Best Tech & Engineering Ltd v Samsung C&T Corporation [No 3] - [2015] WASC 459

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BEST TECH & ENGINEERING LTD -v- SAMSUNG C&T CORPORATION [No 3] [2015] WASC 459

CORAM: ALLANSON J

HEARD: 27 NOVEMBER 2015

DELIVERED : 30 NOVEMBER 2015

PUBLISHED : 1 DECEMBER 2015

FILE NO/S: CIV 2500 of 2015

BETWEEN: BEST TECH & ENGINEERING LTD
Plaintiff
AND
SAMSUNG C&T CORPORATION
Defendant

Catchwords:

Interim injunction - Performance guarantee - Construction of clause - Turns on own facts

Application for separate trial of issue - Unconscionable conduct - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 32 r 4

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr N D C Dillon
Defendant: Mr G D Cobby

Solicitors:

Plaintiff: Moray & Agnew
Defendant: Herbert Smith Freehills

Case(s) referred to in judgment(s):

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199
Best Tech & Engineering Ltd v Samsung C&T Corporation [2015] WASC 355
Best Tech & Engineering Ltd v Samsung C&T Corporation [No 2] [2015] WASC 447
Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47
Clairs Keeley (A Firm) v Treacy [2004] WASCA 277
Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458
Landsdale Pty Ltd v Moore [2009] WASCA 176
Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443

ALLANSON J: Best Tech & Engineering Ltd and Samsung C&T Corporation are parties to a contract entitled 'Roy Hill Ore Project Supply Contract For Supply of Modular Steel' (the Contract).
Clauses 3.1 and 3.2 of the Contract relate to the provision of security by Best Tech (as supplier) to Samsung (as purchaser):
3.1Provision
Security shall be provided by the Supplier to Purchaser in accordance with Item 12.
The Purchaser shall have a discretion to approve or disapprove of the form of security and the financial institution giving it.
3.2Recourse
(a)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 scope of works as a result of actions by BTE. If the Purchaser converts any security into money in accordance with this clause and it is subsequently determined that the relevant amount was not payable by the Supplier under or in respect of the Subcontract then:
(i)the Purchaser must pay back the relevant amount to the Supplier;
(ii)the Purchaser must pay an amount to the Supplier that is calculated by multiplying the relevant amount by the percentage rate of 1% above the current LIBOR;
(iii)costs, fees or charges incurred as a result of the security being converted by the Purchaser to a maximum amount of three percent of the converted amount; and
(iv)the Purchaser will have no further liability to the Supplier in relation to the conversion of the security into money.
(b)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. Not for any losses caused by third party companies or individuals. However prior to any recourse to security in relation to defective workmanship the Purchaser must provide the Supplier with documentation which provides for an independent third party assessment of any defect. Such assessment is to detail the nature of the defect, the reasons for responsibility being assigned to the Supplier and an estimated cost to rectify the defect.
Best Tech provided security by guarantees issued by the Australia and New Zealand Banking Group Ltd (ANZ), for an amount not exceeding US$1,500,000. The guarantees will expire on 31 December 2015.
On 10 September 2015, Samsung gave notice to Best Tech of its intention to have recourse to the security.
On 18 September 2015, Pritchard J granted an urgent interim injunction on an ex parte basis, restraining Samsung from making any or any further request, call or demand for payment on the guarantees. Pritchard J did not make any determination on the construction question now before the court. Her Honour found that the plaintiff had demonstrated that there was a serious question to be tried, sufficient to justify the grant of an interlocutory injunction (at least on an interim basis), regarding two questions:
(1)whether the alleged breaches relied upon by Samsung in the notice of 10 September 2015 were capable of constituting breaches of the Contract: Best Tech & Engineering Ltd v Samsung C&T Corporation [2015] WASC 355 [17]; and
(2)whether, on the proper construction of cl 3.2, a precondition for reliance upon the clause is that Samsung had issued a notice which showed the losses and damages that are claimed and which are said to fall into the responsibility of Best Tech: Best Tech & Engineering Ltd v Samsung C&T Corporation [28].
Pritchard J noted but expressed no view on other arguments put forward regarding the proper construction of cl 3.2.
Pritchard J granted an injunction for a short period, to enable the matter to be heard on notice to Samsung.
Following a hearing on 30 October 2015, Chaney J held that the injunction granted on 18 September 2015 should be discharged, but there should be an injunction restraining Samsung from calling on the guarantees based upon the notice dated 10 September 2015, by reason of a failure to meet the requirements of cl 3.2(a) of the Contract at the same time as, or prior to, the issue of the notice. His Honour published his reasons on 20 November 2015: Best Tech & Engineering Ltd v Samsung C&T Corporation [No 2] [2015] WASC 447 (Best Tech [No 2]).
Samsung issued a further notice after the decision of Chaney J.
On 25 November 2015, Best Tech applied for further orders including an interlocutory injunction, not materially different from that discharged by Chaney J. Best Tech also applied for orders for the urgent separate trial of an issue pursuant to O 32 r 4 of the Rules of the Supreme Court 1971 (WA), and programming of submissions and affidavits for that hearing. The intended effect of the orders would be to have the issue of the proper construction of cl 3.2 heard and determined before 31 December 2015.
In the course of submissions on behalf of Best Tech, it became apparent that Best Tech wishes to rely also on an allegation of unconscionable conduct, and would seek to maintain the injunction on that basis should it fail on the construction question. To that effect, Best Tech was also looking for an urgent final determination of whether it is unconscionable for Samsung to call on the securities.
That issue of unconscionability had not been raised before Chaney J, and was not the subject of specific evidence. It was identified in oral submissions on the hearing of the application before me when counsel was asked about whether there was anything materially different in this application from the matters determined by Chaney J.
There are difficulties in Best Tech's position. First, to the extent the question was identified, it would require relief beyond the terms of the present application, which seeks only a preliminary determination of the construction issue. Samsung was not on notice of such an application. Second, a claim in unconscionable conduct raises matters outside the terms of the action. The action has not been pleaded ‑ it was commenced by writ bearing a general indorsement. The indorsement does not identify any claim in unconscionable conduct, statutory or otherwise, but only contractual breach. I doubt that the allegation of unconscionable conduct arises from facts which are the same as, or include or form part of, facts giving rise to the cause of action which is mentioned. Third, if the claim is based on the conduct in issuing the fresh notice, following the decision by Chaney J, it is based on matters arising after the commencement of the action. Fourth, I doubt whether the issue of unconscionable conduct is one suitable for separate determination. No attempt had been made to date to properly identify a suitable issue: see Carlo Nobili SpA Rubinetterie v Militaire Nominees Pty Ltd [2004] WASC 47 [4]; Landsdale Pty Ltd v Moore [2009] WASCA 176 [19] ‑ [21].
To the extent the plaintiff relies on unconscionable conduct, the present application has not properly been thought through.

Interlocutory relief

The general principles which apply to an application for interlocutory relief are not in dispute and do not need to be restated; they are conveniently summarised in Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] ‑ [13]. It is necessary to first identify the legal or equitable rights which are to be determined at trial and in respect of which final relief is sought: see Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 [11], [105]. The court may grant the injunction for the purpose of keeping matters in status quo until the parties' rights are determined at trial.
In the present case, I have taken into account that the plaintiff seeks only a short term restraint to enable a final determination on an urgent basis.

Proper construction of cl 3.2 of the Contract

The principal issue before Chaney J was the proper construction of the Contract. The principles by which a court will construe a bank's undertaking in a performance guarantee have been the subject of many decisions: see in particular Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443 (Wood Hall). In Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458 (Clough), the court acknowledged three principal exceptions to the rule that a court will not enjoin the issuer of a performance guarantee or bond from performing its unconditional obligation to make payment. Best Tech argued only the third exception before Chaney J:
[I]f 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 (Clough [77]).
Relevantly, his Honour identified five issues as to construction (Best Tech [No 2] [30]):
(i)whether the requirement under cl 3.2(a) for Samsung to 'show any losses, damages or substantial breaches of [Best Tech's] scope of works as a result of actions by [Best Tech]' requires that the notice itself demonstrate those losses, damages or substantial breaches;
(ii)whether any overpayment by Samsung is a loss for the purposes of cl 3.2(a);
(iii)whether a claim for 'money owing' for purposes of cl 3.2(b) must be 'demonstrated and fully documented';
(iv)whether a claim for refund of overpayments can be said to be 'money owing due to costs caused by the supplier to the purchaser that fall into the responsibility of the supplier' for the purposes of cl 3.2(b); and
(v)whether cl 3.2 is designed to allocate risk between the parties in the event of a dispute under the Contract.

Construction issue (i)

His Honour found issue (i) in favour of Best Tech, in the sense that he found that Best Tech had established a prima facie case that, on the proper construction of cl 3.2(a), Samsung must comply with the requirement to show its losses, damages or substantial breaches no later than the time upon which it gives it 10 days' notice of intention to have recourse to the security. Samsung had not so complied.
Otherwise, Chaney J found against Best Tech. Relevantly he held:

Construction issue (ii)

His Honour said:
I see no reason why such overpayments cannot be characterised as losses suffered by Samsung as a result of actions by Best Tech for the purposes of cl 3.2(a). Whether Samsung has complied with the obligation to show the losses is, of course, a separate question [36].

Construction issue (iii)

The construction contended for by Samsung as to cl 3.2(b) was the proper construction: [39].

Construction issue (iv)

Specifically, his Honour considered Best Tech's argument that a claim for reimbursement of money overpaid by Samsung to Best Tech under the Contract does not come within the description 'money owing due to costs caused by the supplier to the purchaser that fall into the responsibility of the supplier'. He did not accept those submissions, and found that Best Tech had not raised a serious question to be tried as to whether a claim for overpayment is capable of falling within the expressions used in cl 3.2(b).

Construction issue (v)

Finally, his Honour found that the clause was designed to allocate risk in the event of a dispute, and the risk was with Best Tech. If the requirements of cl 3.2 have been complied with, the court should not interfere with the parties' agreement by restraining the exercise of the security.
His Honour dealt separately with whether cl 3.2 had been complied with, and found that Best Tech had established a prima facie case that Samsung had not complied regarding when notice was sent.
Chaney J further accepted that exercise of the security would have adverse consequences for Best Tech. But those consequences must be seen in the context that, provided the preconditions to a call on the security are met, they are consequences which Best Tech had accepted by agreeing to the provision of the security in the Contract.
Chaney J concluded that Best Tech had raised a prima facie case that Samsung was not entitled to call upon the security on the basis of the notice of 10 September 2015, by reason of its failure to meet the requirements of cl 3.2(a) at the same time as, or prior to, the issue of the notice. He found that the balance of convenience favours the grant of an interim injunction in light of the asserted adverse consequences to Best Tech resulting from the exercise of the security. His Honour was not, however, prepared to continue the injunction in the wide terms of that granted by Pritchard J on 18 September 2015. At [63] he said:
Having concluded that the claim for overpayment is capable of forming the subject matter of a call on the security, I do not consider that the plaintiff has established a serious issue to be tried as to Samsung's entitlement to give proper notice under cl 3.2, having now shown the losses for the purposes of cl 3.2(a). In my view, it is open to Samsung, if it chooses, to issue a further 10 days' notice of intention to have recourse to the security based on the overpayments for which it contends.

This application

There are two aspects to the current application.
First, there is the issue of construction. Best Tech applies for an interlocutory injunction in wide terms not substantially different from that granted by Pritchard J and discharged by Chaney J. While the decision of Chaney J was interlocutory, it was a considered decision given after a hearing between the parties.
I heard counsel for Best Tech as to the construction for which he contended, essentially rehearing the arguments put before Chaney J. I have also read and considered the written submissions of the plaintiff on the earlier application.
With respect, I agree with the construction and comments of Chaney J. I am not satisfied that the case put by Best Tech raises a serious question to be tried as to the proper construction of cl 3.2. On that basis I would dismiss this application.
Second, Samsung submitted that I should in any event dismiss the application on the ground that it was an abuse of process. Proceedings which seek to re-litigate questions that, in substance, have been litigated and determined in other proceedings have been held to be an abuse: see, for example, Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4. The determination by Chaney J was an interlocutory determination and not a final determination. That does not make the decision something that should be readily varied or discharged. The decision was made after a contested hearing, with both parties represented. As a matter of practice, an application which would have the effect of varying or discharging an order made after a contested hearing should be based on some material change of circumstance, or the discovery of new material. Similar principles apply to a fresh application where an application for interlocutory relief which has failed: see the discussion in Clairs Keeley (A Firm) v Treacy [2004] WASCA 277.
It is, however, a rule of practice. In the present case, it is unnecessary to determine whether the application should be characterised as an abuse of process. It is sufficient to decide the matter that I agree with Chaney J on the proper construction of cl 3.2, and do not believe that Best Tech's claim has sufficient prospects of success to justify the restraint sought.

The issue of unconscionability

I have commented above on the plaintiff's reference to unconscionability. Best Tech wished also to press that it would be unconscionable for Samsung to rely on its strict legal rights under the Contract, when Samsung had not responded to a letter from Best Tech, dated 12 October 2015, disputing matters on which Samsung relied for its notice under cl 3.2. Best Tech relied on the principle that equity may restrain an unconscionable reliance on strict legal rights where there is a finding of unconscionable conduct against the party seeking to rely on them.
The unconscionability claim is put forward as the basis for interlocutory restraint. Best Tech must show a sufficient likelihood of success to justify restraining Samsung from the exercise of its contractual rights, having regard to the nature of the rights asserted by Best Tech and the practical consequences likely to flow from the interlocutory order sought.
A claim for relief on the basis of unconscionable dealings calls for a close consideration of the facts. Best Tech put forward no additional evidence on the issue of unconscionability, but relied solely on the fact that Samsung had not responded to (from which it asked the court to infer that Samsung had given no proper consideration to) Best Tech's letter of 12 October before invoking an existing contractual remedy. With respect, I am unsure on what basis this is, or could be, asserted to be unconscionable. Having regard to the history of this matter, including the finding by Chaney J that it was open to Samsung to issue a further 10 day notice, I am not satisfied that Best Tech has shown it has an arguable case that Samsung acted unconscionably in doing so.
I accept that the plaintiff will be prejudiced by any call on the guarantees. But that is the effect of the agreement it entered.
The application will be dismissed.