Best Tech & Engineering Ltd v Samsung C&T Corporation
[2015] WASC 355
•18 SEPTEMBER 2015
BEST TECH & ENGINEERING LTD -v- SAMSUNG C&T CORPORATION [2015] WASC 355
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 355 | |
| Case No: | CIV:2500/2015 | 18 SEPTEMBER 2015 | |
| Coram: | PRITCHARD J | 18/09/15 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Interim injunction granted | ||
| B | |||
| PDF Version |
| Parties: | BEST TECH & ENGINEERING LTD SAMSUNG C&T CORPORATION |
Catchwords: | Interlocutory injunction Interim injunction -Application to restrain defendant from making request, call or demand for payment pursuant to unconditional bank guarantees Whether there is a serious question to be tried Balance of convenience Whether damages inadequate |
Legislation: | Nil |
Case References: | Bateman Project Engineering Pty Ltd v Resolute Ltd [2000] WASC 284; (2000) 23 WAR 493 Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SAMSUNG C&T CORPORATION
Defendant
Catchwords:
Interlocutory injunction - Interim injunction -Application to restrain defendant from making request, call or demand for payment pursuant to unconditional bank guarantees - Whether there is a serious question to be tried - Balance of convenience - Whether damages inadequate
Legislation:
Nil
Result:
Interim injunction granted
Category: B
Representation:
Counsel:
Plaintiff : Mr N D C Dillon
Defendant : No appearance
Solicitors:
Plaintiff : Moray & Agnew
Defendant : No appearance
Cases referred to in judgment:
Bateman Project Engineering Pty Ltd v Resolute Ltd [2000] WASC 284; (2000) 23 WAR 493
Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458
- PRITCHARD J:
(This judgment was delivered extemporaneously on 18 September 2015 and has been edited from the transcript.)
1 The plaintiff and the defendant are parties to a contract dated 26 December 2014 (the contract), whereby the plaintiff provided modular steel to the defendant in connection with the Roy Hill mine project. One of the terms of the contract required the plaintiff to provide security, including security in the form of a bank guarantee.
2 The plaintiff has applied for an interlocutory injunction restraining the defendant from making any or any further request, call, or demand for payment on a guarantee issued by the Australia and New Zealand Banking Group (ANZ) (the guarantee). The guarantee was given pursuant to the obligation on the plaintiff under the contract to provide security.
3 The application was heard on an urgent basis this evening, and in the absence of the defendant. Ordinarily, it is appropriate for applications (even urgent applications) to be on notice to those affected by them, but in the circumstances of the present case, I was satisfied that it was appropriate to proceed notwithstanding the absence of the defendant.
4 I propose to grant the interlocutory injunction, which has been sought for a period, so as to permit the defendant to be served with the relevant material and to have the opportunity to be heard on the question whether the operation of the interlocutory injunction should be extended.
Factual background
5 The plaintiff relies on two affidavits sworn by Mr Martin Lewis on 18 September 2015 in support of its application and has provided an undertaking as to damages in its usual form, in accordance with the practice direction of the Court.
6 A copy of the guarantee was annexed to one of Mr Lewis' affidavits. It is in an unconditional form, in that its terms make clear that if the guarantee is called upon by the defendant, the bank undertakes unconditionally and irrevocably to pay the defendant on demand any sum or sums which may, from time to time, be demanded, to the maximum amount indicated in the guarantee. That payment must be made immediately upon the request or call being made and despite any notice given to the bank by the plaintiff, and irrespective of the performance or non-performance by the plaintiff or by the defendant of the contract in any respect. The terms of the guarantee make clear, in other words, that if it is called upon, the bank will be obliged to pay in accordance with the terms of the guarantee.
7 A dispute has arisen between the plaintiff and the defendant in respect of performance of their obligations under the contract. In short, the plaintiff considers that the defendant has failed to make payments which are due to it under the contract. The defendant, on the other hand, has taken the view that the plaintiff has failed to comply with a number of its contractual obligations.
8 I observe that counsel for the plaintiff submitted, and having regard to the affidavits of Mr Lewis it appears to be the case, that substantial performance of the contract by the plaintiff has occurred to the extent that the plaintiff says that practical completion has been achieved. Nevertheless, there may be other obligations which remain to be performed.
9 The dispute culminated in the issue of a notice by the defendant to the plaintiff on 10 September 2015 (the Notice), by which the defendant put the plaintiff on notice that it would have recourse to the guarantee at the expiration of 10 days from receipt by the plaintiff of the Notice. The Notice was sent by way of a formal notification pursuant to cl 3.2 of the contract.
10 Before turning to the basis on which the Notice was given, I should refer to cl 3.2 in its relevant respects. Clause 3.2(a) provides that:
Security shall be subject to recourse by the Purchaser where at least 10 days have elapsed since the Purchaser notified the Supplier of its intention to have recourse subject to the purchaser showing any losses, damages or substantial breaches of BTE's [that is, the plaintiff's] scope of works as a result of actions by BTE.
11 In addition, cl 3.2(b) provides that:
Recourse to security shall only occur when there are losses & costs due to demonstrated and fully documented defective workmanship by the supplier or money owing due to costs caused by the supplier to the purchaser that fall into the responsibility of the supplier.
12 In the Notice the defendant pointed to what it said were four breaches of the agreement by the plaintiff (the alleged breaches). These were:
(1) that the plaintiff had failed to provide MDRs in accordance with the agreement or at all (costs were being estimated);
(2) that the plaintiff had failed to comply with the contract schedules, causing the defendant loss and damage in respect of demurrage charges as previously set out, an amount of just over $2.79 million or as claimed in respect of that alleged breach;
(3) that the plaintiff had failed to comply with the contract in respect of the supplied materials, which have required substantial defect rectification; and
(4) that the plaintiff had wrongfully purported to suspend the contract, and accordingly was in substantial breach of cl 25.2(b) of the contract.
13 Insofar as the third of those breaches is concerned, the Notice made clear that it was not relied upon by the defendant for the purpose of calling on the guarantee, having regard to cl 3.2(b) of the contract. It was the case, therefore, that only the other three alleged breaches were relied upon.
Whether there is a serious question to be tried
14 The case advanced by counsel for the plaintiffs was that there is a serious question to be tried as to whether the defendant is entitled to call on the guarantee. There are two bases for that contention.
15 First, in respect of each of the alleged breaches, counsel submitted that on the material before the Court, there is a serious question to be tried as to whether the conduct referred to in the Notice constituted a breach of any contractual term.
16 Secondly, counsel submitted that on the proper construction of cl 3.2 of the contract, compliance with the requirement for notice constituted, in effect, a precondition on the defendant's entitlement to call on the guarantee, and that the requirements of cl 3.2 of the contract have not been met by the defendant.
Whether the alleged breaches referred to in the Notice constitute breaches of the agreement
17 Turning to the first of those grounds, I am satisfied that the plaintiff has demonstrated that there is a serious question to be tried sufficient to justify the grant of an interlocutory injunction (on an interim basis at least), in that the alleged breaches relied upon by the defendant in the Notice were not capable of constituting breaches of the contract. It is not necessary for present purposes to outline in detail the bases for the argument. They can be explored in due course at an inter partes hearing.
18 Insofar as the first alleged breach is concerned, the plaintiff argued that there is no requirement under the contract for the plaintiff to provide the MDRs to the defendant. I accept that the plaintiff has demonstrated a serious question to be tried in relation to the meaning of the contract, insofar as it requires the provision of certain documentation by the plaintiff to the defendant, including, under cl 6.15 of Part F of the contract, the requirement that the supplier shall progressively compile the MDR during the execution of the work, and shall make the MDR available for periodic review by the defendant's principal or its representative, as required.
19 I am satisfied that there is a serious question to be tried as to whether that obligation constitutes an obligation to supply copies of the documents described as MDRs to the defendant (as the defendant appears to contend) or that is sufficient compliance with that term that the plaintiff make available, presumably for inspection, the MDR documentation (as contended by the plaintiff).
20 I digress to observe that cl 6.15.1 can be contrasted with cl 6.15.3 in Part F of the contract, insofar as it requires the plaintiff to 'submit' an MDR index to the defendant for review and acceptance, as opposed to merely making the MDR index 'available', as is required by cl 6.15.3.
21 In respect of the second alleged breach relied upon in the Notice, the plaintiff's position is that the contract does not contain any requirement for delivery of the goods supplied under the contract at particular points in time. Counsel for the plaintiff has pointed, in particular, to item 6(a) of Part A of the contract, which makes clear that there is no date for delivery prescribed under the contract. Furthermore, counsel has pointed to correspondence between the parties which made clear that the plaintiff anticipated that, through no fault of its own, there would be delays in the provision of the goods under the contract, and that arrangements with respect to shipping should take that into account, so that a needless waste of expense could be avoided.
22 Finally, in relation to the fourth alleged breach (the third alleged breach not being relied upon), insofar as the Notice refers to an alleged wrongful suspension of the contract which is said to constitute a substantial breach of the contract by the plaintiff, counsel for the plaintiff submits that there was no wrongful breach of the contract. He pointed to correspondence which passed between the parties, in which the plaintiff advised the defendant that, by virtue of the failure by the defendant to perform its contractual obligations in respect of payment, the plaintiff intended to suspend its obligations under the contract. Counsel for the plaintiff submitted that that intention was communicated only on the basis of continuing discussions between the parties about how to resolve the dispute, and did not constitute any intention to repudiate the contract. Furthermore, he pointed to the fact that, under cl 25.5 of the contract, the defendant's failure to pay would constitute a substantial breach in respect of which action could be taken by the plaintiff.
23 In addition, counsel for the plaintiff says that the defendant has no entitlement to rely upon the alleged breach because in order to do so it would need to comply with requirements under the contract, specifically those in cl 25.2 of the contract, to issue a written notice to the plaintiff to show cause in respect of the alleged breach. Counsel submitted the defendant had failed to comply with those requirements. I am satisfied that there is a serious question to be tried in respect of whether the alleged breaches constitute breaches of the contract for the purposes of calling on the guarantee.
Whether preconditions for calling on the guarantee have been met
24 The second ground advanced by counsel for the plaintiff was that the defendant was not entitled to call on the guarantee because it had failed to comply with what he characterised as a precondition to the operation of the entitlement in cl 3.2 of the contract to call on the bank guarantee. Having regard to the terms of cl 3.2, counsel submitted that a precondition for the operation of recourse to the security is that the defendant provide a notice to the plaintiff at least 10 days in advance which showed any losses, damage or substantial breaches of the plaintiff's scope of works as a result of actions by the plaintiff.
25 Insofar as the alleged breaches gave rise to a claim for money owing due to costs caused by the supplier (the plaintiff) to the purchaser (the defendant) that fall into the responsibility of the supplier (as opposed to a claim based on defective workmanship), counsel submitted that it was necessary for the Notice to show loss or damage arising from the alleged breaches. He submitted that no such loss or damage had been shown with respect to either the first or the last of the alleged breaches relied upon by the defendant in the Notice.
26 Insofar as the second of the alleged breaches was concerned (that is, the allegation of a failure to comply with contract schedules), the Notice referred to a loss. I understood counsel's submission to be that there had not been satisfaction of the requirement that that loss be shown to be a result of actions by the plaintiff, having regard to both the construction argument to which I have referred, and having regard to the correspondence to which I have also referred, in which the plaintiff identified the anticipated delays and the need to amend shipping expectations accordingly.
27 Reference to the terms of cl 3.2 as providing preconditions for its operation brings me to a significant issue which warrants some mention at this point. It is well-established that a court will be cautious about enjoining the issuer of a performance guarantee or bond from performing its unconditional obligation to make payment. The same caution extends to enjoining the beneficiary of such a security from making a call on it. The relevant principles were considered in some detail by the Full Federal Court of Australia in Clough Engineering Ltd v Oil & Natural Gas Corp Ltd.1 It is unnecessary for me to repeat the discussion here. It suffices to mention that there are well recognised exceptions to the caution to which I have referred. And in respect to those exceptions, counsel for the plaintiff relies on the exception that the court will not restrain the issue of a performance guarantee from acting on an unqualified promise to pay, except 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. As their Honours observed in Clough:
It may be preferable not to describe this as an exception but rather as an over-riding rule because it emphasises that the "primary focus" will always be the proper resolution of the contract.2
28 Having regard to the terms of cl 3.2 of the contract, I am satisfied that there is a serious question to be tried as to whether, on the proper construction of that clause, the requirement is to issue not just a notice, but a notice which shows the losses and damages that are claimed and which are said to fall into the responsibility of the plaintiff, and that that constitutes a precondition for reliance upon the clause itself, and that there is a serious question to be tried as to whether that precondition was met in the present case.
29 I digress to mention one further issue in relation to the construction of the contract, and that is that cl 28 of the contract contains extensive provisions in respect of the resolution of disputes between the plaintiff and the defendant. That resolution process appears to have, as its primary focus, a culmination in an arbitration to be administered by the Singapore International Arbitration Centre in accordance with the international arbitration rules. The arbitration is to follow a dispute resolution process involving conferral between the parties. The existence of that clause does not appear (at least at first blush in the brief time I have had to review the contract) to be exhaustive of the rights of dispute resolution open to the parties. Indeed cl 28.5 of the contract expressly provides that nothing in the contract prejudices the right of a party to institute proceedings to enforce payment due under the contract, or to seek injunctive or urgent declaratory relief.
30 A question may have arisen about whether injunctive relief should be granted, having regard to the terms of the dispute resolution clause, even in the absence of a contractual term which provided that that dispute resolution process was exhaustive. But the presence of cl 28.5 suggests that the parties formed a commercial view that there may be instances where, despite the dispute resolution procedure, it may be appropriate for either of them to be able to institute proceedings including, amongst other things, to seek injunctive relief. For that reason, I formed the view that for present purposes it is open to argument that this Court is not, in any way, inhibited by proceeding to grant an interlocutory injunction by the existence of an agreement between the parties to pursue the dispute resolution procedure set out in the contract.
Balance of convenience and adequacy of damages
31 In addition to the serious question to be tried, the authorities establish that the other considerations the Court needs to take into account are whether damages would be an adequate alternative remedy to the grant of injunctive relief and to the question of where the balance of convenience lies. It has been recognised that these are not discrete considerations but are factors that must be weighed up, having regard to the nature of the relief sought and its implications. But it is convenient to refer to them separately for present purposes if only to highlight the evidence and arguments that were relied upon to demonstrate a sufficient basis for the grant of injunctive relief.
32 Counsel for the plaintiff submitted that the balance of convenience weighed in favour of the grant of injunctive relief. He relied upon the evidence set out by Mr Lewis in his affidavit commencing at para 75 and following.
33 In that affidavit, Mr Lewis deposes that:
If Samsung has recourse to the bank guarantee, the plaintiff will suffer commercial damage to its reputation and its relationship with its financiers will be adversely affected. The plaintiff is also in the process of becoming listed on the public stock exchange and a loss of reputation at this time will have substantial repercussions.
34 Furthermore, Mr Lewis deposed that, on a past occasion where it has been necessary that the security offered by the plaintiff has been called upon, it has caused difficulties for the plaintiff, and that in applications for tenders, which the plaintiff has made in the past, one of the questions sometimes asked is whether it has ever had a bank guarantee called upon. I accept that there has been a demonstration in that evidence that the balance of convenience would favour the grant of injunctive relief.
35 Those, of course, are not the only considerations. Another that I rely upon for forming the view that there is a strong argument that the balance of convenience warrants the grant of an injunction is that the security that can be called upon under the guarantee will be in place until the end of the year, according to its terms, and nothing about the grant of the injunction would prejudice the defendant's ability to be able to call on that security, should it appear that the injunction should not be continued after an inter partes hearing is held.
36 Finally, I observe that as to the question of whether damages would be an adequate alternative remedy, the matters raised by Mr Lewis in his affidavit, to which I have referred, provide a basis for concluding that this is a case in which damages would not be an adequate alternative remedy, insofar as the plaintiff's commercial reputation and its credit standing are concerned.
37 Taking all of those matters into account, I am satisfied that this is an appropriate case for the grant of injunctive relief, and I propose to grant an interlocutory injunction until next week so that there will be an opportunity for the defendant to be able to be heard in respect to whether that injunction should be continued on a longer-term basis.
38 I will hear from counsel as to the precise forms of the orders that should be made in view of that conclusion.
1Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 [75] ff.
2Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 [77], referring to the decision of Owen J in Bateman Project Engineering Pty Ltd v Resolute Ltd [2000] WASC 284; (2000) 23 WAR 493.
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