Heyday5 Pty Ltd v Cockram Constructions NSW Pty Ltd

1. [1]

   This is an application by the plaintiff for interlocutory relief to restrain the first and second defendants from calling on a performance bond ("the Bond") issued by the third defendant ("QBE") in the sum of $573,067.20. QBE has appeared and submits to any order, other than as to costs.

2. [2]

   For convenience, I will refer to the first and second defendants as "the defendants". The reference in some of the documents set out below to “MWC” is in effect a reference to the defendants.

3. [3]

   The plaintiff was sub-contracted by the defendants in relation to a project in Ultimo known as the "Global Switch Sydney East Stage 1".

4. [4]

   The sub-contract between the plaintiff and the defendants includes the following documents:

5. [5]

   I will refer to these documents, together, as "the Contract".

6. [6]

   Clause 28 of the Standard Conditions is in the following terms:

7. [7]

   The expression "Retention Terms" (referred to in cl 28(a) above) is defined at cl 2(cc) of the Standard Conditions to mean the “retention terms detailed in the Purchase Order”.

8. [8]

   The Purchase Order describes the "Retention Terms" simply as "Bank Guarantees".

9. [9]

   The "Bank Guarantees" to be provided are set out in cl 28 of the Scope of Works as follows:

10. [10]

    The application before me concerns the first of those "Bank Guarantees"; the document which I have referred to as "the Bond". The second "Bank Guarantee" referred to in the Scope of Works (which I will call "the Other Bond") was also issued by QBE and is in the sum of $382,044.80. The plaintiff seeks no relief in respect of the Other Bond.

11. [11]

    The final relief sought by the plaintiff is that the defendants "return" the Bond to it on the basis that, first, on the proper construction of the Contract, the defendants were bound to release the Bond upon the achievement of practical completion of the sub-contract (“Practical Completion”) and, second, as a matter of fact, Practical Completion has occurred.

12. [12]

    Mr Mitchell, who appeared for the plaintiff, accepted that the Bond is of a type that not only provides security for a valid claim but also one that allocates the risk as to who shall be out of pocket pending resolution of a dispute: Clough Engineering Limited v Oil and Natural Gas Corporation Limited [2008] FCAFC 136 at [79] per French, Jacobson and Graham JJ citing Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 at 821, per Charles JA, and 826, per Callaway JA.

13. [13]

    However, it is the plaintiff's case that the time for the defendants to exercise any rights under the security constituted by the Bond has passed, and that the provisions in the Contract concerning the Bond no longer have any interim risk allocation role to play.

14. [14]

    The defendants have not threatened to call on the Bond. However, since January 2015 the plaintiff has itself and through its solicitors repeatedly called on the defendants to release the Bond. Following without prejudice discussions between the parties between 24 April and 23 June 2015, the plaintiff, through its solicitors, repeated its request that the defendants return the Bond and threatened to commence proceedings in the absence of such return. The defendants' response, sent through their solicitors on 26 June 2015, was non-committal:

15. [15]

    Hence, these proceedings were commenced on 29 June 2015, and heard by me yesterday.

16. [16]

    The plaintiff seeks orders that pending final determination of the proceedings, the defendants be restrained from making any demand for payment under the Bond and that QBE be restrained from making any payment pursuant to the Bond.

17. [17]

    Serious question to be tried?

18. [18]

    What must ultimately be determined in the proceedings is whether:

19. [19]

    As to Issue 1, there does appear to be a tension between cl 28(d) of the Standard Conditions set out at [6] above (which, relevantly, provides that the defendants will on Practical Completion reduce the security provided by the plaintiff "by half") and cl 28 of the Scope of Works set out at [9] above (which provides that on Practical Completion the Bond is to be "released" entirely). The Bond represents more, in dollar terms, than "half" of the security provided by the plaintiff. Thus, on one view, if cl 28(d) of the Standard Conditions prevails over cl 28 of the Scope of Works, the former would not accommodate the plaintiff's application for return of the Bond.

20. [20]

    Clause 12 of the Standard Conditions provides for an "order of precedence" of the documents comprising the Contract as follows:

21. [21]

    Although cl 12(d)(i) refers to "any Special Conditions" identified in the "Purchase Order", the Purchase Order does not, in terms, refer to any document by the name "Special Conditions".

22. [22]

    However, as Mr Mitchell submits, it seems strongly arguable that the parties intended the reference in cl 12(d)(i) to “any Special Conditions” be a reference to the Scope of Works, as that document does, in fact, contain conditions peculiarly referable to the sub-contract and thus "special" in that sense.

23. [23]

    It is thus arguable, and there is thus a serious question to be tried, that the Scope of Works prevails over the Standard Conditions to the extent of any inconsistency and, accordingly, that the defendants' obligation (subject to Issue 2) is to release the Bond on Practical Completion.

24. [24]

    As to Issue 2, the issue which arises is whether, on the proper construction of the Contract, cl 28(d) of the Standard Conditions should, in effect, be read as if it were prefaced by words to the effect of "subject to sub-cl (c)". The matter for consideration is whether, looking at the totality of the Contract, including the unqualified condition of release of the Bond in cl 28 of the Scope of Works (and all other properly receivable material), this was the intention of the parties. I do see difficulties with this argument, but I accept that the point is at least arguable.

25. [25]

    As to Issue 3 (that is, whether there has been Practical Completion), Mr Mitchell pointed to a letter sent by the defendants to the plaintiff on 25 March 2015 (signed by the “Managing Director”). Mr Mitchell submitted that this letter contains a "clear admission" that Practical Completion had been achieved, by either 27 November 2014, 18 December 2014 or 4 January 2015 (depending on how one reads the letter). The letter certainly asserted that the plaintiff was late in achieving Practical Completion (that is, had "failed to achieve Practical Completion by the Completion Date") and thus evidently accepted that Practical Completion had taken place. The letter made a claim for liquidated damages for a specified number of days on that basis.

26. [26]

    On the other hand, Ms Shaw, who appeared for the defendants, pointed to cl 4(e) of the Standard Conditions, which provides that it is a condition precedent to Practical Completion that the plaintiff procure the provision of warranties and the like in relation to componentry used by it in the course of the sub-contract. Ms Shaw also drew attention to cl 1.22 of the Package F16 Specification, which provides that relevant warranty certificates must be included in something called the "O and M Manuals". Ms Shaw tendered a version of the "O and M Manuals" to show that there are no warranties in them. Ms Shaw submitted that, in those circumstances, the plaintiff has not demonstrated that the condition precedent specified in cl 4(e) of the Standard Conditions has been satisfied.

27. [27]

    I do not see this as a matter of decisive consideration at this stage of the proceedings. The application is being heard urgently and on an interlocutory basis. There is no suggestion that the evidence before me now is all the evidence that will be available at the hearing.

28. [28]

    Further, the fact that the defendants, on 25 March 2015, made a demand prefaced on the assumption (if not the assertion) that Practical Completion had by then been achieved points to the distinct possibility, at least, that the condition precedent referred to in cl 4(e) of the Standard Conditions has, in fact, been achieved or, alternatively, that there has been a waiver by the defendants of any entitlement to rely on this condition precedent or an election not to do so. These are all matters to be explored in the final hearing.

29. [29]

    In all those circumstances, I am satisfied that there is a serious question to be tried as to whether there has been Practical Completion and the plaintiff is now entitled to return of the Bond. In my view, the plaintiff has a strong prima face case for relief.

Balance of convenience

1. [30]

   I turn now to the balance of convenience. There are a number of factors at play.

2. [31]

   The first is that although the defendants have refused to undertake not to call on the Bond or give any notice of intention to do so, the defendants have made no threat to call on the Bond and manifested no intention, at least explicitly, to do so. That is despite the fact that, since January 2015, the plaintiff has been calling on it to return the Bond.

3. [32]

   Granting the plaintiff the relief it seeks will ensure that situation obtains until the final hearing. In that sense, granting the injunctions would, in a practical sense, preserve the status quo.

4. [33]

   Second, the defendants do not assert that they would be prejudiced if interlocutory relief were granted. In that regard, Mr Mitchell pointed out that the Bond does not expire and, in any event, the defendants will still have in place the Other Bond, in respect of which the plaintiff seeks no relief. Mr Mitchell did, however, accept that if the plaintiff's position is not ultimately upheld, there would be arguable prejudice to the defendants in not having been able to avail themselves of what might otherwise be their entitlements under the Contract.

5. [34]

   Mr Mitchell further submitted it was likely that the plaintiff would suffer "reputational and financial harm" if the Bond was called on "without justification". There is, however, no evidence to justify that submission.

6. [35]

   Mr Mitchell drew my attention to the observations of Macfarlan JA in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 at [44] and [45]:

7. [36]

   However, in the same case, Young JA said at [70]:

8. [37]

   In this case, I have no basis upon which to draw any conclusion as to what reputational damage the plaintiff might suffer if the Bond were to be called on by the defendants. To express any view or draw any conclusion would be to engage in speculation.

9. [38]

   As to any "financial harm" the plaintiff might suffer were the Bond to be called on, the plaintiff has adduced no evidence as to what would be the consequence in that event. There is no reason to doubt that QBE would, in the event of a call by the defendants, honour its obligations and pay the defendants the face value of the Bond. There is no evidence before me of what arrangements exist between QBE and the plaintiff in that regard. However, assuming that QBE would, in the event of a call on the Bond, have a contractual right of indemnity against the plaintiff, there is no evidence of what impact the exercise by QBE of that right would have on the plaintiff. Obviously, in that event, the plaintiff would have to pay the face value of the Bond to QBE and suffer detriment to that extent. There is no evidence, however, that this would adversely affect the plaintiff's business operations. For all I know, the plaintiff has cash reserves it could call on, without adverse impact on its business operations, to meet any claim by QBE. It was peculiarly within the power of the plaintiff to adduce such evidence and its absence counts against the grant of interlocutory relief.

10. [39]

    Ms Shaw submitted that interlocutory relief should be denied because damages would be an adequate remedy for the plaintiff, were it to be denied interlocutory relief and were its position nonetheless to be upheld at a final hearing.

11. [40]

    In that event, in order to establish actionable damage at the final hearing, the plaintiff would have to show that the defendants were not justified in calling on the Bond. That would give rise to a determination, on a final basis, of the three issues I have outlined above. It would also, in all probability, involve the determination of other issues arising under the sub-contract, including those referred to in the defendants' letter of 25 March 2015. It appears very likely, and I put it no higher than that, that the defendants will make a cross-claim in which to agitate the matters referred to in its 25 March 2015 letter, and perhaps other matters. If, overall, the plaintiff achieves success in those matters, it will obtain an award of damages. Mr Mitchell did not suggest there was any reason to doubt the defendants would be able to meet any damages award. However, Ms Shaw did not direct my attention to any evidence adduced by the defendants as to their capacity to meet a damages award. It was peculiarly within the defendants' power to adduce such evidence. What is sauce for the goose must also be sauce for the gander. In those circumstances, I am not able to come to any conclusion as to whether damages would be an adequate remedy.

12. [41]

    Ms Shaw also pointed to the delay between January 2015, when the plaintiff first called on the defendants to return the Bond, and 29 June 2015, when it commenced these proceedings. However, the evidence reveals regular communication between the parties during that period dealing with the question of the return of the Bond, including the without prejudice discussions and the non-committal response from the defendants to which I have referred. Further, as I have said, there has been no indication from the defendants in the course of correspondence of any inclination to call on the Bond. I do not see this factor as weighing heavily in the balance.

13. [42]

    Mr Mitchell submitted that, were the defendants to remain free to call on the Bond, it "would give them an unfair commercial edge in any commercial negotiations that might ensue as to their foreshadowed claim [in their letter of 25 March 2015] for liquidated damages". I do not see this factor as having great weight. As Ms Shaw pointed out, if the defendants have a "commercial edge", it is by reason of their entitlements under the Contract, whatever they might be construed to be.

14. [43]

    I do find this matter to be finely balanced. Overall, however, I am persuaded to grant the plaintiff the relief it seeks.

15. [44]

    As I have said, I see the plaintiff as having a strong prima facie case and, overall, have concluded that the balance of convenience lies in favour of the plaintiff.

16. [45]

    Upon the plaintiff, by its counsel, giving to the Court the usual undertaking as to damages, I make orders in accordance with paragraphs 7 and 8 of the Summons:

    1. (1)

       That until further order the first and second defendants be restrained from making any demand for payment under the Bond.

    2. (2)

       That until further order the third defendant be restrained from making payment pursuant to the Bond.

17. [46]

    I order that the costs of this application be the plaintiff's costs in the cause. I make no order as to the costs of QBE at this stage.

18. [47]

    I excuse QBE from further attendance. Of course, QBE may appear on whatever occasion it likes, at its own risk as to costs.