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Telvent Australia Pty Ltd v Acciona Infrastructure Australia Pty Ltd

 

[2016] QSC 201

 

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

Delivered Ex Tempore on 18 August 2016

DELIVERED AT:

Brisbane

HEARING DATE:

17 August 2016

JUDGE:

Jackson J

ORDER:

The order of the court is that:

  1. The application is dismissed.
  2. Costs reserved.

CATCHWORDS:

CONTRACTS GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS  – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the applicant gave the respondents an unconditional bank guarantee under a construction contract as a performance security – where the contract prohibited the applicant from taking steps to restrain the respondents by injunction from making a demand on the guarantee except to the extent the respondents took steps for the purposes of making the demand that were fraudulent or unconscionable – where the respondents made a demand on the guarantee – where the final relief sought was that the respondents be restrained by injunction from demanding or receiving payment under the guarantee – whether the respondents took steps that were fraudulent or unconscionable

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – SERIOUS QUESTION TO BE TRIED – where the contract permitted the respondents to have recourse to the guarantee at any time to the extent of any bona fide claim notified in writing – where over a year after practical completion and at a time when items included on minor defects lists had been resolved at close-out meetings, the respondents sent a letter setting out further claims – where the claims lacked particularity and were later reduced – whether there was a serious question to be tried that there was no bona fide claim and the respondents were not entitled to have recourse to the guarantee

EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – RELEVANT CONSIDERATIONS – BALANCE OF CONVENIENCE GENERALLY – where the contract provided for an unconditional guarantee upon which the respondents could make demand at any time – where the applicant submitted that it would suffer a loss of reputation for which damages would not be adequate compensation – whether there was a risk of reputational damage – whether granting an interlocutory injunction in the circumstances would be akin to granting final relief or deprive the respondents of the benefit of an unconditional guarantee – whether the balance of convenience favoured granting the injunction

Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46

Banque Commerciale SA (en liquidation) v Akhil Holdings Limited (1990) 169 CLR 279; [1990] HCA 11

Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (2008) 249 ALR 458; [2008] FCAFC 136

Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447; [1983] HCA 14

Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119

Fabtech Australia Pty Ltd v Laing O’Rourke Australia Construction Pty Ltd [2015] FCA 1371

Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812

FMT Aircraft Gate Support Systems AB v Sydney Ports Corporation [2010] NSWSC 1108

Laing O’Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASC 49

Pearson Bridge (NSW) Pty Ltd v State Rail Authority of New South Wales [1982] 1 Aust Const LR 81

Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98

COUNSEL:

P Dunning QC and B Reading for the applicant

A Crowe QC and P Telford for the respondents

SOLICITORS:

HWL Ebsworth Lawyers for the applicant

Allens for the respondents

[1] Jackson J: The decision to be made on this application for an interlocutory injunction turns on the application of the familiar framework of whether there is a “serious question to be tried” that the applicant will obtain a final injunction in the form that is claimed, and whether, pending the hearing of the originating application for that final relief, the balance of convenience favours the grant of an interlocutory injunction.

[2] The final relief sought is that the respondents be restrained from demanding or receiving payment under an unconditional bank guarantee given by the Australia and New Zealand Banking Group Limited to the respondents in the amount of $882,495.

[3] The respondents formed a joint venture, known as the Transcity Joint Venture, for the construction of what has become the road known as Legacy Way.  The road includes a pair of major tunnels linking the Western Freeway and the Inner City Bypass. 

[4] By a subcontract dated 6 December 2011, the applicant was a subcontractor of the respondents for parts of the works within the tunnels described as ITS systems.  In some contexts, “ITS” is used in our acronym-laden world as an abbreviation for Integrated Technology Services or Systems.  In the present context, the works contemplated can be summarised as works for monitoring communication and management control systems for the tunnels.

[5] The unadjusted subcontract sum was over A$17.6 million and €11.7 million, exclusive of GST.  The subcontract is over 325 pages in length, including what would be ordinarily described as general conditions dealing with the usual subject matters for a construction contract.

[6] The clauses of present relevance concern the provision of security by the applicant for the performance of the applicant’s obligations under the subcontract.  Clause 2.6 of the subcontract provides:

“2.6 Unconditional undertakings

(a)(General undertakings):  Within 10 Business Days of the date of Contract Commencement, the Subcontractor must give Transcity 2 unconditional undertakings, each for 2.5% of the Subcontract Sum as security for the performance of the Subcontractor’s obligations under or in connection with this deed.  If the Subcontract Sum increases by an amount greater than or equal to 10% of the Subcontract Sum (and on any future occasion that such additional increase occurs), Transcity may in its absolute discretion require the Subcontractor to provide further unconditional undertakings within 28 days so that the total of the 2 unconditional undertakings then held pursuant to this clause 2.6(a) equal 5% of the increased Subcontrct Sum.

 

(b)(Undertakings for unfixed goods and materials):  The Subcontractor must give Transcity the unconditional undertakings as required from time to time by clause 12.6.

 

(c)(Requirements for undertakings):  Each unconditional undertaking to be provided under this clause 2.6 must:

 

(i)be in the form of Schedule 2 (or such other form as Transcity may approve);

(ii)be in favour of Transcity;

(iii)subject to clause 2.6(c)(vii), be a continuing liability;

(iv)be at all times provided by a bank acceptable to Transcity that maintains the Required Rating;

(v)be payable at a branch office of the issuer in Brisbane (or such other place as Transcity may approve);

(vi)have an expiry date no earlier than the date the unconditional undertaking is required to be released under clause 2.6(e); and

(vii)where required by Law, be duly stamped.

 

(d)(Replacement of undertakings): If the issuer of an unconditional undertaking ceases to satisfy any of the requirements of clause 2.6(c), then the Subcontractor must:

 

(i)promptly notify Transcity of that circumstance; and

(ii)within 15 Business Days of being requested to do so, procure the issue to Transcity of a replacement unconditional undertaking which satisfies the requirements of clause 2.6(c).

 

(e)(Release of undertakings):  Subject to clause 2.6(h) and its rights to have recourse to the unconditional undertakings, Transcity must:

 

(i)within 25 Business Days after the Date of Practical Completion, release one 2.5% unconditional undertaking provided by the Subcontractor under clause 2.6(a) (or, if that undertaking has been converted to cash under clause 2.6(f), the amount held on trust under clause 2.6(f)(iii) in respect of that undertaking);

(ii)within 25 Business Days after the Date of Close-out, release the remaining 2.5% unconditional undertaking provided by the Subcontractor under clause 2.6(a) (or, if that undertaking has been converted to cash under clause 2.6(f), the amount held on trust under clause 2.6(f)(iii) in respect of that undertaking);

(iii)release the undertakings provided in accordance with clause 2.6(b) when required by clause 12.6(c) (or, if that undertaking has been converted to cash under clause 2.6(f), the amount held on trust under clause 2.6(f)(iii) in respect of that undertaking); and

(iv)release the balance of unconditional undertakings (or, if that undertaking has been converted to cash under clause 2.6(f), the amount held on trust under clause 2.6(f)(iii) in respect of that undertaking) then held 25 Business Days after the date 12 months after the Date of Close-out. 

 

(f)(Transcity’s rights):  Transcity:

 

(i)must have recourse to any unconditional undertaking provided under this clause 2.6 at any time to the extent of any bona fide claim notified in writing by Transcity to the Subcontractor which Transcity may have against the Subcontractor arising out of, or in connection with this deed or the work under this deed (including the Subcontract Works):

(ii)is not obliged to pay the Subcontractor interest on:

(A)any unconditional undertaking; or

(B)the proceeds of any unconditional undertaking if it is converted into cash; and

(iii)holds the proceeds referred to in clause 2.6(f)(ii) on trust for the Subcontractor, except to the extent Transcity is entitled to have recourse to those proceeds under clause 2.6(f)(i).

 

(g)(No injunction):  The Subcontractor must not take any steps to injunct or otherwise restrain:

 

(i)any issuer of any unconditional undertaking provided under this clause 2.6 from paying Transcity pursuant to the unconditional undertaking;

(ii)Transcity from taking any steps for the purposes of making a demand under any unconditional undertaking provided under this clause 2.6 or receiving payment under any such unconditional undertaking; or

(iii)Transcity using the money received under any unconditional undertaking provided under this clause 2.6,

 

except to the extent that Transcity fraudulently or unconscionably takes any steps for the purposes of making a demand under any unconditional undertaking.

 

(h)(Continuing):  Despite any other provision of this deed to the contrary, where this deed may otherwise require Transcity to release an unconditional undertaking or this deed is terminated by Transcity either pursuant to clause 14 or by reason of the Subcontractor repudiating this deed, Transcity may continue to hold the unconditional undertakings after the date for its release or the termination of this deed to the extent of any bona fide claim which Transcity may have against the Subcontractor arising out of, or in connection with, the deed or the ITS Activities whether for damages (including liquidated damages) or otherwise.

 

(i)(Expiring unconditional undertakings):  If any unconditional undertaking provided under this clause 2.6 includes an expiry date that is a date prior to the date that the unconditional undertaking is required to be released by Transcity in accordance with this clause 2.6 (including clause 2.6(i)), then the Subcontractor must provide to Transcity’s Representative at least 20 Business Days before the expiry date of that unconditional undertaking a replacement unconditional undertaking that satisfies the requirements of clause 2.6(c) in exactly the same terms (except that any expiry date must not be less than 1 year from the current expiry date) and for the same amount as the unconditional undertaking it has replaced and this clause 2.6 will apply to the replacement unconditional undertaking.

 

(j)(Failure to replace expired unconditional undertakings):  If the Subcontractor does not comply with clause 2.6(i), the Subcontractor agrees that, without limiting Transcity’s rights under this deed, Transcity may immediately convert into money the full amount of the relevant unconditional undertaking and hold that money as security pursuant to this deed until such time as the Subcontractor has provided an unconditional undertaking for the amount and in the form required by clause 2.6(i).”

[7] On 21 April 2015, the applicant gave the respondents an unconditional bank guarantee issued by the Australia and New Zealand Banking Group Limited in favour of the respondents in the sum of $882,495.

[8] With the exception of a qualified statement in Mr Sanchez’s affidavit, it does not seem to be in dispute now, for the purposes of this application, that the date of practical completion under the subcontract was reached on 23 June 2015. 

[9] On 24 June 2015, the tunnels opened to traffic. 

[10] On 20 July 2016, the respondents sent a letter to the applicant stating that the respondents had nine claims against the applicants, described as follows:

“(a)Telvent’s air quality monitoring system failed to reliably control the ventilation plant as required by the ITS Subcontract and was not of the standard of a competent contractor. Transcity’s Losses as a result of this breach of the ITS Subcontract are in the amount of $122,978.47.

 

(b)Telvent’s Radio Rebroadcasting system was unable to play two differing radio rebroadcast messages simultaneously in both mainline tunnels, and the method of alternating messages between the mainline tunnels resulted in a ‘blanked’ AM/FM transmission in the non-message tunnel during each transmission.  This was unsafe, unsatisfactory, not in accordance with the ITS Subcontract and was not of the standard of a competent contractor.  Transcity’s Losses as a result of this breach of the ITS Subcontract are in the amount of $404,611.20.

 

(c)Telvent failed to procure and install the Department of Community Safety specified Queensland Ambulance Service and Queensland Fire and Rescue Service two way radio transceivers in the Major Incident Room of the TCC.  This was in breach of Telvent’s obligations under the ITS Subcontract and not of the standard of a competent contractor.  Transcity’s Losses as a result of this breach of the ITS Subcontract are in the amount of $148,468.79.

 

(d)Telvent failed to install the tunnel help phone signs.  This was in breach of Telvent’s obligations under the ITS Subcontract and not of the standard of a competent contractor, Transcity’s Losses as a result of this breach of the ITS Subcontract are in the amount of $17,562.66.

 

(e)Telvent failed to provide the equipment rooms in the TCC in a final state of cleanness in breach of the ITS Subcontract and as would be expected by a competent contractor.  This meant that Transcity had to incur additional costs to get the rooms cleaned as required for the computer and IT systems in order for the room to be able to be operated in a reliable and safe manner.  Transcity’s Losses as a result of Telvent’s breach of the ITS Subcontract are in the amount of $7,614.00.

 

(f)Telvent failed to comply with the ITS Subcontract requirements in respect of providing the channels that the emergency services required within the tunnel, and failed to rebroadcast the U6 and U8 channels.  Transcity’s Losses as a result of having to rectify Telvent’s non compliant works and Telvent’s breach of the ITS Subcontract are in the amount of $71,098.43.

 

(g)Telvent failed to provide a non-defective product at Practical Completion in breach of the ITS Subcontract and was not of the standard of a competent contractor.  Transcity’s Losses as a result of having to rectify Telvent’s defective work and Telvent’s breach of the ITS Subcontract are in the amount of $412,494.11.

 

(h)With regards to Mod 8, Telvent failed to provide a defect-free product and failed to progress the commissioning activities successfully to completion.  This was in breach of Telvent’s obligations under the ITS Subcontract and not of the standard of a competent contractor.   As a result of this breach, Transcity had to perform activities as required for a successful handover to Transport and Main Roads – Queensland.  Transcity’s Loss as a result of Telvent’s breach of the ITS Subcontract are in the amount of $52,392.33.

 

(i)Telvent failed to comply with the requirements of the ITS subcontract in the Eastern Cut and Cover and Inner City Bypass gantries, including the supply of sign frames that were not designed to the required standards.  As a result of this breach, Transcity had to remediate these works.  Transcity’s Loss as a result of Telvent’s breach of the ITS Subcontract are in the amount of $48,706.23.”

[11] During argument, the nine claims were identified as claims or items 1 to 9, as opposed to their lettered subparagraphs, as set out above.  For convenience, I will follow that convention too.  Collectively, I will describe them as the 20 July claim.

[12] The respondents’ letter dated 20 July 2016 demanded payment of the sum or amount of $1,285,926.22, purportedly in accordance with clause 22.19(c) of the subcontract.  Demand was also made under clause 22.18 of the subcontract.

[13] On 21 July 2016, it appears that the respondents made demand upon the guarantee in some form. 

[14] On 22 July 2016, the respondents undertook to the applicant not to take any further steps to demand or otherwise call on the guarantee.  On 22 July 2016, the originating application was filed.

[15] The applicant’s claim for final relief depends on it proving that the respondents were and are not entitled to have recourse to the guarantee.

[16] For an interlocutory injunction, it must establish that there is a serious question to be tried that it will be entitled to that relief.  The respondents, for their part, urged that the question is whether there is a prima facie case.  I approach any intended difference by the use of the expressions “serious question to be tried” or “prima facie case” by reference to the discussion of those expressions in the decision of the High Court of Australia in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.

[17] The applicant submits that the respondents were not entitled to make a demand for payment of, and thereby to have recourse to, the guarantee because there was no bona fide claim notified in writing that they had made within the meaning of clause 2.6(f)(i) of the subcontract.

[18] Both of the parties made lengthy submissions by reference to the decided cases as to the extent of the respondents’ right to make a demand to have recourse to the guarantee.  However, in my view, cases decided on other contractual clauses are only a guide to the decision which might be made.  The extent of the respondents’ right to have recourse to the guarantee in the present case is a matter of contract and depends on the proper construction of the terms of this subcontract, not upon the descriptions given by judges in other cases of the extent of the rights under other contracts or form of contracts.

[19] The relevant text in the present case is contained, in particular, in clauses 2.6(a), 2.6(f) and 2.6(g).  A number of points immediately appear.

[20] First, the unconditional undertakings to be given under clause 2.6(a) are unconditional undertakings as security for the performance of the applicant’s obligations under the subcontract.  The required undertakings are two guarantees, as I will call them, each for 2.5 per cent of the subcontract sum.  The guarantee that was provided by the Australia and New Zealand Banking Group Limited previously referred to is such an undertaking.

[21] Second, it is expressly provided that the respondents may have recourse to any unconditional undertaking provided under clause 2.6 at any time.

[22] Third, the extent of the entitlement to have recourse is limited by the express provision that recourse is to the extent of any bona fide claim notified in writing.

[23] Fourth, a relevant claim is any claim the respondents may have against the applicant arising out of or in connection with the subcontract or work under it. 

[24] Fifth, the proceeds of the undertaking, which is converted into cash, are to be held on trust, except to the extent of any relevant claim so notified. 

[25] Sixth, subject to an agreed exception, the parties specifically agree that the applicant must not apply to restrain the respondents by injunction from taking steps for the purposes of making a demand under any unconditional undertaking provided under clause 2.6 or receiving payment. 

[26] Seventh, the agreed exception is that the respondents fraudulently or unconscionably take steps for the purposes of making a demand.

[27] These points are further informed by the contractual context.  But in the interests of brevity, I will not set out that context in detail, although I have read other parts of the contract in some detail.

[28] The applicant submits that the relevant serious question is that the respondent did not make a bona fide claim in making the 20 July claim, and particularly relied on FMT Aircraft Gate Support Systems AB v Sydney Ports Corporation [2010] NSWSC 1108 at paragraphs 13 to 14.  The substance of the applicant’s submission is that a mere honest or bona fide belief is not enough for a bona fide claim.  It submits there must also be a claim that is not irrational or misconceived, or an arguable claim that is not specious, fanciful or untenable.  The applicant submits there is an objective element required to support a bona fide claim.

[29] In my view, this submission represents a gloss on the contractual text that is not warranted.  From the time when Pearson Bridge (NSW) Pty Ltd v State Rail Authority of New South Wales [1982] 1 Aust Const LR 81  was decided, the parties to a contract that provides for recourse to an unconditional guarantee as security against a claim of one contracting party against the other have had to deal with the possible range of circumstances where the right to have recourse might not be engaged.

[30] Subsequent cases have wrestled with the meaning to be given to contracts in particular forms.  They include decisions of intermediate appellate courts in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 and Clough Engineering Ltd v Oil and Natural Gas Corporation (2008) 249 ALR 458 and, recently, Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98.

[31] In my view, the correct starting point in the present case is not from some a priori process of reasoning about the meaning of what is a bona fide claim.  It is from the express promise that the applicant must not make a claim for the relief that it seeks in the present case unless the respondents’ steps taken for the purposes of making a demand on the guarantee were fraudulent or unconscionable.

[32] In assessing whether the applicant has shown a serious question to be tried that the respondents have taken fraudulent or unconscionable steps, it should be recognised that fraud, in its many forms, may be incapable of precise definition, see Banque Commerciale SA (en liquidation) v Akhil Holdings Limited (1990) 169 CLR 279.

[33] However, in the present context, in my view, it would be enough if the respondents were dishonest or had a belief that there was no reasonable basis for the 20 July claim.  On the other hand, in my view, the complexity of claims made under construction contracts is not infrequently such that a party may consider that there is a possibility that it has an entitlement to a claim without having to hand the evidence to demonstrate that the possibility is right.  In my view, to make a claim in those circumstances would not be fraudulent within the meaning of clause 2.6(g).

[34] In passing, I note that fraud must be specifically pleaded and with particularity, and also must be proved accordingly – see Briginshaw v Briginshaw (1938) 60 CLR 336.  These principles inform the prospects of final relief, as to which the applicant must show a serious question to be tried.

[35] However, the exception to the applicant’s promise not to make an application for an injunction is engaged where the respondents take steps that are fraudulent or unconscionable.  The question becomes whether, even if in the making of the 20 July claim and demand on the guarantee the respondents did not take any step fraudulently, they may have taken those steps unconscionably.

[36] The concept of unconscionability has been much discussed in the context of the development of equitable principle in the private law of this country over the last 35 years.

[37] On the one hand, it has been treated as a touchstone for equitable intervention in many different contexts.  Two well-known examples are Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 and Bridgewater v Leahy (1998) 194 CLR 457.

[38] On the other hand, the concept of unconscionability has been criticised, both academically and in some leading judgments, as a concept that is devoid of normative content, signifying a label to be applied by way of conclusion to the normative considerations which actually engage liability for particular equities in many different contexts.

[39] Be that as it may, in the present context, unconscionable steps by the respondents for the purposes of making a demand are an exception from the applicant’s promise not to make an application for an injunction of the present kind, and the existence of those steps is intended to operate as an alternative to the similar or cognate exception of fraudulent steps.  Neither of the parties addressed any submissions to the important question of what “unconscionable” means in the present context.

[40] In my view, and, bearing in mind that this is an application brought in the context of the busy applications list, where there is not time for reflection, it is a reasonable approach to proceed on the footing that it would be unconscionable for the respondents to take steps to make demand upon the guarantee if they did so for a collateral purpose, or if they did so knowing that they had not given the applicant the benefit of a contractual process to which the parties had agreed, or if they did so inconsistently with an expectation that they had reasonably raised in the applicant.

[41] In the circumstances of this case, there was no particular aspect of the facts raised by the applicant that appears to engage unconscionable steps explained in that way as opposed to a contention of fraudulent steps which was a submission positively made by the applicant.

[42] Lastly, I observe that clause 2.6(g) must be construed in the context of clause 2.6(f) – that the proceeds of the respondents’ recourse to any unconditional undertaking are held on trust, except to the extent of the entitlement to have recourse under clause 2.6(f)(i), that is, to the extent of any bona fide claim notified in writing.

[43] In other words, notification of the bona fide claim is a condition of appropriation of the proceeds from trust moneys.  The existence of the bona fide claim is not purely a condition precedent to the entitlement of the respondents to make demand under any unconditional undertaking.

[44] The applicant set up numerous factual matters as tending to prove the lack of a bona fide claim for which it contends.  First, it submits that the 20 July claim was made in circumstances where practical completion had been achieved on 23 June 2015.  At that time, two lists of minor subcontract defects existed.  After that time, meetings described as close-out meetings - see clause 2.6(e)(iv) -  took place.  By late January 2016, all of the items on the lists had been resolved to the satisfaction of all parties.  However, the respondents’ submissions dispute that the close-out date has been achieved.

[45] Second, the applicant submits that on 11 January 2016, an adjudication decision made under the Building and Construction Industry Payments Act 2004 (Qld) dealt with, and rejected, five of the nine items of claim that the respondents wished to agitate by the 20 July claim.  However, the respondents rely on the obviously correct proposition that an adjudication decision does not preclude them from raising claims against the applicant that have been determined against the respondents for the purposes of the process under the Building and Construction Industry Payments Act 2004 (Qld).  This is supported by decisions in Fabtech Australia Pty Ltd v Laing O’Rourke Australia Construction Pty Ltd [2015] FCA 1371 and Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2016] WASC 119.

[46] Third, the applicant relies on the delay between the date of practical completion, the minor defects lists that were prepared at that time, the resolution of those items at the close-out meetings, the date of the adjudication decision and the date on which the 20 July claim was eventually made.  There is no particular explanation for that delay proffered by the respondents.

[47] Fourth, the applicant submits that the 20 July claim was made without proper particularity and that, despite requests for particulars, over the succeeding few days the respondents did not provide any particulars, at least until the affidavit of Mr Sanchez filed on 11 August 2016.  There is no particular explanation offered by the respondents for the lack of particularity or the time it took to provide it in the form of Mr Sanchez’s affidavit, although the respondents offered to provide information at without prejudice meetings in the meantime, in accordance with the contractual structure for the consideration of disputes.

[48] Fifth, the applicant submits that a comparison of items 1 to 9 of the 20 July claim with Mr Sanchez’s affidavit about those items and other evidence tendered by the applicant shows that the 20 July claim was not based on, or supported by, appropriate evidence.  Perhaps tediously, it is necessary to make specific reference to some of those items, briefly.

[49] In respect of items 1 to 9 inclusive, the applicant submits that the amount of the item in the 20 July claim was at least 30 per cent, and, in some cases, substantially more, than the amount of that item as justified by Mr Sanchez’s affidavit.  In general, most of the items are now substantiated by reference to relevant invoices, but that is to a lesser amount than the amount that was claimed, as I’ve just indicated.

[50] The respondents do not explain the reason for the reduction by evidence, with the exception that in paragraph 66 of his affidavit, Mr Sanchez says that in the course of preparing that affidavit, it became apparent to him that some of the invoices had to be apportioned.

[51] As to item 3, the applicants submit that exhibit 1 shows that the two-way radio transceivers in the major incident room were not part of its work.  The respondents did not address this point specifically.  However, it was not a point made in the affidavits filed by the applicant, and I was not satisfied that exhibit 1 clearly showed that the work was not ultimately part of the applicant’s works.

[52] As to item 4, the applicant submits that paragraphs 4 to 8 of Mr Whitehead’s second affidavit show that the tunnel help phone signs were excluded from the applicant’s works as static signs.  The respondents did not specifically address this item.

[53] As to items 6 and 8, the applicant submits that Mr Whitehead’s first affidavit, in paragraph 32, shows that these claims are inconsistent with practical completion having been achieved.  The respondents did not address this point specifically.  However, Mr Sanchez’s affidavit referred to those items in paragraph 156 and that they were items that had previously been raised in the adjudication decision.

[54] As to item 7, the applicant submits the defects leading to the alleged amount of $412,494 to rectify defective work in the 20 July claim were entirely unparticularised.  This item is dealt with in Mr Sanchez’s affidavit in paragraphs 114 to 116.  The amount there claimed is reduced to $122,610 from the amount of $412,494, as the applicant submits.

[55] There are two items, as well, that appear in Mr Sanchez’s affidavit that did not appear in the 20 July claim.  First, there is a claim for what are described as internal costs of the respondents in the sum of $220,791.60.  These are dealt with in paragraph 131 of Mr Sanchez’s affidavit, and they were not identified in the 20 July claim.  The applicant submits that there can be no claim for those costs under the subcontract.  The respondents submit that the claims mentioned in clause 6.2(f)(i) include claims in connection with the contract or the work and can include damages by way of the respondents’ costs in dealing with a breach of contract by the applicant in performing the work.  I accept that submission.

[56] Second, there is a claim for liquidated damages of $525,000.  That, too, was not identified in the 20 July claim.  Mr Sanchez deals with this claim in paragraph 131 of his affidavit.  He says that practical completion may not have been achieved until 19 June, with a result that there is a liquidated damages claim for $575,000.  The respondents did not address the variance between the suggested 19 June date for practical completion and the apparently agreed date of 23 June.

[57] Although the applicant’s challenges made to the 20 July claim were made in more detail than I’ve summarised, the main points are covered.  It can be seen that the applicant’s attack is made on many fronts.  The relevance of these points is to a conclusion that the steps taken to notify the claim in writing for the purposes of making the demand were taken fraudulently or unconscionably and the claim was not made bona fide.

[58] In my view, although there is substance or possible substance in many of the criticisms made, most of them do not indicate fraudulent or unconscionable steps, or a claim that was not bona fide.  Overall, I consider that one of the strongest points was the inadequate explanation for the extent of the reduction in the claim made by Mr Sanchez’s affidavit.  But even that, in my view, is not really indicative of fraudulent steps.

[59] However, I proceed to the question of the balance of convenience on the footing that it is possible that there is a serious question to be tried of unconscionable steps. 

[60] Both parties made extensive submissions as to the balance of convenience.

[61] An initial point is that the guarantee will expire in September, before there could be a final hearing of the originating application.  That would, irretrievably, prejudice the respondents if they were successful at the final hearing.  The applicant offered to undertake to provide a replacement guarantee for the period required to avoid that detriment.

[62] The respondents rely on statements in Laing O’Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASC 49, that such an offer does not protect the respondents from the loss of the benefit of the contractual promise by the applicant not to apply for an injunction to restrain the respondents from taking steps to make demand on the guarantee.  But that is a different point, to which I will return.

[63] The applicant submits that, as a matter of fact, the applicant would be likely to suffer a loss of reputation for which damages would not be an adequate compensation.  The respondents challenge both the factual basis for that contention and its significance as a discretionary factor in a case such as the present.

[64] As to the facts, the respondents rely on evidence in both the applicant’s affidavits and in Mr Sanchez’s affidavit, and one other affidavit to the effect that the applicant’s business in Australia is not ongoing in ITS systems, and that the applicant or its business had been taken over by and had been integrated into another corporate group.

[65] Second, the respondents rely on the fact that it is already well known that there is or has been a major dispute between the parties over the completion of and quality of the works under the subcontract or project.

[66] Third, the respondents rely on the fact that, by the time this application was brought, the respondents had already made demand for payment.

[67] The applicant relies on statements in Ms McPherson’s affidavit that it feared the risk of reputational loss.

[68] The respondents submit that the consequence is that the applicant’s separate trade reputation in this country will not be seriously damaged if an interlocutory injunction were not granted.

[69] As to the law, the respondents relied on statements in Laing O’Rourke Australia Construction Pty Ltd v Samsung C&T Corporation [2016] WASC 49 to the effect that the possible reputational damage to the applicant in that case was reduced because of the level of sophistication in the  relevant market of purchasers for the applicant’s business.  However, in my view, the particular alleged loss of reputation in that case is not the question in this case.

[70] In my view, it must be accepted as possible that the applicant will suffer a reputational loss by demand made under the guarantee.  As a matter of inference, the performance of a contracting party, including whether the contractor has suffered a demand on its performance security, is a matter that can go to reputation in a competitive contracting market.

[71] On the evidence, the degree of that risk in the present case is not as great as it might have been if the applicant were actively tendering for any available ITS systems projects during the period when the present dispute about the validity of the respondents’ claim remains unresolved.

[72] Second, the applicant relies on the damage that satisfying the demand on the guarantee will do to the relationship between the applicant and its banker, as a loss or detriment for which an award of damages will not be adequate compensation.

[73] I accept, also, that there can be damage of that kind, and it may be difficult to quantify.  It may be reflected in the conditions of or availability of future unconditional undertakings that the bank would provide, or even an unwillingness to provide future guarantees or undertakings.  But there is no particular risk of that kind referred to in the applicant’s evidence in this case.

[74] These risks are attendant, it must be said, in most cases, when a contracting party agrees to provide an unconditional bank guarantee or similar third party guarantee. 

[75] In the particular circumstances of an injunction to restrain a demand upon an unconditional guarantee, there is an added factor to be taken into account in considering the balance of convenience.  It is that, in one sense, the grant of an interlocutory injunction is, at least, akin to the grant of final relief.

[76] The point of an unconditional guarantee, upon which demand may be made at any time, is that the parties have prima facie agreed that it is the beneficiary’s right to make that demand.   Even if an interlocutory injunction only delays the beneficiary’s right to make the demand, that interferes with the very contractual right that was agreed if the injunction turns out to have been wrongly granted.

[77] The discussion of this point is framed in different terms and with varying degrees of emphasis in the cases to which I was referred.  Some refer to the allocation of risk.  Others refer to a general principle that an injunction will not be granted, subject to exceptions.  Others emphasise the purposes of an unconditional guarantee, including the risk of insolvency and the benefit of agreed cash flows that are thereby created, pending the final determination of any dispute.

[78] In the end, however the point is put, in my view, a consideration of the nature of a contractual agreement for the provision of an unconditional guarantee must be a significant factor in determining where the balance of convenience lies.

[79] In the present case, there is no relevant risk of insolvency.  The risks to the applicant of reputational damage or damage to its relationship with its bankers do not appear to be great.

[80] Having regard to the terms of the contract as to the respondents’ entitlement to make demand upon the guarantee and the evidence, as I have discussed it previously, the balance of convenience falls against the grant of the injunction sought.

[81] I refuse the application.

Close

Editorial Notes

  • Published Case Name:

    Telvent Australia Pty Ltd v Acciona Infrastructure Australia Pty Ltd & Ors

  • Shortened Case Name:

    Telvent Australia Pty Ltd v Acciona Infrastructure Australia Pty Ltd

  • MNC:

    [2016] QSC 201

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    18 Aug 2016

  • White Star Case:

    Yes

Litigation History

Event Citation or File Date Notes
Primary Judgment [2016] QSC 201 18 Aug 2016 -
Notice of Appeal Filed File Number: Appeal 5699/16 - -
Appeal Discontinued (QCA) File Number: Appeal 5699/16 07 Oct 2016 Appeal Struck Out

Appeal Status

{hollow-slash} Appeal Discontinued (QCA)