Saipem Australia Pty Ltd v GLNG Operations Pty Ltd (No 2)

Philip McMurdo J

19 June 2015

This is a recent decision involving an interlocutory injunction application to restrain the respondent from demanding payment under two bank guarantees pursuant to a contract to construct a gas pipeline. [1].

The contract was entered into in 2011. [3]. Clause 5 required the applicant contractor to provide bank guarantees to secure its performance. [4] Clause 21.1(b) required the completion of certain stages of the work by specified dates. [5] In the event mechanical or practical completion was likely to be delayed, cl 21.2 required the applicant to provide notice to the respondent. [6]. Pursuant to cl 35(a), if the applicant did not achieve completion by the required date, it was required to pay liquidated damages to the respondent. [7].

Respondent’s claims of delay under the contract

On 18 December 2014, the respondent gave two notices for delay, claiming liquidated damages. [9]. It required payment by 9 January 2015, reserving its rights. [11]. The appellant argued that it was entitled to extensions of time under cl 21, which would have the effect of extending the dates for completion. It initiated the dispute resolution process under the contract. [12].

Appellant’s case

The appellant sought an order that until determination of its originating application, the respondent be restrained from having any recourse to the bank guarantees, on the basis that:

1. Clause 5.5(a) of the contract only entitles the respondent to enforce the bank guarantees “to recover any debt due”. The liquidated damages claimed are not debts due, and would be disallowed by an arbitrator;
2. Section 67J of the Queensland Building and Construction Commission Act 1991 operates similarly, to restrict the respondent to using the bank guarantees for a circumstance where there is in fact an “amount owed”. This cannot apply where there is no amount owed;
3. The respondent did not comply with s 67J(2) of the Act as it did not give notice within 28 days after it became aware, or ought reasonably to have become aware, of its right to obtain the amount owed. [17]–[21].

Issue (1)

Citing the authority of Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 241 – in which the High Court held that “[t]he 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” – the respondent submitted that the appellant had no case for final determination which could provide a legitimate basis for an interlocutory injunction. [23].

Preferring the alternative approach, his Honour characterised the declarations sought as final relief, albeit noting that there was a claim for “further or other orders” in lieu of any specific claim for a final injunction:

“Accepting for present purposes that this court could not determine the merits of the disputes as to whether GLNG is entitled to liquidated damages as it is claimed, it does not follow that no final relief can be granted as is sought by the Originating Application.” [26].

It followed that the appellant’s application for interlocutory relief was not precluded, due to its claim of contractual rights which triggered injunctive relief prior to final adjudication. [27].

Issue (2)

The appellant contended that s 67J(1) only allows the contracting party for a building contract to use a security where there is an actual amount owed to it. [28]. His Honour held that this was not the case. [32] Instead, the section merely affects the right of a contracting party to use a security or retention amount by requiring the notice which it describes. [33].

Issue (3)

In relation to issue (3), his Honour found that the respondent’s notice in relation to the mechanical compliance had been given too late to be compliant with s 67J(2): “Saipem has proved that GLNG may not use the securities for its claim for delay in achieving Mechanical Completion”. [35] In relation to the practical completion, his Honour noted that the respondent’s practical completion certificate was dated 10 December 2014. Its notice was given within 28 days of that certificate. However, the certificate certified the date of practical completion as 9 October 2014. As such, in excess of 28 days passed between that date and the notice under s 67J. [39]. However, having regard to all the circumstances and to correspondence passing between the parties on the subject of completion, his Honour concluded that the applicant’s contention that the notice was too late for the practical completion claim was a weak one:

“As I construe the contract, there was no entitlement to liquidated damages until the date of Practical Completion was certified. If I am incorrect in that construction, the question would be about when GLNG knew or ought to have known that Practical Completion had been achieved, because there could be no awareness of the amount owed without an awareness of the period of delay. I would accept that if, upon the proper construction of the contract, that is a relevant question, then there would be some case for Saipem, from the fact that GLNG ultimately certified the date for Practical Completion as early as 9 October 2014.” [43].

Discussion – balance of convenience and construction of agreement

It was acknowledged that reputational damage would inevitably be suffered by the applicant in the event the guarantees were enforced [44] – recognised in the contract as a risk that should be borne in this circumstance. [60]. Therefore, the central question for determination was whether the addition of the cases of non-compliance with s 67J should offset the balance in favour of an injunction. [61], [62].

Evidently there would be no prejudice to the respondent were an injunction granted, as it would retain security of the guarantees. However, it would not have the benefit of the money to which it was entitled. [63].

Finding it “at least probable that Saipem could pay the amounts claimed, if it has to do so to avoid a demand upon the guarantees” [65], thus avoiding the prospect of substantial reputational damage, and in view of the relatively weak case in relation to s 67J for the notice about practical completion, his Honour made the following orders [68]–[69]:

1. there will be an interlocutory injunction, until determination of the Originating Application or further earlier order, restraining GLNG from having recourse to any of the bank guarantees referred to in the interlocutory application filed 7 January 2015, to recover any of the sum claimed in relation to Mechanical Completion in a letter of 18 December 2014 from GLNG to Saipem.
2. there will be an injunction for a period of 14 days restraining the respondent from having recourse to any of those guarantees for the payment of any of the sum claimed in relation to Practical Completion in a letter from GLNG to Saipem of 18 December 2014.