Stylex Fashions Pty Ltd v National Australia Bank Limited

[2004] VSC 64

SUPREME COURT OF VICTORIA

PRACTICE COURT

No. 4053 of 2004

STYLEX FASHIONS PTY. LTD
	Plaintiff
v.
NATIONAL AUSTRALIA BANK LIMITED & ORS	Defendants

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JUDGE:	MANDIE J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	25 February 2004
DATE OF RULING:	25 February 2004
MEDIUM NEUTRAL CITATION:	[2004] VSC 64

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Practice and Procedure – Application for interlocutory injunction to restrain payment on letter of credit

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APPEARANCES:	Counsel	Solicitors
Plaintiff	Mr I. Percy	Holding Redlich
For the First defendant	Mr A. Schlicht	Russell Kennedy
For the Second defendant	Mr R.J. Webb QC	Velos & Davis

HIS HONOUR: 

1. The plaintiff seeks an interlocutory injunction restraining payment under a letter of credit.  The plaintiff accepts that, with one qualification, it is necessary to show a prima facie case of fraud in order to obtain the interlocutory injunction.   It is common ground between the parties that that is so and both parties have adopted the tests which are set out in an outline of argument prepared by the plaintiff.

1. In Inflatable Toy Co v. State Bank of New South Wales (1994) 34 NSWLR 243 at 251, Mr Justice Young, as he then was, said:

"There does not appear to be any contrary authority, though it must be stressed that when one is dealing with an interlocutory application the test is not the same.  In an interlocutory application, despite the general rule that one looks for an arguable case where one is restraining payment on a bill issued under a letter of credit, the court insists that the plaintiff demonstrates strong prima facie case of fraud."

And the outline also refers to the decision of Batt J in Olex Focas Pty Ltd v. Skoda export Co Limited (1998) 3 VR 380, 395, in which His Honour referred to the comments of Staunton LJ in Group Joshi Re v Walbrook Insurers & Co. Limited, (1996) 1 WLR 1152 at 1160 where it was said:

"The short answer to this question is to be found in the judgment of Ackner LJ in the United Training Corporation case: 'Have the plaintiffs established that it is seriously arguable that on the material available the only realistic inference is that [the beneficiary] could not honestly have believed in the validity of its demands on the [letter of credit]?'"

In the present case the basis of the demand under the letter of credit is a supplier inspection certificate which on the uncontradicted evidence presently before the court was not signed by Mr Sortino, the principal of the plaintiff but was purportedly signed by him.  Someone, one assumes for the purpose of this application, has forged Mr Sortino's signature.  There is no evidence before the court that the second defendant was involved in that forgery although if the question simply was, is there a serious question to be tried, one might think that the circumstances would automatically raise that question.

1. The material, however, goes further and shows that prior to making the claim on the letter of credit, the second defendant was well aware that not only that the plaintiff considered the goods to be defective but it had, in fact, cancelled the orders.  Exhibit SS5, one of the affidavits of Mr Sortino is a letter from the plaintiff's accountants to the second defendant confirming the cancellation of the orders and demanding damages and that is dated 19 December.

1. Exhibit SS29 to Mr Sortino's affidavit of 9 January is an email from Young as to whom there is an argument whether she was the agent of the plaintiff or not in the following terms, this is directed to Mr Sortino: 

"Good morning, I was required to be present at the stockholder meeting at Giant Eagle yesterday afternoon.  All stockholders consider that you were wrong to cancel Woolworths flannelette PJ orders.  They will claim 50 per cent of the original amount against you for their loss of your cancellation orders.  If you can agree to this term please TT the corresponding manager Giant Eagle, otherwise they will do something in their own right.  That means that they will not ship the satin PJ and sleep pant to you."

If one accepts that material for present purposes it appears that the second defendant was aware of the cancellation and had stated through Young that it would be claiming damages.  Notwithstanding that, as Mr Percy puts it, the second defendant shipped the goods without telling the plaintiff and sought to drawn down on the letter of credit.

1. In those circumstances, I think that the test which the parties accepted is satisfied - certainly one could not conclude at this stage that it is the only realistic inference open that the second defendant could not honestly have believed in the validity of its demands but I think the material is such that it is at least seriously arguable that the only realistic inference is that the second defendant could not have honestly believed in the validity of its demands on the letter of credit.

1. Given that that test is satisfied, the balance of convenience, it seems to me, is strongly in favour of the plaintiff.  This money should not be paid out under the letter of credit until these serious questions are determined by the court.  Accordingly, I will extend the injunction and I will make the orders in the form sought by the plaintiff in paragraphs 1 and 2. 

1. It may be that the parties can agree on the other orders.