Duro Felguera Australia Pty Ltd v Samsung C&T Corporation
[2016] WASC 119
•15 APRIL 2016
DURO FELGUERA AUSTRALIA PTY LTD -v- SAMSUNG C&T CORPORATION [2016] WASC 119
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 119 | |
| Case No: | CIV:1317/2016 | 24, 29 & 31 MARCH 2016 | |
| Coram: | LE MIERE J | 15/04/16 | |
| 27 | Judgment Part: | 1 of 1 | |
| Result: | Plaintiffs' application for interlocutory injunction is dismissed | ||
| B | |||
| PDF Version |
| Parties: | DURO FELGUERA AUSTRALIA PTY LTD SAMSUNG C&T CORPORATION |
Catchwords: | Application for interlocutory injunction Recourse to performance bonds Effect of determinations under the Construction Contracts Act 2005 (WA) on parties right to security Insufficient prima facie case Balance of convenience Turns on own facts |
Legislation: | Building and Construction Industry Payments Act 2004 (Qld), s 99, s 100 Building and Construction Industry Security of Payment Act 1999 (NSW), s 33, s 34 Construction Contracts Act 2005 (WA), s 3, s 29, s 31, s 36, s 38, s 39, s 40, s 41, s 43, s 45 s 46, s 53 |
Case References: | Australian Broadcasting Corp v O'Neill [2006] HCA 46; (2006) 227 CLR 57 Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451 Cape Range v Austral [2012] WASC 304 Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 Fabtech Australia Pty Ltd v Laing O'Rourke Australia Construction Pty Ltd [2015] FCA 1371 Patterson Building Group Pty Ltd v Holroyd City Council [2013] NSWSC 1484 Sudholz Pty Ltd v Airlie Summit Pty Ltd [2007] QSC 199 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SAMSUNG C&T CORPORATION
Defendant
Catchwords:
Application for interlocutory injunction - Recourse to performance bonds - Effect of determinations under the Construction Contracts Act 2005 (WA) on parties right to security - Insufficient prima facie case - Balance of convenience - Turns on own facts
Legislation:
Building and Construction Industry Payments Act 2004 (Qld), s 99, s 100
Building and Construction Industry Security of Payment Act 1999 (NSW), s 33, s 34
Construction Contracts Act 2005 (WA), s 3, s 29, s 31, s 36, s 38, s 39, s 40, s 41, s 43, s 45 s 46, s 53
Result:
Plaintiffs' application for interlocutory injunction is dismissed
Category: B
Representation:
Counsel:
Plaintiff : Mr S K Dharmananda SC & Mr T J Porter
Defendant : Mr C G Colvin SC & Ms K R Lendich
Solicitors:
Plaintiff : Jones Day
Defendant : Herbert Smith Freehills
Case(s) referred to in judgment(s):
Australian Broadcasting Corp v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451
Cape Range v Austral [2012] WASC 304
Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458
Fabtech Australia Pty Ltd v Laing O'Rourke Australia Construction Pty Ltd [2015] FCA 1371
Patterson Building Group Pty Ltd v Holroyd City Council [2013] NSWSC 1484
Sudholz Pty Ltd v Airlie Summit Pty Ltd [2007] QSC 199
Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98
- LE MIERE J:
Summary
1 The plaintiff, Duro, and the defendant, Samsung, entered into a contract (Interim Subcontract) by which Duro agreed to perform works (Duro Works) in relation to the Roy Hill iron ore mining, rail and port project in the Pilbara (the Project). The Interim Subcontract required Duro to provide security for its performance of the contract which it provided in the form of performance bonds issued by CGU Insurance Ltd and by AIG Australia Ltd (the Bonds). Each bond is for an amount of $38,143,767.20.
2 Clause 5.2 of the General Conditions, which is a term of the Interim Subcontract, provides that Samsung may, at any time, convert into money any security where Samsung considers, acting bona fide, that it is or will be entitled to recover the relevant amount from Duro under or in respect of the Interim Subcontract. On 18 February 2016, Samsung gave notice of its intention to have recourse to the security by making demand on CGU and AIG for payment under the Bonds.
3 Duro now seeks an interlocutory injunction restraining Samsung from taking any step to obtain payment under the Bonds. Duro says that there is a prima facie case that Samsung is not entitled to convert the Bonds into money on two grounds. First, demanding payment under the Bonds is to disregard, and fail to comply with, binding determinations made under the Construction Contracts Act2005 (WA) (the Act). Secondly, Samsung failed to apply the terms of the Interim Subcontract in considering that it is or will be entitled to recover the relevant amount from Duro. Duro says that the balance of convenience favours the grant of an injunction on the grounds that the court ought not permit Samsung to take the benefit of its own wrong and further there will be significant prejudice to Duro if an injunction is not granted whereas Samsung is wholly protected by the undertaking as to damages given by Duro.
4 For the reasons which follow, Duro has not made out its case and its application for an interlocutory injunction will be dismissed.
The Interim Subcontract
5 In August 2013, an unincorporated joint venture of Forge Group Construction Pty Ltd (Forge) and Duro were engaged by Samsung under an engineering, procurement, construction and commissioning contract to perform works in relation to the Project (Subcontract). Forge and Duro were jointly and severally liable under the terms of the Subcontract. Under the Subcontract, the overall scope of work was split. Forge performed the engineering, construction and commissioning activities and Duro performed the procurement, that is, Duro supplied the major equipment for the Project.
6 On 21 February 2014, the Subcontract was terminated by Samsung after Forge was placed in administration. Samsung took over Forge's scope of work and engaged Duro under a new contract to complete work that had been allocated to Duro under the Subcontract. The new contract (the Interim Subcontract) between Duro and Samsung is dated 21 February 2014. It comprises a Subcontract Term Sheet (Term Sheet) and the terms of the Subcontract as modified by the terms set out in the Term Sheet and its schedules for the performance of the Duro Works. The Interim Subcontract is referred to as the 'Interim Subcontract' because whilst the Interim Subcontract is legally binding on the parties, the parties intended to execute a Substitute Subcontract that incorporates the terms and conditions of the Subcontract as modified by the Schedules to the Term Sheet, together with any other terms and conditions that Samsung and Duro consider are reasonable or necessary that directly relate to the terms and conditions as set out in the Schedules of the Term Sheet. The parties did not agree upon the terms to be included in the Substitute Subcontract and a Substitute Subcontract was never executed.
7 The most important terms of the Interim Subcontract for present purposes are cl 5 and cl 29 of the General Conditions. Clause 5.1 requires Duro to provide security for its performance of the contract. Clause 5.2 provides that:
[Samsung] may, at any time, convert into money any Security that does not consist of money where:
(i) [Samsung] considers, acting bona fide, that it is or will be entitled to recover the relevant amount from [Duro] under or in respect of the Subcontract;
- Clause 5.2(b) restrains Duro from taking any steps to injunct or otherwise restrain any issuer of the Security from paying Samsung pursuant to the Security, restrain Samsung from taking any steps to obtain payment under the Security or restrain Samsung from using the proceeds of any Security.
8 Clause 29 deals with the quality of materials and standards of workmanship required by Duro. Clause 29.3 confers on Samsung rights in respect of defective work by Duro. The subclause provides:
If the Contractor's Representative becomes aware of work done (including material provided) by [Duro]... which does not comply with the Subcontract, the Contractor's Representative shall as soon as practicable give [Duro] written details of the defective work and the date for completion of its rectification. If such work has not been rectified within the stated date, the Contractor's Representative may Direct [Duro] to do any one or more of the following (including times for commencement and completion):
...
(c) redesign, reconstruct, replace or correct the relevant work;
...
If the Subcontractor fails to comply with such a direction within a reasonable time as specified by the Contractor's Representative in its Direction, the Contractor's Representative may give written notice to [Duro] that [Samsung] intends to have the subject work rectified by others, whereupon [Samsung] may have that work so rectified and the Contractor's Representative shall certify the cost incurred as moneys due from [Duro] to [Samsung].
9 A substantial part of the amount which Samsung considers it is or will be entitled to recover from Duro is the cost of rectifying defective work. I will refer later in these reasons to Duro's argument that Samsung is not entitled to recover the amount claimed for rectification of defective works because it did not comply with cl 29.3.
Evidence
10 Samsung adduced evidence from Juyeul Son who was the Project Director for Samsung on the Roy Hill Project. Mr Son gave evidence that he considered, and still considers, that Samsung is or will be entitled to recover more than the amount of the Bonds from Duro under the Interim Subcontract and the basis for his belief.
11 Duro adduced evidence from Eduardo Rodriguez who is the Project Director for Duro for the Roy Hill Project. Mr Rodriguez gave evidence in support of Duro's claim that Samsung does not have a bona fide claim to recover from Duro under the Interim Subcontract amounts claimed by Mr Son. Duro also led evidence from Victoria Strong who is employed by Duro as a legal and commercial manager. In her affidavits Ms Strong gives evidence of disputes between the parties arising out of the Project and of prejudice to Duro should the injunction sought by Duro not be granted.
12 Duro has submitted three payment claims which have been the subject of separate adjudication determinations made under the Act. On 20 January 2016, Mr Philip Loots made a determination which requires Samsung to pay Duro $9,034,193.29 (excluding GST) plus interest. On 10 February 2016, Mr Richard Machell made a determination which requires Samsung to pay Duro $333,119 plus, E 182,690.45, plus CNY 11,617,671.01 (excluding GST) plus interest. On 3 March 2016 Mr Loots released a further determination which requires Samsung to pay Duro $49,642,958.72 (plus GST). I will refer to the three determinations collectively as 'the Determinations'. Duro has applied to this court to enforce each of the Determinations and for each determination to be entered as a judgment of the Court. Samsung has applied for judicial review of each of the Determinations.
13 Ms Strong annexes a copy of each of the determinations to her affidavits. The documents annexed by Ms Strong consist of a document entitled 'Adjudicator's Determinations on Payment Claim' together with the adjudicator's reasons for his determination which are an annexure to each of the 'Adjudicator's Determinations on Payment Claim'.
14 Samsung objects that each of the determinations is made inadmissible by s 45(3) of the Act which provides:
Evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body, except for the purposes of an application made under s 29(3) or an appeal made under s 46.
15 A determination and the reasons for the determination are things said or done by the adjudicator in the course of the adjudication and are 'anything said or done in an adjudication'. However, the context of s 45(3) shows that such evidence is not inadmissible in all proceedings before an arbitrator or a court. The question is whether the Determinations are admissible in this proceeding.
16 Section 45 is concerned with the effect of adjudication proceedings on other proceedings before an arbitrator or a court in relation to a dispute or other matter arising under the construction contract. Subsection 1 provides that a party to a construction contract may initiate proceedings before an arbitrator or court in relation to the dispute or matter arising under the contract. Subsection 2 provides that although proceedings in relation to a payment dispute may have been initiated in a court or before an arbitrator, the adjudication under the Act is to proceed unless the parties request the adjudicator to discontinue the adjudication. Subsection 4 provides that the arbitrator or court dealing with the matter arising under a construction contract must, in making an award or judgment, allow for any amount that has been or is to be paid to the party under a determination of a payment dispute and may make orders for the restitution of the amount so paid and any other appropriate orders as to such a determination. This allows for 'payments on account' made through adjudication under the Act to be allowed for or modified in arbitrations or litigation.
17 Section 45(3) does not apply to proceedings for the enforcement of a determination or to proceedings for judicial review of the validity of a determination: Cape Range v Austral [2012] WASC 304. In such proceedings it is the fact or validity of the determination which is in question, not the dispute or other matter arising under the contract which gave rise to the payment claim. Evidence of a determination will also be admissible in proceedings before an arbitrator or court dealing with the matter arising under a construction contract where the determination is in effect a 'payment on account' and the arbitrator or court must, in making an award or judgment, allow for any amount that has been or is to be paid to a party under a determination of a payment dispute as it is required to by s 45(4).
18 The purpose of the prohibition under s 45(3) is to prevent evidence led by the parties before the adjudicator and the findings of the adjudicator being received in evidence in proceedings before a court or arbitrator deciding the same dispute or other matter arising under the contract as those inquired into and dealt with in an adjudication, or similar issues. The Explanatory Memorandum explains:
Evidence given in an adjudication cannot be used in other proceedings. This should encourage frank input to adjudications in order to promote quicker and better informed determinations.
19 For the reasons I will state later in these reasons, this is not a case where the court must, in making its order, allow for any amount that has been or is to be paid to a party under a determination. Nor is this a case for the enforcement or judicial review of the validity of the determinations. Section 45(3) prohibits the admission of the Determinations, and the reasons for those determinations, in this proceeding. The Determinations, and the reasons for those determinations, are things said or done in the adjudications and are not admissible in proceedings where the disputes or other matters inquired into and dealt with in the adjudication are in issue. The Determinations are inadmissible.
20 There were other objections made to evidence adduced. I have received the evidence and will give it such weight, if any, that it warrants.
Principles for grant of injunction
21 The principles relating to the grant of an interlocutory injunction are those explained in Australian Broadcasting Corp v O'Neill [2006] HCA 46; (2006) 227 CLR 57. The court addresses itself to two main inquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief. The plaintiff must show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the order he seeks. The second inquiry is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted.
22 These principles require the court to construe cl 5.2 of the General Conditions which is the foundation of Duro's claim for an injunction. There are relevantly two construction questions. First, the court must ask whether the security is intended to allocate risk pending the final determination of the parties' rights. Secondly, the court must determine the condition on which Samsung may convert the security into money.
23 There are generally two purposes for which a performance bond may be required. The first is to provide security for a valid claim against the contractor. The second is to allocate risk between the parties as to who shall be out of pocket pending the resolution of a dispute between them. It is a question of construction of the contract as to whether the security is provided solely as security or also as a risk allocation device: Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 [77] - [81]. I find that cl 5.2 is intended to allocate the risk pending the final determination of the parties' rights. That is apparent from the terms of cl 5.2(b). Samsung is entitled to use the proceeds of the security and Duro is not to take any steps to injunct or otherwise restrain the issuer of the security from paying Samsung or to restrain Samsung from using the proceeds of the security. Clause 5.2(c) provides that if Samsung converts the security into money and it is subsequently determined that the relevant amount was not payable by Duro under or in respect of the contract then Samsung shall pay back the relevant amount to Duro together with interest.
24 A contractual provision which allocates risk pending final determination of the dispute, as cl 5.2 does, alters the context in which the court must exercise its discretion to grant an injunction by changing the complexion of the status quo and raising the prospect of substantial injustice if the purpose of the provision is defeated. That is, the status quo in such circumstances becomes what the parties had agreed to as to which of them should bear the financial risk pending final determination, not the continuation of where that risk would naturally fall in the absence of a performance bond to call upon: Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 [31] (Osborn & Ferguson JJA).
25 The context in which an injunction is sought will govern the extent to which a plaintiff must make out its case in order to obtain relief. If the commercial purpose of a contractual provision will be defeated by the grant of an injunction, that must bear on the ultimate risk of injustice inherent in the grant of an injunction. The interlocutory relief sought has the capacity to amount to final relief in the sense of completely defeating the commercial purpose of risk allocation prior to the final determination of the matter.
26 When the above underlying principles are applied to the facts of the present case they support the conclusion that the court should not exercise its discretion to grant an injunction unless Duro establishes a strong case, and not merely an arguable case, that Samsung did not consider, acting bona fide, that it is or will be entitled to recover the relevant amount from Duro under or in respect of the Interim Subcontract.
27 Clause 5.2 of the General Conditions permits Samsung to convert the security into money if it considers, acting bona fide, that it is or will be entitled to recover the relevant amount from Duro under or in respect of the Subcontract. Bona fide is a Latin term meaning 'with good faith'. It requires at least that Samsung honestly and genuinely considers that it is or will be entitled to recover the relevant amount from Duro. Senior counsel for Samsung, Mr C G Colvin SC, accepts that bona fide, in this context, involves an objective element. Samsung must act objectively bona fide in the sense that it cannot bone fide consider that it is or will be entitled to recover the relevant amount if there is no proper or real foundation for that consideration. A consideration will be bona fide if there is either a genuine issue of material fact that bears upon Duro's liability or an arguable contention as to the construction of the contract or both. However, in deciding whether Samsung considers, acting bona fide, that it is or will be entitled to recover the relevant amount the court must not resolve any genuine issues of fact or law.
Duro's first ground - Determinations are binding
28 Duro's first ground is that demanding payment under the Bonds is to disregard, and fail to comply with, binding determinations made under the Act. Section 38 of the Act provides that an adjudicator's determination is binding on the parties to the construction contract under which the payment dispute arose. Senior counsel for Duro, Mr S K Dharmananda SC, submitted that an adjudicator's determination under the Act is binding in three respects. First, it is binding in relation to the amount that is to be paid. Secondly, it is binding as to whether a particular claim is available or not. Thirdly, findings of fact are binding. Mr Dharmananda submitted that by making demand on the Bonds Samsung is departing from the adjudicators' determinations which is contrary to s 38 of the Act. If Samsung makes demand on CGU and AIG and those companies pay Samsung then Duro will be required to pay to CGU and AIG the amount paid by those companies to Samsung. Mr Dharmananda says that in substance, Duro would not have received the benefit of the Determinations. Mr Dharmananda says that it is not contemplated by the Act that the effect of a determination may be reversed shortly after the payment is made by the payer having recourse to performance bonds. Duro submits that Samsung may not have recourse to the Bonds until the Determinations are set aside or there is a final determination of Duro's claims by a court or arbitrator. Until that time, the Determinations bind Samsung and preclude Samsung making demand on the Bonds.
29 Samsung denies that the Determinations prevent it from making demand on the Bonds. Samsung says that a determination under the Act does not prevent a party from relying upon its contractual entitlement to claim on a performance bond as security for amounts that party claims to be due under the contract.
Construction Contracts Act
30 Each State and Territory has enacted construction industry security of payment legislation. The Western Australian and Northern Territory legislation significantly differs from the other Australian Acts in both their underlying conceptual frameworks and in the detail of their drafting. The Western Australian and Northern Territory Acts have been collectively labelled as the 'West Coast' model legislation as opposed to the 'East Coast' model label given to the other Australian Acts which more closely resemble the Building and Construction Industry Security of Payment Act 1999 (NSW) (the NSW Act).
31 The (WA) Act provides, amongst other things, a means for adjudicating payment disputes arising under construction contracts. The Explanatory Memorandum states that the Act is to provide 'an effective rapid adjudication process for payment disputes'. A significant difference between the Act and the East Coast Model Acts is that the latter provide a detailed statutory payments regime, overriding any inconsistent contractual provisions, which parties may choose to engage by submitting a payment claim under the relevant Act at regular intervals and have it responded to within a certain timeframe whereas the (WA) Act largely preserves rather than overrides the parties contractual interim payment regimes. The Explanatory Memorandum states that the Act 'is based on enforcing the contract between the parties and does not introduce a separate, and possibly conflicting, statutory right to payment'. The Act provides, as the Explanatory Memorandum notes 'a rapid adjudication process that operates in parallel to any other legal or contractual remedy ... its primary aim is to keep the money flowing in the contracting chain by enforcing timely payment and sidelining protracted or complex disputes'.
32 Part 3 of the Act deals with the adjudication of disputes. Section 31(2)(a) provides that in certain circumstances an adjudicator must, within the prescribed time or any extension, dismiss the application without making a determination of its merits. Section 31(2)(b) provides that if the adjudicator does not dismiss the application pursuant to s 31(2)(a) then the adjudicator must determine on the balance of probabilities whether any party to the payment dispute is liable to make a payment, or to return any security and, if so determine (i) the amount to be paid or returned and any interest; and (ii) the date on or before which the amount is to be paid or the security is to be returned.
33 Part 3 div 4 deals with the effect of determinations. Section 38 provides that the determination is binding on the parties to the construction contract under which the payment dispute arose even though other proceedings relating to the payment dispute have been commenced before an arbitrator or other person or a court or other body. Section 39(1) provides that a party that is liable to pay an amount under a determination must do so on or before the date specified in the determination. Section 40 provides that where the principal, in accordance with a determination, pays an amount to a contractor the payment is to be taken to be an advance towards the total amount payable under the contract by the principal to the contractor. This section ensures that a payment made as part of a determination is part of the total contract sum and is not a separate payment in addition to contractual rights. Section 41 provides that a determination is final in the sense that, subject to slips, errors or mistakes specified in s 41(2), the adjudicator cannot subsequently amend or cancel the determination except with the consent of the parties and a party to the dispute may not apply subsequently for an adjudication of the dispute.
34 Part 3 div 5 deals with enforcing determinations. Section 43 provides that a determination may, with the leave of a court of competent jurisdiction, be enforced in the same manner as a judgment or order of the court to the same effect and, if such leave is given, judgment may be entered in terms of the determination.
35 Part 3 div 6 contains further provisions dealing with the effect of proceedings under the Act and review of adjudications. Section 45 provides that the Act does not prevent a party to a construction contract from instituting proceedings before an arbitrator or other person or a court or other body in relation to a dispute or other matter arising under the contract. Section 45(3) provides that evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body, except for the purposes of an application made under s 29(3) (an application to the State Administrative Tribunal for a declaration that an appointed adjudicator is disqualified) or an appeal under s 46. Section 46 provides that a person who is aggrieved by a decision made under s 31(2)(a), that is a decision to dismiss the application without making a determination of its merits, may apply to the State Administrative Tribunal for a review of the decision. A decision or determination of an adjudicator is otherwise not appealable. The Explanatory Memorandum states that this is a key provision in the Act to prevent appeals being used to delay payment.
36 Section 53 prevents contracting out of the Act. Section 53(1) provides that a provision in a contract that purports to exclude, modify or restrict the operation of the Act has no effect.
Authorities on effect of determinations
37 Samsung submitted that Patterson Building Group Pty Ltd v Holroyd City Council [2013] NSWSC 1484 supports the proposition that an adjudication decision under the Act does not prevent a party from relying on its contractual entitlement to claim on performance bonds as security for amounts that party claims to be due under the contract. In that case the builder had provided two bank guarantees to the Holroyd City Council (the principal) as security for the builder's obligations under a construction contract. The contract provided that the Council could have recourse to the bank guarantees if it remained unpaid after the time for payment of an amount under the contract had passed or if it claimed to be owed monies by the builder. On 15 July 2013, an adjudicator appointed pursuant to the NSW Act made a determination in respect of a payment claim made by the builder. The adjudicated amount of $468,360 was paid by the Council. The claims which were the subject of the adjudication included certain variations which the adjudicator allowed. Also, in its response to the builder's claim the Council had made a claim to set off liquidated damages but this claim was rejected by the adjudicator. On 16 August 2013, the superintendent issued a progress certificate stating that the superintendent had made an assessment that there was no money due to the builder by the Council. At the same time the superintendent issued a notice asserting that money was due from the builder to the Council. The money said to be owed by the builder to the Council was partly in respect of liquidated damages that had been rejected by the adjudicator and to recover amounts paid in respect of variations on which the builder had succeeded before the adjudicator but which the Council contended were not properly payable.
38 The builder brought proceedings to restrain the Council from calling on the guarantees. The builder argued that it would be inconsistent with the NSW Act if the Council could have recourse to security to recover any amounts paid for claims determined to be payable in an adjudication determination. The builder submitted that if the condition of the contract which permitted the Council to have recourse to the bank guarantees had that effect then the condition restricted the operation of the NSW Act and is therefore void under s 34 of the NSW Act. Section 34 of the NSW Act is substantially similar to s 53 of the (WA) Act. It provides that a provision of an agreement under which the operation of the NSW Act is, or is purported to be, excluded, modified or restricted or that has the effect of excluding, modifying or restricting the operation of the Act or that may reasonably be construed as an attempt to deter a person from taking action under the Act is void. The Council contended that the builders right to receive the adjudicated amount under the NSW Act, which was paid, was unaffected by any recourse by the Council to the security and that the receipt by the builder of that payment was subject to the Council's contractual entitlements including its right to make demand under the bank guarantees.
39 Justice White refused to grant the builder an injunction in relation to amounts for matters which were the subject of the adjudication determination. In rejecting the builder's application, White J reasoned as follows. In accordance with s 32 of the NSW Act an adjudication determination is a determination on an interim basis only of an amount to be paid by the applicant to the respondent in respect of its claim for a progress payment but otherwise the adjudication does not affect the parties rights under the contract, which exist in parallel to the Act. Having recourse to the security in accordance with the contract would not exclude, modify or restrict the operation of the Act in contravention of s 34 of the Act. The adjudicator's determination and the builder's right to receive the adjudicated amount under the Act remained enforceable. There was a genuine dispute as to the merits of the adjudicator's determination so that it could not be said that it was clear beyond serious argument that the Council would not be entitled to reclaim it in due course. The statutory right to a progress payment is not necessarily inconsistent with a principal's right to convert a security to cash before a final determination of the parties contractual entitlements, although there might be such an inconsistency if a principal's recourse to a security in the form of cash resulted in the contractor being required to replenish the cash security.
40 In Fabtech Australia Pty Ltd v Laing O'Rourke Australia Construction Pty Ltd [2015] FCA 1371 Besanko J refused a subcontractor's application for an interlocutory injunction to restrain a contractor from exercising a contractual right to have recourse to bank guarantees supplied by the subcontractor which secured the repayment of monies, including monies overpaid by the contractor in satisfying an obligation to pay the adjudicated amount of a payment claim. Laing O'Rourke was ordered to pay its subcontractor, Fabtech, the sum of $4,019,863.73 pursuant to an adjudication determination under the Building and Construction Industry Payments Act 2004 (Qld) (the Qld Act). Almost immediately Laing O'Rourke notified Fabtech of its intention to have recourse to the bank guarantees provided as security under the subcontract in the amount of $1,121,146.33. Laing O'Rourke claimed to be entitled to the repayment of monies by Fabtech that had been awarded by the adjudicator because the adjudicated sum in favour of Fabtech was not due under the subcontract, Fabtech had been overcompensated to that extent and Laing O'Rourke was entitled to claim the payment of part of the adjudicated sum because it was entitled to set off liquidated damages for late completion. Fabtech argued that recourse to conversion of the security would be inconsistent with the Qld Act and contrary to s 99 of the Qld Act, which prohibits contracting out and is in similar terms to s 34 of the NSW Act. Fabtech argued that recourse to conversion of the security would not 'preserve the cash flow' contrary to the intention of the Qld Act and would not be contemplated by s 100 of the Act as pursuing claims in court or arbitration under s 100 of the Act was very different to making a claim on a 'security' almost immediately after payment of an adjudicated sum. Besanko J held that converting security does not have the effect of excluding or restricting the effect of the Qld Act. Once payment of an adjudicated sum is made the Act ceased to have any effect on the contractual rights of the parties.
41 Duro says that Patterson and Fabtech are distinguishable. Duro says that the (WA) Act does not contain an equivalent to s 32(1) of the NSW Act which provides that nothing (subject to the contracting out provisions in s 34) in the NSW Act affects the contractual rights of a party. Duro says that the (WA) Act expressly provides that the parties' contractual rights are affected, in that a binding obligation is imposed on the parties in the context of their being parties to the relevant contract. I do not accept that argument. The Act preserves rather than overrides the parties' contractual rights except for the provisions of pt 2 which prohibit certain provisions and imply certain provisions into the contract. Part 2 div 1 prohibits specific practices such as 'pay if paid/when paid provisions'. Part 2 div 2 provides implied terms to deal with certain issues. However, as the Minister stated in her Second Reading Speech:
Apart from the specific unfair practices, the Bill does not unduly restrict the normal commercial operation of an industry. Parties to a construction contract remain free to strike whatever bargains they wish between themselves, as long as they put the payment provisions in writing and do not include the prohibited terms.
42 The Act provides an adjudication process that applies when a party believes it has not been paid in accordance with the contract. That is, the Act does not alter the terms of the contract but provides an interim adjudication of rights under the contract. An arbitrator or court may subsequently deal with the dispute and does so without reference to the findings of the adjudicator as to the facts or the proper construction of the contract.
43 Duro says that in Patterson and Fabtech the party successful in the adjudication relied principally on the 'no contracting out' provisions of the relevant Act. Duro does not rely on the 'no contracting out' provision of the Act. Duro relies upon s 38 of the Act which it says has no corresponding provision in the NSW Act or the Qld Act. I will deal with that argument below.
44 Duro also says that Patterson is different from this case because in Patterson the Council had paid the amount determined to be paid under the adjudication. I do not accept that that is a material distinction.
Construction Contracts Act does not preclude recourse to security
45 As I have said, Duro relies not on s 53 of the Act ('no contracting out') but upon the effect of s 38 which provides that 'an appointed adjudicator's determination is binding on the parties...'. The effect of s 38 is that where an applicant obtains a determination that the respondent pay it a sum of money the respondent must pay that sum even though the respondent may have commenced other proceedings before an arbitrator or court which, if resolved in favour of the respondent, may result in the applicant having to repay part of or the whole of the adjudicated amount to the respondent.
46 Duro submits that 'a determination' includes findings made by the adjudicator in his reasons for the determination. I do not agree. Mr Dharmananda referred to the definition of 'determination' in s 3 of the Act which provides that unless the contrary intention appears 'determination' means a determination made on an application under part 3 of the merits of a payment dispute. The reference to 'the merits of a payment dispute' is to confine a determination to a decision made under s 31(2)(b) and to exclude a decision under s 31(2)(a) to dismiss the application 'without making a determination of its merits'. It is apparent from s 31(2)(b) and s 36 that a 'determination' is the determination of a party's liability to return any security or a party's liability to make a payment and if so the amount to be paid, and the interest payable on it and the date on or before which the amount is to be paid. The determination is separate from the reasons for the determination.
47 What may be enforced pursuant to s 43 of the Act is the obligation to pay the adjudicated amount. The determination does not alter the parties' contractual rights or finally determine them. In his reasons for determination, the adjudicator may decide the proper construction of provisions of the construction contract or may make findings of fact. Neither the adjudicator's construction of the contract or the facts found by the adjudicator alter the proper construction of the contract nor any facts in contest between the parties. All that is binding on the parties is the determination that the respondent pay an amount to the applicant by the specified date. That determination is binding in the sense that it must be complied with by the respondent. An arbitrator or court may subsequently deal with the dispute and reach a different decision. Section 45(4) provides in effect that payments made as a result of a determination under the Act are to be allowed for in subsequent arbitration or litigation.
48 Samsung is obliged to pay to Duro the amounts adjudicated in accordance with the Determinations unless and until those Determinations are set aside. However, Samsung retains all of its contractual rights including its right to have recourse to the security. Duro has not established a prima facie case that the Determinations prevent Samsung from relying upon its contractual entitlement to make demand on the Bonds.
No prima facie case Samsung's consideration not bona fide because it ignored the Determinations
49 Duro says there is a prima facie case that Samsung, by Mr Son, did not consider bona fide that it is entitled to recover the amount claimed because in considering the amount Samsung is or will be entitled to recover from Duro it ignored the amount due to Duro under the Determinations. In his first affidavit Mr Son swore that he considered that Samsung was entitled to recover $109,855,557.23 from Duro under or in respect of the Interim Subcontract. Duro says that Mr Son did not consider, acting bona fide, that Samsung is or will be entitled to recover that amount from Duro because Mr Son failed to set off against that amount the amounts owing by Samsung to Duro pursuant to the Determinations.
50 Samsung is not bound to 'set off' the amount it is obliged to pay Duro under the Determinations against the amount which it considers it is or will be entitled to recover from Duro under or in respect of the Interim Subcontract. To the contrary, Samsung is not entitled to set off the amount which it considers it is or will be entitled to recover from Duro against the amounts it is obliged to pay Duro under the Determinations. The Determinations are binding on Samsung. Samsung must comply with the Determinations by paying to Duro the amount of the Determinations. Samsung cannot withhold payment on the ground that it is or will be entitled to recover from Duro some amount under or in respect of the Interim Subcontract. Samsung's obligation to pay Duro the amount due under the Determinations, and Duro's right to enforce those Determinations, do not amend the terms of the Interim Subcontract or Samsung's right to convert its security under General Condition cl 5.2.
51 Samsung, by Mr Son, honestly and genuinely believes that it is or will be entitled to recover from Duro the amount stated in his first affidavit. That is so notwithstanding that Samsung is obliged to pay Duro the amounts adjudicated under the Determinations. Mr Son has set out in detail his reasons for considering that Samsung is or will be entitled to recover the relevant amount from Duro. His consideration differs from the reasoning and conclusions reached by the adjudicators in making the Determinations. Samsung is not obliged to follow the reasoning or conclusions of the adjudicators.
Duro's second ground - Samsung failed to apply the terms of the contract
52 Duro's second ground is that Samsung failed to apply the terms of the Interim Subcontract in considering that it is or will be entitled to recover the relevant amount from Duro. Duro says there is a prima facie case that Samsung, by Mr Son, did not consider, acting bona fide, that it is or will be entitled to recover the relevant amount from Duro under or in respect of the Interim Subcontract. The relevant amount is the amount of the Bonds which Samsung intends to convert into money. As I will explain later that is the sum of $67,776,256.70. Samsung has adduced evidence from Mr Son that it considers that it is or will be entitled to recover more than the relevant amount from Duro under or in respect of the Interim Subcontract.
Samsung considers it is entitled to recover relevant amount from Duro
53 Mr Son is the Project Director for Samsung on the Roy Hill Project. He is responsible for all decisions on the Interim Subcontract and is authorised to give notice and ultimately make demand for payment under the Bonds. He had the authority to consider, on behalf of Samsung, that Samsung is or will be entitled to recover the relevant amount from Duro under the Interim Subcontract.
54 Mr Son swore an affidavit on 9 March 2016 in which he says that he considers that Samsung has suffered loss and damage under the Interim Subcontract as a result of various non-conformances with the Interim Subcontract by Duro. He gives details of that consideration in his affidavit and says that as at 17 February 2016, an amount of $109,855,557.23 was attributable to the costs incurred by Samsung as a result of Duro's failure to perform the Duro Works in accordance with the Interim Subcontract. Mr Son says that on 19 February 2016 when Samsung gave notice to Duro that it intended to have recourse to the Bonds, he considered, and still considers, that Samsung is, and will be, entitled to recover more than $76,287,534.40, that is the amount of the Bonds, from Duro under the Interim Subcontract by reason of loss and damage incurred by Samsung as a result of Duro's failure to perform the Duro Works in accordance with the Interim Subcontract. At par 202 of his affidavit, Mr Son summarises the amounts of loss and damage which he considers Samsung has suffered under the Interim Subcontract as a result of Duro's failure to perform under the Interim Subcontract as follows:
Item | Claim | Amount (A$) |
1 |
| A$64,213,886 |
2 |
| A$16,329,352.74 |
3 |
| A$18,115,102.87 |
4 |
| A$12,600,000 |
5 |
| A$3,040,829.61 |
6 |
| A$2,320,998.05 |
7 |
| -A$5,512,860.28 |
| A$111,107,30959 | |
| -A$1,251,752.36 | |
| A$109,855,557.23 | |
55 In his affidavit Mr Son says that upon further investigation it has come to his attention that Samsung issued a negative variation in relation to the failure to complete FAT. Accordingly Samsung no longer considers it is or will be entitled to recover item 5 - incomplete FAT. Mr Son also said that upon further investigation he understands that Samsung issued a negative variation for $5,816,640.41 in relation to some of the procurement costs incurred by Samsung for Duro's failure to perform the Duro works. Accordingly, Samsung now claims $6,783,359.59 for item 4 - Samsung procured equipment.
56 Clause 5.3B of the General Conditions provides that Duro must provide an adjusted security in the event that the Subcontract sum increases or decreases by more than 5%. On Samsung's case the Interim Subcontract sum has reduced and as a result Samsung accepts that the maximum amount of Duro's security that Samsung is entitled to convert into money is $67,767,256.70. In its written submissions Samsung states that it will not call on the Bonds for an amount in excess of that sum.
57 If, in relation to items of loss and damage totalling $67,767,256.70 or more which Samsung considered it is or will be entitled to recover from Duro, there is no prima facie case that Samsung did not consider, acting bona fide, that it is or will be entitled to recover those amounts then Duro will not have made out a prima facie case for restraining Samsung from converting into money the Bonds in an amount of $67,767,256.70. For the reasons which follow Duro has not made out a prima facie case in relation to item 1 - liquidated damages and item 3 - late vendor data. Those items together exceed $67,767,256.70 and hence Duro has not made out a prima facie case. It is unnecessary to consider Duro's case in relation to item 2 - defective works claimed under General Conditions cl 29.3. However, for the reasons which follow, Duro has not made out a prima facie case in relation to that item.
Liquidated damages
58 The largest item of loss or damage which Samsung considered it is or will be entitled to recover from Duro under or in respect of the Interim Subcontract is item 1 - liquidated damages, in respect of which Samsung considers it is or will be entitled to recover $64,213,866 from Duro. Duro initially argued that Samsung could not form a bona fide view that it was entitled to any liquidated damages under the Interim Subcontract. However, Duro no longer relies, for the purposes of this application, on the argument that Samsung has no entitlement to liquidated damages under the Interim Subcontract. In his oral submissions senior counsel for Duro submitted that if Duro's arguments concerning s 38 of the Act and the adjudicator's Determinations are not accepted by the court, then Duro does not presently mount any challenge with respect to the call on the Bonds in relation to Samsung's reliance upon liquidated damages. I have rejected Duro's arguments based on s 38 of the Act and the effect of the Determinations. It follows that there is no prima facie case that Samsung does not consider, acting bona fide, that it is or will be entitled to recover from Duro at least the amount of the liquidated damages - $64,213,886.
Late vendor data
59 The amount which Mr Son considers Samsung is or will be entitled to recover from Duro under or in respect of the Interim Subcontract includes the amount of $18,115,102.87 for 'late vendor data'. In par 163 to 178 of his first affidavit Mr Son explains the basis of that belief. In essence, Duro was obliged to provide to Samsung data about equipment that it was procuring and supplying. Duro is required under the Interim Subcontract to provide Samsung with data from its material suppliers by certain dates. The vendor data is necessary to update engineering drawings so that shop detailing and steel fabrication can be carried out. The information must be provided on time so as to avoid delays in the final engineering and fabrication phases. Samsung incurred additional costs as a result of Duro failing to provide vendor data in accordance with its contractual obligations. Mr Son reviewed the late supply of vendor data, and the cost incurred by Samsung as a result and considered the amounts Samsung is or will be entitled to recover from Duro. Mr Son considered that Samsung has incurred $18,115,102.87 in costs resulting from the late provision of vendor data by Duro and that Samsung is entitled to recover that amount from Duro under or in respect of the Interim Subcontract.
60 Duro has not established a prima facie case that Samsung does not consider, acting bona fide, that Samsung is or will be entitled to recover the amount claimed for late vendor data from Duro under or in respect of the Interim Subcontract. When that amount is added to the amount of the liquidated damages claimed by Samsung, the total amount of those two items exceeds the amount of the bonds which Samsung intends to convert into money. Accordingly, it is unnecessary to consider the other items of loss and damage claimed by Samsung and in particular it is unnecessary to consider Samsung's claims in respect of the costs of rectifying defective work. However, as that is a matter which received a lot of attention on the hearing of this application I will set out my findings in relation to that issue.
Defective works claimed
61 Duro further argues that Samsung's consideration that it is or will be entitled to recover the relevant amount from Duro is not bona fide because Samsung failed to apply the terms of the Interim Subcontract in so far as Samsung, by Mr Son, considered that Samsung is or will be entitled to recover $16,329,352.74 from Duro for the cost of rectifying defective works.
62 In his first affidavit, Mr Son explains how he reached the conclusion that Samsung is and will be entitled to recover $16,329.352.74 in respect of defective works claimed under cl 29.3 of the General Conditions. Samsung has assessed certain of the Duro Works undertaken by Duro to be defective and not to comply with the Interim Subcontract. Samsung maintains a register of those non-conformances (Non-Conformances Register or NCR) and a register of costs associated with those non-compliances (Non-Conformances Costs Register). Those registers are updated from time to time to reflect the non-compliances and costs incurred by Samsung as a result of Duro's non-compliances with the Interim Subcontract. Mr Son says that Samsung has followed the process outlined in cl 29.3 of the General Conditions for rectification of defective work.
63 Duro says that Samsung's claims in respect of defective works derive from an improper application of cl 29 and in particular cl 29.3 of the General Conditions. Duro says that the required notices under cl 29.3 have not been given because the clause requires a three stage process. The steps are:
(1) notice of defective work and a date for rectification;
(2) if work is not done then a direction must be given to do one of four actions specified in cl 29.3; and
(3) if those actions are not taken then Samsung may give written notice of intention to have the work rectified by others.
64 Mr Son considers that the process set out in cl 29.3 requires Samsung to provide written notice of:
(1) details of the relevant defective work and the date for completion of its rectification; and
(2) in the case that Duro fails to rectify that work and further fails to comply with a Direction of the Contractor's Representative, Samsung's intention to have defective work rectified by others.
Samsung, by Mr Son, considers that the relevant notices are not required to be given separately under cl 29.3 and all that is required is that Duro is given the relevant opportunities to rectify the defective works. The written notice can be issued at any point in advance, so long as it expressly contemplates only becoming effective as set out in cl 29.3. Samsung proceeded as follows:
(1) by providing written notice of the defective works in the form of Inspection Release Certificates (IRC's) and Non-Conformance Reports (NCR's);
(2) as Duro failed to acknowledge or take action to rectify defective works within a reasonable time (or at all) in response to IRC's or NCR's, Samsung issued letters clearly setting out Duro's obligations in relation to defective works and the process to be followed in the form of 'General Directions';
(3) Samsung advised that the 'General Directions' expressly set out that the IRC's and NCR's constituted written notice of defective works requiring rectification; and
(4) the 'General Directions' also detailed Samsung's intentions in the case Duro failed to fulfil its obligations under General Condition 29.3.
These 'General Directions' are set out in letters from Samsung to Duro dated 22 April 2015 and 17 June 2015.
65 So there is a dispute between the parties about the construction and application of cl 29.3. In effect Duro says that cl 29.3 requires Samsung to take three separate steps. Samsung says that when it gives notice to Duro of defective works, it can give notice that if Duro does not rectify them within seven days, or such longer period as Duro asks for and Samsung agrees to, then Samsung will get someone else to rectify the defective works.
66 Following any failure by Duro to rectify the defective works in accordance with the notices given to it Samsung engaged separate contractors to undertake those works. There was extensive debate between Samsung and Duro about the application of cl 29.3. By reason of concerns raised by Duro, Samsung undertook a review of all its defect rectification claims to confirm the process that had been followed in accordance with cl 29.3 and to verify the costs associated with each claim. Samsung considered that even if a number of these claims did not comply with cl 29.3, then Samsung is entitled to exercise its rights under cl 29.5 to direct a variation under cl 36 instead of making a direction under cl 29.3 or cl 29.4. Accordingly where Samsung did not effectively notify Duro of defects Samsung considered that it could exercise its rights under cl 29.5 which does not require Samsung to issue a notice of the defective works as required by cl 29.3.
67 Duro contends that Samsung, acting bona fide, could not reach the conclusion that Samsung had complied with the requirements of cl 29.3 and was entitled to the amounts it claims for the costs of rectification work. Duro says that it is not seriously arguable that Samsung is entitled to the amount claimed for the cost of rectification works and relies on Samsung's construction of cl 29.3 and its claim to recover the costs of rectification work as evidence that Samsung did not consider bona fide that it is or will be entitled to recover the amount claimed.
68 I do not accept Duro's submissions. In order for me to determine this application it is not necessary for me to express a final view on these questions of construction and I will not do so. I consider that the construction advanced by Samsung is not so capricious or unarguable as to give rise to a prima facie case that Samsung did not consider, acting objectively bona fide, that it is or will be entitled to recover the relevant amount from Duro. Clause 5.2 of the General Conditions requires only that Samsung consider, acting bona fide, that it is or will be entitled to recover the relevant amount. Samsung's opinion or consideration does not have to be reasonable. In my opinion it is not clear, beyond serious argument, that Samsung has no right to the amounts claimed for defective works such that it can be properly said that it does not consider, acting bona fide, that it is or will be entitled to recover the relevant amount. Duro has not established a prima facie case to that effect.
69 Duro concedes compliance with cl 29.3 in relation to some defective works. Duro concedes that Samsung complied, or arguably complied, with cl 29.3 in relation to the following alleged defects:
(1) defective bolts, specifically on car dumper (NCR 34 - 193);
(2) non-conformity of welding, surface protection and protective coating of car dumper cell structure (LET 1612); and
(3) non-conformity of welding, surface protection and protective coating of car dumper cell structure (NCR 34 - 262).
There is evidence that the claimed rectification costs in relation to the defective bolts is $1.7 million. It is not possible to quantify the other alleged defects in relation to which Duro accepts that Samsung complied, or arguably complied, with cl 29.3.
No or no sufficient strong prima facie case
70 Duro has not established that Mr Son's consideration is not genuine or real or not undertaken or carried out honestly. Mr Dharmananda submitted that the consideration would not be bona fide if it is clear beyond serious argument that Duro has no right to the amount claimed. Duro has not established a prima facie case on that ground. Samsung must act objectively bona fide in the sense that it cannot bona fide consider that it is or will be entitled to recover the relevant amount if there is no proper or real foundation for that belief or consideration. Mr Son considered the arguments against Samsung's entitlement, including the matters which the adjudicators found established in whole or in part Duro's payment claims and which led the adjudicators to reject Samsung's claimed set offs for liquidated damages and rectification works costs. Mr Son considered, notwithstanding those matters, that Samsung is or will be entitled to recover from Duro the relevant amount. Duro has not made out a prima facie case that Samsung did not consider, acting bona fide, that it is or will be entitled to recover the relevant amount.
71 If, contrary to my finding, Duro has made out a serious question to be tried then it is not a case of sufficient strength to warrant the grant of an injunction. An injunction to restrain Samsung from taking any steps to obtain payment under the Bonds will not preserve the status quo but will change it. In those circumstances Duro must demonstrate a prima facie case of sufficient strength to engender confidence that it will succeed if the matter went to trial. Duro has not done so.
Balance of convenience
72 In its written submissions Duro submits that the balance of convenience favours the grant of an injunction on two grounds. First, the court will not permit Samsung to take the benefit of its own wrong. Secondly, there will be significant prejudice to Duro if an injunction is not granted. Duro did not elaborate upon the contention that the refusal of an injunction will permit Samsung to take the benefit of its own wrong. Insofar as that submission rests upon the contention that Samsung cannot consider bona fide that it is entitled to recover the relevant amount because the amount claimed or considered due ignores and is contrary to the Determinations or the contention that Samsung disregarded the terms of the Interim Subcontract in respect of the amounts it now considers it is entitled to recover, I have found that Duro has not established a prima facie case for either of those contentions or, if it has, it is not a sufficiently strong case.
73 The evidence of prejudice adduced by Duro is in pars 31 - 34 of the first affidavit of Ms Strong, a legal and commercial manager employed by Duro. The prejudice which Ms Strong says Duro would suffer if an injunction is not granted is threefold. First, it would seriously adversely impact Duro's ability to tender for work on future projects as the payment of the security would very likely have to be disclosed in any future tender. Samsung's recourse to the security will seriously affect Duro's reputation. The perception in the market would be that Duro was an unreliable contractor. No amount of damages could compensate Duro for the loss of reputation. Secondly, it would have a serious impact upon Duro's cash flow. Thirdly, it would seriously increase the cost of finance in the future, including in respect of future guarantees, which would affect Duro's competitiveness and its ability to provide security for future projects.
74 In closing submissions, Mr Dharmananda submitted that consideration of comparative injury favoured the grant of an injunction. If an injunction was granted then Samsung would still have security. However, if an injunction was not granted then there would be a major risk of damage because Duro has not received the money awarded to it by the Determinations and would then need to meet whatever financial obligations it has to the providers of the Bonds.
75 I am not satisfied by any of these arguments that the balance of convenience favours granting the injunction sought. First, by agreeing to cl 5.2 of the General Conditions Duro assumed the risk that a call may be made on the Bonds in circumstances where there was a serious dispute whether Samsung is or will be entitled to recover any relevant amount from Duro under or in respect of the contract. Clause 5.2 allocates the risk as to who should be out of pocket pending resolution of a dispute. Duro agreed to supply the bonds on conditions that they could be called on not only where Samsung had established that Duro owed it monies but where Samsung considers, acting bona fide, that it is or will be entitled to recover the relevant amount from Duro. The risk of hardship and the risk of damage to reputation were risks assumed by Duro when it agreed to provide securities on terms that recourse could be had to them merely on Samsung considering bona fide that it is or will be entitled to the relevant amount.
76 Secondly, if an injunction is granted Samsung will be kept out of the money it considers it is or will be entitled to recover from Duro until the disputes between them are finally determined by arbitration or litigation. If Samsung is restrained from having recourse to the Bonds this would defeat one of the purposes of cl 5.2 which is to allocate the cash flow risk to Duro rather than Samsung pending the resolution of any disputes between them.
77 In addition, I observe that, although the evidence of Ms Strong that Duro will suffer reputational damage is unchallenged by other evidence it is an assertion at a high level of generality. Unchallenged evidence that calling up a performance bond will cause damage to the contractor's reputation has been accepted as a factor in weighing the balance of convenience: Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451, 461 - 462; Sudholz Pty Ltd v Airlie Summit Pty Ltd [2007] QSC 199 [20]. On the other hand, a bald assertion of harm was considered insufficient by Kaye JA in Sugar Australia where his Honour expressed reservation as to the assertions in affidavits on behalf of the builder that payment under performance bonds would have any substantial adverse impact on the reputation of the builder in the market place. His Honour observed that it is notorious that disputes are commonly part and parcel of building contracts.
Conclusion
78 Duro's application must be dismissed.
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