Rur Investments Pty Ltd v Independent Practitioner Network Ltd - [2011] SADC 61

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
RUR INVESTMENTS PTY LTD v INDEPENDENT PRACTITIONER NETWORK LTD
[2011] SADC 61
Judgment of His Honour Judge Tilmouth
29 April 2011
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - JURISDICTION AND GENERALLY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED - GENERALLY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - BALANCE OF CONVENIENCE
Application for interlocutory injunction to prevent execution of a medical centre acquisition agreement following a dispute between the parties as to the achievement of agreed revenue targets and the mechanisms for enforcement thereof.
Held:
1. There is a serious question to be tried.
2. The balance of convenience lies in favour of the respondent.
3. Damages would furnish an adequate remedy.
Injunction therefore refused.
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; Jakudo Pty Ltd v South Australian Telecasters Ltd (1997) 69 SASR 440; Sanderson Motors v Yorke Star Motors [1983] 1 NSW LR 513; Bills of Exchange Act 1909 (Cth) s 8(1); Meat & Allied Trades Federation v Australian Meat Industry Employees Union [1990] 1 Qd R 441; Nexus Mortgage Securities Pty Ltd v Ecto Pty Ltd [1998] 4 VR 220; Cheshire and Fifoot's Law of Contract 8th Australian Edition 2002; Bills of Exchange Act 1909 (Cth) s 8(1); Meat & Allied Trades Federation v Australian Meat Industry Employees Union [1990] 1 Qd R 441; Nexus Mortgage Securities Pty Ltd v Ecto Pty Ltd [1998] 4 VR 220; Liangis Investments Pty Ltd v Ipex ITG Pty Ltd [2005] ACTCA 2, referred to.
State Transport Authority v Apex Quarries Ltd [1988] 4 VR 187; Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283; Australian Broadcasting Corp v Lenah Game Meats Ltd (2001) 208 CLR 199, applied.
Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812, distinguished.
Codelfa Constructions Pty Ltd v The State Rail Authority (NSW) (1992) 149 CLR 337; Perre v Apand Pty Ltd (1999) 198 CLR 180, discussed.

RUR INVESTMENTS PTY LTD v INDEPENDENT PRACTITIONER NETWORK LTD
[2011] SADC 61
The proceedings

The parties to this interlocutory application for injunctive relief, entered into an agreement for the purchase and sale of a medical centre at Happy Valley. The applicant as vendor, warranted that the business would achieve certain stated levels of revenue over the following three years. This warranty was supported by way of successive bank guarantees. When the income stream for the second year fell below the targeted level, the respondent as purchaser of the business, purported to call in the relevant guarantee. The applicant seeks an interlocutory injunction preventing it from presenting that guarantee for payment. It is this precise issue which forms the subject-matter of this judgment.
The acquisition agreement
The subject agreement entitled “Fountain Valley Medical Centre Acquisition Agreement” was dated 3 November 2008.[1] Settlement occurred on 8 December 2008. It concerned an established medical practice at Happy Valley. The sale price was $2.1 million on a “walk in, walk out” basis, as Mr Winter counsel for the applicant expressed it.
[1] Exhibit “NWW4”
The revenue warranties provided proceeds from the operating business should yield what was defined as “base-line revenue”. Translated into dollar terms, these were $3.9m for the first, $4.017m for the second and $4.137.9m for the third years. The first two bank guarantees were for $250,000, and the third was $200,000 (clause 6.4), all drawn on the Commonwealth Bank of Australia, Silverwater branch New South Wales. These guarantees were in turn supported by cash deposits of $700,000. The twin advantage of such deposits was to provide security in the event of insolvency and to enable prompt payment if required.
In the event that at the end of any one of those three years, the base line revenue target was not achieved, the purchaser became entitled to “claw-back” a proportion of the purchase price to the extent of 60 per cent of the short fall. And it thereby became entitled to call upon the guarantee for that year, up to the maximum amount of the guarantee itself (clause 6.4). If on the other hand, revenue exceeded more than the specified target, the applicant was entitled to 10 per cent of the over-run, pursuant to what was described as a “revenue incentive scheme”.
The revenue exceeded the prescribed target by a small amount over the first year of implementation. No bonus was paid for technical reasons, which the parties agreed were not relevant here. However, for reasons remaining unexplained, the bank then released the whole of the cash deposit to the applicant.
Things stood differently when it came to the second year ending on 8 December 2010. Revenue of $3.6m was achieved, falling considerably short of the projected $4.017m. The parties accepted this translated in dollar terms, to an entitlement in the respondent to claw-back to the extent of $204,988.03. A demand to that effect was made by the respondent of the Commonwealth Bank on 18 March 2011. A bank cheque was in fact drawn by the Commonwealth Bank in that sum in favour of the respondent. It is presently retained by the bank on the basis of mutual party undertakings, pending resolution of this interlocutory dispute.
The subject business acquisition agreement contained various recitations concerning the nature of the medical practice, including some 14 named “Associate Doctors” and three named “Employee Doctors”. A condition precedent to the agreement coming into “force or effect”, was the due execution by both groups of “Doctor service agreements” as defined therein and the assignment thereof from the vendor to purchaser (Clauses 2.1(b) and (c)). These Doctor service agreements were in a form approved by the respondent and related to the terms of their association with the medical centre. For instance, they specified the percentage service fee each Doctor would receive, for how long their contracts endured, and the hours per week and weeks per year they were contracted to perform. Not all the named Doctors were signed up, however further compliance with this aspect of the conditions precedent was waived by mutual agreement,[2] so nothing turns on that.
[2] Transcript 3 March 2011, p 13.5-.12
These Doctor service agreements were summarised in schedule 8 to the agreement. There is no direct incorporation of schedule 8 in the body of the substantive agreement itself, other than to the extent of references to schedule 8 in the definitions of “Associate Doctor”, “Associate Doctor service agreements”, and “Doctor service agreements”. Once tallied, the total contracted hours of personal service committed by all Doctors amounted to 25,000 hours per year. Over the first year when financial targets were achieved, 19,600 Doctor hours were performed. In the second, when they were not, 18,500 Doctor hours were served.
The proceedings
In the underlying proceedings issued in this matter, the applicant is plaintiff and the respondent defendant. The applicant pleads breach of contract and concurrent breach of a duty of care. The gist of the action in breach of contract lies in the failure to achieve the total of 25,000 hours in each of the three years concerned. Over the third year the situation was further compounded by an allegation that only 11 rather than 14 Doctors worked at the centre. There is an adjunct claim in contract to the extent that the applicant purports to incorporate implied terms. As pleaded these are that the respondent:[3]
·was required to take reasonable steps to ensure the number of hours specified in the contracts were performed
·would enforce the service agreements
·would employ others to make up the numbers should the Doctors fail to fulfil their obligations.
[3] Second Statement of Claim, 23 March 2011, para 16
An alternative claim in negligence relies very much on the same factual allegations, translated into duty terms. It is maintained that since the applicant “was in no position to protect its own interests”, a duty of care arose to take reasonable steps to avoid foreseeable risk of economic loss to the applicant.[4] A defence is yet to be filed.
[4] Second Statement of Claim, 23 March 2011, paras 24 & 25
The application for injunctive relief
There is no dispute between the parties as to the principles involved, however their application to the facts of the case is at each step, very much in issue. The precise relief claimed is:
An interlocutory injunction preventing the Defendant from presenting for payment the Second Bank Guarantee as defined in the Business Acquisition Agreement (“BAA”) between, inter alia, the Plaintiff and the Defendant dated 3 November 2008.
The applicant must demonstrate the existence of a prima facie case, in the sense that there is a probability that at the trial of the underlying action, it will be entitled to relief, secondly it must demonstrate the inconvenience or injury it would in all likelihood suffer if an injunction were refused, is not outweighed by the injury the defendant would suffer if an injunction was granted: Australian Broadcasting Corporation v O’Neill.[5] The requisite probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought: Australian Broadcasting Corporation v O’Neill.[6] Once those steps are considered there is further requirement to consider whether or not damages provide an adequate remedy, the onus lying on an applicant to satisfy the court that they are not: Jakudo Pty Ltd v South Australian Telecasters Ltd.[7]
[5] (2006) 227 CLR 57 at [65]
[6] Above at [71]
[7] (1997) 69 SASR 440 at 442-443
The applicant’s case depends very much on reading the business acquisition agreement incorporating as essential contractual terms, the maintenance of a medical practice comprising not less than 14 Doctors, working a total of not less than 25,000 hours per year. This stance requires the entire contract to be read as a whole, in the context of pre-contractual negotiations. The respondent contends that none of these expectations crystallised into distinct contractual terms. It relies in particular on the performance agreements, as these entitle the Doctors to resign on giving three months notice. The respondent also denies that it is appropriate to imply terms, in accordance with accepted principles. It contends such implied terms conflict with the contract itself, especially as it is exhaustive of contractual relations, and is expressed to be an “entire agreement” (clause 24.9). Furthermore the respondent strenuously argues that damages adequately protect the applicant’s interests.
Prima facie case
The contract itself does not contain express warranties as such, to engage no less than a minimum number of Doctors, or the number of Doctor hours per week, or weeks per year, that should be performed. Taken in context however, the construction contended for by the applicant is a reasonably arguable position to take. This view is reinforced by the core obligation to maintain base line revenues, which could hardly be sustained if the number of Doctors or the number of hours they worked, fell to any significant extent. Since the core obligations on any view focus on the achievement and maintenance of base line revenues, it is clearly arguable that the respondent fell under a contractual duty to do such things as were necessary to sustain and achieve those obligations. The attainment of a sufficient number of service Doctors, and the performance of a sufficient number of service hours, are the two most obvious means of achieving those core ends.
The cause of action centred upon implied contractual terms is not nearly so straight forward. The amended statement of claim pleads the above terms, ought to be implied so as to give business efficacy to the acquisition agreement, relying on the well-known statement of principle expressed by Mason J in Codelfa Constructions Pty Ltd v The State Rail Authority (NSW).[8]
[8] (1992) 149 CLR 337 at 346
The pre-contractual correspondence between the parties clearly demonstrates the prospect of shortfalls of this kind was one contemplated by the parties. The capacity of Doctors to contract out on three months notice, was expressly discussed. The manner of dealing with such issues ultimately crystallised into the actual terms of the contract itself. The mechanism chosen by mutual agreement was the revenue incentive scheme when revenue targets were exceeded, and claw-back of the purchase price, when they were not. Enforcement of the scheme was backed up at two levels, by the revenue warranty deposit and the bank guarantees. As presently advised it is difficult to see how implied terms of the kind pleaded could arise in the context of such detailed provisions on those very matters. Doubts as to the implication of terms in this context, are magnified when one considers that it is practically impossible to obtain an order compelling an unwilling party to perform a contract for personal service: see the cases referred to in Cheshire and Fifoot’s Law of Contract.[9]It would be a peculiar result to imply terms on account of business efficacy in the face of mutual understandings to the opposite effect: Liangis Investments Pty Ltd v Ipex ITG Pty Ltd.[10]
[9] (8^th Australian Edition) 2002 at para 24.12
[10] [2005] ACTCA 2 at [40]
Given the conclusion that the court has already reached in relation to the primary claim, it is unnecessary to express any final view in relation to this particular aspect of the matter, except to observe that the point taken alone, struggles to contain the degree of probability necessary for an entitlement to relief under the rubric of implied contractual terms.
This leads to the final cause of action, that framed in negligence, said to be founded on the decision of the High Court in Perre v Apand Pty Ltd.[11] In that case the High Court determined by a majority that the combination of matters upon which a duty of care in negligence depended, were foresight of the likelihood of harm, the knowledge or means of knowledge of an ascertainable class of vulnerable persons unable to protect themselves from harm, that implying a duty of care would not impair the legitimate pursuit of commercial interests and that damage in fact flows from occurrences within the negligent party’s control. The difficulty in this instance is that it is by no means clear the applicant was unable to protect itself from harm, because this is the very contingency they purported to cater for, by way of an highly prescriptive and exhaustive agreement.
[11] (1999) 198 CLR 180
Once again because of the conclusion already reached, it is perhaps undesirable to express a final view on this aspect of the matter either, except to simply rest on the observation that an action in negligence would appear to have problems, judged on the basis of the limited material presently before the court.
Is the security available before liability determination?
This is not however the end of the inquiry, in light of the argument of Mr Roberts for the defendant. He contended the applicant must identify a genuine dispute concerning its entitlement to relief from the obligation to honour the security bond by way of the bank cheque. Expressed in another way, the submission was that an interlocutory injunction can only be granted to protect a right, when the court could protect that right by way of final judgment. The proposition crystallises in the following passage taken from Australian Broadcasting Corp v Lenah Game Meats Ltd:[12]
The basic proposition remains that where interlocutory injunctive relief is sought in a Judicature system court, it is necessary to identify the legal (which may be statutory) or equitable rights which are to be determined at trial and in respect of which there is sought final relief which may or may not be injunctive in nature.
[12] (2001) 208 CLR 199, per Gummow and Hayne JJ at [91] (footnote omitted)
For this purpose, Mr Roberts relied heavily on the decision in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd.[13] That case concerned a building contract, providing for penalties by way of “time damages”, if and when the builder failed to complete by a certain date. Having so failed, the building owner gave notice demanding the prescribed payment and its intention to draw on standby letters of credit provided as security for the payment of time damage under the contract. The builder sought an injunction restraining the owner from drawing on the letters of credit, ultimately refused by a single judge and by the Court of Appeal.
[13] [1998] 3 VR 812
Four Judges in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd considered the specific terms of the contract properly construed, demonstrated a commercial purpose of providing for standby letters of credit, as a mutually agreed means of allocating the risk of a party being out of pocket, pending resolution of disputes over the building work. Accordingly it was held the owner was entitled to call on the securities, even though a genuine dispute remained outstanding as to the entitlement of the owner to time damages in the first place. The court was drawn to this conclusion because otherwise it “would deprive the right of deduction or set-off of much of its intended purpose if the right only existed where Time Damages were undisputed”.[14]
[14] Fletcher Construction Pty Ltd v Varnsdorf above at 822.30-33
Counsel in the present case made extensive submissions pointing to the close similarities between the respective provisions of the subject agreement and the building contract in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd, a comparison which in general terms may be accepted. The critical question here, as it was in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd, is whether the relevant mutually understood commercial purpose was to provide immediate security in the event of calling the claw-back provisions into operation on account of the failure to meet revenue targets, whilst the basis for so doing remains in dispute: Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd.[15]
[15] Above at 821 L35-49
Clause 6.1 (a)(i) of the subject agreement required the applicant to deliver the specified bank guarantees issued by a bank approved by the respondent, which was done. Once a retention warranty notice is given under clause 6.2 and the calculation of the due amount made in accordance with clause 6.3, clause 6.4, then entitled the respondent to call on the relevant guarantee. If the calculation under clause 6.4(a) once completed was less than the warranted sum, the respondent was then required to “do all things as are necessary to allow the … Bank Guarantee to be released”. Both contracts contained provisions for dispute resolution by way of arbitration (clauses 6.6(b) in this instance, clause 12.1(a) in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd).
Despite the close factual parallels, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd is distinguishable for the following reasons. The respondent was always fully secured by reason of the bank guarantees and the cash deposits supporting them. Unlike Time Damages which are always critical to building disputes, the revenue targets in this case were prospective. They were no doubt intended to support representations as to the value of the business as of the settlement date. The scheme was one of pro-rata adjustment on that account, effectively up or down.

A further distinguishing feature of the subject scheme is that the time for adjustments is not pivotal, as the time for completion was in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd. The time constraints provided for are not suggestive of immediate recourse – 90 days at the conclusion of the requisite year for the respondent to make its calculations (clause 5.1), and 30 days thereafter for payment (clauses 5.2(d) and 6.2(a)). This regime and the extended time line before the obligation to make the requisite payment crystallises, confirm that view. Even then in the advent of a notice of disagreement a further 10 days is permitted to the parties to facilitate resolution.
In contrast, time was clearly of the essence in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd. This is evident particularly in clause 3.13(a) which created an immediate and continuing burden of Time Damage at the moment of handover and “for every operating day” thereafter, such payments(s) to be made within 10 days of demand (clause 3.13(b)).[16] Thus there was no extended timetable as there is here – the obligation upon alleged default was instant.
[16] [1998] 3 VR at 815 L 5-14
This preliminary analysis is reinforced when one considers the position erected under clause 6.6 of the acquisition agreement which provides for the contingency of the vendor (applicant) disagreeing with retention warranty calculation. This provides:
6.6     If the Vendor does not agree
(a)     If the Vendor does not agree with any calculation contained in a Retention Warranty Notice, it must notify the Purchaser of such disagreement and the calculation that is in dispute within 30 days (the Review Period) of receiving the Retention Warranty Notice and must provide full details of its reasons and calculations for such disputes. Then, within 10 business days of the Purchaser receiving such notice, the parties will use their best endeavours to resolve the dispute and agree on the Purchaser's entitlement to call on the First Bank Guarantee, the Second Bank Guarantee or the Third Bank Guarantee (as the case may be).
(b)     If the parties cannot agree on the determinations included in the Retention Warranty Notice, the parties will promptly refer the dispute to the Expert for a final determination. The Expert will act as expert not as arbitrator.
By the time a notice of disagreement is given, upwards of 120 days or approximately four months might have elapsed. The scheme hardly contemplates immediate unconditional redress. Moreover the extended process contemplated by clause 6.6 presupposes the relevant bank guarantee will not be called upon in the meantime. The subject contractual arrangements properly understood, are therefore not such as to lead to the conclusion that enforcement of the retention warranty mechanism creates pure unconditional rights ahead of underlying dispute resolution.
The balance of convenience
There is no inconvenience to the respondent, a large asset rich public company, should an injunction be granted other than being temporarily kept out of a contractual remedy for the time being. On the other hand the applicant claims unsustainable inconvenience or injury, should an injunction be refused, owing to its financial position. Papers before the court do not suggest the applicant is financially vulnerable, but they do suggest it is cash straightened at the present time. The real estate on which the Centre is located is owned by a Company related to the applicant. It has been sold and is due to settle in May this year. Mr Winter said from the bar table that the proceeds thereof could be then applied as “a cash deposit with the bank that would secure the bank”.[17]
[17] Transcript 30 March 2011, p 25.14-.18
The applicant claims it will be “embarrassed financially” as it will be required to raise funds at high short term rates if called upon by the Commonwealth Bank to reimburse upon the guarantee being called in. Despite the objections of Mr Roberts as to the speculative nature of that contingency, commercial reality suggests it is practically inevitable.
The financial position of the applicant is that it has loaned $600,000 to a related entity for the purchase of a residential property, loaned a further $300,000 to another related entity the landowner on which the medical centre is located, and dispersed further unspecified sums by way of loan funds. The $700,000 cash surety was gladly accepted, even though two parts were not returnable under the principal agreement, and it then dispersed that sum “by way of a loan”.[18]
[18] Transcript 30 March 2011, p 57.34
These transactions appear highly discretionary as apposed to being necessary business expenditure. They were made at times when the applicant understood it might be liable to make a claw-back payment, even if it was not necessarily expecting to be called upon to do so. Moreover it had the benefit and use of the original cash deposit of $700,000, $450,000 of which was meant to be retained. Had it been so retained, the applicant would have remained fully insulated from a call on the second bank guarantee. It chose to apply that sum elsewhere, for reasons best known to itself.
In the state of the evidence produced by the applicant as to its financial position, it is simply not possible to deduce prejudice or inconvenience, except that which it has brought upon itself by its own commercial decision making, quite independently and outside the ambit of the subject acquisition agreement.
Are damages an adequate remedy?
The question at this point of the inquiry is whether in all the circumstances it would be just to confine the applicant to a remedy in damages: State Transport Authority v Apex Quarries Ltd.[19] There is no doubt about the capacity of the respondent to honour any judgment that might eventually befall it. In the end the applicant founded principally on the submission that an award of damages would prove inadequate compensation to restore the plaintiff’s commercial reputation, should the bank guarantee be called upon, citing Sanderson Motors v Yorke Star Motors.[20]
[19] [1988] VR 187
[20] [1983] 1 NSW LR 513
It may be accepted for the moment that as a question of principle, a call to perform a contingency bond, security or guarantee, may cause significant damage to reputation and perceived financial standing circulating in the commercial community, that may not always be readily curable by an award of damages: In Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd,[21] Young JA wrote on the topic:
[66] That leads me to the point which appears to have been the touchstone for Macfarlan JA considering an injunction should issue and that is that the supposed fact that a call upon a performance bond may cause significant damage to a contractor’s reputation and financial standing is not readily curable by an award damages is a significant matter as to why an injunction should go.
[67] This practice of paying particular attention to this matter seems to have commenced with the decision of Rolfe J in Barclay Mowlem Construction Ltd v Simon Engineering (Aust) Pty Ltd (1991) 23 NSWLR 451 at 461–462. It is to be noted that before Rolfe J there was evidence on the point, though his Honour was concerned that that evidence might have been inadmissible; once it was admitted it needed to be taken into consideration. In any event, he considered he might have been able to infer the same matter from general experience.
[68] Austin J in Reed Construction Services Pty Ltd v Kheng Seng (Aust) Pty Ltd (1998) 15 BCL 158 took the same line.
[69] Although there has been citation of both the Barclay Mowlem case and the Reed Construction case in other States, interstate judges do not seem to have picked up at all on this particular point, though perhaps it was never argued; see eg Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 (CA) and Bateman Project Engineering Pty Ltd v Resolute Ltd (2000) 23 WAR 493, the court in each case being more concerned with not eroding the principle of commercial certainty of performance bonds and bank guarantees.
[70] It seems to me too that one must take into consideration when working out questions of balance of convenience that even though there may be some commercial opprobrium to a person who has its performance bond called up, there is also commercial opprobrium to a company against which this court makes an injunction. Indeed, when sitting in Equity one always takes into account the fact that the application for injunction may be brought for just that purpose. Furthermore, it is a little difficult to pay much credence to a statement by a person against whom it is alleged that the building which it and its subcontractors constructed has over a thousand defects and is not watertight would suffer in its reputation any more if in addition to those facts being known by the general community, it was known that its performance guarantee had been called up in a manner which it disputed.
[21] [2010] NSWCA 283 at [66-70]
However that may be, this consideration does not appear to be significant in this case. No evidence of the precise relationship between the Commonwealth Bank and the applicant is before the court. The provision of bank guarantees underpinning enforcement of the claw-back arrangements, were those commercially considered and adopted by the parties. As originally contemplated, the cash deposit the applicant chose to keep would have otherwise served to protect it against any such perceptions, so that in the event the parties have simply been restored to the position contemplated by them in the first place.
In any case it is not the payment to the respondent by the Commonwealth Bank on the Bank Guarantees that will be the cause of reputational damage. Such damage would only accrue should the applicant fail to reimburse the bank if required to. It is difficult therefore to identify how there can be any measurable loss of reputation to the detriment of the applicant, in this instance. The conclusion must be that damages are an adequate remedy in this particular situation.
Discretionary considerations
There is one further matter. The cheque itself is held by the bank. It remains effectively in escrow for the moment, simply to abide the decision of the court. The guarantee is in the form of a bank cheque, as good as cash. As such it is an unconditional order in writing, requiring the Commonwealth Bank to pay the respondent on demand, the specified sum: Bills of Exchange Act 1909 (Cth), s 8(1). Once it does the applicant will become immediately liable as a matter of law to honour the consequent debt to the bank. There is then a direct legal obligation resting on the bank to deliver the bank cheque to the respondent as payee, arising wholly independently of any legal obligations as between the parties under the acquisition agreement. What the court is therefore effectively asked to do, is to prevent a third party from performing a distinct and separate legal obligation that does not arise from the subject matter in dispute in the underlying proceedings.
Even if an injunction in some form was appropriate, there potentially remains a difficulty in drafting an order to cater for the facts. Injunctions should be expressed in clear, explicit and unambiguous terms: Meat & Allied Trades Federation v Australian Meat Industry Employees Union;[22] Nexus Mortgage Securities Pty Ltd v Ecto Pty Ltd.[23]Since the bank holds the cheque, the only practical way around things would appear to be to prevent the respondent from receiving the funds to which it is otherwise entitled. This appears to be the very path contemplated by the majority in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd,[24] in Macfarlam JA’s draft order “restrain the respondent from converting into cash”.[25] This might have sufficed to achieve the interim objectives of the applicant, but the precise terms of an order would have to be the subject of further submissions. In the event that now proves to be unnecessary.
[22] [1990] 1 Qd R 441
[23] [1998] 4 VR 220
[24] Above
[25] Above at [52]
Conclusion and orders
In conclusion, the court finds the applicant has demonstrated a genuinely arguable case on the question of the proper construction of the contract, namely as to the circumstances in which the applicant is entitled to immediately call upon the second guarantee. The decision in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd is distinguishable. However the court determines against the applicant because damage is an effective remedy and the requisite kind of prejudice to it has not been demonstrated to exist on the material presented to the court.
The application for an injunction, in whatever form is therefore refused. The parties should be heard on the question of costs.