KEYWORDS: INJUNCTIONS; PERFORMANCE BONDS
KEY TAKEAWAY
Where an injunction will have the practical effect of granting final relief, courts apply a higher standard in determining where the balance of convenience lies. This requires balancing the risk of doing an injustice, and the court must be satisfied that the party seeking injunction would ultimately succeed if the matter went to trial.
Facts
Samsung C&T Corporation (Samsung) subcontracted Laing O'Rourke Australia Construction Pty Ltd (LORAC) for structural steel and related works for the port landside package of the Roy Hill Iron Ore Project.
Less than a year later, Samsung terminated the subcontract for its convenience and the parties entered into an Interim Deed under which the bank guarantees LORAC had provided under the subcontract were returned and replaced by another bank guarantee for $7.5 million (Replacement Security).
As a result of several disputes between the parties, Samsung notified LORAC of its intention to call on the Replacement Security. LORAC applied for an interim injunction restraining Samsung from demanding or receiving the benefit of the Replacement Security.
Decision
Tottle J characterised the terms of the injunction (at [15]) as having "the practical effect of granting LORAC the final relief it seeks".
LORAC argued that it was entitled to an injunction on a number of grounds. The most significant of these was that Samsung failed to satisfy the contractual condition for a call on the Replacement Security requiring it to consider, acting bona fide, that it is or will be entitled to recover more than $7.5 million from LORAC.
Although Tottle J accepted that LORAC had established that there was a serious question to be tried in respect of whether this condition had been satisfied, his Honour was not persuaded by LORAC's arguments that Samsung had not acted bona fide in calling on the Replacement Security.
LORAC relied on ten matters which it argued gave rise to an inference that Samsung's call on the Replacement Security failed the contractual requirement. Among these were that each new assessment by Samsung of the cumulative value of the Subcontract works showed a progressive downward valuation of those works, and the basis of these assessments were not clearly explained.
Tottle J took the view that the evidence LORAC sought to rely on in establishing a lack of bona fides was not sufficient to meet the standard required in a case where the injunction would have the effect of changing, as opposed to preserving, the status quo. That status quo derived from the parties' bargain about which of them would bear the risk of being out of pocket pending final determination of their disputes. To avoid the injustice that Samsung might suffer if it were deprived of the benefit of its contractual bargain (that is, that LORAC would bear the risk of being out of pocket while disputes were finally determined), Tottle J found (at [135]) that LORAC's case that there was a serious question to be tried ought to be "...of sufficient strength to engender confidence that it would succeed if the matter went to trial".
LORAC's case was held to a higher standard because the practical effect of LORAC's injunction was to give it final relief.
The general observations that Tottle J made suggest that a court is highly unlikely to grant an injunction based on an inference that a party calling on a security has failed to comply with contractual requirements governing that call. The logic behind this is easy to understand: since there is a greater risk of error when drawing an inference than concluding from proven facts, it is more likely the court will cause injustice to the party seeking the benefit of a security if it grants an injunction based on an inference of non-compliance with contractual provisions governing that security.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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