are proposing to pay them cash to put them in the position they would have been in, or they would be in, if they were to go to the ANZ next week and cash that bank guarantee. It is a fundamentally different position.

...

We're offering to the [sic] pay them cash to put them in the position that they would be in if the bank guarantees had been called on. They have that cash. What they do with it is entirely a matter for them. If they want to treat it as security, if they want to apply for something, it is up to them.

We are putting them in the position that they would be in had they called on it. The only purpose for them to retain it is to call upon it for the purposes of damaging our reputation. That is it.

1. Explaining the difference between cash and the Bank Guarantees from Cardigan's perspective, counsel for Cardigan submitted:[13]

Well a bank guarantee provides - as we can see by the efforts to which our opponents have gone to obtain them or to restrain our recourse to them - we can see that a bank guarantee and cash is attributed different value in the form of security. And that is made most clear at paragraph, at clause 5.3, in my submission. That clause having set out and gone to the clauses that provide specifically for the provision of a bank guarantee, the parties then agreed that in clause 5.3 that it would only be Cardigan, my client, that would have the absolute discretion in relation to any substitution of that security.

And in my submission, what that does is it evinces the party's intention to ascribe a different value to different forms of security, and ultimately to leave it to Cardigan's absolute discretion to determine if we would accept something other than holding bank guarantees.

1. Cardigan submitted it was always intended under the Contract that the defect rectification works were to be performed by the Contractor, with the risk of a potential call on the Second Bank Guarantee hanging over the Contractor if it fails to perform.

1. Clause 5.3 provides that the 'Contractor may by written notice to the Principal request permission to substitute the form of Security'. The clause goes on to state that the Principal, in its absolute discretion, may determine whether to accept or reject the request.
2. Cardigan's written submissions filed in advance of the November hearing were premised on the basis that the payment of cash by L.U. Simon to discharge the Second Bank Guarantee was a substitution of Security and accordingly fell within the confines of clause 5.3.
3. While L.U. Simon's case in the Injunction Proceeding before Sloss J was put on the basis that the Bank Guarantees would be substituted with cash, that was not L.U. Simon's case at the November hearing.
4. L.U. Simon's position at the November hearing was that clause 5.3 did not apply, as what was now proposed by it was not a substitution of security. L.U. Simon was not seeking to substitute the Second Bank Guarantee with another form of security, but rather sought to pay cash to Cardigan to put Cardigan in the same position it would have been in if it were to cash the Second Bank Guarantee.
5. During the course of the November hearing, counsel for Cardigan accepted that in circumstances where L.U. Simon now proposed to pay Cardigan the equivalent amount of the Second Bank Guarantee in cash, on the basis that Cardigan could do whatever it wished with the cash following payment, clause 5.3 was not applicable. Cardigan acknowledged that what L.U. Simon sought to do did not 'fall within any regime' in the Contract,[14] submitting:[15]

we're not even in the world of ... [clause] 5.3. I accept what my learned friend says about him not seeking permission under it.

1. The parties having reached a common position that L.U. Simon's proposal does not fall within clause 5.3 of the Contract, it is unnecessary to give further consideration to that clause. That includes any consideration of the extent to which Cardigan's discretion to determine whether or not to refuse a request to substitute Security pursuant to clause 5.3 is qualified.

F.2 Is it an implied term of the Contract that L.U. Simon is entitled to pay out the Second Bank Guarantee as cash?

1. Both parties accepted during the November hearing that given L.U. Simon's proposal is not one falling within clause 5.3, the Contract is silent on whether L.U. Simon is entitled to pay out the Second Bank Guarantee as cash.
2. L.U. Simon submitted that the ability to exchange cash for the Second Bank Guarantee was not contemplated within the Contract as it 'would go without saying that if a party wanted to call on a bank guarantee that the other party could simply pay cash'.[16] In support of this submission, L.U. Simon placed reliance on the approved form of unconditional undertaking in Annexure Part B, which provides that the issuer of the Bank Guarantees (referred to in Annexure Part B as the 'Financial Institution') may:

at any time without being required so to do pay to the Principal:

(a) the Sum less any amount or amounts it may previously have paid under this undertaking; or

(b) such lesser sum as may be required and specified by the Principal;

and thereupon the liability of the Financial Institution hereunder shall immediately cease.

1. At the November hearing, counsel for L.U. Simon agreed with the proposition that his client could ask the bank to pay out the Second Bank Guarantee. He did not have instructions as to whether such a request had been made. The thrust of L.U. Simon's submissions on this point was that, since the bank may at any time exchange cash for the Second Bank Guarantee, L.U. Simon should also be able to do so.
2. Cardigan submitted that what L.U. Simon was proposing to do was not permissible under nor contemplated by the Contract at all. It submitted that the Contract 'strictly requires the bank guarantee as security and this is a backdoor or sideways attempt for ... [L.U. Simon] to mitigate its risk and reduce the risk that it agreed to on an informed basis in entering into this agreement'.[17] Returning to the contractual provisions, Cardigan submitted that clause 5.3 shows that if L.U. Simon did seek to substitute Security, it would be in Cardigan's absolute discretion to refuse such a request. That is an important contextual reason why the proposition there is an asserted right to pay out the Second Bank Guarantee should be rejected. The Contract 'enshrines that the bank guarantee will be the form of security and that ought not be undermined'.[18]
3. Cardigan submitted that L.U. Simon seeks to fundamentally subvert the parties' bargain by depriving Cardigan of its right to decide when and how to cash the Security and undermining the current use of the Security for its purpose of ensuring the due and proper performance of the Contract.
4. In addition to entering into the Contract, Cardigan and L.U. Simon entered into a 'Builder's Side Deed' with a 'Security Trustee and Agent'. In its written submissions filed 13 November 2025, premised on L.U. Simon seeking substitution orders rather than paying out the Security, Cardigan submitted that clause 4.3 of the Builder's Side Deed 'requires the consent of the Security Trustee and Agent to agree to any modification or amendment of the Contract, which consent has not been given'.

1. The principles relevant to the implication of a term in a contract were recently set out by the Victorian Court of Appeal in Feeney v Southstar Homes Pty Ltd:[19]
   1. In BP Refinery, the majority of the Privy Council stated that, for a term to be implied in a specific contract, the following conditions must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; and (5) it must not contradict any express term of the contract. Those conditions are applied cumulatively in determining whether an implied term can be identified.
   2. It follows from the circumstances in which an implied term may be recognised that it is first necessary to identify and construe the express terms of the contract. For example, one could not say that an implied term is necessary without an understanding of what the contract already provides. Equally, an assessment of the consistency between a putative implied term and the terms of the contract presupposes that the terms will have been identified and construed.
   3. The process of identifying an implied term is not the occasion for a court to improve on the contract, nor to insert a clause that a reasonable observer would consider reasonable, fair or prudent. To satisfy the business efficacy requirement, the clause must be necessary and the contract commercially ineffective without it.

This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather it was a case in which the parties made a common assumption which masked the need to explore what provision should be made to cover the event which occurred. In ordinary circumstances negotiation about that matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution.

1. In looking at the question of obviousness, the authorities refer to the stance of an officious bystander. The use of the word 'officious' rather than the more common modifier 'reasonable' emphasises that the touchtone is not what the contracting parties might reasonably have included.

1. Acknowledging the observation by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales ('Codelfa') that for 'obvious reasons ... courts are slow to imply a term', [20] it is my opinion that the following term is to be implied into the Contract:

The Contractor may pay out the Security at any time without being required to do so by paying to the Principal the amount of the Security in cash, less any part or parts that previously have been paid following which the Principal is to release the Bank Guarantee/s to the Contractor and the Contractor shall have no obligation to provide replacement or other security.

1. To imply such a term is consistent with the express term of the approved form of unconditional undertaking in Annexure Part B to the Contract, to which reference is made in the definition of Security. The approved form expressly permits the Financial Institution who provided the unconditional undertakings the subject of the Security to, at any time, without being required to do so, pay to the Principal the sum which equates to the value of the Security less any amount or amounts it may previously have paid whereupon the liability of the Financial Institution shall immediately cease.
2. It would be an odd result if the Financial Institution who provided the unconditional undertakings the subject of the Security had the ability, either of its own volition or upon a request to do so from the Principal, to pay out the Security sum whereupon its liability immediately ceased, but the Contractor could not itself directly pay out the Security sum to the Principal. Both courses result in the same contractual consequences. The Contract would be commercially ineffective without the implication of a term as specified in paragraph 53 above, the implication of which is necessary to give business efficacy to the Contract.
3. The implication of such a term is reasonable and equitable. That is the case when regard is had to the nature of a bank guarantee as discussed in Daewoo. As Rees J said in that case, an accurate description of a bank guarantee is 'an unconditional bond or "performance bond" to pay money on demand up to a stated maximum amount, unqualified by the terms of the underlying contract between the party obliged to arrange the bank guarantee and the party entitled to call on it'.[21] Implying such a term does not detract from the nature of a bank guarantee. Rather, it reflects the description of a bank guarantee being 'as good as cash'.[22]
4. As L.U. Simon's submissions make plain, and as the parties agreed at the November hearing, this is not a case where the Contractor is seeking to substitute cash for the Bank Guarantees, with such cash to be held by Cardigan in accordance with the terms of the Contract. Those are the circumstances contemplated and governed by clause 5.3. Here, once paid, '[h]ow Cardigan deals with the cash is a matter for Cardigan, not LU Simon'. No terms or conditions of the Contract attach to the use of the cash once paid.
5. Just as the obligation of the Financial Institution to pay on demand is unqualified, so too under the putative implied term is the use that may be made of the cash upon receipt by Cardigan unqualified.
6. Under the express terms of the approved form of unconditional undertaking incorporated in the Contract, the issuer of the Bank Guarantees may at any time pay out the Bank Guarantees by paying cash for such amount of the guarantees as remains outstanding. This is also an express term of the Bank Guarantees provided by ANZ, in this case. The implied term recognises that the Contractor who procured the Bank Guarantees pursuant to the Contract and who may, in this case under the express terms of Second Bank Guarantee, ask the Financial Institution to exercise its unfettered right to pay out the Bank Guarantees, may itself do so directly.
7. The implied term set out above is one that is capable of clear expression. Its text is formulated having regard to the express terms of the Contract reproduced in section D above.
8. There is nothing in the implied term that contradicts an express term of the Contract. As is recognised by the parties, clause 5.3 does not apply to this circumstance. Clause 5.3 deals with the substitution of Security not the unconditional payment of the amount of the Security in cash.
9. The purpose of the provision of the Bank Guarantees is, as submitted by Cardigan, to secure or ensure the ongoing performance of works under the Contract. In the case of the Second Bank Guarantee, this is the rectification of defects during the Defects Correction Period. That is consistent with the stated purpose of the provision of the Security in clause 5.1, being 'for the purpose of ensuring the due and proper performance of the Contract'. Contrary to Cardigan's submissions, it is not a purpose of the Bank Guarantees under the Contract to enable Cardigan to assert leverage or pressure on L.U. Simon to perform its contractual obligations. The Contract deals with the performance of those contractual obligations. It is not the case, as Cardigan submits, that it was always intended the defect rectification works were to be performed 'with the risk of a potential call on the bank guarantee' hanging over the Contractor.[23] The Financial Institution had the right at any time to pay out the Bank Guarantees.
10. I do not agree with Cardigan that to imply such a term would be to subvert the parties' bargain. The implied term mirrors what L.U. Simon may achieve indirectly by asking the Financial Institution to exercise its right to pay out the Second Bank Guarantee, but provides for L.U. Simon to directly do the same. Clause 5.2(b) prevents L.U. Simon from restraining the issuer of any Security from paying Cardigan under the Security, but it does not do the opposite. It imposes no restriction on L.U. Simon requiring or taking steps to compel the issuer of the Security to pay Cardigan.
11. To imply a term is not to modify or to amend the Contract. In Codelfa, there was no contest as to what constituted the contract between the parties; rather, the contest was to the contract's meaning and effect.[24] As to the implication of a term, Mason J said:[25]

When we say that the implication of a term raises an issue as to the meaning and effect of the contract we do not intend by that statement to convey that the court is embarking upon an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision. Nonetheless, the implication of a term is an exercise in interpretation, though not an orthodox instance.

1. In any event, no issue of modification or amendment to the Contract as prohibited by the Builder's Side Deed arises in this case. Clause 4.3 of the Builder's Side Deed provides that the Agent's prior consent is only required for a modification or amendment other than a Permitted Variation. The implied term would reasonably be considered to satisfy the definition of a Permitted Variation under the Deed.
2. Claims of reputational damage as a result of calls on bank guarantees are not uncommon. In a number of authorities involving these circumstances, albeit not with identical facts to the case at hand, the courts indicate that it is open to the provider of the bank guarantee (eg the contractor) to pay the amount it is called upon to pay so as to avoid any reputational damage as a result of a call.[26] Such authorities, however, do not concern a situation where the beneficiary of the bank guarantee opposed the receipt of cash. Nevertheless, while not directly on point or comparable, what is said in the authorities is consistent with the criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings; to imply such a term is so obvious that 'it goes without saying'.[27]
3. When seeking to give commercial efficacy to the Contract it may be recognised, as the Court of Appeal recognised in Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd ('Siemens'),[28] that the call on a bank guarantee may cause reputational risk to a contractor. To imply the term set out in paragraph 53 above is consistent with the approach adopted in Siemens and other authorities dealing with applications for injunctive relief to restrain calls on bank guarantees in construction contracts.
4. In Siemens, dealing with an injunction to restrain a call on a guarantee, the Court of Appeal noted the asserted reputational risk but also noted the possibility of the contractor paying cash in relation to delay damages due under the contract to avoid a call on bank guarantees given as security:[29]
   1. As we have said, Siemens's principal concern is possible reputational risk which it contends it may suffer if the bank guarantees are called upon. Subject to weight, we accept that potential reputational risk may be relevant to the balance of convenience, not only for Siemens but for Bulgana also. We note, however, that it lies within the ability of Siemens to pay the outstanding delay damages and thus avoid the bank guarantees being called upon. As appears above, at the hearing before the primary judge on 6 December 2019, the judge was informed by counsel for Siemens that it preferred to make payment of the presently claimed amount of delay damages rather than have the bank guarantees called upon, so as to avert perceived reputational damage arising from that event.
   2. Before this Court, counsel for Siemens acknowledged that this choice remained open to it, but contended that it should not be forced into that position because adopting such a course would mean it lost the benefit of the bargain that it contends was made by the 30 September agreement; and because if it is forced into that position it will 'swap one form of prejudice for another'. By these contentions, we understood Siemens to be submitting that:

(1) if it pays the delay damages it will be paying them in compliance with its obligations under cls 13.8(d) and 13.8(e)(1) of the contract;

(2) these payments would not be repayable under cl 13.8(f) unless the extension for practical completion which it seeks is granted in the arbitration, which counsel for Bulgana contended will likely be a lengthy international arbitration;

(3) thus, if the delay damages are paid and Siemens wins at trial, it will still have to wait a long time for its money, as it is only if the bank guarantees are called on, and that call is in breach of the 30 September agreement, that Siemens can resort to cl 25.7(f) to obtain early repayment of the delay damages amount; and

(4) while the combined effect of cls 13.8(d), 13.8(e)(1) and 13.3(h) is that delay damages are payable pending the arbitration, that position may change depending on the final interpretation which the Court places on the 30 September agreement.

1. We do not accept that these contentions tip the balance of convenience in Siemens's favour. Given Siemens's submissions to the primary judge after dismissal of its application for an interim injunction pending appeal, we infer that it will likely pay the delay damages rather than allow the bank guarantees to be called on - so as to avoid the asserted reputational prejudice. If so, its only loss will be financial and capable of being compensated for by repayment with interest if it succeeds in the arbitration. If it chooses not to pay, and thus allows the bank guarantees to be called on, it has rights for repayment with interest under the contract and, as appears below, the Commercial Court can provide an urgent trial to determine the issues on a final basis.

...

1. We have referred to the risk of injustice being suffered by Siemens. The potential injustice to Bulgana is of a different kind. If its construction is ultimately found to be correct, the grant of an interlocutory injunction will have prevented Bulgana from relying on its security which, on that construction, is integral to the risk allocation regime agreed between the parties. As we have discussed above, this is a prospect about which courts considering applications to restrain reliance on performance bonds need to be vigilant. In the present case, the weight of that consideration is somewhat reduced because the material before us suggests that either Siemens would pay the amounts due in any event, or Bulgana could enforce its contractual entitlement to unpaid delay damages - either in the arbitration or by counterclaiming for urgent declaratory relief at trial. Nonetheless, in our view, the potential injustice of denying Bulgana its security is real.
2. Taking all the factors into account, we are of the view that the course which carries the lesser risk of injustice should Siemens succeed in its contentions as to the construction of the 30 September agreement is to refuse the application for an interlocutory injunction. Put simply, we place little weight on Siemens's asserted reputational prejudice; note that it can be avoided by Siemens's choice to pay delay damages rather than risk the bank guarantees being called on; and note the fact that damages or contractual entitlements to repayment with interest will be an adequate remedy.

1. In Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd ('Martinus Rail'), referring to Siemens (among other authorities), Rees J said:[30]

The prejudice suffered when a bank guarantee is called on is the nature of the contractual bargain: Daewoo at [137]-[138]. I accept that a call on the Unconditional Undertakings may cause damage to the contractor's reputation: Lucas Stuart v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [45] (per Macfarlan JA). However, it is open to the contractor to pay the amount of the undertakings and recover them later by way of damages plus interest if it is ultimately vindicated in arbitration: Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Windfarm Pty Ltd [2019] VSCA 318 at [117].

1. Neither party identified an authority that has previously considered the exact point in contest in this case. While that is so, the observations of the Court of Appeal in Siemens and of Rees J in Martinus Rail are not inconsistent with the implication of the term which I have found forms part of the Contract in this case.

F.3 Does the Court have power to order that L.U. Simon be permitted to obtain the release of the Second Bank Guarantee upon the payment of cash?

1. L.U. Simon submitted the Court had power to make the order sought pursuant to either:

(a) section 47(1) of the CPA, which permits the Court to make any order it considers appropriate in the interests of the administration of justice for the purposes of ensuring that a civil proceeding is managed and conducted in accordance with the overarching purpose; or

(b) the Court's equitable jurisdiction, on the basis that it would be unconscionable for Cardigan to object to L.U. Simon's proposed order for the purposes of s 21 of the ACL.

1. At the November hearing, L.U. Simon expanded on its statutory unconscionability argument, submitting:[31]

Section 22(1) says that the court may have regard to certain matters in considering whether there has been unconscionable conduct, the last of them being the extent to which the supplier and customer acted in good faith. In my submission it is not in good faith to use a bank guarantee as commercial leverage in order to drive performance under a contract. That is not the purpose of clause 5.

Clause 5 is to secure performance, it's not to permit the principal to punish the contractor by causing it reputational harm by cashing those guarantees, in circumstances where there is a perfectly acceptable alternative that is cash. And my learned friend has effectively said to the court today, 'That is the purpose why we are holding it and we want to hold it'.

1. Cardigan disagreed that the CPA had a role to play in resolving the dispute concerning the Second Bank Guarantee. It submitted that to order the payment of cash and the return of the Second Bank Guarantee would be 'altering the substantive risk allocation under the contract', which is not a matter of case management or a matter authorised by or falling within the CPA.[32]
2. Cardigan further submitted that the issue of statutory unconscionability was relied on by L.U. Simon before Sloss J in support of an injunction under s 232 of the ACL and had been rejected, with her Honour finding no serious question to be tried on that issue.

1. I agree with Cardigan that the CPA does not empower the Court to make a change to the substantive rights of the parties involved in litigation to which the CPA applies. Section 1 of the CPA contains a statement of its main purposes. A consideration of those purposes and of the provisions of the Act itself show that the CPA is concerned with the laws, practice and procedure relating to the conduct of civil litigation in this and other courts of the State of Victoria. The overarching purpose in s 7(1) of the Act is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in relation to civil proceedings. The substantive determination of rights of parties under a contract is not something to which the CPA is directed.

• F.3.2.2 The Court's equitable jurisdiction

1. The factual circumstances considered by Sloss J in the Injunction Proceeding when her Honour determined there was no serious question to be tried relating to the ACL are not the same as those that now require consideration. Before her Honour, there was no offer by L.U. Simon to pay cash to Cardigan absolutely.
2. I do not consider the Court is in a position to consider whether, in the alternative to the implied term finding, it should in the exercise of its equitable jurisdiction order the release of the Second Bank Guarantee upon payment by L.U. Simon.
3. The statutory prohibition on unconscionable conduct in connection with the acquisition of goods or services is at s 21(1)(b) of the ACL. That section prohibits a person, in trade or commerce, from engaging 'in conduct that is, in all the circumstances, unconscionable', in connection with, relevantly, 'the acquisition or possible acquisition of goods or services from a person'.
4. Section 22(2) of the ACL enumerates matters a court may have regard to for the purposes of determining whether a person has contravened s 21 in connection with the acquisition of goods or services.
5. Unconscionable conduct under the ACL was the subject of consideration by the High Court of Australia in Productivity Partners Pty Ltd v Australian Competition and Consumer Commission.[33] While the case concerned unconscionability in connection with the supply of goods or services, the High Court's discussion on the scope and operation of ss 21 and 22 remains apposite.[34] In this regard, Gordon J made the following comments on the statutory framework:[35]
   1. ... While the s 22 factors are 'mandatorily to be taken into account' when 'determining the statutory question posed by' s 21(1), that is only 'if and to the extent that they apply in the circumstances'.
   2. The s 22 factors are non-exhaustive. They provide 'express guidance as to the norms and values that are relevant' to, and inform the meaning of, 'unconscionable' in s 21(1) and its practical operation. These norms and values include 'certainty in commercial transactions, honesty, the absence of trickery or sharp practice, fairness when dealing with customers, the faithful performance of bargains and promises freely made' and the protection of the vulnerable.
   3. As was explained in Stubbings v Jams 2 Pty Ltd, the s 22 factors 'assist in "setting a framework for the values that lie behind the notion of conscience identified in [s 21]"'. The s 22 factors 'assist in evaluating whether the conduct in question is "outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience"'.

...

1. The legal norm of conduct created by s 21 should not be confused with the factual evaluation of its satisfaction. The factual context - the totality of the circumstances - is vital to understand 'what, in any case, is required to be done or not done to satisfy the normative standard'. The court makes an evaluative judgment as to whether conduct is, in all the circumstances, unconscionable. This evaluative judgment is not confined to or arrived at by the 'mere balancing' of the factors identified in s 22(1). Nor should it be approached mechanistically by way 'of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules'. Such an approach is the antithesis of the mode of analysis engaged in by Courts of Equity, which has been recognised as the appropriate mode of analysis where a court is performing the task of determining whether a statutory prohibition against unconscionable conduct has been contravened. Assessing statutory unconscionability 'calls for a precise examination of the particular facts'. It requires a comprehensive view that 'looks to every connected circumstance that ought to influence [the court's] determination upon the real justice of the case'.

1. The manner in which the dispute concerning the Bank Guarantees came before the Court, essentially on an urgent basis, supported by affidavit evidence and limited submissions, means that the Court is not in a position to undertake a 'precise examination of the particular facts', as Gordon J has made plain is necessary when assessing statutory unconscionability.
2. For that reason, it is not appropriate to express a view as to whether the refusal by Cardigan to accept L.U. Simon's offer to unconditionally pay cash to Cardigan in return for the Second Bank Guarantee amounts to unconscionable conduct in contravention of the ACL.

1. Having regard to the implied term in the Contract set out at paragraph 53 of these reasons and having regard to the unconditional offer by L.U. Simon to Cardigan to pay the amount the subject of the Second Bank Guarantee to Cardigan, I order:

(a) By no later than 4:00pm on 17 February 2026, L.U. Simon is to pay to Cardigan the amount the subject of the Second Bank Guarantee ('the payment').

(b) Forthwith upon the making of the payment, Cardigan is to release the Second Bank Guarantee to L.U. Simon.

(c) Upon the making of the payment, L.U. Simon shall have no obligation to provide replacement or other security.

1. I have allowed 7 days for the payment to enable orderly arrangements to be made for it to occur. Because the undertaking previously given by Cardigan expires upon the delivery of my decision, I will further order that until 4:00pm on 17 February 2026, Cardigan is by itself, its servants and agents restrained from calling on or otherwise having or seeking to have recourse to the Second Bank Guarantee.
2. I order that Cardigan pay L.U. Simon's costs of the dispute the subject matter of these reasons on a standard basis from 4:00pm on 21 November 2025, being two days after the service of L.U. Simon's written submissions. Otherwise each party is to pay its own costs of the dispute the subject matter of these reasons.
3. I have made a costs order in these terms as until the service of L.U. Simon's submissions it was reasonable for Cardigan to adopt the position that it did. That is particularly the case in light of the Injunction Proceeding and the undertaking which Cardigan had previously given and which from time to time it renewed.
4. The solicitors for L.U. Simon should prepare an order giving effect to these reasons and provide a copy to my chambers and to the solicitors for Cardigan by no later than 4:00pm on 12 February 2026.

[1] Capitalised terms that are not otherwise defined in these reasons are as defined in the Contract.

[2] L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655.

[3] L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655, [4] (Sloss J).

[4] L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655, [4] (Sloss J).

[5] L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655, [4] (citations omitted).

[6] L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655, [195].

[7] Schedule 2 to the Competition and Consumer Act 2010 (Cth).

[8] Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd (2022) 404 ALR 503; [2022] NSWSC 1125, [5]-[10] (emphasis in original) (citations omitted).

[9] Transcript of hearing on 21 November 2025, 8.

[10] Transcript of hearing on 21 November 2025, 8. See also at 11-12.

[11] [2020] VSC 227, [3].

[12] Transcript of hearing on 21 November 2025, 28-29, 47.

[13] Transcript of hearing on 21 November 2025, 13-14.

[14] Transcript of hearing on 21 November 2025, 39.

[15] Transcript of hearing on 21 November 2025, 43.

[16] Transcript of hearing on 21 November 2025, 46.

[17] Transcript of hearing on 21 November 2025, 38.

[18] Transcript of hearing on 21 November 2025, 44.

[19] [2024] VSCA 153, [104]-[108] (McLeish, Niall JJA and Osborne AJA) (citations omitted).

[20] (1982) 149 CLR 337, 346.

[21] Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd (2022) 404 ALR 503; [2022] NSWSC 1125, [5] (citations omitted).

[22] Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd (2022) 404 ALR 503; [2022] NSWSC 1125, [6] (Rees J).

[23] Transcript of hearing on 21 November 2025, 20.

[24] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 345 (Mason J).

[25] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 345.

[26] See, eg, Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd [2023] NSWSC 1550, [127] (Rees J); Daewoo Shipbuilding & Marine Engineering Co Ltd v INPEX Operations Australia Pty Ltd (2022) 404 ALR 503; [2022] NSWSC 1125, [133] (Rees J).

[27] [1977] UKPCHCA 1; (1977) 180 CLR 266, 283 (Lords Simon and Keith and Viscount Dilhorne), as cited in Feeney v Southstar Homes Pty Ltd [2024] VSCA 153, [104] (McLeish and Niall JJA and Osborne AJA).

[28] [2019] VSCA 318, [117]-[122] (Beach, McLeish and Hargrave JJA).

[29] Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318, [117]-[119], [121]-[122] (Beach, McLeish and Hargrave JJA).

[30] [2023] NSWSC 1550, [127].

[31] Transcript of hearing on 21 November 2025, 36.

[32] Transcript of hearing on 21 November 2025, 45.

[33] (2024) 281 CLR 338; [2024] HCA 27.

[34] See also L.U. Simon Builders Pty Ltd v Cardigan Commercial Pty Ltd [2025] VSC 655, [160]-[163] (Sloss J).

[35] Productivity Partners Pty Ltd v Australian Competition and Consumer Commission (2024) 281 CLR 338; [2024] HCA 27, [99]-[101], [105] (Gleeson J agreeing at [314], Beech-Jones J agreeing at [340]) (emphasis in original) (citations omitted).