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Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd

Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd

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Case Copied 15 June 2007 52 min read

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 5786 of 2007

KELLOGG BROWN & ROOT PTY LTD	Plaintiff
v
AUSTRALIAN AEROSPACE LTD	Defendant

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JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATE OF HEARING:	7-9 and 23 May 2007
DATE OF JUDGMENT:	15 June 2007
CASE MAY BE CITED AS:	Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd
MEDIUM NEUTRAL CITATION:	[2007] VSC 200

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Injunction – Interlocutory – Contract – Termination for convenience – Implied term of good faith and fair dealing – Serious question to be tried – Balance of convenience – Sufficiency of undertaking.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P B Murdoch QC and Mr A P Trichardt	TressCox
For the Defendant	Mr N J O’Bryan SC and Mr A T Broadfoot	Minter Ellison

HIS HONOUR:

On 23 May last I announced my decision and ordered that until the hearing and determination of the proceeding or further order the defendant by itself, its servants or agents or howsoever otherwise be restrained from acting under or in any way relying upon the notice of termination dated 13 April 2007, and reserved costs. I now provide reasons for the orders made on that day.

The plaintiff, Kellogg Brown & Root Pty Ltd (“KBR”), seeks an injunction restraining the defendant, Australian Aerospace Ltd (“AA”), until the hearing and determination of the proceeding from acting under or in any way relying upon a notice given by AA and dated 13 April 2007 terminating for convenience an agreement made between them in December 2005.

KBR and AA are members of substantial corporate groups. KBR is wholly owned by KBR Holdings Pty Ltd (“KBR Holdings”) which is a wholly owned Australian subsidiary of a leading global engineering, construction and services company based in the United States of America, KBR Inc. AA is a wholly owned Australian subsidiary of Eurocopter SAS France which is wholly owned by the European Aeronautic Defence and Space Company NV, the largest aerospace and defence company in Europe. These were acknowledged by counsel to be very large corporate groups.

The context in which the case arises may be shortly stated. AA entered into contracts with the Commonwealth of Australia for the supply of 46 MRH 90 helicopters, the first contract for 12 helicopters being signed on 29 July 2005 and the second contract for 34 helicopters being signed in 2006. In December 2005 AA and KBR entered into the subject agreement in relation to the project, called Project AIR 9000, whereby KBR was engaged to perform work in relation to phase 2 which involves the acquisition of the first 12 MRH 90 helicopters, and associated support systems. The further 34 MRH 90 helicopters will be supplied under phases 4 and 6 of the supply contracts. Sub-contracts for phases 4 and 6 have not been let. Hence KBR’s contract is limited to phase 2. More specifically the area of work that KBR was engaged to perform was the main…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] VSC 200
Decision Date: 15 June 2007

CaseChat Overview and Summary

The dispute between Kellogg Brown & Root Pty Ltd and Australian Aerospace Ltd was brought before the court, where Kellogg sought an interlocutory injunction to prevent Australian Aerospace from terminating a contract for convenience. The underlying contract was for the design and construction of a facility, and Kellogg argued that Australian Aerospace's termination was in breach of an implied term of good faith and fair dealing. The case turned on whether a serious question was made out regarding the existence of this implied term and if the balance of convenience favoured Kellogg.

The court was required to decide whether the serious question to be tried test was met and if the balance of convenience lay in favour of Kellogg, thereby justifying the granting of an interlocutory injunction. It was also necessary to assess the sufficiency of the undertaking provided by Australian Aerospace as an alternative to an injunction.

The court found that a serious question was indeed made out regarding the existence of an implied term of good faith and fair dealing in the contract. The court noted that such a term could be implied by law in certain circumstances, and the nature of the contract suggested that this was a possibility. Regarding the balance of convenience, the court considered the potential harm to Kellogg if the contract was terminated without proper cause, weighed against the interests of Australian Aerospace in being able to exercise its contractual right to terminate for convenience. The court concluded that the balance of convenience favoured Kellogg, given the significant investment and reliance on the contract's continuation. The undertaking provided by Australian Aerospace was considered sufficient to mitigate some of the concerns, but the court still found that an interlocutory injunction was warranted to protect Kellogg's interests pending the outcome of the trial.

The court granted Kellogg an interlocutory injunction, restraining Australian Aerospace from terminating the contract for convenience until further order. The injunction was subject to Australian Aerospace providing an undertaking as to damages in the event the injunction was ultimately found to be unjustified. This decision ensured that Kellogg's interests were protected while the serious questions regarding the contract's terms and the appropriate exercise of the termination clause were resolved at trial.

Orders