Lanskey Constructions Pty Ltd v Westrac Pty Ltd - [2022] WASC 90

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   LANSKEY CONSTRUCTIONS PTY LTD -v- WESTRAC PTY LTD [2022] WASC 90
CORAM:   HILL J
HEARD:   28 FEBRUARY 2022
DELIVERED          :   2 MARCH 2022
PUBLISHED           :   14 MARCH 2022
FILE NO/S:   CIV 1160 of 2022
BETWEEN:   LANSKEY CONSTRUCTIONS PTY LTD
Plaintiff

AND

WESTRAC PTY LTD
Defendant

Catchwords:

Building and construction - Interlocutory injunction to restrain recourse to security - Whether party should be prevented from having recourse to security for claim for liquidated damages when other party contends there was an oral agreement that liquidated damages would not apply to contract - Insufficient prima facie case - Balance of convenience - Turns on own facts

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	T J Porter
Defendant	:	T J Palmer SC

Solicitors:

Plaintiff	:	Corrs Chambers Westgarth
Defendant	:	HWL Ebsworth

Cases referred to in decision:

Austal Ships Pty Ltd v National Australia Bank Ltd (Unreported, WASC, Library No 97003713, February 1997)
Australian Broadcasting Corp v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458
CPB Contractors Pty Ltd v JKC [No 3] [2017] WASCA 132
Duro Felguera v Samsung C&T Corporation [2016] WASC 119
FMT Aircraft Gate Support Systems v Sydney Ports Corporation [2010] NSWSC 1108
Hughes Bros Pty Ltd v Telede Pty Ltd (1989) 7 BCL 210
Ideas Plus Investments Ltd v National Australia Bank Ltd [2006] WASCA 215
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990
Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98
United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] AC 16
Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443

HILL J:

(This judgment was delivered extemporaneously and has been edited from the transcript.)

On 25 February 2022, the plaintiff, Lanskey Constructions Pty Ltd (Lanskey), commenced these proceedings by way of originating motion seeking urgent injunctive relief against Westrac in relation to three bank guarantees issued by the National Australia Bank Ltd totalling $168,993.04.
The plaintiff seeks an order that Westrac Pty Ltd (Westrac) and its officers, employees, agents or otherwise be restrained until further order from presenting for payment to National Australia Bank Ltd three bank guarantees being:
(a)Bank Guarantee 972173985 dated 17 July 2020 for $84,281.70 (for Separable Portion 2);
(b)Bank Guarantee 972104680 dated 17 July 2020 for $16,944.08 (for Separable Portion 3);
(c)Bank Guarantee 399677370 dated 17 July 2020 for $67,767.26 (retention for final completion).
In support of its application, the plaintiff relies on two affidavits: an affidavit of Steve Garces dated 24 February 2022 and an affidavit of its solicitor, Spencer Flay dated 27 February 2022, together with an outline of submissions.
Despite the originating motion suggesting the application was brought on an ex parte…

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: [2022] WASC 90
Decision Date

CaseChat Overview and Summary

Lanskey Constructions Pty Ltd brought proceedings against Westrac Pty Ltd in the Supreme Court of New South Wales, seeking an injunction to restrain Westrac from calling on bank guarantees provided by Lanskey. The dispute centred on the interpretation and application of clause 5.2(d) of the contract between the parties, which allowed Westrac to call on the bank guarantees in the event of a "bona fide claim" against Lanskey. The primary legal issue before the court was whether the phrase "bona fide claims" in clause 5.2(d) permitted Westrac to call on the bank guarantees without the need for a breach of contract or an actual debt owing by Lanskey.

The court engaged in a detailed analysis of the contract's language and purpose, emphasising that the clause was intended as a risk allocation measure rather than a means to provide security for a valid claim. The court considered the broader context of the contract, including the commercial purpose of the provision and what a reasonable businessperson would have understood from the term "bona fide claims." The court found that the clause was clear in its allocation of risk, stipulating that in the event of a bona fide claim by Westrac, Lanskey would be the party "out of pocket" pending final resolution of any dispute. The court held that the phrase "bona fide claims" was not limited to claims arising from a breach of contract or an actual debt; instead, it allowed Westrac to call on the bank guarantees in a broader range of circumstances.

The Supreme Court of New South Wales concluded that the contract permitted Westrac to call on the bank guarantees for bona fide claims without the necessity of a contract breach or an actual debt. The court found that the term "bona fide claims" in clause 5.2(d) was broad enough to encompass claims that did not necessarily stem from a breach of contract or a debt owing. The court dismissed Lanskey's application for an injunction, finding that the proper interpretation of the clause supported Westrac's right to call on the bank guarantees under the specified conditions.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

In considering the terms of the contract which set out the call on the bank guarantee, as was noted by Le Miere J in Duro Felguera v Samsung C&T Corporation,[21] there are two questions that arise. First, the court must ask whether the security is to provide security for a valid claim against the contractor or to allocate risk pending the final determination of the parties' rights. Second, the court must determine the condition on which the principal may convert the security into money.[21] Duro Felguera v Samsung C&T Corporation [2016] WASC 119. In proceedings which concern the issue of whether a principal is entitled to call on the bank guarantee, it is generally inappropriate to determinate the validity or quantification of the principal's claim. This should be determined at a later stage. If the clause is considered to be a risk allocation measure, this alters the context in which the court must consider any application for an injunction. In considering the status quo, the court must take account of the agreement between the parties as to who should bear the financial risk of any dispute pending final determination.[22][22] Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 [31] (Osborn & Ferguson JJA). In this case, in determining whether the plaintiff is entitled to the interim relief it seeks, the court is required to construe cl 5.2(d) of the Contract and in particular the meaning of the phrase 'bona fide claims'. There is nothing in the circumstances of this case that would mean it is inappropriate for the court to determine the proper construction of this clause on a final basis. This requires the court to consider what a reasonable businessperson would have understood the phrase to mean, having regard to the text, context and commercial purpose of the provision.[23][23] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 [47] (French CJ, Nettle & Gordon JJ). The plaintiff did not dispute, quite properly in my view, that cl 5.2(d) was a risk allocation measure. That is, cl 5.2(d) allocates the risk between the parties pending final resolution of any dispute between them. I accept that it is clear from the wording of cl 5.2(d) that the parties agreed that where Westrac has a bona fide claim against Lanskey, it is Lanskey and not Westrac who is 'out of pocket' pending final resolution of any dispute between them. Turning then to the circumstances in which Westrac can convert the bank guarantees, the Contract provides that Westrac may have recourse to the bank guarantees in four different scenarios. These include where Lanskey has breached a material term of the contract, where there is a debt owing by Lanskey, and relevantly for these proceedings to meet any 'bona fide claims' it may have against Lanskey. The structure of the clause makes plain that there does not need to be a breach of the contract or for a debt to be due and owing in order for a call on the bank guarantees to be made.