FFE Minerals Australia Pty Ltd v Vanadium Australia Pty Ltd
[2000] WASC 1
•20 JANUARY 2000
FFE MINERALS AUSTRALIA PTY LTD -v- VANADIUM AUSTRALIA PTY LTD [2000] WASC 1
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 1 | |
| Case No: | CIV:2412/1999 | 13 JANUARY 2000 | |
| Coram: | HEENAN J | 20/01/00 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Interlocutory injunction granted | ||
| PDF Version |
| Parties: | FFE MINERALS AUSTRALIA PTY LTD (ACN 000 221 570) VANADIUM AUSTRALIA PTY LTD (ACN 083 978 232) |
Catchwords: | Contracts Construction of rotary kiln for vanadium project Bank guarantee to secure performance by contractor Undertaking to pay proprietor on demand Demand may be made when proprietor "has become entitled to exercise a right under the Contract in respect of the security" Application by contractor to restrain making of demand Certificate of practical completion issued by superintendent Later statement by superintendent that practical completion not achieved Issue of fact Interlocutory injunction granted Injunctions Interlocutory injunctions Serious question to be tried Issue of fact Preserve the status quo |
Legislation: | Nil |
Case References: | Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 Ampol Petroleum Ltd v Mutton (1952) 69 WN (NSW) 365 Barclay Mowlem Construction Limited v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451 Burleigh Forest State Management Pty Ltd v Cigna Insurance Australia Ltd [1992] 2 Qd R 54 Campbell v Edwards [1976] 1 WLR 403 Hortico (Aust) Pty Ltd v Energy Equipment Co (Aust) Pty Ltd and Anor (1985) 1 NSWLR 545 Hughes Bros Pty Ltd v Telede Pty Ltd (1991) 7 BCL 204 Inflatable Toy Company Pty Ltd v State Bank of NSW and Ors (1994) 34 NSWLR 243 JC Williamson Ltd v Lukey & Mulholland (1930-31) 45 CLR 282 Olex Focas Pty Ltd v Skodaexport Co Ltd and Anor [1998] 3 VR 380 Pearson Bridge (NSW) Pty Ltd v State Rail Authority of NSW (1982) 1 ACLR 81 Perpetual Trustee Company (Canberra) Ltd v Pennygown Pty Ltd, unreported; SCt of VIC (Nathan J); 18 June 1990 Read Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd, unreported; SCt of NSW (Austin J); 20 November 1998 Road Services Group Pty Ltd v Brown [1987] 2 Qd R 792 Selvas Pty Ltd v Hansen Yuncken (SA) Pty Ltd and Anor [1987] 6 ACLR 36 Stern v McArthur (1988) 165 CLR 489 Tenore Pty Ltd v Roleystone Pty Ltd, unreported; SCt of NSW (Giles J); 14 September 1990 Transfield Pty Ltd v Fuller-FL Smidth (Pacific) Pty Ltd and Deutsch Bank AG, unreported; SCt of NSW (Bainton J); 9 May 1997 Washington Constructions Company Pty Ltd v Westpac Banking Corporation [1983] 1 Qd R 179 Wood Hall Limited v The Pipeline Authority and Anor (1979) 141 CLR 443 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
VANADIUM AUSTRALIA PTY LTD (ACN 083 978 232)
Defendant
Catchwords:
Contracts - Construction of rotary kiln for vanadium project - Bank guarantee to secure performance by contractor - Undertaking to pay proprietor on demand - Demand may be made when proprietor "has become entitled to exercise a right under the Contract in respect of the security" - Application by contractor to restrain making of demand - Certificate of practical completion issued by superintendent - Later statement by superintendent that practical completion not achieved - Issue of fact - Interlocutory injunction granted
Injunctions - Interlocutory injunctions - Serious question to be tried - Issue of fact - Preserve the status quo
(Page 2)
Legislation:
Nil
Result:
Interlocutory injunction granted
Representation:
Counsel:
Plaintiff : Mr P K Walton
Defendant : Mr R J Ainslie
Solicitors:
Plaintiff : Jackson McDonald
Defendant : Mallesons Stephen Jaques
Case(s) referred to in judgment(s):
Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812
Case(s) also cited:
Ampol Petroleum Ltd v Mutton (1952) 69 WN (NSW) 365
Barclay Mowlem Construction Limited v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451
Burleigh Forest State Management Pty Ltd v Cigna Insurance Australia Ltd [1992] 2 Qd R 54
Campbell v Edwards [1976] 1 WLR 403
Hortico (Aust) Pty Ltd v Energy Equipment Co (Aust) Pty Ltd and Anor (1985) 1 NSWLR 545
Hughes Bros Pty Ltd v Telede Pty Ltd (1991) 7 BCL 204
Inflatable Toy Company Pty Ltd v State Bank of NSW and Ors (1994) 34 NSWLR 243
JC Williamson Ltd v Lukey & Mulholland (1930-31) 45 CLR 282
Olex Focas Pty Ltd v Skodaexport Co Ltd and Anor [1998] 3 VR 380
Pearson Bridge (NSW) Pty Ltd v State Rail Authority of NSW (1982) 1 ACLR 81
(Page 3)
Perpetual Trustee Company (Canberra) Ltd v Pennygown Pty Ltd, unreported; SCt of VIC (Nathan J); 18 June 1990
Read Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd, unreported; SCt of NSW (Austin J); 20 November 1998
Road Services Group Pty Ltd v Brown [1987] 2 Qd R 792
Selvas Pty Ltd v Hansen Yuncken (SA) Pty Ltd and Anor (1987) 6 ACLR 36
Stern v McArthur (1988) 165 CLR 489
Tenore Pty Ltd v Roleystone Pty Ltd, unreported; SCt of NSW (Giles J); 14 September 1990
Transfield Pty Ltd v Fuller-FL Smidth (Pacific) Pty Ltd and Deutsch Bank AG, unreported; SCt of NSW (Bainton J); 9 May 1997
Washington Constructions Company Pty Ltd v Westpac Banking Corporation [1983] 1 Qd R 179
Wood Hall Limited v The Pipeline Authority and Anor (1979) 141 CLR 443
(Page 4)
1 HEENAN J: By contract dated 24 December 1998 the plaintiff agreed with the defendant "to undertake the detailed design, supply, manufacture, fabrication, delivery, erection, installation, pre-commissioning and joint commissioning" of a rotary kiln at Windimurra, which is about 600 km north-east of Perth. The kiln was to be used for the recovery of vanadium, the last step in a process which involves the mining, crushing and milling of ore, the magnetic separation of magnetite from the ore and then the extraction of vanadium by roasting the magnetite with sodium within the kiln at temperatures of 1300° C.
2 The agreed price for the works was $20,647,000 "or such other sum as may become payable" pursuant to the contract. The plaintiff agreed to secure the due and proper performance of its obligations under the contract in the amount of $750,935. As an alternative to a cash security, the defendant accepted the provision of a bank guarantee which the plaintiff had arranged. The date specified for practical completion was 4 November 1999.
3 On or about 29 March 1999 the plaintiff began construction of the kiln. On 14 November the Superintendent for the project certified that practical completion of the works had been reached on 14 September and the plaintiff claimed payment from the defendant of a bonus of $728,571.43 for early completion. Before the end of November a dispute arose as to whether the certificate of the Superintendent should have been issued. The defendant claimed that practical completion had not been achieved in several respects and that, because it had failed to reach the specified completion date, the plaintiff was indebted to the defendant for liquidated damages in excess of one million dollars pursuant to Special Condition 23 of the contract. On 1 December the defendant gave notice to the plaintiff of its intention to have recourse to the bank guarantee. On 17 December, after the parties had failed to resolve their differences, the plaintiff instituted this action by writ claiming payment of a bonus for early completion and other relief. On the same day it brought this application for an interlocutory injunction to restrain the defendant from making demand under the guarantee.
4 In the guarantee the bank undertakes to pay on demand to the defendant any sum or sums up to the amount secured. In truth it is an unconditional undertaking to pay on demand and not a guarantee. Upon receipt of a demand in the form stipulated the bank must pay over the money. But the defendant is not entitled to make the demand at will. Clause 5.6 of the General Conditions of the contract provides that it may have recourse to the security when it "has become entitled to exercise a
(Page 5)
- right under the Contract in respect of the security". Special Condition 27 provides, in effect, that the defendant may deduct liquidated damages from moneys due to the plaintiff and that, if these moneys are insufficient, the defendant may, subject to cl 5.6 of the General Conditions, have recourse to the security.
5 Counsel for the defendant contends that the plaintiff is indebted to the defendant for liquidated damages and argues that, as moneys due to the plaintiff are insufficient to meet that indebtedness, the defendant "has become entitled to exercise a right under the Contract in respect of the security". Therefore, he submits, the defendant may have recourse to the guarantee pursuant to cl 5.6.
6 The main complaint of the defendant is that the burner management system (or "BMS") installed by the plaintiff is inoperable. Mr Laurence Pedersen, the representative of the Superintendent for the project, describes the BMS as a control system that maintains the kiln and its associated equipment within "safe operating parameters", reacting to "abnormal operating parameters" by sending alarms, adjusting the system or shutting it down. In his affidavit filed on behalf of the defendant Mr Pedersen has said that, when the plaintiff sought the certificate of practical completion, other project work still was being carried out by other contractors and it was not possible then to perform the activities necessary to demonstrate that the works undertaken by the plaintiff were practically complete. That being so, when issuing the certificate on behalf of the Superintendent he relied upon statements from the plaintiff to the effect that, except for minor omissions and minor defects, the works were complete and that the kiln was ready to receive magnetite concentrate. After the dispute arose as to the correctness of the certificate he had considered the opposing views of the parties. Then on 23 December 1999 he delivered a written decision with reasons in the course of which he said in effect that, had all of the relevant information been available to him at the time, he would not have certified the works as practically complete because of deficiencies in the kiln burner and in the BMS. He went on to say that the certificate of practical completion had been issued on the basis of submissions and assurances by the plaintiff which "excluded any statement on incompleteness or status of the kiln burner and kiln burner management system". He added that "the kiln cannot operate unless the kiln burner and kiln burner management system is functioning correctly and in a safe manner" and that the deficiencies should have been known to the plaintiff at the time of applying for practical completion.
(Page 6)
7 In the course of his reasons Mr Pedersen referred to reports of Mr Doug Humphries, a third party inspector retained by the plaintiff to enable it to obtain approval for installation of the burner and the BMS and a certificate of compliance in accordance with the Gas Standards (Gas Fitting and Consumer Gas Installation) Regulations 1999. In those reports Mr Humphries has stated that at 14 September 1999 the burner and the BMS were not capable of being connected for commissioning purposes because approval for installation had not been granted. As it happened, such approval was granted on or before 4 November, although the requirements of the regulations still had not been met. On 1 December Mr Humphries found that "a significant number of major faults" were revealed during testing of the system. Because of concerns with safety and "duty of care responsibilities" the burner was turned off.
8 It seems that the kiln was "fired up" again on 11 December 1999 after some changes had been made to the BMS, enabling the project's main computer to act as a "backup" to the BMS as well as taking over some of its functions on a temporary basis. However, the process of producing vanadium from the magnetite concentrate did not start until 24 December 1999, a delay of six weeks which has resulted in great financial loss and which, the defendant claims, was caused by the failure of the plaintiff to achieve practical completion on or before the date specified.
9 The practical completion issue is central to these proceedings. There is substantial evidence before the Court to the effect that the BMS is an integral part of the works and that it is crucial to the efficient and safe operation of the kiln. The evidence tends to show not only that the regulations have not been complied with but also that the system itself is not operational. Again, the Superintendent has sworn, in effect, that he would not have issued the certificate of practical completion had he been aware of the deficiencies of the kiln burner and the BMS. Thus the case for finding that practical completion has not been achieved is a strong one. By contrast, the evidence in support of the plaintiff's claim to practical completion is meagre. Its case depends substantially upon the issue of the certificate by the Superintendent.
10 The arguments presented by counsel on the present application are much the same as those presented in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812. Like this application, the application in that case required expedition, but Charles and Callaway JJA each delivered a judgment which provided a detailed and helpful discussion of the terms of the contract between the parties as well as the
(Page 7)
- relevant law. In that case, in affirming the decision of Byrne J to refuse an interlocutory injunction restraining recourse to the security, the Court of Appeal found that the terms of the contract showed that the commercial purpose of the provision of security under the agreement was to allocate the risk of a party being out of pocket pending resolution of any dispute and therefore that the owner was entitled to call on the security even where a genuine dispute existed concerning its entitlement to damages for non-completion by a certain date. However, in that case the certificate of practical completion, or of "Handover", had not issued. In my opinion that is a feature which distinguishes Fletcher's case from this.
11 As I read the contract in this case the indebtedness of the plaintiff to the defendant for liquidated damages and the consequent entitlement of the defendant to exercise a right under the contract in respect of the security depend upon whether the time for practical completion was met. The contract provides for that fact to be determined by the issue of a certificate by the Superintendent, a determination which prevails until it has been set aside by an arbitrator or a court. In my opinion, it is not part of the Court's function in dealing with this application to take such a step. The appropriate course now, I believe, is to preserve the status quo. I propose to order, subject to the usual undertaking, that until trial or further order the defendant be restrained from making any demand for payment under the bank guarantee. Bearing in mind the weight of the defendant's challenge to the certificate of practical completion I decline to make any order enabling reduction of the security pursuant to cl 5.8 of the General Conditions.
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