Duro Felguera Australia Pty Ltd v Samsung C&T Corporation
[2015] WASC 484
•16 DECEMBER 2015
DURO FELGUERA AUSTRALIA PTY LTD -v- SAMSUNG C&T CORPORATION [2015] WASC 484
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2015] WASC 484 | |
| Case No: | CIV:2753/2015 | 19 NOVEMBER & 10 DECEMBER 2015 | |
| Coram: | LE MIERE J | 16/12/15 | |
| 36 | Judgment Part: | 1 of 1 | |
| Result: | Plaintiff's application to reopen refused Plaintiff's application for an interlocutory injunction is dismissed Second defendant's application for an interlocutory injunction is dismissed Interim injunction restraining first defendant from calling on the bank bonds is discharged | ||
| B | |||
| PDF Version |
| Parties: | DURO FELGUERA AUSTRALIA PTY LTD SAMSUNG C&T CORPORATION (ABN 49 160 079 470) with Republic of Korea registration number 110111-0015762 CGU INSURANCE LTD AIG AUSTRALIA LTD |
Catchwords: | Contract Questions of construction Security for performance Interlocutory injunctions Interlocutory injunctions restraining recourse to a security Practice and procedure Leave to reopen Practice and procedure Cross-examination on affidavit in interlocutory proceedings Conflict of laws Corporation Foreign legislation Universal succession Recognition of foreign law Succession to rights under performance bonds |
Legislation: | Nil |
Case References: | Adams v National Bank of Greece SA [1961] AC 255; [1961] 2 All E R 421 Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [No 6] (1996) 64 FCR 79; (1996) 137 ALR 138 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 Cohen v Peko-Wallsend Ltd (1986) 61 ALJR 57; [1986] HCA 70 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 National Bank of Greece and Athens v Metliss [1958] AC 509 Preussag Mimmobilien Gmbh v Harriss [1998] NSWSC, BC 9807451 Re Sigma Finance Corp [2010] 1 All ER 571 Smith v New South Wales Bar Association (1992) 176 CLR 256 Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
FILE NO/S : CIV 2753 of 2015 BETWEEN : DURO FELGUERA AUSTRALIA PTY LTD
- Plaintiff
AND
SAMSUNG C&T CORPORATION (ABN 49 160 079 470) with Republic of Korea registration number 110111-0015762
First Defendant
CGU INSURANCE LTD
Second Defendant
AIG AUSTRALIA LTD
Third Defendant
Catchwords:
Contract - Questions of construction - Security for performance - Interlocutory injunctions - Interlocutory injunctions restraining recourse to a security
Practice and procedure - Leave to reopen
Practice and procedure - Cross-examination on affidavit in interlocutory proceedings
Conflict of laws - Corporation - Foreign legislation - Universal succession - Recognition of foreign law - Succession to rights under performance bonds
Legislation:
Nil
Result:
Plaintiff's application to reopen refused
Plaintiff's application for an interlocutory injunction is dismissed
Second defendant's application for an interlocutory injunction is dismissed
Interim injunction restraining first defendant from calling on the bank bonds is discharged
Category: B
Representation:
Counsel:
Plaintiff : Mr J A Thomson SC & Mr T J Porter
First Defendant : Mr C G Colvin SC & Mr A Golem
Second Defendant : Mr M D Howard SC & Mr R J S French
Third Defendant : Mr M C Goldblatt & Mr N J Landis
Solicitors:
Plaintiff : Jones Day
First Defendant : Herbert Smith Freehills
Second Defendant : Henry Davis York
Third Defendant : Polczynski Lawyers
Case(s) referred to in judgment(s):
Adams v National Bank of Greece SA [1961] AC 255; [1961] 2 All E R 421
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [No 6] (1996) 64 FCR 79; (1996) 137 ALR 138
Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57
Cohen v Peko-Wallsend Ltd (1986) 61 ALJR 57; [1986] HCA 70
Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643
Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533
Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283
National Bank of Greece and Athens v Metliss [1958] AC 509
Preussag Mimmobilien Gmbh v Harriss [1998] NSWSC, BC 9807451
Re Sigma Finance Corp [2010] 1 All ER 571
Smith v New South Wales Bar Association (1992) 176 CLR 256
Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98
United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131
- LE MIERE J:
Summary
1 On 30 August 2013, an unincorporated joint venture of Duro Felguera Australia Pty Ltd (Duro) and Forge Group Constructions Pty Ltd (Forge) entered into a contract (the Subcontract) with Samsung C&T Corporation (Samsung) to engineer, procure, construct and commission works in relation to the Roy Hill iron ore mining, rail and port project (the Subcontract Works) for the Project Subcontract Sum. Forge and Duro (together the Subcontractor) are jointly and severally liable to Samsung for all of the obligations and liabilities of the Subcontractor in connection with the Subcontract.
2 The Subcontract requires the Subcontractor to provide security for the performance of its obligations under the Subcontract in the form of on demand, unconditional, irrevocable, pay on demand bank bonds (Security). Duro provided Security in the form of bonds that were subsequently replaced by bonds issued by CGU Insurance Ltd (CGU Bonds) and AIG Australia Ltd (AIG Bonds) in an aggregate amount of $64,154,700. I will refer to the AIG Bonds and the CGU Bonds collectively as the Bonds.
3 The Subcontract provides that if an administrator is appointed to Duro or Forge, Samsung may by notice to the Subcontractor terminate the Subcontract and Samsung's rights and remedies shall be the same as they would have been had the Subcontractor repudiated the Subcontract and Samsung elected to treat the Subcontract as at an end and recover damages.
4 On 11 February 2014 an administrator was appointed to Forge. On 21 February 2014, Samsung terminated the Subcontract. Duro entered into a new subcontract with Samsung (the Interim Subcontract) to carryout specified works (the Duro Works) which formed part of the Subcontract Works. Samsung entered into subcontracts with other subcontractors to complete the remaining Subcontract Works.
5 On 3 November 2015, Samsung made demand on CGU and AIG that they pay to Samsung the amounts which they undertook to pay under the Bonds (the Calls). An interim injunction was granted restraining Samsung from taking any step to enforce the Calls and CGU and AIG from paying any amounts to Samsung in respect of the Bonds. Duro now seeks an interlocutory injunction restraining Samsung from taking any step to enforce the Calls and CGU and AIG from paying any amounts to Samsung in respect of the Bonds until judgment in this action. Duro says that Samsung is not entitled to call on the Bonds because on the proper construction of the Subcontract and the Interim Subcontract its entitlement to convert the Bonds into money has expired or alternatively the event which triggers Samsung's entitlement to convert the Bonds has not occurred. That trigger event is that 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. Duro says that Samsung did not consider, acting bona fide, that it is or will be entitled to recover the amount of the Bonds from Duro under or in respect of the Subcontract. Duro also says that Samsung is required to give Duro notice of that bona fide view before making the Calls but failed to do so.
6 There are further issues concerning the status of Samsung. Samsung C&T Corporation was incorporated in the Republic of Korea with the registration number 110111-0002975 and the trading name Samsung C&T Corporation. It was registered in Australia as a foreign corporation on 5 October 2012 with the Australian Business Number ABN 49 160 079 470. On 2 September 2015, Samsung C&T Corporation registration number 110111-0002975 merged in accordance with the law of Korea with another company in the Samsung group, Cheil Industries Co Ltd, and it was dissolved. Cheil changed its name to Samsung C&T Corporation and retained its registration number 110111-0015762. The first defendant was described in the writ of summons as Samsung C&T Corporation ABN 49 160 079 470. In the course of the hearing of Duro's application to reopen to which I will refer later in these reasons Duro moved to amend the description of the first defendant to Samsung C&T Corporation (ABN 49 160 079 470) with Republic of Korea registration number 110111-0015762. The first defendant did not oppose that motion and I ordered that the first defendant's name be amended accordingly. For convenience I will refer to Samsung C&T Corporation registration number 110111-0002975 as old SCT and Samsung C&T Corporation registration number 110111-0015762 as new SCT. I do not intend by those references to indicate that old SCT and new SCT are not the same entity. When it is not necessary to distinguish between old SCT and new SCT I will refer to the corporation as Samsung.
7 CGU filed a counterclaim in which it seeks a declaration that payment to the Korean Company Samsung C&T Corporation (Korean number 110111-0015762) of an amount as defined in any of the CGU Bonds would constitute a full and valid discharge to CGU in respect of that payment. CGU also seeks an interlocutory injunction restraining Samsung C&T Corporation (ABN 49 160 079 470) from taking any step to enforce the demands it has made on CGU in respect of the CGU Bonds.
8 AIG applied by summons for interpleader relief. AIG has applied for orders that Samsung C&T Corporation (Korean Company number 110111-0015762) be joined as a third respondent and a declaration as to which of Samsung C&T Corporation (ABN 49 160 079 470) and Samsung C&T Corporation (Korean Company number 110111-0015762) has the power to make valid demands upon the AIG Bonds.
9 I will first consider whether the injunctions sought by Duro should be granted without regard to the issue concerning the status of Samsung. For that purpose I will assume that old SCT and new SCT are the same legal entity and it is not necessary to distinguish between them. I will start by outlining the circumstances in which Samsung and Duro entered into the Interim Subcontract.
The Interim Subcontract
10 On 11 February 2014 administrators were appointed to Forge. After Forge was placed in administration, Duro wanted to continue to perform the Subcontract. It presented to Samsung a plan for Duro to continue to perform the Subcontract. Samsung did not accept that proposal. On 21 February 2014 Samsung terminated the Subcontract, as it was entitled to do pursuant to cl 39.11(d)(iii) of the General Conditions, on the ground that an administrator had been appointed to Forge.
11 On or about 24 February 2014 Samsung and Duro executed an instrument entitled Subcontract Term Sheet (Term Sheet) dated, and to take effect from, 21 February 2014 by which Duro agreed to continue to perform the works set out in Schedule 2 to the Term Sheet (Duro Works) which will apply as a binding agreement between them (Interim Subcontract). Duro agreed to carry out the Duro Works for a fixed sum of $505,951,983.73 (Subcontract Sum). The Term Sheet provided that the Interim Subcontract was on the same terms as the Subcontract as modified by the terms set out in the Term Sheet. The Term Sheet provided that the parties would negotiate in good faith and make such additional changes as are logically or practicably required considering the Duro Works and execute a Substituted Subcontract which is based on the terms of the Subcontract as modified by the Term Sheet as soon as reasonably possible. No Substitute Subcontract was entered into.
12 The Term Sheet provides that Duro will be required to provide new Security in respect of the Interim Subcontract in the amount of 15% of the Subcontract Sum and Duro's Security under the Subcontract will remain in place to cover any liability to Samsung under the Subcontract.
Samsung demand payment under Bank Bonds
13 On 3 November 2015 Samsung made demand on CGU and AIG that they pay to Samsung the amount which they undertook to pay under the Bonds (the Calls). On the same day, Duro commenced this action in which it claims orders that Duro not take any step to enforce the Calls and AIG and CGU be restrained from paying any amounts to Samsung in respect of the Bonds. Duro also claimed a declaration that Samsung has no entitlement to any performance security under the Subcontract or the Interim Subcontract, an injunction restraining Samsung from demanding from AIG or CGU payment of any amounts in respect of the Bonds and an order that Samsung return the Bonds to Duro. At the same time, Duro caused to be issued a chamber summons seeking, until further order, an order that Duro not take any step to enforce the Calls, and orders that AIG and CGU be restrained from paying any amounts to Samsung in respect of the Bonds.
Interim injunction granted
14 On 3 November 2015 Corboy J heard the chamber summons as a matter of urgency and ordered that until 5 November 2015 Duro must not take any step to enforce the Calls and AIG and CGU be restrained from paying any amounts to Samsung in respect of the Bonds. On 5 November 2015 I extended those orders until further order. Duro now seeks an order that those orders be extended until judgment in this action.
Duro's case
15 Duro's primary case is that Samsung is not entitled to call on the Bonds for two reasons. First, on the proper construction of the Subcontract and the Interim Subcontract, Samsung is not entitled to the Security of the Bonds or to convert them into money because its entitlement has expired by reason of cl 5.3 of the General Conditions. The only clause that might create a current entitlement to convert the Bonds is void as contrary to public policy. Secondly, if Samsung has an entitlement to convert the Bonds into money, Samsung promised by cl 5 of the General Conditions not to do so unless it considers, acting bona fide, that it is, or will be entitled to recover the relevant amount from the Subcontractor under or in respect of the Subcontract. Samsung is required to give Duro notice of that bona fide view. Samsung did not notify Duro of that bona fide view. Further, Samsung did not form the requisite bona fide view.
Construction question: Is Samsung entitled to call on the Security?
16 Samsung's entitlement to convert the Security given by Duro under the Subcontract, that is the Bonds, is conferred by cl 5 of the Subcontract. Clause 5.3 provides that the Contractor's (Samsung's) entitlement to Security shall cease 28 days after the issue of the Final Certificate or, where the Subcontract is terminated prior to the issue of the Final Certificate, 56 days after termination of the Subcontract unless the Security is converted into money beforehand. Clause 5.3 further provides that within 14 days of the Contractor's entitlement to Security ceasing, the Contractor shall release and return the Security to the Subcontractor. Therefore, in the absence of any other agreement, Samsung's entitlement to convert the Bonds into money ceased 56 days after the termination of the Subcontract and Samsung is obliged to return the Bonds to Duro. However, the Term Sheet made a further agreement in relation to Security. Samsung says the effect of the Term Sheet is to extend its entitlement to make demand on the Bonds beyond 56 days after termination of the Subcontract.
17 The Key Terms and Conditions which are a part of the Term Sheet and the Interim Subcontract include:
• The Subcontract Sum of the Duro Works for the purposes of the Substitute Subcontract shall be the fixed lump sum price of $505,951,983.73.
• Duro will be required to provide new Security in respect of the Interim Subcontract within 14 days of the Start Date. The amount of Duro's new Security will be 15% of the Subcontract Sum under the Substitute Subcontract.
…
• Duro's Security under the Subcontract will remain in place to cover any liability to Samsung under the Subcontract.
- Clause 2.2(d) of the Term Sheet is:
Subject to clause 2.2(e), execution of the Substitute Subcontract will not release or discharge any liability of Duro to Samsung under the Subcontract save that Samsung agrees not to seek to recover from Duro any damages or loss arising under the Subcontract in excess of $160 million; provided however, this clause 2.2(d) shall not in any manner reduce or otherwise impair Samsung's right to recover or exercise any remedy under the Subcontract against Forge. Samsung agrees that Samsung will not voluntarily release the Security provided under the Subcontract and further, Duro irrevocably waives and agrees not to enforce its rights in respect of clause 5.3 of the Subcontract which provides that the Contractor's entitlement to Security shall cease 56 days after termination of the Subcontract unless the Security is converted into money beforehand.
19 Samsung advances a different construction of the relevant provisions of the Term Sheet as follows. The provision in cl 2.2(d) of the Term Sheet that Samsung agrees that Samsung will not voluntarily release the Security provided under the Subcontract means that Samsung will not voluntarily release the Security provided by Forge and Duro under the Subcontract. That is to the benefit of Duro because any amount recovered by Samsung by converting security provided by Forge reduces the joint and several liability of Duro under the Subcontract. The provision in Schedule 1, Item 2 that Duro's Security under the Subcontract will remain in place to cover any liability to Samsung under the Subcontract together with the provision in cl 2.2(d) that Duro waives and agrees not to enforce its rights in respect of cl 5.3 of the Subcontract means that Samsung's right to convert the Security into money continues beyond 56 days after termination of the Subcontract and Duro waives its right to the return of the Security under the Subcontract. Therefore, the Security under the Subcontract, that is the Bonds, remains in place and Samsung is entitled to convert them into money.
Court should determine the construction question
20 A plaintiff applying for an interlocutory injunction must establish a sufficiently likelihood of success to justify in the circumstances the preservation of the status quo pending trial: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 [65]. In Cohen v Peko-Wallsend Ltd (1986) 61 ALJR 57; [1986] HCA 70, 59 Gibbs CJ, Mason & Wilson JJ said:
It is not right to say that it is always the duty of the court on an interlocutory application to decide a question of law upon which the decision of the case depends. No doubt if the question is one susceptible of resolution without further evidence, and the urgency of the matter does not render it impracticable to give proper consideration to the question, the desirable course will be to decide it. Ultimately, however, the course which the court takes lies within its discretion.
21 In Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 McLelland J said that where the uncertainty of the plaintiff's entitlement to ultimate relief depends on a contested question of law, it may or may not be appropriate for the court to decide that question on the interlocutory application, depending on the circumstances, for example, whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question. In Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [73] Young JA said that when there is an application for an interlocutory injunction which depends on the construction of a contract, it is for the judge to determine whether he or she has sufficient material to be able to construe the contract on a final basis. The urgency with which the case has to be heard, or the lack of factual investigation to that point, may mean that the judge deals with the question of whether there is an arguable case on flimsy material. However, in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [53] Osborn and Ferguson JJA said that the ordinary practise in a case such as that considered by the court is to construe contractual terms which bear on basic issues in the case and which are capable of construction in the absence of further evidence. The case before the court was one in which a contractor sought to restrain an owner from having recourse to performance securities provided under a building contract. Their Honours observed that the ordinary course referred to conforms with the overarching purpose stated in s 7 of the Civil Procedure Act 2010 (Vic), namely, to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute between the parties. Nevertheless, their Honours recognised that the particular circumstances of a case may dictate a departure from the ordinary practice. Kaye JA said at [111] that ordinarily on an application for an interlocutory injunction to restrain recourse to a security provided under a building contract, a court should determine a controversial issue of law, if the determination of that issue is a necessary step to a conclusion whether an applicant is entitled to the injunction, unless, in the particular circumstances of the case, it is not practicable or appropriate to do so.
22 There is no reason why it is not practicable or appropriate to determine the questions of construction raised in this case. Both parties submitted that the questions of construction depend only on the terms of the Subcontract and the Term Sheet and do not depend upon any controversial surrounding circumstances and will not be affected by any evidence led at trial. I have reserved my decision to enable me to take sufficient time to consider the questions of construction raised. The decision to grant or refuse the interlocutory injunction sought will in a practical sense determine the substance of the matter in issue. It is appropriate to determine the construction issues raised in this case.
Samsung's right to enforce the Security does not expire 56 days after termination of the Subcontract
23 In Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 the High Court reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. French CJ, Hayne, Crennan and Kiefel JJ said:
The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean … It will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating' … unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience' [35].
24 A commercial interpretation is to be preferred to an uncommercial interpretation that conforms more strictly with the language of the contract. In interpreting a commercial contract no narrow or pedantic approach is warranted. Words in a business contract are not to be approached pedantically or in a manner prone to defeat the evident commercial purpose. In Re Sigma Finance Corp [2010] 1 All ER 571 Lord Collins said:
An over-literal interpretation of one provision without regard to the whole may distort or frustrate the commercial purpose. This is one of those too frequent cases where a document has been subject to the type of textual analysis more appropriate to the interpretation of tax legislation which has been the subject of detailed scrutiny at all committee stages than to an instrument securing commercial obligations [35].
25 Samsung terminated the Subcontract. In the absence of any further agreement, the Security given by Duro under the Subcontract would expire in 56 days. Samsung entered into the Interim Subcontract with Duro under which Duro was to carry on and complete the Duro Works, which was part of the works which the Subcontractor was to complete under the Subcontract. The Term Sheet is a brief instrument. Its key terms and conditions include provisions in relation to Security in respect of the Interim Subcontract and the Subcontract. The evident purpose of the provisions of the Term Sheet in relation to Security under the Subcontract is to continue Samsung's entitlement to have recourse to the Security under the Subcontract when that right is triggered by Samsung considering, bona fide, that it is or will be entitled to recover the relevant amount from the Subcontractor in accordance with cl 5.2(a) of the Subcontract.
26 In my opinion the effect of the Term Sheet is that Samsung's right or entitlement to convert into money the Security under the Subcontract continues until the expiry date of each of the Bonds. The part of cl 2 of sch 1 that provides 'Duro's Security under the Subcontract will remain in place to cover any liability to Samsung under the Subcontract' has the effect that Duro's Security under the Subcontract will remain in place for the term of the Bonds. The effect of that part of cl 2.2(d) of the Term Sheet which provides that Duro waives and agrees not to enforce its rights in respect of cl 5.3 of the Subcontract is that Duro agrees not to enforce its right that Samsung's entitlement to Security shall cease 56 days after termination of the Subcontract.
27 The text of cl 2.2(d) of the Term Sheet is more consistent with that interpretation than with the interpretation advanced by Duro. Duro says that the right waived by Duro is not to enforce the return to it of the Security within 14 days of the expiry of the Security. However, cl 2.2(d) says that Duro waives and agrees not to enforce its rights in respect of cl 5.3 of the Subcontract 'which provides that the Contractor's entitlement to Security shall cease 56 days after termination of the Subcontract'. That is, the clause refers to Duro's right for the Contractor's entitlement to Security to cease 56 days after termination of the Subcontract, not to the right of Duro to have the Security returned to it within 14 days of the Contractor's entitlement to Security ceasing. Duro's right for the Contractor's entitlement to Security to cease 56 days after termination of the Subcontract may not be a right in the Hohfeldian sense, but it is something which businessmen would recognise as a right.
28 The interpretation which I have adopted is a more businesslike interpretation than that advanced by Duro. The Term Sheet provides that Duro will continue to perform the Duro Works, that is works which the Subcontractor had commenced or was obliged to perform under the Subcontract formed part of the works which Duro agreed to perform under the Interim Subcontract. In the absence of any further agreement, the Security given by Duro under the Subcontract would be available to be converted into money by Samsung but Samsung's right or entitlement to do so would expire 56 days after termination of the Subcontract. That would be inconvenient to the parties because Samsung would have to make demand upon the Security within 56 days, during which time Duro was continuing to carry out the Duro Works, or lose its entitlement to the Security. Extending Samsung's entitlement to the Security beyond 56 days after expiry of the Subcontract allows the parties to proceed with the Interim Subcontract without Samsung having to either make demand under the Security or forever lose its right to do so. The effect of Duro's interpretation is that on the expiry of 56 days after the termination of the contract Samsung's right to have recourse to the Security came to an end but Duro waived its right for the Security to be returned to it. That is, Samsung would retain the Bonds but would not be entitled to convert them into money. The right to retain the Bonds but not to be entitled to use them is an empty right. An intention to accomplish that situation should not be attributed to businessmen.
29 Senior Counsel for Duro submitted that the purpose of enabling Samsung to retain the Security beyond 56 days after termination of the contract but not to enforce it is to enable Samsung to retain the Bonds in anticipation of a Substituted Subcontract being executed which would give Samsung the right to enforce the Bonds. The right to retain the Bonds for that purpose is an empty right and should not be attributed to practical businessmen. Duro was under no obligation to agree to a Substituted Subcontract which would include terms that Samsung may enforce the Security given under the Subcontract.
30 In my opinion, by irrevocably waiving and agreeing not to enforce its rights in respect of cl 5.3 of the Subcontract, Duro agreed that Samsung's right to enforce the Security under the Subcontract was not to expire 56 days after termination of the Subcontract.
Samsung is not required to give notice of bona fide view
31 Clause 5.2(a) of the Subcontract provides that Samsung may convert the Security into money where the conditions in cl 5.2(a)(i) and cl 5.2(a)(ii) are satisfied. Clause 5.2(a)(i) is that Samsung considers, acting bona fide, that it is or will be entitled to recover the relevant amount from the Subcontractor under or in respect of the Subcontract. Clause 5.2(a)(ii) is that except where the Subcontract has been terminated, Samsung has given the Subcontractor 5 days' notice of its intention to have recourse to the Security (in order to enable the Subcontractor to make alternative payment arrangements) and 5 days have elapsed since that notice was given. Duro says that it is to be implied or inferred from cl 5.2(a)(i) that Samsung must not only consider, acting bona fide, that it may recover the relevant amount but Samsung must also give notice to Duro that it has made that consideration or formed that opinion.
32 I do not accept that argument. The Subcontract has an express provision as to the notice to be given before Samsung may convert into money any Security. If the contract has not been terminated Samsung is required only to give notice of its intention to have recourse to the Security. It would be inconsistent with this provision to add an additional requirement that Samsung must also give notice that it considers, acting bona fide, that it is entitled to recover the relevant amount. Furthermore, cl 5.2(a)(ii) provides that where the Subcontract has been terminated Samsung may have recourse to the Security without giving to the Subcontractor notice of its intention to do so. It would be inconsistent with that provision to require Samsung to give notice that it considers that it is entitled to have recourse to the Security. Furthermore, the requirement for such a notice would introduce uncertainty into the Subcontract. Must the notice that Samsung considers it is entitled to have recourse to the Security be delivered separately from the notice of its intention to have recourse to the Security or at some other time and if so when? Duro says that the notice should be given a reasonable time before Samsung enforces the Security. That of itself introduces an element of uncertainty which is inimical to the commercial purpose of performance security. Furthermore, Duro says that the requirement is to give notice of having formed the relevant consideration but nothing more. Such a notice serves no useful purpose, except possibly to give Duro an opportunity to seek an injunction to restrain Samsung from enforcing the Security. That is inconsistent with cl 5.2(b).
Has Samsung considered, acting bona fide, that it is entitled to recover the relevant amount?
33 Duro says there is a prima facie case that Samsung did not form a bona fide view that it was, or would be, entitled to recover an amount corresponding to the value of the Security it has called. The decision to make demand on the Bonds was made by Juyeul Son who was the project director for Samsung on the Roy Hill project. Therefore, the question is whether there is a prima facie case that Mr Son did not, acting bona fide, consider that Samsung was, or would be, entitled to recover an amount corresponding to the value of the Bonds.
Evidence of Mr Son
34 Mr Son swore an affidavit on 10 November 2015 in which he swore as follows. As a result of Forge entering into administration and receivership Samsung drew down on the Forge Bonds, that is Security provided by Forge pursuant to the Subcontract, and received approximately $82,995,300. Samsung had, by that time, entered into the Interim Subcontract. The Interim Subcontract did not deal with the full scope of the Subcontract Works. As a consequence, on an urgent basis Samsung retendered for, and entered into, new subcontracts for works that had not been completed before Forge entered into external administration and which were not covered by the Interim Subcontract. In most cases Samsung was required to enter into contracts at prices above those provided under the Subcontract for the same scope of works. The prices that Samsung was required to accept pursuant to those subcontracts were inflated as a result of the time pressures and urgent need to progress the works and because the cost allowances provided for by the Subcontractor in the Subcontract were low having regard to the scale of the work to be performed. Samsung also re-engaged subcontractors that had not been paid and had to pay those subcontractors amounts outstanding from the Subcontractor before the subcontractors would undertake work.
35 In paragraphs 20 to 27 of his affidavit Mr Son outlines relevant features of Samsung's accounting system, procurement and payment processes. At the end of each month, Samsung's accounting department reconciles the accounting system and the payments system to ensure all financial information is accurate and current. Samsung's systems allow Samsung to track the progress of the Project and each subcontractor's scope of works at any given time and allows Samsung to monitor its progress as against the budget for each scope of works as well as the Project as a whole. Mr Son reviewed the information captured by these systems in determining what additional costs Samsung has incurred by reason of the external administration of Forge. In paragraphs 69 to 97 of his affidavit Mr Son sets out the actual costs that Samsung has incurred as a result of Forge entering into external administration and the termination of the Subcontract. Those additional costs total $182.1 million. In addition to those actual costs incurred Samsung has incurred substantial additional SMP (structural, mechanical and piping) and E&I (electrical and instrumentation) costs. Part of the SMP and E&I costs are attributable to the termination of the Subcontract. The additional costs in excess of $182.1 million are attributable to the additional costs incurred by Samsung as a result of Forge's insolvency and the termination of the Subcontract. Mr Son says that approximately $83 million of those additional costs has been recouped by the call on the Forge Bonds, leaving additional costs of at least $99 million.
36 On 3 November 2015 Samsung made demand on AIG and CGU for the conversion of the Bonds. At the time of authorising the call to be made on behalf of Samsung, Mr Son considered, and still considers, that Samsung is and will be entitled to recover more than $64,154,700 from Duro under the Subcontract by reason of the Forge administration and subsequent termination of the Subcontract.
37 Mr Son swore a second affidavit in which he said he had no confidence in Duro's ability to step in and assume responsibility for the entirety of the Subcontract Works and set out reasons for his opinion.
38 Mr Son swore a third affidavit in which he clarified matters set out at paragraphs 27 and 68 of his first affidavit in which he stated that he had reviewed the information captured in Samsung's systems and had identified the costs set out in paragraphs 69 to 97 of his first affidavit from that review. Mr Son said that he had reviewed those systems, identified those costs and relied on them prior to authorising the call on the Bonds. Mr Son states that at the time of authorising the call on the Bonds he considered that Samsung was and would be entitled to recover more than $64,154,700 from Duro and it remains his view that Samsung is entitled to recover in excess of that amount from Duro.
Cross-examination of Son
39 Duro submitted that it was unclear from Mr Son's affidavits what materials he had regard to, what matters he considered before he decided to call on the Bonds and when he considered and decided those matters. Duro applied for leave to cross-examine Mr Son. I granted leave. The court has a discretion to permit cross-examination in interlocutory applications but that discretion will be exercised sparingly. The court will permit cross-examination where the interests of justice require it. In this case the decision to grant or refuse an interlocutory injunction will in a practical sense determine the substance of the matter in issue. It is necessary for the court to evaluate the strength of the plaintiff's case for final relief to the extent that it is able to do so. It is arguable that it is not clear from his affidavits what matters Mr Son had regard to in forming his opinion that Samsung had incurred additional costs in excess of $182 million as a result of Forge entering into external administration and the Subcontract terminating and whether he had had regard to those matters when or immediately before making his decision to call on the Bonds.
40 Mr Son was cross-examined. As a result of that cross-examination I am satisfied of the following matters. Samsung has a number of systems and procedures in place to record costs incurred on the project, track progress of the project and monitor budgetary processes. Mr Son regularly accessed those systems to inform himself of the costs incurred by Samsung and progress on the project. He did so when each monthly update became available and he did so shortly before, and for the purposes of, forming the opinion that as a result of the Forge administration and the termination of the Subcontract Samsung incurred the additional costs referred to in his first affidavit totalling $182.1 million. I am also satisfied that Mr Son took into account that Samsung had recouped approximately $83 million of those costs by the call on the Forge Bonds.
Duro has not established prima facie case of no bona fide consideration
41 Duro says that Samsung, through Mr Son, did not consider, acting bona fide, that it is or will be entitled to recover at least $64,154,700 from the Subcontractor under or in respect of the Subcontract for four principal reasons. First, Mr Son did not consider the matter Samsung is required to consider before converting any Security into money but rather considered a different matter. The matter that Samsung is required to consider is that Samsung is or will be entitled to recover the amount of the Bonds from the Subcontractor under or in respect of the Subcontract. To do that it is necessary to consider whether the amount claimed is loss caused by the breach of contract, that is by Forge's insolvency. Samsung has merely asserted that, because it incurred additional costs in at least some areas of the works, it is entitled to recover all of those amounts from the Subcontractor. It does not appear to have considered, in order to arrive at its view of the amount it is entitled to recover, the position it would have been in if the Subcontract had been performed and the position it claims it found itself in by reason of the breach, taking into account both additional costs and savings.
42 Duro has not established a prima facie case to that effect. It is apparent from his affidavit and cross-examination that Mr Son considered the issue of causation. He considered that the actual costs that he has identified were caused by the need to retender on an urgent basis and pay outstanding amounts before subcontractors could be secured after termination of the Subcontract as well as other issues which arose as a result of the administration of Forge and termination of the Subcontract.
43 Secondly, Duro says that the figures produced by Mr Son show that the additional costs plus the Subcontract Sum under the Interim Subcontract approximately equals the total costs under the Subcontract, the Project Subcontract Sum, and therefore there is no apparent loss. However, that argument fails to take into account that the additional costs and the Subcontract Sum do not include at least the SMP and E&I costs.
44 Thirdly, Duro says that Mr Son did not take into account the amount drawn on Forge's Bonds. That is not correct. Mr Son said in his first affidavit that approximately $83 million of the additional costs incurred by Samsung as a result of Forge's insolvency and the termination of the Subcontract had been recouped by the call on the Forge Bonds. In cross-examination Mr Son said that he considered that matter at the time of, or shortly before, deciding to make demand on the Bonds and took that into account in making his decision.
45 Fourthly, Duro says that Mr Son failed to consider facts that break the chain of causation between Samsung's voluntary termination of the Subcontract and the additional costs it claims to have incurred. Duro says that Mr Son did not address the fact that Duro was ready, willing and able, and offered, to continue to perform the Subcontract, as it would have been required to do if Samsung had not terminated the Subcontract.
46 Following the administration of Forge, Duro wanted to continue to perform the Subcontract. On 14 February 2014 Duro presented to Samsung its plan for continuing to perform the Subcontract. Duro took steps to put itself in a position to continue to perform the Subcontract and by letter dated 21 February 2014 reaffirmed its commitment to continuing to perform the Subcontract. Later that day Samsung terminated the Subcontract. Samsung did not explain why it terminated the Subcontract in circumstances where the Subcontract was being performed by Duro. Duro says that if the Subcontract had remained on foot, then Samsung would not have incurred any of the losses it now seeks to recover. That is because Duro would have been obliged to perform the Subcontract Works for the Project Subcontract Sum. Duro argues that the fact that Samsung incurred additional costs has nothing to do with the termination of the Subcontract. It is a consequence of Samsung's own conduct.
47 I do not accept that argument. Samsung was not contractually obliged to permit Duro to continue to perform the Subcontract. In his second affidavit Mr Son says that at the date of terminating the Subcontract he had no confidence in Duro's ability to step in and assume responsibility for the entirety of the Subcontract Works. Mr Son states in his affidavit a non-exhaustive list of the matters which caused him to have that opinion. There is no evidence from which I may infer that Mr Son did not hold that opinion. In his third affidavit Mr Son confirms that for the reasons set out in his second affidavit he had no confidence in Duro's ability to step in and assume responsibility for the entirety of the Subcontract Works. Mr Son states further, and by way of clarification, that he was concerned that if Duro went into administration as Forge had done, Samsung would have had to deal with the consequences of a second principal subcontractor going insolvent which would have resulted in significant additional costs to Samsung. Mr Son says that based on that consideration and the matters referred to in his second affidavit he did not regard Duro's proposal to assume responsibility for the entirety of the Subcontract Works as a viable option that Samsung could adopt in order to progress the works following Forge's insolvency and the termination of the Subcontract. Mr Son says that when he authorised the call on the Bonds he did not reconsider the viability of the Duro's proposal from February 2014.
48 The evidence does not establish a prima facie case that Mr Son did not bona fide consider that Samsung was or would be entitled to recover the amount of the Bonds from the Subcontractor under or in respect of the Subcontract. The evidence discloses that Mr Son genuinely engaged with the question, rationally attempted to consider the relevant amount and honestly, genuinely and rationally considered that Samsung is or will be entitled to recover the amount of the Bonds from the Subcontractor under or in respect of the Subcontract. Mr Son might be wrong in his consideration. It might be determined at trial that the additional costs totalling $182.1 million is not a loss caused by the breach of Contract, that is by Forge's insolvency. It might be found that the total costs incurred by Samsung in carrying out the Subcontract Works is no greater than the Project Subcontract Sum. It might be found that the loss, if any, incurred by Samsung as a result of the Subcontractor's breach of the Subcontract does not exceed the amount drawn on Forge's Bonds. It might be determined at trial that Samsung's failure to permit Duro to continue to perform the Subcontract broke the chain of causation or as a result Samsung failed to mitigate its loss and damage. However, those are not questions to be decided on this interlocutory application. The question on this interlocutory application is whether Duro has made out a prima face case that Samsung did not consider, acting bona fide, that it is or will be required to recover the relevant amount from the Subcontractor under or in respect of the Subcontract. Duro has failed to establish that prima facie case.
49 If, contrary to my findings, the evidence establishes an arguable case that Samsung did not consider, acting bona fide, that it is or will be entitled to recover the amount of the Bonds from the Subcontractor under or in respect of the Subcontract, Duro has not established a sufficient likelihood of success to justify in the circumstances restraining Samsung from converting the Bonds into money pending trial.
Balance of convenience
50 Duro says that the balance of convenience favours the grant of an injunction for the following reasons. Samsung is wholly protected by the undertaking as to damages given by Duro. There is no evidence of any reason why the balance of convenience ought weigh in favour of Samsung. On the other hand, if an injunction is not granted then, among other things, Duro's ability to tender for work would be affected, its reputation would be damaged, its cash flow would be seriously impacted and its competitiveness and ability to obtain finance would be affected. Also, if AIG and CGU pay the Bond amounts, Samsung may not have the means of repaying the amount if it is subsequently found that Samsung was not entitled to make the call. While there is no doubt that Samsung is part of a huge global conglomerate which would have the means to repay $64 million if required, there is no evidence that Samsung has assets in the jurisdiction. If there are insufficient assets within the jurisdiction against which Duro might enforce any judgment, this places Samsung in a commercially advantageous bargaining position for the purposes of resolving any dispute. If Duro is required to enforce a right to a return of the Bond monies it would be required to enforce that right in Korea if Samsung had no Australian assets and refused to honour its obligations.
51 I do not consider that the matters advanced by Duro are sufficient to weigh the balance of convenience in favour of the grant of an interlocutory injunction. By agreeing to cl 5.2(a) of the General Conditions that the Contractor may, at any time, convert into money any Security where the Contractor considers, acting bona fide, that it is or will be entitled to recover the relevant amount from the Subcontractor under or in respect of the Subcontract, Duro assumed the risk that a call may be made upon the Security. If the interlocutory injunction were granted, Samsung would be held out of its rights to access the Security until the trial. In that way, it would be deprived of the right, provided to it under cl 5.2 of the General Conditions, that Duro, and not Samsung, carry the risk as to which party is out of pocket pending the resolution of the disputes between them.
Injunction refused on primary grounds
52 Duro's application for an interlocutory injunction must be dismissed and the interim injunction restraining Samsung from calling on the Bank Bonds should be discharged unless the issues concerning the status of old SCT and new SCT require a different finding, I now turn to those issues.
Duro applies for leave to reopen
53 After I had heard Duro's application for an injunction on the grounds set out above and reserved my decision, Duro applied to reopen its case on the ground that there had been a significant development which raised questions of Samsung's entitlement to the proceeds of the Bonds. The development was said to be that old SCT had merged with Cheil to form new SCT. Duro says that only old SCT was entitled to demand payment under the Bonds and the demands for payment on 3 November 2015 were made by new SCT and give rise to no obligation on AIG and CGU to make payment under the Bonds and no entitlement of new SCT to receive payment.
54 In Smith v New South Wales Bar Association (1992) 176 CLR 256, 266 - 267 Brennan, Dawson, Toohey and Gaudron JJ said:
It is again necessary to distinguish between the considerations which may bear on a decision to reopen and the processes involved in reconsideration once a case has been reopened. If an application is made to reopen on the basis that new or additional evidence is available, it will be relevant, at that stage, to enquire why the evidence was not called at the hearing. If there was a deliberate decision not to call it, ordinarily that will tell decisively against the application. But assuming that that hurdle is passed, different considerations may apply depending on whether the case is simply one in which the hearing is complete, or one in which reasons for judgment have been delivered. It is difficult to see why, in the former situation, the primary consideration should not be that of embarrassment or prejudice to the other side.
- In determining an application for some procedural relief the court must have regard to the objects of promoting the just determination of litigation and disposing efficiently of the business of the court. Relevant considerations include the nature and importance of the new case Duro wishes to advance, the stage the determination of the application had reached when the reopening was sought and the explanation for any delay in seeking to present the new case: See Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175.
55 Duro has not provided any evidence explaining why at the hearing of its application for interlocutory relief on 19 November 2015 it did not adduce evidence of the dissolution of old SCT and argue that new SCT was not entitled to demand payment under the Bonds. On 25 August 2015 Samsung wrote to Duro informing it 'about the recent merger of Samsung C&T and Cheil Industries Inc'. Attached to the letter was a copy of an announcement by Samsung that the merger of Samsung C&T Corporation and Cheil Industries Inc was to be effective September 1 2015 and the name of the new entity will be Samsung C&T Corporation. The announcement stated that 'new SCT will succeed to SCT's existing obligations without any changes'. Senior counsel for Duro submitted that whilst the announcement made Duro aware of the merger and that the new entity will be Samsung C&T Corporation, it did not make Duro aware that old SCT would be dissolved. On 24 November 2015, that is after the initial hearing of Duro's injunction application, Duro's solicitors instructed a Korean law firm to conduct a search of the Korean Corporate Registry for documents relating to the merger. Subsequently Duro's solicitors were informed by the Korean lawyers, and were provided with documents which showed, that SCT was dissolved on the merger between old SCT and Cheil. Senior Counsel for Duro, Mr Thomson SC, submitted that Duro did not make a deliberate decision not to obtain and lead evidence of the dissolution of old SCT. There is no express evidence to that effect but I accept that Duro did not make a deliberate decision not to obtain and call evidence of the dissolution of old SCT at the initial hearing of its injunction application.
56 If there was no deliberate decision not to call the new evidence, the primary consideration is embarrassment or prejudice to the other side. The essential principle is that the court should do justice as between the parties. There is no substantial embarrassment or prejudice to Samsung. The most important consideration is the cogency and legal significance of the material sought to be adduced on the application to reopen.
57 Duro says, in effect, that it should be given leave to reopen because the new case it wishes to put has merit and the outcome of this interlocutory application is likely in a practical sense to determine the substance of the matter in issue and therefore it is in the interests of justice to give leave to Duro to reopen its case. I will therefore consider the merits of the new case sought to be advanced by Duro. Before considering the issues it is necessary to outline the terms of the Bonds and the law of the Republic of Korea concerning the merger of old SCT and Cheil to form new SCT.
The Bonds
58 Each of the Bonds is in substantially the same terms. The Financial Institution, AIG or CGU, undertakes, at the request of Duro and in consideration of the Contractor accepting the undertaking by way of security to the Contractor for the performance by Duro of its obligations under the Subcontract unconditionally and irrevocably to pay the Contractor on demand any sum which may from time to time be demanded by the Contractor to a maximum aggregate of the amount of the Bond (Amount). The Bond continues until the undertaking is no longer required by the Contractor, the undertaking is returned by the Contractor to the Financial Institution, payment to the Contractor is made by the Financial Institution of the whole of the Amount or a specified date. The earliest specified date on which any Bond is to expire is 16 December 2015. Each Bond further provides that the Financial Institution must make payment of the Amount to the Contractor immediately upon the Financial Institution receiving a written demand from the Contractor. There is an assignment clause. The Contractor may assign the undertaking to any person with the prior written consent of the Financial Institution which shall not be unreasonably withheld. The assignment clause further provides that the Financial Institution undertakes to make any payment claimed under the undertaking to the person specified in the notice which will constitute a full and valid discharge to the Financial Institution in relation to the payment. The governing law of the undertaking is the law of Western Australia. The Contractor is Samsung C&T Corporation ABN 49 160 079 470.
Merger under Korean law
59 The Korean Company Register for old SCT records that its registration number was 110111-0002975, and on 2 September 2015 it merged with Cheil and was dissolved. The company register for Cheil shows that its registration number is 110111-0015762 and on 2 September 2015 it merged with old SCT and changed its name to Samsung C&T Corporation.
60 Samsung, Duro and CGU have each adduced evidence of the law of the Republic of Korea concerning the effect of the merger. Samsung adduced evidence from Sae Youn Kim, a Korean lawyer and former judge with experience in commercial law. Ms Kim's opinion is as follows. Korea is a civil law country and the primary source of its laws is codified statutes. The Korean statute governing a merger of corporations is the Korean Commercial Code (KCC). The effect of merger on the rights and obligations of the pre-merger companies is provided for by Article 235 of the KCC for partnership companies. The same provision is applied mutatis mutandis to stock companies, that is companies for which shareholders are only liable to the extent of their payment for the shares, under Article 530. Article 235 provides that 'a surviving company or a company newly incorporated in consequence of a merger shall succeed to the rights and obligations of the company which disappeared'. This succession of rights and obligations is a comprehensive succession by operation of law. Rights and obligations include contractual rights and obligations.
61 CGU adduced evidence from Sung-Soo Choi, a Korean attorney with experience of corporate law. Mr Choi's opinion is similar to that of Ms Kim with the following qualifications. A party is not prohibited from terminating an agreement if the agreement provides for, or can be interpreted to allow, a party to terminate in the event of a merger, post facto. Further, illegal agreements or those rights and obligations which can only be held by a particular party cannot be transferred to surviving companies.
62 Duro adduced expert evidence from Joongi Kim, a Professor of Law at Yonsei Law School in Seoul. In his first report Professor Kim agreed that Article 530 of the Commercial Act requires that when one company merges into another the merged entity succeeds all of the contracts, rights and obligations of the prior companies. However, Professor Kim says that Korean courts have recognised exceptions to the general rule of succession. Professor Kim identifies four exceptions recognised by the Korean Supreme Court. First, succession will not apply to rights and obligations where, based upon their characteristics, it is deemed that transfer should not be permitted. Employment contracts are commonly cited as an example that would require the approval of the counterparty employees. Merged companies would have to succeed the employment agreements of the pre-existing companies but counterparty employees are deemed to have a right to object since they should not be forced to work with the new merged company against their will. Secondly, the criminal liability of a dissolved company would not succeed to the newly merged entity. Thirdly, the reasons for cancelling a government licence of the dissolved company should not be succeeded such that a different licence of the merged company would be cancelled. Fourthly, the earlier incorporation date of a merged company would not be succeeded and considered as the incorporation date of the merged entity for tax purposes.
63 Professor Kim was asked for a supplementary opinion based on the following assumptions:
In the present case, upon a proper construction according to Western Australian law, the substantive right which the pre-merger Samsung C&T had to call upon the unconditional and irrevocable undertaking of AIG and CGU to pay upon the bonds was, in substance, a right personal to the pre-merger Samsung C&T, which could only be transferred with the prior consent of AIG and CGU.
The need for the prior consent of AIG or CGU to a transfer is an integral part of the definition of the right of a transferee to call upon the bonds according to Western Australian law.
The undertaking is unconditional and irrevocable, and hence AIG and CGU were under an immediate liability to pay the pre-merger Samsung C&T without doing anything other than verifying the identity of the pre-merger Samsung C&T. That is part of the commercial character of a performance bond, which is supposed to be equivalent to the provision of cash as between the financier and the person entitled to make a call. The undertaking to pay is an undertaking in favour only of a 'person specified in the notice'. The bonds are only capable of being assigned, ie transferred, with the prior written consent of AIG or CGU. It is not simply an undertaking by AIG or CGU to pay a transferee. AIG and CGU would not be discharged from their substantive obligations according to Western Australian law by paying a transferee to whom they had not given a prior written consent. That requirement of prior written consent to a transfer enables AIG or CGU to be sure that the person to whom they make any payment is in fact the person entitled to receive payment and means that AIG or CGU are thereby discharged from the bond. This is a critical mechanical matter concerning the operation of the bond, which ensures that the bond is properly regarded as being as good as cash.
- Professor Kim was asked, based on those assumptions: Do you consider it arguable that the substantive rights under the bonds could be exclusive characteristics of the pre-merger Samsung C&T or otherwise could arguably be the subject of an exception to the general rule of succession? Professor Kim answered:
4. Based upon the assumptions I was instructed to make on the nature of the bonds under Western Australian law, I believe that the substantive rights under the bonds could be arguably considered as 'exclusive characteristics' of the pre-merger Samsung C&T or otherwise could be arguably the subject of an exception to the general rule of succession as provided in my 8 December 2015 Expert Report.
…
6. I note the following special characteristics of the bond under Western Australia law: (1) they were 'a right personal to the pre -merger Samsung C&T'; (2) 'prior consent … is an integral part of the definition of the right of a transferee to call upon the bonds'; (3) 'the undertaking to pay is an undertaking in favour only of a "person specified in the notice"'; and, (4) prior consent was a 'critical mechanical matter concerning the operation of the bond'.
7. Therefore, based on the characteristics of the bond under Western Australia law, I find the substantive rights under bonds could be arguably considered as 'exclusive characteristics' of the pre-merger Samsung C&T or otherwise could be arguably the subject of an exception to the general rule of succession.
65 The admissibility of expert opinion is subject to the assumption identification rule and the basis rule. The assumption identification rule requires the expert to identify the assumptions of primary fact on which the opinion is offered. The basis rule is that an opinion without any evidentiary basis is inadmissible.
66 Professor Kim's opinion in his supplementary report is based on the assumptions that under Western Australia law the Bonds have the following special characteristics:
(1) they were a right personal to the pre-merger Samsung C&T;
(2) prior consent … is an integral part of the definition of the right of a transferee to call upon the bonds;
(3) the undertaking to pay is an undertaking in favour only of a person specified in the notice; and
(4) prior consent was a critical mechanical matter concerning the operation of the bond.
- I find that in relation to each of these asserted characteristics the assumed characteristic is either not sufficiently described so as to identify the assumptions upon which the opinion is based or the assumptions are incorrect or not proved. I will consider each in turn, starting with the assumption that the right to call upon the Financial Institution to pay upon the Bonds is a right personal to old SCT.
67 In general, contractual rights may be assigned. However, contracts which involve personal skill or confidence may only be assigned with the consent of the other party. Contracts for personal services may be assignable if assignment was either expressly or by implication contemplated. The authors of the 10th Australian Edition of Cheshire & Fifoot's Law of Contract say at [8.6] that generally a right that may be regarded as too 'personal' to assign may be assigned if this is expressly allowed. On the other hand, often it is a matter of no consequence to the person, for example, paying money, to whom he or she pays it. Any implication that the contract is one of an unassignable 'personal' nature may be rebutted from the context itself. Thus, if the contract expressly deals with the possibility of assignment it ought not be deemed a 'personal' one. In this case, the Bonds expressly contemplate assignment - the Contractor may assign the undertaking to any person with the prior written consent of the Financial Institution in writing which shall not be unreasonably withheld. The assumption which Professor Kim was asked to make is that the substantive right is a right personal to the old SCT 'which could only be transferred with the prior written consent of AIG and CGU'. The assumption which Professor Kim was asked to make is incorrect. The right to demand and receive payment under the Bonds is not personal in the sense that it involves personal skill or confidence and it is assignable with the prior consent of the Financial Institution. Alternatively, the content or meaning of the concept 'a right personal to the old SCT' has not been identified. The Bonds are not contracts for personal services and do not involve personal skill or confidence. Professor Kim is asked to assume that the substantive right is a right personal to the old SCT but that it can be transferred with the prior written consent of AIG and CGU. To that extent, the assumption is self-contradictory. The critical characteristic relied upon by Professor Kim is not that the right under the contract may only be assigned with the prior written consent of the Financial Institution but that it is a 'right personal to the pre-merger Samsung C&T'. The content or meaning of that 'personal right' has not been identified.
68 The second assumption made by Professor Kim is that 'the need for the prior consent of AIG or CGU to a transfer is an integral part of the definition of the right of a transferee to call upon the bonds according to Western Australian law'. In substance, this adds nothing to the assumption that the right to call upon the undertaking of AIG and CGU to pay upon the Bonds may only be transferred with the prior written consent of AIG and CGU which is part of the first assumption. However, Professor Kim relied upon the assumption that 'prior consent … is an integral part of the definition of the right of a transferee to call upon the bonds' as a separate special characteristic of the Bond. The content of that assumption has not been sufficiently identified to enable the court to form its own opinion about the application of Korean law to the facts of this case.
69 The third assumption made by Professor Kim is that 'the undertaking to pay is an undertaking in favour only of a person specified in the notice'. This is a reference to the provision in the assignment clause in the Bonds which provides, in the context of the Contractor having assigned the undertaking, the Financial Institution undertakes to make payment to the person specified in the notice. Professor Kim has not explained what is this 'special characteristic' or how it relates to any exception to the general principle of universal succession upon a merger under the KCC.
70 The fourth assumption made by Professor Kim is that prior consent was a 'critical mechanical matter concerning the operation of the bond'. In my opinion, neither the instructions given to Professor Kim nor Professor Kim's supplementary report discloses what is meant by 'a critical mechanical matter concerning the operation of the bond' and therefore does not enable the court to make any evaluation of Professor Kim's opinion based upon the assumption.
71 Professor Kim's supplementary report is also inadmissible for the second reason advanced by Mr Colvin. A distinction is to be drawn between the content of foreign law which a court treats as a question of fact, about which evidence is receivable, and the application of foreign law once its content has been ascertained, upon which evidence is not receivable: United States Trust Co of New York v Australia and New Zealand Banking Group Ltd (1995) 37 NSWLR 131, Sheller JA (Mahoney and Meagher JJA agreeing) at 146.
72 In Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd [No 6] (1996) 64 FCR 79; (1996) 137 ALR 138 at 82 Lindgren J referred with approval to the statement of Shellar JA in United States Trust Co of New York v Australia and New Zealand Banking Group Ltd to which I have referred and observed that the distinction is between identifying and expounding, in general terms, the scope, meaning and effect of relevant statutory and non-statutory foreign law (content evidence) and opining how that foreign law applies to the facts of a particular case (application evidence). Lindgren J said that the expert is entitled to identify and expound the foreign law relevant to the circumstances of the case as the expert assumes them to be but it is a matter for the Australian court to decide how that law applies to the facts of the case, not for the expert to express an opinion on that question.
73 In my opinion Professor Kim's supplementary report is inadmissible for that reason. Professor Kim is entitled to express his opinion as to the content of Korean law. That includes that there are exceptions to the general rule of universal succession and the nature of those exceptions. Professor Kim expressed that opinion in his first report. Professor Kim is not entitled to express his opinion that based upon the assumptions he was instructed to make on the nature of the bonds under Western Australia law, the substantive rights under the bonds could be 'arguably considered' as exclusive characteristics of the pre-merger Samsung C&T or otherwise 'could be arguably' the subject of an exception to the general rule of succession. In my opinion, Professor Kim's supplementary report impermissibly strays from giving expert evidence to arguing the case and, in particular, from stating the existence and nature and scope of exceptions to the general principle of universal succession under Korean law to asserting that the rights under the Bonds could 'be arguably considered' as subject to an exception to the general rule of succession.
74 For the reasons stated, the supplementary report of Professor Kim is inadmissible. If I am wrong in that conclusion then I would accord no weight to the opinions expressed by Professor Kim in his supplementary report. The delphic nature of the assumptions on which Professor Kim bases his opinion in his supplementary report does not enable the court to place any weight on the opinions he expresses. Professor Kim does not state any statutory or case law or any treatise to support the conclusion that the merged company does not, or may not, succeed to the rights to payment of the merged company under the Bonds or performance bonds generally. The exceptions referred to by Professor Kim are limited to employment contracts, exclusive characteristics which would include the self-sustainability or creditworthiness of the dissolved company, succeeding to a criminal liability or reasons for cancelling a government licence. None of those exceptions forms a basis for finding that the right to demand and receive payment under the Bonds is an exception to the general principle that after a merger the surviving company succeeds to the rights of the disappearing company under a performance bond or a performance bond in the terms of the Bonds.
The new company issue
75 Having outlined the relevant terms of the Bonds and the expert evidence about the relevant law of the Republic of Korea I can turn to the case which Duro wishes to advance if it is given leave to reopen.
76 Each of the Bonds contains an undertaking by the Financial Institution, CGU or AIG, to pay 'the Contractor'. The Financial Institution must make payment of the relevant amount immediately upon the Financial Institution receiving a written demand from the Contractor. The Contractor is Samsung C&T Corporation ABN 49 160 079 470. Each of the Bonds was issued before the merger of old SCT with Cheil. Hence, the Contractor is old SCT. New SCT says that it is entitled to demand payment by the Financial Institution because new SCT has succeeded to the rights and liabilities of old SCT pursuant to the laws of the Republic of Korea.
77 Samsung says that questions relating to the status of a corporation are governed by the law of incorporation. In this case the law of incorporation is the law of Korea and under Korean law new SCT has succeeded to the rights and liabilities of old SCT, including the right to make demand for payment under the Bonds. Duro says that the relevant question is whether the right to demand payment has been assigned to new SCT and whether an assignment of the contract has taken place depends on the proper law of the contract. The governing, or proper, law of each of the Bonds is the law of Western Australia. Upon the proper construction of the contract constituted by the Bonds, construed in accordance with the law of Western Australia, an assignment of the Bonds to new SCT is not effective to transfer to new SCT the right to demand payment under the Bonds unless and until the Financial Institution has given written consent to the assignment.
Court should determine the legal question.
78 Duro's case involves questions of law and fact. The only contested questions of fact concern the content of the law of the Republic of Korea concerning the contractual rights and liabilities of the surviving company upon a merger. There is no controversy about the relevant Korean law except for the opinion Professor Kim expresses in his supplementary report. The evidence establishes that Articles 235 and 530 of the KCC provide that a surviving company in consequence of a merger shall succeed to the rights and obligations of the company which had disappeared including contractual rights and obligations. This succession of rights and obligations occurs by operation of law. For the reasons I have stated Professor Kim's supplementary opinion is inadmissible or, if, contrary to my finding, it is admissible it should be given no weight. Therefore there is no real factual controversy. Whether or not new SCT has succeeded to the rights of old SCT under the Bonds so as to entitle it to demand and receive payment under the Bonds involves questions of law. I have referred earlier in these reasons to the statement of Gibbs CJ, Mason and Wilson JJ in Cohen v Peko-Walsend Ltd that if the question is one susceptible of resolution without further evidence, and the urgency of the matter does not render it impracticable to give proper consideration to the question, the desirable course will be to decide it. In this case it is appropriate to determine the question and not merely whether it is arguable. Therefore, I will consider the conflict of laws question which in my opinion is determinative of this issue.
The conflict of laws question
79 In my opinion the question is which of the two relevant choice of law rules applies. The question of whether an assignment of the contract has taken place depends upon the proper law of the contract. If that is the applicable choice of law rule the merger of old SCT and Cheil to form new SCT does not amount to an assignment of the Bonds under West Australian law and new SCT is not entitled to make demand for payment under the Bonds. The other choice of law rule is that questions relating to the status of a corporation are governed by the law of incorporation. In this case the law of incorporation is Korea and under Korean law, subject to a possible exception I will discuss later in these reasons, new SCT has succeeded to the rights and liabilities of old SCT, including the rights of old SCT under contracts and is entitled to demand payment under the Bonds.
80 In my opinion the issue in this case is similar to that which arose in National Bank of Greece and Athens v Metliss [1958] AC 509. As that case is important to my decision I will refer to it in some detail. In 1927 the National Mortgage Bank of Greece (the mortgage bank) issued sterling bearer bonds and the National Bank of Greece (the old bank) guaranteed payment of the principal and interest. Both banks were incorporated under Greek law. In 1949 the Greek government declared a moratorium, the effect of which was to suspend all obligations on bonds payable in foreign currency. The moratorium remained in force at all relevant times. In 1953 the Greek government passed a law, law number 2292, which authorised the amalgamation or merger of banking companies and provided that any company which absorbed another company by merger, or any new company formed by amalgamation became the universal successor to the assets and liabilities of the old company. By a decree made under that law the old bank and another Greek company, the Bank of Athens, (which unlike the other banks had assets in England) were amalgamated and a new company, The National Bank of Greece and Athens (the new bank), was formed. The decree provided that the old bank and the Bank of Athens should cease to exist and that the new bank should, without any further formality, become the universal successor to all rights and obligations of the amalgamated banks. In 1955 one of the bond holders, Mr Metliss, commenced an action against the new bank claiming the interest that was in arrears on his bonds. The primary judge found that the new bank was liable to Mr Metliss under the contract of guarantee. His judgment was affirmed by the Court of Appeal and the House of Lords. In the House of Lords Lord Morton said that two questions arose for decision on the appeal: (1) apart from the effect (if any) of the Greek statutes imposing a moratorium, does the Greek statute number 2292, coupled with the decree of February 1953, make the new bank liable in an English court upon the guarantee given by the old bank? (2) if the answer to the first question is 'yes', does the existence of the moratorium under Greek law preclude the respondent from recovering the sum awarded by the primary judge? The House of Lords answered the first question 'yes'. Their Lordships held that the new bank must be recognised as clothed with the attributes with which it had been invested by the Greek Act, namely, the assumption of the assets, powers and liabilities of the old bank. The second question was answered 'no'. The old bank could not have relied on the moratorium, if sued in England. The obligations on the bonds were governed by English law, the proper law of the contract, and those obligations could not be varied by the foreign legislation.
81 The Greek government sought to circumvent the decision of the House of Lords that the new bank was liable for the debts of the old bank by passing a decree known as Act 3504 which amended with retrospective effect the law dealing with the amalgamation of companies. It provided that upon amalgamation the new corporation inherited all the assets and liabilities of the old corporations except liabilities to foreign bond holders expressed in foreign currency. The authors of the 9th Edition of Nygh's Conflict of Laws in Australia at [14.45] say that the Greek government sought to rely upon the earlier decision of the House of Lords to support its contention that laws regulating the succession of corporations were laws relating to the status of the corporations. However, when the bond holders brought their case before the House of Lords once again in Adams v National Bank of Greece SA [1961] AC 255; [1961] 2 All E R 421 the House of Lords held that the proper law of the bond holders contract was English law and that accordingly the bond holders were entitled to succeed since from the moment that the Act of 1953 became operative the new bank by virtue of the universal succession created thereby was under an obligation to the bond holders for which no subsequent Greek legislation could, retrospectively or otherwise, alter or discharge.
82 The authors of Nygh's Conflict of Laws in Australia, (9th Ed), at [9.10] recognise that a contractual obligation may effectively be transferred by replacing the legal personality of one company with that of another. In other words, it may be provided by the law of the place of incorporation that on one company ceasing to exist as a legal person, another company shall become the universal successor to the totality of the first company's rights and obligations. The authors say that the Greek bond cases are authority for the proposition that while the question of continuance of the contractual obligation is a matter for the proper law of the contract, the question of the continued existence of an artificial person is a question for the law that created it. If that law destroys the debtor, it becomes irrelevant to speak of the continued existence of the debt. If, in addition to destruction, the law of incorporation of the old entity creates a new entity for the purpose of investing it with all the rights and liabilities of the former, the forum will recognise that new entity as standing in the shoes of the old. That principle was applied by Hunter J in Preussag Mimmobilien Gmbh v Harriss [1998] NSWSC, BC 9807451.
83 The law of Korea has created a new entity, new SCT, and has invested it with all the rights and liabilities of the old SCT. New SCT's succession to the rights of old SCT under the contracts occurs by operation of law and no separate assignment or other contractual or legal steps are needed for such succession to take effect. New SCT takes the place of old SCT as the Contractor under the Bonds and has all the rights of old SCT under the Bonds. Those rights include the right to demand and receive payment. Those rights include the right, with the prior written consent of the Financial Institution, to assign the rights of the Contractor under the Bonds to another person. Duro says that new SCT must obtain the prior written consent of the Financial Institution to an assignment of the rights of old SCT under the Bonds before it may succeed to the rights of old SCT under the Bonds. Such a requirement does not recognise or give effect to Articles 235 and 530 of the KCC.
The Bonds do not fall within an exception
84 Professor Kim and Mr Choi say that under Korean law there are exceptions to Article 530 of the KCC which provides that when one company merges into another the merged entity succeeds all of the contracts, rights and obligations of the prior companies. Professor Kim and Mr Choi each state that employment contracts, illegal agreements or those rights and obligations which can only be held by a particular party cannot be transferred to surviving companies. However, there is no evidence that there is any provision in the KCC, any decision of the Supreme Court of Korea or any treatise which says that the right to demand and receive payment under a performance bond, or performance bonds with terms similar to the Bonds, is an exception to the law under Article 530.
Leave to reopen is refused
85 Leave to reopen is refused. The evidence adduced on Duro's application to reopen does not establish that new SCT was not entitled to demand payment under the Bonds and is not entitled to receive payment under the Bonds. To the contrary, I find that by reason of the law of the Republic of Korea, and in particular Articles 235 and 530 of the KCC, new SCT succeeds to the rights of old SCT under the Bonds, including the right to demand and receive payment.
CGU counterclaim
86 On 8 December 2015, after Duro had applied for leave to reopen the hearing of its application for injunctive relief, CGU filed a counterclaim against Duro and Duro's parent company, Duro Felguera SA (DFSA). By its counterclaim CGU seeks a declaration that payment to new SCT of an amount as defined on any of the CGU Bonds would constitute a full and valid discharge to CGU in respect of that payment and that any such payment would be a loss as defined in the deed of indemnity by which Duro and DFSA each agreed to indemnify CGU against all loss. CGU also seeks interlocutory injunctions restraining Samsung from taking any steps to enforce the demands it has made on CGU in respect of the CGU Bonds.
87 CGU's case for an interlocutory injunction is dependent upon, and falls with, Duro's argument that new SCT is not entitled to demand or receive payment under the CGU Bonds.
AIG interpleader
88 On 8 December 2015, after Duro had applied for leave to reopen the hearing of its application for injunctive relief, AIG filed a summons seeking interpleader relief. Samsung C&T Corporation (ABN 49 160 079 470) is the second respondent and Samsung C&T Corporation (Korean Company No 110111-0015762) is the third respondent. The summons seeks a declaration as to which of the second or third respondents is the Contractor as defined in each of the AIG Bonds and a declaration as to which of the second or third respondents has the power to make valid demands upon the Bonds as the Contractor as defined in each of the AIG Bonds or in the place of the Contractor as defined in each of the AIG Bonds. AIG also seeks a declaration that the written demands dated 3 November 2015 under each of the AIG Bonds on AIG by Samsung C&T Corporation of Samsung C&T Crp.Bldg.,14, Scochu-Daero 74-GIL, Scochu-Gugu, Seoul, Korea 137-956 are, or in the alternative are not, valid demands under each of the Bonds.
89 AIG sought that the court summarily grant relief by way of the orders and declarations sought in AIG's summons. That is inappropriate for three reasons. First, the first defendant to the action has been amended to 'Samsung C&T Corporation (ABN 49 160 079 470) with Republic of Korea registration number 110111-0015762'. There are not two existing corporations recognised by Australian law as the second and third respondent. Secondly, Rules of the Supreme Court 1971 (WA) O 17 r 1 provides that relief by way of interpleader may be granted by the court where the person seeking relief is under liability, relevantly, to perform a contract or for any debt or money in respect of which he is or expects to be sued by two or more parties (called the claimants) making adverse claims. There are not two claimants. Old SCT is not a legal entity, it no longer exists. There is only one claimant to the money - new SCT. Whether new SCT is entitled to make demand or receive payment under the AIG Bonds is not a matter to be determined by interpleader relief. Thirdly, it is not appropriate to deal with the matter summarily on Duro's application to reopen its application for injunctive relief.
Conclusion
90 Duro's application to reopen its case is refused. Duro's application for an interlocutory injunction is refused. The interim injunction restraining Samsung from taking any steps to enforce its demand for payment under the Bonds and restraining CGU and AIG from making payment under the Bonds must be discharged.
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