PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd & Anor
[2007] VSC 74
•22 March 2007
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 9700 of 2005
| PRA ELECTRICAL PTY LTD ACN 062 906 487 ('PRA") | Appellant |
| v | |
| PERSEVERANCE EXPLORATION PTY LTD ACN 010 604 878 ("PERSEVERANCE") and | First Respondent |
MR RICHARD MANLY SC Second Respondent
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JUDGE: | SMITH, J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 March 2007 | |
DATE OF JUDGMENT: | 22 March 2007 | |
CASE MAY BE CITED AS: | PRA Electrical P/L v Perseverance Exploration P/L | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 74 | |
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Practice and procedure – building contract – bank guarantee – interlocutory injunction sought to restrain recourse to bank guarantee pending outcome of appeal – injunction granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr B Jenner | Russell Kennedy |
For the First Respondent | Mr J Digby, QC and | Clayton Utz |
For the Second Respondent | No appearance |
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HIS HONOUR:
By summons dated 15 February 2007, the appellant, PRA Electrical Pty Ltd, seeks an injunction restraining the first respondent, Perseverance Exploration Pty Ltd, from having any recourse to ANZ Bank Guarantees Nos 68115 and 68118 until further order. The bank guarantees were provided by the appellant to the first respondent on 10 August 2006 in respect of an agreement between them for what is described as “Performance Contract Fosterville Gold-Contract FCC 306”. Each guarantee was for an aggregate amount not exceeding $164,672.
The context in which the injunction is sought is that, by originating motion filed on 2 December 2005, the appellant brought proceedings, against the first respondent and the second respondent,[1] seeking among other things, a declaration that at no time did the appellant and the first respondent enter into a contract in respect of the “Fosterville Gold Project-FCC 306 – Electrical and Instrumentation Installation” and a declaration that there was no arbitration agreement between the parties. By summons dated 22 December 2005, the first respondent sought a stay of the originating motion proceedings pursuant to s.53 of the Commercial Arbitration Act 1995. In an attempt to resolve these issues, a direction was given by Habersberger, J on 3 February 2006 that the proceedings of the appellant seeking the two declarations and the summons of the first respondent be fixed for hearing before him on 24 March 2006. The matter came on for hearing before his Honour on 29 March 2006.
[1]The arbitrator in the arbitration between the appellant and the first respondent.
On 15 November 2006, his Honour handed down his reasons for decision. In those reasons his Honour stated that it was common ground that the only issue for determination was whether there was a contract between the parties which, inter alia, incorporated AS4000-1997 general conditions of contract. It was common ground that if the question was answered in the negative, the declaration sought by the appellant should be made unless an estoppel was established. If the answer was in the affirmative, then the appellant accepted that its proceeding should be stayed because there was a binding arbitration agreement.
His Honour came to the conclusion that the issue identified should be determined in favour of the first respondent. His Honour held that a contract was entered into between the parties on 17 August 2004 and this contract incorporated general conditions AS4000-1997 subject to the modifications set out in the special Conditions. In particular, his Honour held that the contract entered into was subject to suspensory provisions contained in Special Condition 4 but that those conditions were waived by the appellant’s conduct in commencing to perform the contract. On that basis his Honour refused to make the declarations sought by the appellant.
On 21 December 2006 the appellant filed its notice of appeal in this matter. On 1 February 2007, the first respondent called up the bank guarantees. This prompted the present summons by the appellant seeking the above injunctions to restrain the first respondent from recourse to the bank guarantees until further order. That summons was made returnable before the Court of Appeal but was referred by the Court of Appeal to the Practice Court.
The case has proceeded before me on the basis that it is common ground that:
·If the decision of Habersberger, J is upheld, the bank guarantees are enforceable.
·If the appeal is successful, the bank guarantees will not be enforceable.
The injunctions sought relate to part of the benefit of a successful appeal but part only. Whether the injunctions are granted or not, if the appeal is successful, the appellant will have the advantage of conducting its dispute with the first respondent free of a certificate issued under the contract by the superintendent and will be able to sue on a quantum merit basis. Nonetheless, the fate of the appeal is of immediate consequence to both parties because the outcome will determine whether the first respondent is entitled to have recourse to the bank guarantees.
The first issue on which to form a judgment is whether there is a serious issue to be tried. In the present case we have the unusual situation that the issue to be determined, essentially an issue as to the construction of the contract, has already been the subject of a considered judgment by a judge of this Court. Habersberger, J has ruled against the position sought to be maintained on the appeal by the appellant. Assessing the strength of the appellant’s position on that issue places a trial judge in a difficult position. The trial judge is effectively being asked to assess the prospects of success. This is not a satisfactory situation. Nonetheless I must consider that question.
What will be in issue is the construction and characterisation of Special Condition 4 which was, so far as relevant, in the following terms:
“The Contract shall not come into effect until the formal instrument of agreement (Conformed Contract Document) is executed by the parties.
The Principal will prepare the Conformed Contract Document to include all amendments to the Tender Document resulting from the issue of Addenda (if any), any amendments made and agreed between the Principal and the Tenderer prior to award of Contract as well as, where agreed, submissions made by the Tenderer. Pre-award correspondence, minutes of meetings and the Tender shall not be physically included in the Conformed Contract Document. The Information to Tenderers and the Conditions of Tendering will not form, part of the Conformed Contract Document.”
This provision replaced a deleted General Condition[2] to the effect that until a formal instrument of agreement was executed by the parties, the “documents evidencing the parties’ consensus shall constitute the contract” and went on to lay down a timetable for the preparation of a formal instrument of agreement if required.
[2]General Condition 6.
His Honour took the view that on its proper construction, the critical sentence which referred to the contract not coming into effect, should be categorised as suspensory in the sense that while it imposed an obligation on the first respondent to prepare a formal instrument of contract, if the first respondent failed to do so, the appellant could seek relief for breach of contract. Further, as long as the first respondent remained in breach and the contract remained on foot, the appellant could rely on the provision to resist any allegation of breach for not commencing to perform its obligations under the contract. Accepting that analysis, his Honour went on to rule that on the facts of the case there had been a waiver by the appellant of its rights in respect of that suspensory provision. Accordingly, the proper legal analysis of the situation was that there was a contract entered into between the parties on 17 August 2004 and it incorporated the General Conditions subject to modifications in the Special Conditions. So far as Special Condition 4 was concerned, it was waived by the appellant’s conduct in commencing to perform the contract.
Strong support for his Honour’s conclusion may be found not only from the persuasive analysis in the reasons, but also in the practical consequence that his Honour’s analysis provides a legal framework within which the actions of the parties comfortably fit. In all the circumstances, the view should be taken that the prospects of success of the appellant are not strong.
Experience reminds us, however, that judicial views can differ when it comes to the construction of terms of agreements and the analysis of their consequences. It would, therefore, be foolish to take the position that the appellant had no prospects of success on this issue. Accordingly, it seems to me that in dealing with an interlocutory injunction application in this situation, I should proceed on the basis that there is an arguable issue to be litigated on the appeal but that the appellant’s case is not as strong as that of the first respondent. The situation is one, therefore, where the appellant must demonstrate that the discretionary considerations are strongly in its favour.
Turning to those issues, if an injunction is granted, the prejudice to the first respondent is that it is denied immediate access to an amount of $329,344. But if it succeeds on the appeal it is guaranteed that it will receive that amount. Therefore, the effect of the injunction is to delay, not deny, its access to that amount of money. Counsel for the first respondent put arguments about the period the total alleged debt had been unpaid and pointed to the fact that the appeal will delay the arbitration probably until early 2008. The issue, however, is the impact of the proposed injunction.
In relation to the appellant it seems to me that there are significant prejudices and risks to which it and related companies would be exposed if the injunctions were not granted. I accept the evidence that even though the amount involved may not seem that large, nonetheless the loss of it will create significant financial pressures for the appellant and related companies. I accept the evidence that the funds securing the bank guarantees are funds accessible by the appellant and the other companies and so will affect their capacity to draw on funding available from the ANZ Bank. I also accept that this will adversely affect the capacity to tender for and negotiate for contracts, several of which are in the process of negotiation. Two projects mentioned will involve bank guarantees of over $600,000. I also accept the proposition that if loss is suffered, for example, through failure to obtain tenders, the assessment of damages will be a difficult and unsatisfactory process. Another issue raised is the risk of damage to the goodwill of the business and the reputation of the appellant and its related companies. Counsel for the first respondent submitted that this is highly speculative. It is speculative but it can be properly said, in my view, that recourse to the bank guarantees by the first respondent carries with it a real risk of damage to the reputation of the appellant and its related companies.[3]
[3]cf Barclay Mowlem Construction Limited v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451.
Another important matter to consider is the question of whether, if an injunction is not granted and the appellant succeeds in its appeal, it is likely to have any difficulty in recovering from the first respondent the sums of money received by it under the bank guarantees. In my view this is also a real concern.
From the affidavit material filed for the first respondent, it appears that the first respondent is a “corporate vehicle through which the Perseverance Consolidated Group owns and operates the Fosterville Gold Mine”.[4] By June 2005 the mine’s processing plant was completed and by June 2006 there had been approximately one year’s production of gold at the plant. The first respondent sells all gold produced through the project. Mr Bouwmeester, company secretary and chief financial officer of the first respondent, states that if additional funds are required from time to time for operating costs and capital expenditure exceeding cash proceeds, such funds are provided by the parent company, a publicly listed company, Perseverance Corporation Limited in the form of inter-company loans. Thus it is the parent company that will decide whether the first respondent will be put in funds by loans if that be needed.
[4]Affidavit of Martin William Bouwmeester.
Mr Bouwmeester also stated that if the first respondent was required to repay any amount obtained through recourse to the Bank Guarantee, it would be refunded together with interest as part of its “general operating cash flow”. That concept is not defined but earlier in his affidavit he had stated that “operating cost cash flow requirements” had averaged approximately $5m. per month this financial year. He also stated that he anticipated gross sales per month for the first six months of this year would be in excess of $35m. Mr Sloane, the managing director and CEO of the first respondent, has deposed to annual average “sale proceeds” of between $70m to $80m per annum “depending on hedging levels and spot prices from time to tome”. If these figures are accepted, and are viewed as the only relevant figures, there would appear to be a likely source of funds, if needed, to repay funds obtained through the guarantees. But they are not the only figures that are relevant and the facts on which they are based are not disclosed. The reference to hedging levels and spot prices is also a reminder that the economic fortunes of gold mining enterprises can change quickly and significantly.
The first respondent, has share capital of $2. According to Mr Bouwmeester the asset value of the mine and plant and equipment owned by the first respondent exceeds $100m. Its liabilities, however, are not stated.
The affidavits filed on behalf of the first respondent contain a variety of information about the group as a whole and the parent company. But the first respondent has not provided a profit and loss account or balance sheet addressing its own financial situation. In particular no adequate information has been provided about the following.
· The precise financial details of the first respondent or the other companies in the group,[5] other than the parent company.
[5]Perseverance Corporation Limited, Perseverance Mining Pty Ltd, Perseverance Exploration Pty Ltd and Perseverance of North America Inc.
· The financial and security arrangements between the first respondent and the parent company and other companies in the group. As pointed out by counsel for the appellant, as at 30 June 2006, the group’s annual report recorded that the first respondent and another subsidiary, Perseverance Mining Pty Ltd, owed $133.8m to the parent company and it had made provision for non-recovery of $101.1m. I note also that an exhibit of the appellant, the 2006 annual report of the parent company, mentions that the “Consolidated Entity” has given to the Department of Primary Industry and VENCorp performance guarantees totalling $3,614,000 and $304,000 respectively which are secured by fixed and floating charges over the assets of the first respondent and guaranteed by the parent company.
·What securities may have been given by the first respondent in respect of funding received by the parent company or other companies in the group.
Instead the deponents of the first respondent have given selective information and opinions. The paucity of the information makes it impossible to assess the viability of the suggested means of payment and raises concerns about the accuracy of the information given and opinions expressed.
It seems to me significant that the first respondent has not given any detailed information about its own financial position while going to some trouble to provide more detailed information about the group and the parent company. It should have internal records which would enable complete information to be given about the first respondent.
It is also relevant that on 2 February 2007, the solicitors for the appellant in an open letter offered to further extend the bank guarantees. It also sought confirmation that, if the first respondent had recourse to the bank guarantees, it would reserve and maintain unencumbered assets to a value of $400,000. The appellant also offered an alternative of depositing $320,000 into a joint interest bearing account. On 5 February 2007, the solicitors for the first respondent rejected the proposals. A possible explanation is that the rejection, of what were reasonable proposals from the appellant, reflected a tactical decision to try to put pressure upon the appellant to abandon its appeal by having recourse to the guarantees. If that was the strategy, however, one would have expected the first respondent, if it could, to improve its prospects by demonstrating that it was and would be in a financial position to meet any obligation to refund the guarantee moneys. Alternatively, it could have achieved its objective by accepting the second or third proposals. In those situations the appellant would have been denied the use of the money - but significantly, so would the first respondent. The explanation offered by its counsel for rejecting the proposals is that it had entered into the agreement on the basis that the bank guarantees would be available and they were freely given. But that explanation merely begs the question and is unconvincing. I note also that it claims to be owed some millions of dollars by the appellant for the completion of the contract works. A strong inference is open that it is seeking unconditional access to the bank guarantees because it needs the money. This conclusion is supported by the failure to provide relevant financial information.
In all the circumstances I am persuaded that, if the injunction is not given, there is a substantial risk that any award of any damages in favour of the appellant will not be recoverable from the first respondent or will be very difficult to recover.
For the foregoing reasons, I have come to the conclusion that the balance of convenience strongly favours the granting of the injunction sought. Accordingly I propose to make an appropriate injunction to restrain the first respondent from seeking recourse to the bank guarantees. As to the period of such an injunction it should, in my view, be tied to the appeal that is in progress and so should run for the period of the hearing and determination of that appeal or until further orders.
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