Kvaerner Process Systems v AGL

[2001] HCATrans 432

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth  No P52 of 2001

B e t w e e n -

KVAERNER PROCESS SYSTEMS PTY LTD

Applicant

and

AUSTRALIAN GASFIELDS LIMITED

Respondent

Application for a stay and expedition

CALLINAN J

(In Chambers)

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON FRIDAY, 2 NOVEMBER 2001, AT 2.00 PM

(Continued from 24/10/01)

Copyright in the High Court of Australia

MR W.S. MARTIN, QC:   If it please your Honour, I appear on behalf of the applicant.  (instructed by Gadens Lawyers)

MR J.D. McKENNA:   If it please your Honour, I appear on behalf of the respondent.  (instructed by Freehills)

HIS HONOUR:   We are not going to need any video link?

MR MARTIN:   No.  Your Honour, my solicitors are on the other end of the video in Perth listening and watching in the event that I might need instructions.  Depending on how things unfold, I might then perhaps seek a short adjournment so that I can phone them rather than do it over the video, but that is the course we propose.

HIS HONOUR:   Yes, thank you.

MR MARTIN:   Your Honour, this is the resumed application for a stay pending the special leave application.  Perhaps the quickest way is to take your Honour very quickly to the affidavit material identifying the key components of that material upon which we rely.  Does your Honour have the affidavit of Mr Edel sworn, I think, 23 October?

HIS HONOUR:   That was the affidavit that was before me in Perth?

MR MARTIN:   Yes, the initiating affidavit.

HIS HONOUR:   Yes, I have that.

MR MARTIN:   Could I take your Honour to the two key paragraphs of the contract which are annexed to that affidavit.  The first is clause 7.0, which is to be found at page 56 of the affidavit, under the heading “SECURITY AND RETENTION MONEYS”.  The real significance of drawing your attention to this clause is to identify ‑ ‑ ‑

HIS HONOUR:   I am sorry, I am just having a little trouble finding it.  What page?

MR MARTIN:   Page 56.  There are numbers everywhere but, if your Honour goes to the furthest right‑hand number on the top right‑hand corner, it should be page 56 on that basis.

HIS HONOUR:   Is that 7.2?

MR MARTIN:   Yes.  Under the heading ‘SECURITY AND RETENTION MONEYS” there is provision made for the form of security, which may be either cash or banker’s undertaking.  In the event of cash, it is expressly provided that the account is to be only operated “in accordance with the terms of the Contract”.  We would think it not hard to imply a similar restraint with respect to the calling on security by way of banker’s undertaking.  Then the later provisions significantly do not expressly stipulate in this clause the circumstances in which the security moneys may be drawn down.

One has to go, in our submission – and, indeed, the submission put below and I think accepted below – to clause 47.0 to find the circumstances in which moneys may be drawn down.  That is at page 106 of Mr Edel’s affidavit.  Clause 47.0 provides:

The Company –

in this case the respondent –

may deduct from any money due or becoming due to the Contractor –

et cetera, in two circumstances.  The first limb is:

amounts equal to all debts and moneys due from the Contractor –

plainly that limb could only apply to liquidated amounts being then due and owing.

HIS HONOUR:   That would mean certified amounts effectively.

MR MARTIN:   Certified amounts, indeed.  The second limb arises when the company seeks to deduct:

amounts equal to all costs, charges, damages, liquidated sums and expenses which the Company has paid or incurred and which or for which the Contractor or its Sub‑contractors is or are liable to bear, pay or make reimbursement to the Company.

So that the entitlement to draw down the security is predicated upon the existence of a present liability “to bear, pay or make reimbursement to the Company”.  It is not predicated upon, as some clauses of this kind stipulate, a circumstance in which there may be a liability to pay the sum, nor is it predicated upon the existence of a claim for the sum.

HIS HONOUR:   Let me just look at this.  How does the respondent characterise its claimed entitlement here?

MR MARTIN:   I think the case is put on the basis that it has an entitlement to draw down wherever there is a claim which is bona fide made, notwithstanding that it is disputed.

HIS HONOUR:   The language used is:

costs, charges, damages, liquidated sums and expenses which the Company has paid or incurred ‑ ‑ ‑

MR MARTIN:  

and which or for which the Contractor . . . is or are –

so that the explanation for the “is or are” is because it has gone from singular to plural, but it refers to significantly a present existing liability.

HIS HONOUR:   And you say not a claim?

MR MARTIN:   Not a claim.

HIS HONOUR:   Not a mere claim?

MR MARTIN:   Not a mere claim.  So that the entitlement to draw down depends upon the objective existence of a debt.

HIS HONOUR:   The nature of the claim is a claim, what, for damages for breach of contract?

MR MARTIN:   There are a variety of claims but they include damages for breach of contract and the biggest single sum is a claim for damages for breach of contract arising from a sum said to have been expended in order to acquire gas from other sources in order to meet obligations under a gas supply contract, plainly a claim ‑ ‑ ‑

HIS HONOUR:   So it is a claim for economic loss arising ‑ ‑ ‑

MR MARTIN:   A claim for economic loss, plainly an unliquidated sum.  Issues arise as to the extent to which account needs to be made of the value of the gas remaining in the ground as a consequence of third party gas being used to supply that contract.  So there are lots of contentious issues about the claim.

HIS HONOUR:   The claim is about how much?

MR MARTIN:   That claim is about 1.2 million.

HIS HONOUR:   And what is the total of the claims?

MR MARTIN:   The total amount claimed was 2.8 million.  The other biggest single sum of around $1 million is, I believe, in respect of delay in completion.

HIS HONOUR:   So either of those claims would completely absorb the whole – the security is 900,000‑odd.

MR MARTIN:   The security is just under a million, your Honour.

HIS HONOUR:   Just under a million, yes.  So your first point really is that the language of 47.0(b) does not encompass mere claims and, in particular, claims of an economic kind arising from a breach of contract?

MR MARTIN:   Indeed, your Honour.  The entitlement to draw down under 47.0 is predicated upon the existence of an entitlement.

HIS HONOUR:   All right.  Was that argument put at first instance?

MR MARTIN:   It was certainly put at first instance and again on appeal, your Honour, notwithstanding an observation to the contrary by the appellate court to which I will take you.

HIS HONOUR:   What did the primary judge say about it?  Where do I find what the primary judge said?

MR MARTIN:   Does your Honour have a copy of the primary judge’s decision?  It is not annexed to Mr Edel’s affidavit.  Does your Honour have it, Justice Parker’s decision of 20 June?

HIS HONOUR:   It is probably here somewhere.

MR McKENNA:   Your Honour, I have a working copy that I thought might assist you, both below and the appeal court.

HIS HONOUR:   That is very helpful, thank you, Mr Kenna.  Where does the primary judge deal with it?

MR MARTIN:   Your Honour, the contention starts conveniently at paragraph 27 of the primary judge’s reasons.  That is the contention that was put before him by us.

HIS HONOUR:   The emphasis seems to have been upon whether the claim was bona fide or not rather than as to whether a claim fell within the language of 47.0, is that right?

MR MARTIN:   That was the second limb of the issue but ‑ ‑ ‑

HIS HONOUR:   But that is where the emphasis seems to have been placed in the court’s ‑ ‑ ‑

MR MARTIN:   In the Full Court, that is certainly right, but not to the exclusion of this argument, your Honour.

HIS HONOUR:   No.  Let me just have a look at this.  Where do you say the ratio on this point is? 

MR MARTIN:   His Honour commences the reasoning process at paragraph 31 and then it really goes right through to – the conclusion is at the end of paragraph 43, the conclusion expressed in tentative terms.

HIS HONOUR:   Well, paragraph 31 does not throw any light upon it, does it?

MR MARTIN:   Paragraph 31 identifies the conflicting line of authorities.

HIS HONOUR:   Do the cases throw any light upon this question, whether “costs, charges, damages, liquidated sums and expenses . . . paid or incurred and which or for which the Contractor or its Sub‑contractors is or are liable to bear” includes claims which have not been determined?

MR MARTIN:   They do, your Honour.  The way it has emerged from the Victorian line of cases is that the question is posed in terms of whether a clause such as this involves the allocation of financial risk on an interim basis, that is to say, who is to bear the financial risk pending the resolution of the dispute.

HIS HONOUR:   But at the moment I do not immediately see that that is the point.  There is no problem about a proposition that the parties have contracted with respect to allocation of risk.  That is one thing.  I do not see any problem about the argument.  Whether it is right or wrong is another question.  It seems to me at first sight it is an attractive argument because one could infer that the parties have adjusted their contract prices and that the tender has been made upon the basis that there is going to be this allocation of risk.

The principal might be paying more because the contactor has to assume a risk of having an unconditional guarantee called upon.  Now, that is a clear enough proposition.  But what case says that the language in (b) is capable of embracing a claim?

MR MARTIN:   Your Honour, Fletcher Constructions and Bachmann, the two decisions of the Victorian Full Court ‑ ‑ ‑

HIS HONOUR:   All right, now let me just have a look at those.

MR MARTIN:    ‑ ‑ ‑ support the proposition that clauses such as this - and the clauses in that case were not identical with the wording of this clause, it has to be said, but the proposition that emerges from those cases is that because of the commercial context in which securities of this kind are provided, it is to be assumed in the absence of express provision to the contrary that the parties are allocating risk on an interim basis, that is to say, that one can draw down in the event of a bona fide claim, as opposed to the proposition that we put, and that is that this provides security for an adjudicated claim.

HIS HONOUR:   That does not immediately strike me as a necessary conclusion with respect to this language which is really for you rather than against you.

MR MARTIN:   Indeed.

HIS HONOUR:   Now, Fletcher, Mr Martin?

MR MARTIN:   Fletcher is a decision of the Victorian Full Court in which one of the leading judgments is written by Justice of Appeal Callaway and ‑ ‑ ‑

HIS HONOUR:   Yes, that is the judgment that Justice Templeman refers to at length.

MR MARTIN:   Yes, and his Honour ‑ ‑ ‑

HIS HONOUR:   Can I find the passage then perhaps in Justice Templeman’s ‑ ‑ ‑

MR MARTIN:   Your Honour can conveniently.  Indeed , it is in Justice Parker’s decision as well, I think.

HIS HONOUR:   Where do I find that?

MR MARTIN:   In Justice Parker’s decision it is to be found in paragraph 43 on page 15 of the printed version of his Honour’s decision.

HIS HONOUR:   I am sorry to keep on interrupting you, Mr Martin, I am trying to find my way through this.

MR MARTIN:   There is a bit of a morass of paper, I am afraid, your Honour.

HIS HONOUR:   I see Justice Callaway says:

It is a question of construction of the underlying contract whether the guarantee is provided solely by way of security or also as a risk allocation device.

Now, at the moment I cannot see why those are the only two possibilities.

MR MARTIN:   Indeed, your Honour, but the problem we face is that this view of his Honour induced both the trial judge and the Full Court to start from the predisposition towards an inclination that the clause in question was one for financial allocation of risk pending resolution of dispute.

HIS HONOUR:   But do you not first have to ask another question?  Do you not first have to ask, indeed as you do with any contract, without making any assumptions about it and having no predispositions with respect to it, what does the language mean? 

MR MARTIN:   Indeed.

HIS HONOUR:   Does it mean chose in action, because that is all at the moment the respondent has, is that not right?

MR MARTIN:   That is certainly the way we put it, but the problem is that the consequence of this line of decisions in Victoria – and I might say they seem to be only emanating from Victoria – is that great emphasis is placed upon the commercial context to produce a conclusion that is not suggested by the language used.

HIS HONOUR:   I have no difficulty with the proposition that if it is a true risk allocation provision, then it really does not matter at all whether either party might be insolvent and that the creditors might get the better of it.  That is what the parties have contracted for, but I need to know precisely what the parties have contracted for and I am not sure that putting a label on the clause concludes that.  Indeed, it may overlook the underlying question of construction.

MR MARTIN:   Our submission, your Honour, is that when one goes, as one ought, to the language of the clause, the entitlement to draw down is dependent upon the existence of a liability, not merely a claim.

HIS HONOUR:   All right, I understand that submission.

MR MARTIN:   Therefore, if that proposition is right and there is a dispute about the existence of the precondition to the draw-down, then the conventional principles relating to the grant of interlocutory relief apply.  One then goes to the balance of convenience and looks at where the loss would fall in the event that that dispute is resolved in a particular way.

HIS HONOUR:   I suppose the argument against you is that once you adopt the view that you are propounding, you very much reduce the utility of such a clause.  Indeed, you may make it to all intents and purposes useless.

MR MARTIN:   That was the argument put against us, your Honour, but it has a flaw.  In this case the undertaking has to be provided until such time as a certificate of final completion is issued and even then, there are circumstances in which the undertaking may remain in force.  The grant of the certificate of final completion is entirely in the hands of the owner and no certificate of final completion has been granted in the case of this contract, notwithstanding that we say work was complete in 1999.  What that then means is that this clause sits there as security for a judgment that the owner might get against us in due course.  So it does have that advantage.  There is a distinction between, on the one hand, providing interim security pending the resolution of dispute and, on the other hand, providing security for a judgment.  What this clause does do is provide security for a judgment, and that is our submission.

HIS HONOUR:   Is that all that would provide security for ‑ ‑ ‑

MR MARTIN:   No, it would also provide ‑ ‑ ‑

HIS HONOUR:   There might be identifiable costs.

MR MARTIN:   Certified amounts under the contract that are indisputably due and so forth, certified under the certification process.  So there are other amounts that would fall within the scope of it.  What we say is that it is a long bow to draw from a clause like this that you can draw it down merely because there is a claim made which is disputed.

HIS HONOUR:   There is an implication – I do not think I am misstating this – in the respondent’s material that there may have been some collusion between your client and the bank.

MR MARTIN:   That has certainly been advanced through the respondent’s material.  The only basis for that ‑ ‑ ‑

HIS HONOUR:   You are a Norwegian company, are you not?

MR MARTIN:   We are, your Honour.

HIS HONOUR:   Is it a Norwegian bank?

MR MARTIN:   I think so.  I do not have instructions on that, but I think it might be and, as is not uncommon ‑ ‑ ‑

HIS HONOUR:   It looks like a Scandinavian name, does it not?

MR MARTIN:   It does.  It is not uncommon, of course, for bank undertakings to be provided by the banker of the party providing the undertaking, so that there is often a commercial relationship between ‑ ‑ ‑

HIS HONOUR:   Almost always would be, I would think.

MR MARTIN:   Almost always, and usually a deposit of funds to secure the undertaking.  So the fact that the bank may have communicated to my client the making of the demand, the trouble is that the use that is sought to be made of that fact is an extraordinary one.  The use that is sought to be made of it is to convert it into the proposition that the bank will not honour the demand made.  Now, that, with respect, we say is an untenable proposition merely because of communication of the fact of demand.

Your Honour, if I could go back to the topic we were just debating, where we came unstuck was that Justice Parker at first instance adopted what I might call the Callaway line which is a preference for construing a clause such as this as what I call an interim risk allocation device, and ‑ ‑ ‑

HIS HONOUR:   That is right.  It is not merely a risk allocation device, on that construction; it is an interim risk ‑ ‑ ‑

MR MARTIN:   Interim risk allocation device, yes.  Now, the significance of Justice Callaway’s decision is that that conclusion was drawn in a case involving a contract which had no clearer indication to that effect than this one because, if I could just read to your Honour briefly, the clause in the Fletcher Constructions Case was:

The owner may deduct from payments and from the security provided any amounts for which the Company must reimburse the owner.

HIS HONOUR:   It has “must” though.

MR MARTIN:   Yes, “for any amounts”.  Notwithstanding that, the Full Court concluded that it was an interim risk allocation device, so it is a very strong decision that has induced Justice Parker, and in turn the Full Court, to construe this clause as entitling a draw-down merely upon the existence of a bona fide claim.  Now, once that conclusion was reached, then the debate went on to whether or not there was a bona fide claim.  We say the case came unstuck at the first hurdle where unfortunate reliance upon this line of decisions that is emerging from Victoria produced the wrong approach.

Now, your Honour, as both Justice Parker and the Full Court point out, there is a clear divergence between authorities in this area.  There is what I might call the Victorian line - because until this decision in Western Australia it was essentially restricted to Victoria - and there is the line taken, a very strong line in New South Wales starting with the Pearson Bridge decision of Justice Yeldham followed by a raft of first instance decisions by single judges of that court, Justice Giles, more recently Justice Austin and Justice Hodgson.

In Queensland, South Australia and the Northern Territory there are also decisions following the Pearson Bridge approach, the New South Wales line, and Justice Finkelstein in the Federal Court did not embrace the Victorian line, if I can put it that way.  He looked at it as a matter of construction and said there may be a vital distinction between a clause which says you can draw down any sums that the owner may be entitled to, on the one hand, and a clause that says you can draw down sums that the owner is entitled to, on the other.

HIS HONOUR:   Yes.  Now, you said, I think, that in fact it was suggested in the reasons for judgment of Justice Templeman that you had not pursued the construction argument, is that right?

MR MARTIN:   Yes, that is said.  If I could take your Honour to that portion of the Full Court’s judgment which is exhibited to Mr Edel’s affidavit, if your Honour has it nowhere else.

HIS HONOUR:   Yes, I have it here in‑ ‑ ‑

MR MARTIN:   Your Honour, could I just start before I get to that direct ‑ ‑ ‑

HIS HONOUR:   Is there a practice in Western Australia for two judges to constitute the Full Court or ‑ ‑ ‑

MR MARTIN:   Yes, it is on interlocutory appeals, your Honour.

HIS HONOUR:   And there were only two judges?

MR MARTIN:   There were only two judges.

HIS HONOUR:   Right.  You were going to refer me to ‑ ‑ ‑

MR MARTIN:   Yes, could I take you first to paragraph 16 because the decision of the Full Court is a bit curious on this subject.  Paragraph 16 starts:

The question arising in this case is whether the appellant is entitled to call on the undertaking when there are disputes about the claims it has made pursuant to the contract.

Now, that is the key issue that we seek to ventilate in the special leave and which we thought we had ventilated before the Full Court.  His Honour then goes on:

The Judge summarised the rival contentions.

Referring to the two divergent lines of authority to which I have just referred your Honour.  Then at paragraph 19 his Honour concludes:

It is not necessary to summarise the process of reasoning which led the Judge to that conclusion because it is not suggested that he was wrong.

To the same effect is the first sentence of paragraph 22 which follows his Honour’s citation of the passage from the judgment of Justice Callaway where it said:

Again, it is not suggested that the learned Judge was wrong in his tentative view of the effect of the General Conditions of contract.

Now, your Honour, we take great issue with that.  I am afraid I do not have copies for your Honour because I only came across these documents this morning, but I have with me the written outline of submissions that was filed before the Full Court and if I could just read paragraph 11 which repeats the submission that was put below which said – the submission to the effect that, “The contact qualified the right of the appellant to call up the guarantee, particularly by clauses 7.3 and 47.0”.  Then, by 11(b), “All the claims of the appellant were disputed and in terms of general condition D none fell within clause 47.0”.  And by paragraph (c), “There was not present entitlement by the appellant to any sum at all.  A mere claim to entitlement was not sufficient.  Reed Construction Services v Kheng”.

HIS HONOUR:   That puts it completely clearly, does it not?

MR MARTIN:   That case was one of the New South Wales line.  Your Honour, it was also debated between counsel and each of Justices Anderson and Templeman.  I will not read the passages to you but for my learned friend’s benefit the passages are at pages 48, 50 and 58.  It was clearly raised in oral argument and the case was put before the Full Court quite explicitly on the basis that there was a two-stage process.  First, is this a situation in which money can be drawn down merely because there is a bona fide claim?  If the answer to that question is no, then that is a sufficient basis for the grant of an injunction or at least, to put it more correctly, if there is an arguable question as to the answer to that question, then there ought be an interlocutory injunction because of the balance of convenience.

HIS HONOUR:   Is there any practice in Western Australia with respect to arguable questions or matters of law on interlocutory applications as opposed to arguable issues of fact or questions of ‑ ‑ ‑

MR MARTIN:   There is not except that there is an encouragement in the decisions to resolve questions of law if possible on an interlocutory basis, so that if the issue of an injunction turns upon only a question of law, there are obvious incentives for the resolution of that question.

HIS HONOUR:   I think the practice varies from State to State, in fact.

MR MARTIN:   Yes.  Your Honour, it is true that no notice of contention was put on in respect of Justice Parker’s tentative view but, again, I have to say that the practice with respect to notices of contention in my home State is more often in the breach than the observance.

HIS HONOUR:   Contentions seem to be very strongly insisted upon in this Court and in New South Wales but not with the same strictness.  I have noticed in other States ‑ ‑ ‑

MR MARTIN:   Indeed.  At the risk of giving evidence from the Bar table that is certainly my experience on the other side of the Nullarbor.  Undoubtedly, it is right that a notice of contention should have been put on, and it was not, but we will be contending on special leave day that the argument was clearly before the Full Court and that therefore these passages are simply incorrect and the failure of the Full Court to address the issue is not a failure of our doing but, in any event, we say that it is unlikely to stand in the path of the grant of special leave because the trial judge considered it, it is a pure question of law and construction of the contract and the divergent lines of authority are well established and very well supported by different decisions in the different courts.

There are six or eight cases in each of the divergent lines so that, in our submission, that is not going to pose an impedient to the grant of special leave.  The existence of that divergent line, together with what we will put on special leave day as, prima facie, error on the part of the court construing the contract, we say gives us a sufficiently arguable case for special leave to sustain the stay that we are seeking today.        Your Honour, that is really all I was proposing to say about that aspect of the stay application.

If I could then go to the balance of convenience issues and perhaps if I could do that quickly and conveniently again by Mr Edel’s affidavit.  If I could take your Honour to page 128 of that affidavit.  This is the demand that was made on the day of the decision of the Full Court of the Supreme Court and I just ask your Honour to note that the demand was for payment to be made to the parent, Energy Equity, not to the respondent, Australian Gasfields Limited.

HIS HONOUR:   But Energy Equity is the 100 per cent shareholder.

MR MARTIN:   The 100 per cent shareholder, but ‑ ‑ ‑

HIS HONOUR:   That is permissible, is it not, under the terms of the security?

MR MARTIN:   There is, I think, an issue about that.  The latest evidence is that if the stay your Honour granted last week is removed, a new demand will be made for payment to Australian Gasfields Limited.

HIS HONOUR:   But if there is an entitlement, then it is a debt and it can be assigned.  I would not have thought there was any problem about it.

MR MARTIN:   No.  Your Honour, I should have been clearer, I am afraid.  I am not putting it on the basis of giving rise to a technical impediment at this stage.  What I am putting it as is to show the financial interrelationship between these two companies and in particular to support the submissions that I will be putting to your Honour with respect to the precarious financial position of the parent, as revealed by the evidence.  So that in a situation in which, as we say, the evidence reveals a precarious financial position on the part of the parent, here we have the subsidiary asking for the parent to be paid.

HIS HONOUR:   Yes.  At the moment it looks to me as if you really need to win on the first point because, if it is truly an allocation of risk contract, is it not a matter of indifference then whether one set of creditors gets it or some ‑ ‑ ‑

MR MARTIN:   Your Honour, that is right.  That is undoubtedly right.  If it is an allocation of risk so that the existence of a bona fide claim confers an entitlement to draw down, then balance of convenience does not arise because any injunction or stay would interfere with the right.

HIS HONOUR:   Now, assume then that it is not an allocation of risk contract.  How does the balance of convenience arise then?

MR MARTIN:   Because, in order to obtain the grant of a stay from your Honour, I need to persuade your Honour that there is a significant prospect that in the event the stay is refused the future application for special leave will effectively be rendered nugatory.

HIS HONOUR:   Mr McKenna, I did not ask you what you read, but I have in fact read your affidavit and I take it you do rely upon that.  That is the ‑ ‑ ‑

MR McKENNA:   And the outline of submissions, your Honour, our detailed ‑ ‑ ‑

HIS HONOUR:   Yes, I have. 

MR McKENNA:   Yes, and I have handed to your associate a list of material that I was relying upon as well, which I have also provided to my learned friend. 

HIS HONOUR:   Thank you.  Well, we will take that as read. 

MR McKENNA:   Thank you. 

MR MARTIN:   Yes.  Thank you, your Honour. 

HIS HONOUR:   Thank you.  I have, in fact, read your two affidavits, Mr McKenna, although I do not purport to have digested all of the exhibits, but I have read them. 

MR McKENNA:   Thank you. 

MR MARTIN:   Thank you, your Honour.  As I say, it is the relationship between the entity that is entitled to the security and the parent that becomes relevant in this context.  We are, of course, focusing upon the parent because we have the published accounts for the parent, and notwithstanding the fact that this issue has been identified, we still do not have any accounts for the subsidiary.  I will take your Honour to the affidavit about that in due course. 

Your Honour, if I could start with the accounts of the parent.  If I could take your Honour quickly to page 154 of Mr Edel’s affidavit, this is what these days is apparently called a statement of financial performance – what I would have called a profit and loss – for the consolidated group. 

HIS HONOUR:   Which page?

MR MARTIN:   Page 154 of Mr Edel’s affidavit, your Honour.  It is an extract from the annual report for Energy Equity for 2001.  It is a profit and loss.  If I could just take your Honour to the consolidated column for 2001, at the very top of that page, you see “Revenues from Ordinary Activities” – and I emphasise “Ordinary Activities” because of the point Mr Jordan seeks to make in his affidavit.  Revenues 32 million, that is to say, turnover.  The loss that is booked from ordinary activities before income tax expense is 29 million.  So, from turnover of 32 million, a loss of 29 million was booked.  In the previous year, a loss of just under 13 million was booked, again, said to be entirely from “Ordinary Activities” before income expense. 

HIS HONOUR:   Yes, but the evidence is – if you look at those, depreciation is not a cash expense, of course.

MR MARTIN:   No, of course. 

HIS HONOUR:   “Borrowing costs expensed” – I think the respondent’s material shows that borrowings are significantly reduced. 

MR MARTIN:   Well, no.  There is ‑ ‑ ‑

HIS HONOUR:   Well, are they not reduced from about 120 million to 89 million, something of that ‑ ‑ ‑

MR MARTIN:   From a single borrower, but there is no evidence that the total debt level has been reduced.  The affidavit has to be read with care, your Honour, because all it is said is the borrowing from the CBA has been reduced.  There is no evidence where the 30 million came from.  The inference, we would say, is that there is another creditor out there, to the extent of that money, because Mr Jordan’s own evidence is to the effect that the profits derived from operations could not have sustained that reduction in debt. 

HIS HONOUR:   It is very hard for me sitting here on an interlocutory application for a stay ‑ ‑ ‑

MR MARTIN:   Indeed, your Honour. 

HIS HONOUR:   ‑ ‑ ‑ to make a finding – I just do not think I could make a finding of insolvency or ‑ ‑ ‑

MR MARTIN:   I am not inviting your Honour to make a finding.  All I am inviting your Honour to conclude is that there is a sufficient risk to justify the grant of a stay for three weeks.  We are only seeking a stay for three weeks against no evidence of prejudice over that time – not a hint of evidence of any prejudice over that three‑week period. 

HIS HONOUR:   I was going to ask Mr McKenna about that.  He can tell me about that. 

MR MARTIN:   Your Honour, could I just say there, we see successive losses, 29 million this year, 12 million last year, but more significantly, your Honour, is the next page.  Again, this has now a new buzz word, apparently, a statement of financial position.  I would have called it a balance sheet, in the old days.  Go to “Current Assets”.  Just go to the bottom line “Total Current Assets”, 4½ million ‑ ‑ ‑

HIS HONOUR:   Just wait a moment. 

MR MARTIN:   Top of the page. 

HIS HONOUR:   Yes, “Total Current Assets”. 

MR MARTIN:   ‑ ‑ ‑ 4.573.  “Total Current Liabilities”, 89.943 million.  So, in the ordinary measure of solvency, which is current assets against current liabilities, it is 4½ million against 90 million.  But it gets worse, because if you go into the current assets, “Cash assets”, $228,000; “Receivables”, 3 million.  Then go down to “Current Liabilities”, “Payables”, 11 million.  So there are payables, that is, amounts payable, of 11 million; cash of 228,000.  Now, your Honour, that poses a very serious question that none of the affidavit evidence addresses. 

Could I take your Honour then to page 169, which has a list of the subsidiaries.  Close to the top is Australian Gasfields Limited, which has a little grave next to it.  The significance of that is it is code for – over the page at 170, if we go to the grave, it tells us that there has been a class order granting relief to the controlled entities from filing separate accounts.  The basis upon which that class order has been granted is that there is a guarantee from Energy Equity: 

to pay any deficiency in the event of winding up the controlled entity –

but, and most significantly –

The controlled entities have also given a similar guarantee in the event Energy Equity Corporation Ltd is wound up. 

So Australian Gasfields Limited has guaranteed the debts of Energy Equity.  Those debts, we know, are in the vicinity of $100 million, at least, to one creditor.  We do not have – despite having there been ample opportunity to put forward a balance sheet for Australian Gasfields Limited, no evidence has been proffered as to Australian Gasfields Limited’s financial position.  We do know from this that it has a very substantial exposure to the liabilities of Energy Equity.  Now, your Honour, to the same effect is a note – could I just briefly go on.  Page 184, paragraph 28(v) is a reference to the same thing: 

The Company and certain wholly owned controlled entities as disclosed in Note 10(a) –

which is what we were just looking at –

have entered into a Deed of Cross Guarantee to pay any deficiency in the event of any winding up of any of the entities –

So they have each guaranteed each other’s debts.  Finally, your Honour, in relation to Mr Edel’s affidavit, could I just take you to the last page, page 198.  The auditor’s report, the last paragraph, states that: 

If any of these events –

that is, rights issue and refinancing certain assets –

do not occur there is significant uncertainty whether the company and the consolidated entity will be able to continue as going concerns and therefore whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report.  The financial report does not include any adjustments relating to the recoverability of or reclassification of recorded asset amounts, or the amounts or classification of liabilities, that might be necessary should the company and/or the consolidated entity not be able to continue as going concerns. 

Your Honour, that is a very significant observation, because, of course, in the balance sheet, what the auditors are saying is assets have been brought to account in the balance sheet on the basis of evaluation as a going concern, including such things as future income tax benefits which, in the light of the losses we have seen, is likely to be a very substantial amount.  But, of course, if you are not a going concern, future income tax benefits have no value.  So what the auditors are saying is, if that assumption as to going concern proves to be wrong, then the figures in the balance sheet may be completely wrong, and the assumption of going concern depends upon things happening. 

Now, your Honour, could I then go to the other affidavits.  Firstly, the affidavit of Mr Ross which is a very short one, which your Honour has there.  That is sworn 29 October.  He simply says that he:

telephoned the Plant Supervisor at Eromanga Gas Plant –

that is, the defendant’s gas plant, production shut on 20 October and there is no longer any gas being produced at the plant.

Then if I could take your Honour quickly to Mr Winslade’s affidavit, sworn 25 October.  He annexes some further accounts.  At page 5 of his affidavit he has a different version of the annual accounts that show accumulated losses for Energy Equity of $81 million and, as your Honour may have seen, he also draws attention to the fact that there are three items of litigation pending in the Supreme Court of Western Australia.  Two involve applications by Energy Equity to set aside statutory demands.  Each of those applications was refused by Master Bredmeyer in fairly robust terms, with respect, suggesting that there was no bona fide dispute to justify setting aside the statutory demand ‑ ‑ ‑

HIS HONOUR:   There is an appeal, I think, is there not?

MR MARTIN:   Yes, there are appeals.  In addition, the third piece of litigation is an application for winding up, that is also contested.  But those are pending in the Supreme Court of Western Australia.

Next could I take your Honour to the respondent’s affidavit material, firstly, Mr Hayes, whose affidavit is sworn on 30 October.  He talks about arrangements with respect to the gas at Australian Gasfields and describes himself as:

the Senior Consultant – Finance and Commercial of Energy Equity Ltd, the 100% shareholder of the Respondent –

He makes the point at paragraph 7 that:

between October 1999 and October 2001, AGL incurred a financial loss on the Pasminco Contract –

which was its main asset.  Now, that tells you that this particular company has not been trading profitably for at least the last two years.

HIS HONOUR:   Has Pasminco been closed – does the material disclose whether it is ‑ ‑ ‑

MR MARTIN:   Pasminco went into some form of insolvency administration as a consequence of which Australian Gasfields Limited gave notice terminating the gas supply contract.  Mr Hayes says, “The reason we did that is because it was an unprofitable contract.”  But what that tells you – that sheds some light, some very limited light, on the likely financial circumstances of AGL.  It is as much as we have because no officer of AGL ‑ ‑ ‑

HIS HONOUR:   But they say they can do some gas swaps now that they would not have been able to do before, though.

MR MARTIN:   They do, your Honour, but what they do not say is, “This will make us profitable”.  They do not say, “We have concluded an agreement with any of these parties for gas swaps”.  And they do not put forward the balance sheet of AGL or the profit and loss for any relevant period, despite every opportunity to do so.  Now, Mr Hayes says, “We will be better off under the gas swap than we were with Pasminco”, but he does not say, “We will be profitable”.  And he does not say, “We will be able to repay this $1 million if we get it, maybe upstream it to our parent, and then in a year’s time the Supreme Court of Western Australia says we were not entitled to it, we are asked to give it back”. 

HIS HONOUR:   When would you get a trial of this case?

MR MARTIN:   In the substantive proceedings in the Supreme Court, one would hope, within 12 months.

HIS HONOUR:   It is a construction case, though, and ‑ ‑ ‑

MR MARTIN:   Nevertheless there are, I think, some fairly discrete issues that are not enormously complex factually.  Twelve months may be optimistic.  I may be being ‑ ‑ ‑

HIS HONOUR:   Do you have provision for a separate trial there?

MR MARTIN:   There is a capacity for a separate trial.  Your Honour, significantly omitted from Mr Hayes’ affidavit is any evidence of any prejudice as a result of not being able to access the funds between now and 23 November when the special leave application is going to be heard.

Could I go then to Mr Jordan’s affidavit which, with respect, repays careful attention.  He is a director of AGL, he tells us.  In paragraph 4, he says:

AGL is a 100% owned subsidiary of EEC.  AGL’s accounts are not publicly available.

That is undoubtedly true, but they are available to him.  Why did he not give them to us?  Why did he not put them before the court so that the court had all relevant material before it?  Your Honour, we say in the circumstances of the material we have put on, your Honour can draw an inference from the failure to put that material before the court to the effect that it would not have helped the respondent’s case.  He then says, line 3:

Page 33 of the Annual Report indicates that AGL has been released from requirements for the preparation, audit and publication of financial reports.  It also indicates that, in order to obtain the release, EEC has guaranteed to pay any deficiency in the event of AGL being wound up.

What this deponent does not tell your Honour, and what he should have told your Honour, is that the price for that was reciprocity and that AGL has assumed an obligation to guarantee the debt to the Commonwealth Bank of $100 million.  Now, it then says:

Over the last 2 to 3 years EEC has experienced tight cashflow.  Although EEC has made a profit from operations in those years, after deducting financial costs and abnormal expenses EEC has suffered losses.

Now, your Honour, the accounts say “Losses from Ordinary Activities”.  They do not say “Abnormal Items”.  It then says:

However, the underlying and longer term financial position of EEC is sound.

But that is, with respect, a bald assertion.  He then says, at the top of paragraph 6:

Page 18 of the Annual Report shows that EEC has net assets worth $125.5 million.

But nowhere does he address the huge imbalance between current assets and current liabilities that I draw your Honour’s attention to.  Nor does he identify the extent to which those net assets would be reduced in the event that the going concern assumption proves to be unsound.  Then he says in paragraph 7:

Further, under existing long term power arrangements in Australia, India and Indonesia, that are all performing, EEC has contracted future cash flows of approximately $2.5 billion –

but that, with respect, is not terribly helpful if those same future cash flows in the past have caused substantial losses to the company.  So cash flow is not equivalent to profit, with respect, and again, the witness does not condescend to that detail.  He then says in paragraph 8, and this your Honour has already referred to:

The debt with CBA has been reduced from $115 million at 30 December 2000 to $89.25 million –

He does not say, “The company’s debt overall has been reduced from those levels”.  He is quite specific.  He says, “The debt to this lender has been reduced”, and if your Honour takes that at face value, what we say is the dubious proposition in paragraph 14, that these are:

Group profit from operations before abnormal items –

it is clear that any reduction in group debt cannot have been as a consequence of cash generated by the group.  It can only have been as a consequence of further funding.

HIS HONOUR:   Mr Martin, I understand that submission.  What do you say about a submission that even though you may turn out to be right about all of these matters, this is nonetheless an interlocutory application and the High Court only infrequently grants special leave in interlocutory matters?

MR MARTIN:   That is certainly a hurdle we will have to address on 23 November, but the one category of case in which the High Court does from time to time grant leave in interlocutory matters is that category where the decision is always made on an interlocutory basis.  Now, these two divergent lines of authority all involve interlocutory decisions, so that there is no circumstance in which, as it were – and the interlocutory decision basically dictates the outcome of the case, so it is that rare category of interlocutory case in which, in our submission – and this is the submission we will be putting again on the 23rd ‑ ‑ ‑

HIS HONOUR:   It often does.  I mean, really, interlocutory injunctions so often turn out to be effectively final injunctions.

MR MARTIN:   Indeed, and what the High Court has said – and I cannot I am afraid presently bring the case to mind – is the general rule about being slow to grant leave in interlocutory applications does not apply with the same vigour where, by definition, the nature of the issue is such that it will only ever be resolved on an interlocutory basis and never on a substantive basis.  Again, that is the argument we will be putting again in three weeks’ time.

Now, your Honour, if I could just go very quickly finish my submissions by going to Mr Jordan’s affidavit.  He refers to anticipated reduction in the Commonwealth Bank debt, but, again, that has not happened, and that depends upon the refinancing of an asset called the Barcaldine – I cannot remember what it is – power plant, and a share offer.  He says in paragraph 10 that the company enjoys the support of a major shareholder but that shareholder does not depose.  He does not come on evidence and, of course, there is no undertaking from him to continue to support the company.  Then in paragraph 11 he puts the ‑ ‑ ‑

HIS HONOUR:   And no letters of comfort are exhibited?

MR MARTIN:   No, nothing of that sort.  In paragraph 11, he says:

The loss –

that I have taken your Honour to –

relates to results incorporating abnormal items. 

But that is not what the accounts say.  Then when you go to paragraph 12, which attempts to show that, he has included interest.  Interest is hardly an abnormal item.  It is also relevant, of course, that such accounts as we have seen show that losses were being incurred in previous years as well, 12 million last year, total accumulated losses almost 90 million.  So the “abnormal item” excuse, with respect, does not hold true.

If we go to paragraph 14 – I have already taken your Honour – it says that these are the profits “before abnormal items”.  Well, those figures are not consistent with their published accounts.  Then in paragraph 17 he refers to the share offer.  Now, the share offer is underwritten by the major shareholder but the terms of the underwriting are disclosed in the prospectus which ‑ ‑ ‑

HIS HONOUR:   The total raising is what, 11 million?

MR MARTIN:   Yes, 11 million.  Now, significantly, what Mr Jordan does not say is that after we have raised this money there will be cash left over. 

What he says is, “We’re doing this in order to meet our existing obligations”.  He does not say, “We’re going to spend 5 million of this on our existing debt and keep 6 million in the bank”.  He does not say that at all.  But even the raising is itself speculative because the conditions which attach the underwriting obligation – let me put it this way – admit of many opportunities for the underwriter not to complete.  Without taking your Honour through it, the conditions are at pages 105 and following.  The precondition of the underwriting obligation is no material adverse change since 1 July 2001 ‑ ‑ ‑

HIS HONOUR:   But, in any event, you say all of this is sufficient to show that there is a serious risk.

MR MARTIN:   A serious risk which when you are balancing – if your Honour gets to the point ‑ ‑ ‑

HIS HONOUR:   And you are never going to make it better than that because I am not going to make a finding of insolvency, either actual or potential or ‑ ‑ ‑

MR MARTIN:   That is as high as I put it and all I say is when your Honour is weighing the competing prejudices your Honour has three weeks, on one hand, in a context in which demand was first made under this guarantee in October of last year, as compared to what we say is the risk that if demand is made there is a real prospect the money will not be available in the event that we ‑ ‑ ‑

HIS HONOUR:   It is an irony, Mr Martin – I will have to give Mr McKenna the same amount of time – but you had trebled the special leave application ‑ ‑ ‑

MR MARTIN:   There is, your Honour.

HIS HONOUR:   Unless there is any – I think I understand your submissions on this.

MR MARTIN:   Your Honour, a nod is as good as a wink.  Can I just perhaps – yes, if there is anything arising from my learned friend’s submissions, I might try again.

HIS HONOUR:   Yes, of course.  Yes, Mr McKenna.

MR McKENNA:   Your Honour, we have tried to put as much as we can in our written submissions so that your Honour can see the principles to apply.

HIS HONOUR:   Let us deal with each of Mr Martin’s points.  The first one is, as I understand it, that you have to construe the contract and from your point of view for you to win you have to demonstrate that the language of 47.0 is capable of embracing, or indeed does embrace, a claim.  Is there authority each way on that proposition or is this language quite unique?

MR McKENNA:   Unique is really the way the primary judge looked at it.  If your Honour goes to the primary judge in this case he said, “I’ve been given all these cases on either side.  They all tell me their own words of their own contract”.  Now, he really put all of them to one side”.  His Honour put them all to one side and looked at this contract, and did not just look at the clauses your Honour went to but went through all the clauses of the contract to get a sense of whether bona fide disputes were enough to cause performance of some clauses or others.

HIS HONOUR:   Look, I would not in any way want to be critical of an approach which involves putting a clause in its context and I do not do that, but I do not immediately see what there would be outside 47.0 which would throw light upon it.  Can you tell me which clauses you think do throw light upon it and compel ‑ ‑ ‑

MR McKENNA:   There are about four pages of the judgment that deal with it.  I will try and summarise those I can remember.  Firstly, the terms of the undertaking which was exhibited to the contract which made it ‑ ‑ ‑

HIS HONOUR:   Where do I find that, Mr McKenna?

MR McKENNA:   Your Honour will find it, I think, in Mr Edel’s affidavit at – 84 is the number that I can see most prominently.  I think it is exhibit B, actually.

HIS HONOUR:   I think I have it.  Is it 116, “Banker’s undertaking”?

MR McKENNA:   I am sorry, is it 111, your Honour.

HIS HONOUR:   It is very short, two paragraphs.

MR McKENNA:   Yes, headed, “Den norske Bank” in the top right hand corner.

HIS HONOUR:   No.  I will try again.  What page did you think it was, Mr McKenna?

MR McKENNA:   Page 111 in the top right hand corner, your Honour, the printed 111, or stamped 111, with “B” at the top.  Could I hand your Honour my copy.

HIS HONOUR:   No, do not do that.  You will need it.  What I have is Appendix A to the contract which immediately follows ‑ ‑ ‑

MR McKENNA:   Yes.

HIS HONOUR:   Is that it?

MR McKENNA:   Yes, that is it.

HIS HONOUR:   All right.

MR McKENNA:   But, two pages further on you will see the original of the actual undertaking.  That also answers your Honour’s question about whether it is a Norwegian bank, because that is what it says it is.

HIS HONOUR:   Let me just read this quickly.  And his Honour was impressed, I suppose, by the unqualified language:

the Bank hereby undertakes that on demand made in writing ‑ ‑ ‑

MR McKENNA:   And without reference to the contractor.

HIS HONOUR:   Yes, all right.  I understand that.  That is one indication.  What other ‑ ‑ ‑

MR McKENNA:   Another indication, your Honour, I think – really his Honour’s judgment is probably the best place to go for this.  Paragraph 39.  Your Honour, I hope this will not take you out of order but it is certainly part of my submissions to take you carefully through this judgment.  May I just take you back a couple of paragraphs before we go to that.  May I take you to paragraph 28.  After his Honour set out the two competing contentions about what this clause means his Honour said at the beginning of paragraph 28:

While many aspects of the contract can be expected to be the subject of extensive dispute on the trial of this action and cannot be satisfactorily finally determined by me on this interlocutory application, I will proceed on the tentative basis that, relevantly, the apparent intention and effect of the contract is that a security ‑

and so on.  The importance of that is to understand that nobody before the primary judge thought that they were finally resolving anything.  They were simply seeking a tentative judgment or tentative approach on this question.  The same thing can be found in paragraph 30.  His Honour says he proceeds:

on the tentative view that GC47.00 –

which your Honour was taken to -

is intended to have the effect of defining exhaustively the defendant’s entitlement to have recourse to the security –

Then in paragraph 31 these cases that our learned friend has taken your Honour to are referred to.  One line - paragraph 32 – the competing line is referred to.  His Honour then says in paragraph 33, and this is important:

There have been attempts to resolve the difference of emphasis and approach revealed by these two lines of authority and before me in particular . . . Owen J in Bateman . . . Much attention was given in the course of submissions to comparing and contrasting the circumstances of this case with those considered by Owen J in the Bateman Project case.  I am grateful for the analysis . . . but it seems to me that the terms of the underlying contract in this case are so materially different from those being considered by Owen J that the decision itself is of no direct application.

Paragraph 34:

These and other cases serve to emphasise, however, the materiality of the precise terms of the underlying contract which inevitably differ, often significantly, from decision to decision, except where standard form contracts are being considered.  The present case involves anything but a standard form contract.

HIS HONOUR:   Mr McKenna, I am only putting an alternative argument, but would you not have expected 47.0(b) to say, if it were so intended, “amounts equal to all costs, charges, damages or claims for damages”?

MR McKENNA:   All subject of a bona fide claim.  That would make it clear.  His Honour found though in paragraph 36, which is the next one I am taking your Honour to, that it was ambiguous in his view whether subparagraph (b) meant an absolute claim or one that was simply bona fide made.

HIS HONOUR:   That may miss, with respect, the point.  The point may be whether it can extend to a claim, even a bona fide claim.  In other words, the choice may not be simply between a bona fide claim and a colourable claim, for example. 

MR McKENNA:   I see your Honour’s point. 

HIS HONOUR:   I am not expressing any concluded view. 

MR McKENNA:   And neither was his Honour, your Honour, and that is one of the most fundamental points that we make, that not even at first instance did this judge consider that he had all the arguments before him, and neither party suggested that he was finally determining anything, and on appeal, their Honours certainly did not consider that they were deciding anything about this, because ‑ ‑ ‑

HIS HONOUR:   I do not immediately see that there is a great deal of assistance to be gained either from the lines of cases – to the respective lines of cases until you first construe the contract.  I must say, at first sight, that this does not look like the sort of situation in which you are going to find much assistance outside clauses 7.0 and 47.0, and, perhaps, the form of the banker’s undertaking.  The rest of the contract does not seem to throw any light upon the meaning of those, does it, except that it is a construction contract, I suppose?

MR McKENNA:   To try and help your Honour, what his Honour did in paragraph 38 and, I think, through to paragraph 41, is trawl through the whole contract and see in what circumstances the contract crystallised debts, and in what circumstances bona fide claims had implications in the contract.  That analysis goes on for some paragraphs. 

HIS HONOUR:   Yes, I can see that. 

MR McKENNA:   We are back to 39 now:

These and other particular provisions provide some indication as to how some disputes or uncertainty –

was to be dealt with on a pro tem basis.  Then there is a reference to the Fletcher Constructions principle, the idea that it is a self-help remedy that this clause is there for. 

HIS HONOUR:   All right. 

MR McKENNA:   The conclusion his Honour comes to is in paragraph 42: 

Given the general nature of the contract, the unqualified terms of the Banker’s Undertaking, the terms of GC47.0, and the other matters noted, I would take the tentative view for the purposes of this application that the defendant is entitled to make a deduction in accordance with GC47.0 where it has a bona fide claim –

and his Honour reiterates that tentative view at the concluding paragraph of paragraph 43.  Your Honour will see a quote from Fletcher Constructions, and over the page ‑ ‑ ‑

HIS HONOUR:   Does the Full Court take a more concluded view of the matter? 

MR McKENNA:   They say it is not an issue.  The whole judgment of the Full Court proceeds from the basis that these passages are not an issue. 

HIS HONOUR:   That does, with respect, seem to be wrong, does it not? 

MR McKENNA:   I do not concede that, your Honour, because, certainly, my understanding of the transcript was that a concession was made in the transcript. 

HIS HONOUR:   Is that right? 

MR McKENNA:   I am sorry, because I have not – my learned friend’s submissions were not put in writing to me. 

HIS HONOUR:   It is very hard for you.  You were not there, so ‑ ‑ ‑

MR McKENNA:   Well, I am hearing the submissions for the first time, but the judgment says that it was not an issue and ‑ ‑ ‑

HIS HONOUR:   It is certainly an issue on the written submissions that Mr Martin read to me.  There could not be any argument about that. 

MR McKENNA:   But it would be extraordinary if a court would not be sure what was an issue and what was not an issue. 

HIS HONOUR:   Well, let me tell you, Mr McKenna, it would not be the first time we have struck that, I regret to say.  On a number of occasions, it has been demonstrated to us that matters that other courts have said were not an issue were, in fact, an issue.  Parties have not abandoned them.  I am afraid, it has occurred. 

MR McKENNA:   And I can understand the importance of that to this Court, if it were a final judgment, because then it would be a question of justice, I would respectfully submit, if, at the end of a whole trial, an issue between the parties had not been determined.  But this was ‑ ‑ ‑

HIS HONOUR:   You see, it would be an extraordinary concession to make, though, would it not?  Because it really strikes at the heart of Mr Martin’s case on the application.  Any concession of that kind is really giving away a lot, is it not? 

MR McKENNA:   Well, it is a forensic judgment one makes, I guess, your Honour.  Whenever one serves a notice of contention to contradict a judge’s findings, you give a forensic point away, because you are casting doubt on the judge’s judgment. 

HIS HONOUR:   But the written submissions almost – well, it is tantamount to a contention, really – put the other side on notice.  But you say there is a concession in the transcript? 

MR McKENNA:   I am sorry, I am instructed that there is.  I am reading now from page 47 of the transcript.  These are submissions made by counsel appearing for my learned friend’s ‑ ‑ ‑

HIS HONOUR:   Mr Martin did not appear, I do not think.  No. 

MR McKENNA:   Did not appear there, no, your Honour.  This is what appears at about point 7 on the page:  “Justice Parker in this matter did not deal with the argument regarding bona fides as an engineering argument but a question of law.  That is to say, Justice Parker looked to the provision of the contract from which one might see an implied or express limitation upon calling in the bank guarantee, and, relevantly, his Honour has looked to general condition 47.0, special condition 11.  So his Honour Justice Parker made no error of principle in the way he approached it, as we see it.  He concluded, however, and we say rightly, that by reading general condition 47.0 and looking at the bona fide claims – that is, the bona fide engineering claims – you would find, in respect of general condition 47.0 and of the four categories of claim, two were bona fide and could fit 47.0, and two were not.”

I should also point out that it may be that a stay would not suffice to achieve what the applicant seeks, and that it may be necessary for a mandatory injunction to be granted, requiring the respondent to withdraw its demand for payment or otherwise act so that a subsequent call which has been made upon the undertaking cannot be carried into effect. 

The respondent opposes the application on four bases.  It submits that I should apply the decision which was given on very similar facts by Justice Dawson in Olex Focas Pty Ltd v Skodaexport Co Ltd (1996) 70 ALJR 983, in which a stay was refused. The respondent’s second submission is that the applicant does not satisfy the onus of demonstrating substantial prospects that special leave to appeal will be granted. It points out that the proposed appeal is from an interlocutory judgment and that this Court is generally loath to grant special leave in such a case.

There is also some doubt – again, a doubt which I cannot completely and satisfactorily resolve – whether the main point which the applicant would wish to contest, if special leave were granted, had been the subject of a concession in the proceedings so far in the Western Australian court.  That concession is said to have been made in respect of the construction of the contract. 

The third matter upon which the respondent relies is that the applicant, it contends, does not satisfy the onus of demonstrating that the application for special leave will be rendered nugatory.  Fourthly, the respondent says that it is prejudiced in these senses, that if the stay be granted, in practical terms, it will be denied the benefit of the decision of the Full Court and the respondent will be exposed to the risk then that a foreign bank, which has already demonstrated its willingness to depart from the terms of the undertaking, will not honour a call on its undertaking at the time when the matter is tried. 

This last matter is not persuasive, because all that I have to consider is the desirability or otherwise, and the applicant’s entitlement to, a stay for a period of only three weeks.  Whatever I might say in relation to that matter can have no effect and, indeed, is very unlikely to have any influence upon the Full Court hearing the special leave application and, if it to be granted, any application for a stay following the grant.  The circumstances with which such a court would have to deal at that point would be entirely different from the circumstances applying now, which essentially are what should happen for a very brief period of three weeks only. 

What was said by Justice Dawson in Olex Focas has been adopted and applied by single Justices of this Court on other occasions.  It would, in my respectful opinion, be applicable in this case, subject only to one qualification which I will later discuss.  What his Honour said was that there is an onus on an applicant, circumstanced as this applicant is, to demonstrate exceptional circumstances to justify an application for positive injunctive relief. 

In Olex Focas the alleged special circumstances were to be found in the contention of the applicant, if at all, that unless the injunctive relief which they sought were granted, their right to seek special leave to appeal and to appeal, if special leave is granted, would be rendered nugatory.  His Honour said:

It is, of course, established by authority that special circumstances justifying a stay of orders made in a court below will exist where a stay is necessary to prevent an appeal, if successful, from being nugatory.

It need only be added that Olex Focas was concerned with bonds or like instruments to the banker’s undertaking, although they were not identical with it, that are before me in this case.  The qualification that I think requires me not to apply absolutely what his Honour said is that the period in this case is extremely short indeed, of three weeks only, during which it is accepted by the respondent there cannot be and will not be any prejudice to it.

The second basic submission of the respondent was that the applicant cannot satisfy the onus of demonstrating substantial prospects that special leave to appeal will be granted.  I would not read his Honour in Olex Focas as meaning that an applicant must show that his application for special leave will succeed in order to obtain a stay of the kind sought here.  From time to time there are differences on the Court as to the prospects of success on an application for special leave.  I would prefer for my own part to abstain from expressing a view about the prospects unless it is necessary to do so.

I do not think in this case that it is necessary for me to do so for the reasons that I have already mentioned:  the short period involved and absence of prejudice.  It does seem to me, however, that the applicant may well have an arguable case as to the proper construction of the contract, but whether that is sufficient at an interlocutory stage to attract a grant of special leave is a matter which will be for the Full Court that hears the application for special leave. 

Although it is true that the applicant does not satisfy the onus of demonstrating that the application for special leave will be rendered nugatory, he has raised a doubt which I am unable to resolve with respect to financial matters.  That would probably not be enough and the doubt not of such a significant kind as to justify the grant of relief if the period involved were more than three weeks.  However, having regard, as I think I have already made clear, to the very short time involved and the absence of prejudice during that period, I would indicate that I am prepared to grant a stay and mandatory relief fashioned in such a way as to preserve the existing status quo, that is to say, the retention of the undertaking in an undrawn form or an uncalled form until the application for special leave is disposed of by this Court.

I think the appropriate course would be for the parties to draft minutes of order which perhaps they could initial, and if I am satisfied with them, I will make orders accordingly.  I will probably want to revise those reasons, but they are the substantial reasons which lead me to the conclusion that I have reached.

MR McKENNA:   Your Honour, I have in mind that we would go back to Justice Scott’s original direction for the form of that mandatory order, if that is what your Honour has in mind.

HIS HONOUR:   Yes, whatever will leave the undertaking uncalled or unpaid.  That is what I have in mind.

MR McKENNA:   Your Honour, may I raise another procedural question?

HIS HONOUR:   Of course.

MR McKENNA:   Your Honour made directions for an exchange of outlines.  As I understand it, the Registry has asked our learned friends to deliver theirs by last Wednesday and asked us to deliver ours by next Wednesday.  That has not taken place, I suspect because our learned friend was surprised by that direction from the Registry, and I think that is a direction that we need to ‑ ‑ ‑

HIS HONOUR:   Yes, what do you think I should do about that?  You have a lot of indulgence, Mr Martin.

MR MARTIN:   I have, your Honour.

HIS HONOUR:   I am not inclined to give you very much more.

MR MARTIN:   I have been on the wrong side of the Nullarbor to be made aware of all of this.  I am not aware of it.

HIS HONOUR:   Yes.  Last time I saw you you were heading east, I think.

MR MARTIN:   Yes, that is right.  I am now a resident of this seaboard.  Your Honour, I do not know that work has sufficiently – I mean, obviously we want to get on with our submissions as quickly as possible but, by the same token, doing them hastily will not assist the Court.  If we could have until Tuesday of next week and I will look to see if there is any looks of consternation from those in Perth in that regard.  If we could have until Tuesday to put our submissions.

HIS HONOUR:   You are really overdue now, Mr Martin, is that not right?

MR MARTIN:   No.  My understanding was that your Honour ordered us last week to do everything within two weeks and so until my learned friend spoke I had been proceeding on the assumption that we had until next Wednesday.

HIS HONOUR:   I see.  The Registrar seems to have ‑ ‑ ‑

MR MARTIN:   The Registrar seems to have overridden your Honour.  Now, as I say, I had not heard of that until my learned friend raised ‑ ‑ ‑

HIS HONOUR:   No, I do not think I made an order for two weeks.  I thought I said ‑ ‑ ‑

MR MARTIN:   Your Honour said that everything had to be done for the papers to be in within two weeks.

HIS HONOUR:   Did I?

MR MARTIN:   Yes, and it was not ‑ ‑ ‑

HIS HONOUR:   Anyway, what is the best you can do, Mr Martin?

MR MARTIN:   The best we could do, your Honour, if we could have until close of business on Tuesday to have our outline in and then ‑ ‑ ‑

HIS HONOUR:   What is your position on that, Mr McKenna?

MR McKENNA:   That does not trouble me, your Honour, if we can have a couple of days after that.

HIS HONOUR:   So long as you do get it by Tuesday.

MR McKENNA:   Yes, and if we could have until, say, Thursday to do ours, another ‑ ‑ ‑

HIS HONOUR:   Why not the following Monday?  That would give you the weekend.

MR McKENNA:   As long as it does not inconvenience the Court, that would be appreciated.

HIS HONOUR:   No, that should be sufficient time.

MR McKENNA:   Thank you, your Honour.

HIS HONOUR:   Well, Mr Martin, I will make an order that the applicant’s outline with respect to the special leave application be filed by Tuesday, 4 o’clock Perth time, and that the respondent’s outline be filed by the following Monday, again I suppose Perth time 4 o’clock.

MR MARTIN:   Thank you, your Honour.

HIS HONOUR:   You probably will not be in Perth, Mr McKenna.

MR McKENNA:   I am sure we can work it out.

HIS HONOUR:   You will agree upon minutes of order.  I will be in Brisbane next week, so, if the solicitors can send me the initialled agreed draft minutes of order, I will make the orders accordingly.

MR McKENNA:   And I would imagine costs will be in the special leave application.

MR MARTIN:   Either that or reserved, as your Honour pleases.  I am happy to make them in the special leave application.

MR McKENNA:   Probably reserved, your Honour, is the ‑ ‑ ‑

HIS HONOUR:   I am just wondering whether there is any basis upon which Mr Martin would have them, whether they should be your costs in the cause.  I am not saying they should be.  I do not know.

MR McKENNA:   I am content for them to be reserved rather than delay your Honour any further.

HIS HONOUR:   All right.  I will reserve the costs.  Thank you both for your most helpful submissions.  Adjourn the Court.

AT 4.11 PM THE MATTER WAS CONCLUDED