CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] HCATrans 147 (14 July 2017)

Last Updated: 25 July 2017

[2017] HCATrans 147

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P30 of 2017

B e t w e e n -

CPB CONTRACTORS PTY LTD (ACN 000 893 667)

Applicant

and

JKC AUSTRALIA LNG PTY LTD (ACN 154 383 409)

Respondent

Application for interim injunction

NETTLE ACJ

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 JULY 2017, AT 10.27 AM

Copyright in the High Court of Australia

MR J.A. THOMSON, SC: May it please the Court, I appear with MR M.R. COLLINS on behalf of the applicant. (instructed by King & Wood Mallesons)

MR S.K. DHARMANANDA, SC: If it please the Court, I appear with my learned friend, MR T.J. PALMER, for the respondent. (instructed by DLA Piper Australia)

HIS HONOUR: Yes, Mr Thomson.

MR THOMSON: Thank you, your Honour. Thank you for agreeing to this this urgently. May I commence by identifying the material which the Court ought to have before it: the application for special leave to appeal and its attachments; there is a summons for interim injunction. There ought to have been filed, but I have with me, an undertaking as to damages – can I please ask if my solicitor could hand that up? It has been provided to my friend.

HIS HONOUR: Yes, thank you.

MR THOMSON: There also ought to be the submissions in support of an interim injunction which has been filed by the applicant. There are some opposing submissions filed by my learned friends for the respondents and there are two affidavits – the affidavit of Mr Jason Zeb, sworn on 10 July 2017 and an affidavit of Ms De Silva, affirmed on 12 July 2017, and with the Court’s leave I read those affidavits.

HIS HONOUR: Yes.

MR THOMSON: Thank you. The last affidavit of Ms De Silva contains the written reasons of the Court of Appeal for not granting an injunction to prevent the respondent calling upon the bonds which in aggregate are about $26 million until after determination of this application for special leave. Those written reasons were not available at the time that the submissions were filed by us and that is why it has been provided separately.

HIS HONOUR: Thank you.

MR THOMSON: At a threshold level, the question as to whether the Court ought to grant interim relief to the applicant pending the determination of its application for special leave depends upon how the Court assesses the prospects of success for the special leave application. Your Honour of course knows that the test which has been applied by this Court in a number of cases is whether there are substantial prospects that a special leave application will be granted and, as we draw attention to in our submissions, that test has been applied in certain cases by stating that an application does not have insubstantial prospects of special leave being granted, the reason being elaborated by her Honour the Chief Justice in Mercanti v Mercanti and that the prospects of special leave being granted do not need to be high.

We have filed our special leave application and that contains detailed reasons why special leave to appeal is sought. In effect, the applicant says that the case raises a number of legal questions of general importance, particularly in respect of the proper construction of bank guarantees or performance bonds. This Court has recently considered certain aspects of bank guarantees in the Simic decision, but that case did not consider the approach to construing the underlying right of a party to have recourse to the unconditional bank guarantees procured by the other contracting party.

HIS HONOUR: They have been fairly well-established principles for quite some time now, have they not?

MR THOMSON: Yes, we would say that there are two categories of case. On the one hand, there are cases where the contractual rights of recourse have been expressed so that the party entitled to call upon the bond has to believe that it has an entitlement to call upon the bond. And there is a second category of case where the contractual right of recourse has not been expressed by reference to any degree of belief or subject of understanding on the party calling upon the bank guarantee or the performance bond.

There are more limited cases in that second category, and there have been in a number of those cases decisions of intermediate courts of appeal where the court has inferred or implied a right of recourse, depending upon the belief of the party, which in effect puts cases in the second category into the same position as the first category. The cases that I mention are the decision of the Full Federal Court in Clough Engineering and the two decisions of the Victorian Court of Appeal in Bachmann and Fletcher Constructions. This case is also a case in the second category and the question that arises is whether it should be put into the same position as cases in the first category.

Can I say that the reasoning which has been adopted to justify the result in the second category of cases has differed to some extent. In Clough Engineering there was a significant emphasis placed upon the terms of the performance bond itself which stated that the party with the right of recourse could call upon the bond, notwithstanding any dispute with the account party who had procured the bond. The Full Federal Court considered that the terms of the performance bond indicated that the beneficiary of the bond was entitled to call upon the bond even if there was a dispute. So, there was an emphasis there upon the particular unconditionality of the undertaking used to infer the commercial purpose of the right of recourse.

HIS HONOUR: Would that reasoning not be squarely applicable in this case?

MR THOMSON: It would be if it had been adopted squarely. It has been said in the Court of Appeal that it tended to confirm the result that they adopted, and the point that we make is that the reasoning has this logical flaw; we say, with respect, that the purpose of saying that a bond can be called from a financial institution, notwithstanding that there is some underlying dispute, is to prevent the financial institution being drawn into the underlying dispute, it is for the purpose of protecting the financial institution from having to get into the investigative phase itself as opposed to defining the rights between the two parties on the underlying contract.

HIS HONOUR: What about the point that the guarantees would expire?

MR THOMSON: It is the case that the guarantees would expire in this particular situation, but your Honour will know that the guarantees are for any amount that is payable, not just in respect of liquidated damages, so that it does not inevitably follow that in every case the guarantees would expire in respect of a dispute which has to be resolved by arbitration.

Now, the consideration has been given particular emphasis in the Court of Appeal below because of the way that it has applied to liquidated damages, but we say that it does not inevitably follow because of the fact that the right of recourse is in respect of not only liquidated damages but a number of other amounts that could also be payable.

HIS HONOUR: I must say that that line of reasoning seemed very familiar to me when I read it. It comes from Justice Brooking’s judgment of – it must be 10 or 20 years ago now.

MR THOMSON: Yes, indeed.

HIS HONOUR: Twenty years ago – time goes quickly.

MR THOMSON: Yes. And the way that Justice Brooking commenced his judgment – he ended at the point that your Honour has just mentioned, but the way he commenced it was to ask the question: what is the purpose, the commercial purpose, of these bonds, and he inferred that the commercial purpose was to define who should be in or out of the money during the pendency of the dispute.

With respect, a performance bond or a bank guarantee has as its basal purpose an indemnity or a security for damages that are properly payable, and we have referred to the case in the English High Court that says to that effect. It is also the basis upon which the Court of Appeal in New South Wales in Lucas Stuart and also the Court of Appeal in Queensland have expressed some doubts as to the reasoning that was adopted in Clough – that is to say, that the basic purpose is if you asked any contractor about why they were providing this bond is a security for the payment of damages that are actually due, not for the security of the cashflow in a pending dispute.

HIS HONOUR: I have not yet read the two decisions to which you refer, Lucas Stuart and the Queensland Court of Appeal. Do they both go as far as saying that Justice Brooking was incorrect in that reasoning?

MR THOMSON: No, they do not – sorry, if your Honour is referring to the reason about the duration of the bonds, they do not comment upon that. If your Honour is referring to the question about allocation of risk, what they talk about is the fact that in a number of cases they do not particularly identify in their comments Justice Brooking in Bachmann, but they say that it has been suggested that there are dual purposes that can possibly be served by such bonds, and they say that they doubt that the purpose of allocating risk in and out of the – allocating risk about who should be in and out the money during the pendency of a dispute is such a purpose in all cases.

HIS HONOUR: It depends on the language, I suppose, of the contract, does it not?

MR THOMSON: Yes. Can I - - -

HIS HONOUR: Just to come back to the duration of the bonds, the Anaconda point from Justice Brooking’s reasons - - -

MR THOMSON: Yes.

HIS HONOUR: - - - the Court of Appeal in this case understandably put considerable emphasis on that, as I read their reasons for judgment.

MR THOMSON: Yes.

HIS HONOUR: It is distinctly possible, is it not, that if the contractor were not to be put in the money pending resolution of the dispute about the liability the security could lapse?

MR THOMSON: In respect of liquidated damages claims, in the - - -

HIS HONOUR: And conceivably others under the contract.

MR THOMSON: Yes, conceivably others in the sense of – but we would say, with respect, that it is not every dispute and not even disputes about liquidated damages that would inevitably not be determined prior to the end of the bond. I mean, it depends how long the delay goes on and so on. Of course, we accept that with a liquidated damages claim that the likelihood is that it would be determined after provisional acceptance and the warranty period but it does not necessarily follow. For example, the warranty period can be extended for two years. If provisional acceptance is given in this case, in July 2017, as I said – sorry, as we said in the submissions, the arbitration was listed in March 2019, that may well be determined before the end of the warranty period.

HIS HONOUR: But it might not be.

MR THOMSON: It might not be, but we would say that the right of recourse does not inevitably perform no function because it is necessarily the case that the bonds will expire before the right of recourse can be used. If that were the case then, of course, that would have a very significant implication, but in circumstances where that is not inevitable and it does not compel the construction, we would say that you have to pay proper regard to the actual words that have been used in the definition of the right of recourse in the contract itself.

HIS HONOUR: Well, the words are ambivalent, are they not, in this case?

MR THOMSON: Well, whatever the words may say, they certainly do not introduce in any express form any subjective understanding or bona fide belief. They talk about an amount that is payable.

HIS HONOUR: Yes.

MR THOMSON: And that is the precise point where in the second category of cases the courts have introduced subjective elements of understanding into rights of recourse where objectivity has been perhaps part of the definition of the right to recourse but they have inferred or implied the subjective element, and that is why I put them into the second category of case and that represents a significant departure from the words that have been used.

Can I put it another way around? That is to say that it is well known that many of these types of rights of recourse have that element of subjectivity within them, and in this case the parties have not chosen to adopt that element of subjectivity in their definition of the right of recourse in the knowledge that typically it is contained therein. So, in those circumstances, and in the face of a particular choice that has been made by the parties which controls the right of recourse, we say that it would strain and overstrain the words of the contract to infer the requirement of a mental element.

That is as a matter of construction but the matter of construction hinges upon the basic purpose that you ascribe to these bonds, and we say that the basic purpose is only to act as a security for the payment of damages that are properly due and that, we would say, is consistent with what has been remarked upon by the New South Wales Court of Appeal.

Can I just point your Honour to the particular paragraph in our special leave application, which might be of some assistance, where we reproduce what it is that Justice Macfarlan said. If you go to paragraph 61, he says:

My reservation about the decision in Clough is as to whether the contract in that case can truly be . . . intended to achieve both purposes -

and those are the two purposes I have mentioned to your Honour:

Certainly the terms of the performance guarantee that the Full Court relied upon made it clear that the issuer of the guarantee could not withhold payment if a proper call were made but the condition precedent to the principal’s right to call upon the guarantee was expressed in terms of objective fact, that is, “in the event of the Contractor failing to honour any of the commitments entered into under this Contract” . . . It is not obvious to me why the terms of the guarantee given by the issuer should have been regarded as affecting the proper construction of this provision which related to the circumstances in which the Principal was entitled to call on the guarantee.

HIS HONOUR: Yes.

MR THOMSON: That quote was picked up and adopted by the Queensland Court of Appeal in RCR O’Donnell. So there have been those reservations expressed about the reasoning in Clough.

HIS HONOUR: Yes, I see.

MR THOMSON: Can I say as a makeweight perhaps for the reasons why there might be reasonable prospects of obtaining special leave that there are two other matters. First, there is obviously a very substantial amount of money involved in this case - so I know that does not go to the question of general public importance but it does obviously confirm the importance of the case as between the parties. Secondly, that it is not usual to be in a position to bring such a case to the High Court because of the swiftness with which these matters proceed. So, the occasions upon which the Court may be able to deal with the differences of opinion that have been expressed between the reasoning in Clough and the reasoning in the Queensland Court of Appeal and the New South Wales Court of Appeal may be necessarily more limited just simply because of the nature of performance bonds.

HIS HONOUR: It is an opportunity.

MR THOMSON: Yes, precisely. I am not sure if I need to say more about the prospects of success, and I am perfectly happy to, but if it is convenient I can move to the question of the balance of convenience.

HIS HONOUR: Yes, that is the real question, is it not?

MR THOMSON: Yes. There are a number of issues that have been raised. Can I deal with them in order? There is an issue that has been raised about the parallel arbitration proceedings which are happening.

HIS HONOUR: Yes.

MR THOMSON: Your Honour will know from perusing the judgments both of the primary judge and the Court of Appeal, that we made the submission to both of those courts that it should be for the arbitrators to determine this matter, subject to an injunction being granted by the courts to enable the arbitrators to determine it and that proposition was resisted by my friends and was not accepted by either of those courts. Now, we do not press that ground in this Court but it does provide some context to their position, that we cannot now seek an injunction from this Court because we have also sought interim relief from the arbitrators.

Now, the second point is that the interim relief that we have sought from the arbitrators is on different grounds from the grounds upon which we seek it in this Court. In the arbitration – and I am not sure if your Honour has had the opportunity to read the submissions that have been filed on our behalf in the arbitration – the submission starts with the proposition that we adopt the construction that the Court of Appeal has - - -

HIS HONOUR: You say some of it is unreasonable et cetera.

MR THOMSON: Yes, that is exactly right and we invoke some Singapore authority about that.

HIS HONOUR: That is on next Monday, is it not?

MR THOMSON: Yes, that is right, and there is a practical question about if we do not get the injunction for relief from the arbitrators and we do not have injunctive relief from this Court then this is a set of bonds or guarantees that are capable of being called without notice.

HIS HONOUR: Yes.

MR THOMSON: So, we would say that it is just a matter of practical commonsense that we seek the relief from this Court and we seek it as the primary relief, but there is a different basis upon which we have sought it also from the arbitrators. We say that there is no conflict between the bases upon which we seek it because they are different bases and it is a matter of practical utility that we should do so in case we should fail at either stage.

HIS HONOUR: I follow. But why is it one of those rare and exceptional cases where an interim injunction ought to go pending an application for special leave?

MR THOMSON: Well, the first point is that, of course, if the guarantees are called then they no longer exist and - - -

HIS HONOUR: True, but it is just money. I know a great deal of money but it is just money.

MR THOMSON: Well, we say it is not just money; it is also reputation as well. But the first point as a matter of legal technicality is the subject matter of the very litigation is destroyed. Now, I understand what your Honour says about it being “just money”. The reinstatement of any money that has been wrongly claimed would have to be a matter of adjustment between the parties and obviously would not involve the financial institution.

HIS HONOUR: It is not suggested that the contract is not good for the money, is it?

MR THOMSON: It is not suggested either way that one or other is not good for the money. The suggestion – I will leave it at that. But there is this question of reputational damage, and your Honour will see that we have referred in our submissions to a number of decisions from experienced construction judges in New South Wales that were accepted in Queensland that reputational harm to a contractor is a very serious matter, and we have also put on evidence of two different types to demonstrate that reputational harm.

The first type of reputational harm is that it will affect tenders and bids for jobs into the future and you have evidence from Mr Zeb about the fact that very substantial amounts of work are tendered for by CPB every year and that the fact that a want has been called may be of significance. We would suggest it may be of particular significance in respect of government work if there is a tick-the-box attitude that is adopted, so that if a government person sees a question about had the bond been called and they tick that box, that might have a detrimental impact notwithstanding that the circumstances if investigated in a much more full way might alleviate the concern and, of course, there is government work that is being bid for by CPB.

The second type of reputational damage and its impact that is deposed to by Mr Zeb is the fact that if anyone were to simply look at it and say, well, the bonds have been called and that is an indication of a problem with cashflow – and we say it is not but the fact of them being called may well be interpreted as that – would mean that there might be higher financing costs that affect CPB and that is another matter that has been deposed to. Now, there has been no response of evidence put on by JKC suggesting, for example, that INPEX which is the principal of the whole project is levying liquidated damages upon JKC and that is why it wants to levy liquidated damages upon CPB so that it is in a position to use the money from CPB to pay the liquidated damages from INPEX. So there is no suggestion of that at all.

So there is no suggestion at all that JKC is suffering any form of cashflow issue. So on the one hand you have got questions of reputational damage, and courts have acknowledged that that may be a serious thing for construction contractors. On the other hand, we do not have anything of substance from JKC saying that it is going to have any effect at all. So when we combine the fact that the subject matter of the litigation will inevitably be destroyed and that it will have a reputational impact, we say while it seems to be a matter that it is about money, it is not just about money, and that the balance of convenience would lie in our favour.

HIS HONOUR: The subject matter will not be destroyed in the sense that there could not still be an application for special leave and an appeal if you were successful in that?

MR THOMSON: If the bonds were called in the intervening period, there would have to be an amendment to the application in terms at least of the relief, and there would be a question, perhaps, as to whether or not we should have sought a declaration but we did not get a declaration from the Court of Appeal as to the proper construction of the contract.

HIS HONOUR: But you would be entitled to amend, to claim declaration now, you would certainly have an interest sufficient to sustain such a claim.

MR THOMSON: Well, we would very much hope that that is the case, and yes, we accept that point that your Honour has just mentioned, but - - -

HIS HONOUR: The reason I keep harping about it is that once you take away what you say is the destruction of the subject matter of the appeal, as I think that you must in reality, what you are left with is a judgment for money which is not a rare and exceptional case. One does not ordinarily get a stay pending appeal for a judgment for money, unless the creditor is not good for repayment in the event that the appellant is successful and here that does not apply.

MR THOMSON: Yes. Can I make this point? It is not the typical judgment for money because everyone understands that it is a judgment of money which is necessarily affected by a quality of being an interim judgment because it is the payment of money or the keeping of money one way or the other by the parties depending on what will be the real judgment in the arbitration. So, in that sense, it is not in the same category as final judgments for money. It is not a judgment for money that is obtained after the determination of the merits of a dispute. It is a judgment for money to be paid on an intervening basis in circumstances where there will be a proper determination of the merits of the dispute in due course.

Now, of course, we could not have this argument if there had been a proper adjudication of the merits of the dispute about the extensions of time. So, in that sense, this judgment for money has as its very purpose a question about the allocation of risk and whoever is in the money and whoever is out of the money, pending the determination of the merits, will have either satisfied or defeated the purpose of the right of recourse depending upon what the Court determines ultimately about that question.

Now, the point I would make is that if we happen to be wrong, then it seems to us inevitable that the special leave application, and most probably any appeal that might be allowed, would be determined before the arbitration. So that if we happen to be wrong, then we would be in a – sorry, the other side would be in a position where they might have been delayed in the exercise of their right but they would not have been wholly kept out of that right. On the other hand, if we happen to be right and the money is paid, then we will be in a position where the very purpose will have been defeated in respect of the right of recourse. So it falls into a very different category from the normal money judgment.

HIS HONOUR: Why do you say that purpose would be defeated?

MR THOMSON: Because if the purpose is simply to act as a security for the payment of damages ultimately, and we have been required to be out of the money for a year and a half or two years and damages are not payable, then we should not have been out of the money and we will get that money back at the end but the purpose of the right of recourse was only ever on the view that we are discussing, that a person would be able to call it if they had the judgment in their favour.

HIS HONOUR: Let us assume you are right, there is no liability to liquidated damages, the call has been wrongly made, it is thus determined by the arbitrators. Would not the arbitrators then award you the repayment with appropriate compensatory interest?

MR THOMSON: Yes, but in the meantime, what will have happened is that there will have been an assertion by JKC that the purpose of the bond is that they should be in the money pending the dispute, they will have exercised the right, they will have vindicated the right, and they would not have had that right.

HIS HONOUR: But that would be determined in a successful appeal.

MR THOMSON: In a successful appeal to - - -

HIS HONOUR: With appropriate declaration. Assume your application for special leave is granted because of the different points of view between Clough and Mr Justice Macfarlan and it goes on to appeal and you win, you would get declaration that JKC were not entitled to make the call under the bank guarantees which they did, would you not?

MR THOMSON: Well, we would hope so and that we would also get an order for the repayment of any money. But one of the points that we have relied upon is that there is no contractual right to that and that as a matter of fact the money would not have actually been paid under a mistake perhaps because – sorry, if we are right it would have been paid under a mistake of law.

HIS HONOUR: So in the end it really comes back to money. I understand the point about the reputational damage, but the Court of Appeal said, well, if there really is such damage you can get around that by paying the money yourself by way of security rather than allowing the call under the bank guarantee.

MR THOMSON: I understand that and in fact what that does though is it all goes back to a question about what is the fundamental purpose and is it to allocate risk pending a dispute or is it - - -

HIS HONOUR: There is no question about that and that is what will be determined in any appeal if you are granted leave.

MR THOMSON: Yes.

HIS HONOUR: But that is all there to be done. It is something down the track that we can deal with either later this year or next year.

MR THOMSON: Yes, and I suppose the extent that I can take it is as far as I have said, which is that there is a risk one way or the other that whatever the Court finds the purpose of this provision will be defeated by the decision that the Court ultimately makes, but that in circumstances where the only evidence of damage that you have really before you is the evidence about reputational harm, which is not to be diminished, which may well be very significant - - -

HIS HONOUR: But can be overcome by the means that the Court of Appeal suggests.

MR THOMSON: By effectively capitulating and making the payment.

HIS HONOUR: Well, by providing another form of security. That is to say, paying over cash as security rather than leaving the bonds in place.

MR THOMSON: Yes. Well, I think I have said as much as I can about the balance of convenience and we do rely upon the reputational damage as the main - - -

HIS HONOUR: I understand you do and that seems to me to be the essential point, but if it can be alleviated in the way the Court of Appeal suggests, it seems to lose substance. That is why I keep coming back to that. Are they right or wrong? Do you say that they are wrong about that point?

MR THOMSON: Well, there is a difficulty and it is this: that the invoice that has been rendered is an invoice for $39 million. The bonds or guarantees only extend to $26 million. So we would want to make the tender of any amount conditional upon the $26 million being taken but the bonds being released.

HIS HONOUR: I saw that and they went on to say that it is not suggested that it would not be accepted.

MR THOMSON: Yes. Well, there actually nothing said one way or the other about it by JKC.

HIS HONOUR: All right, that is helpful. Thank you, Mr Solicitor.

MR THOMSON: I do not think there is anything more I can help you with.

HIS HONOUR: Mr Dharmananda.

MR DHARMANANDA: Thank you, your Honour. This case is essentially about whether there is a negative stipulation that prevents the call and that falls within the orthodox approach to questions of whether there should be an injunction to prevent a call. That is made clear in terms when attention turns to the application for special leave to appeal and paragraph 39 of CPB’s application where CPB states by reference to the decision in Clough Engineering that:

CPB could only obtain an injunction to prevent JKC having recourse to a guarantee if Article 35.3(a) created an implied negative stipulation -

So that is the essential question and all of the other matters that CPB now seeks to agitate about clauses that are void as being ousters or matters in relation to the tension between Courts of Appeal in Australia are really not to the point because, if one turns to the Court of Appeal’s reasons, it is quite clear that they treated this matter as essentially one of contractual construction of this particular contract and, in our respectful submission, when attention turns to the Court of Appeal’s reasons, this is made very clear indeed.

If I could invite your Honour’s attention in particular to paragraph 82 of the Court of Appeal’s decision of 30 June which is attached to the special leave application, your Honour will see that there is a rejection of CPB’s construction and then the statement that:

it entitles the contractor to have recourse to the Bank Guarantees if at any time the contractor has an honest claim . . . in the events that have happened -

That is merely saying that the claim has to be non-fraudulent. It is not going further and raising some issues about some subjective state of mind. If your Honour then turns to paragraph 88, your Honour will see that the Court of Appeal dismisses the notion that the appeal deals with some important point of general principle. Rather, it is merely a question of the proper construction of this contract, and there is a decided reluctance to engage in any sort of generalised discussion about what the correct approach may be concerning this effect of having a pro forma guarantee attached to the contract.

So no broad principle of construction is stated by the Court of Appeal, no particular preference for the difference in the views that have emerged between Lucas Stuart on the one hand and Clough on the other is stated by the Court of Appeal. They deliberately refrain from embarking on that process. If I could then ask your Honour to look at paragraph 89 where CPB by concession admitted that the unconditional nature of the performance bond can be taken into account. That was the basis upon which submissions were made to the Court of Appeal. So that is a matter of significance, in our submission, when it comes to assessing whether there is going to be a question of public importance.

Then if your Honour turns to paragraph 95, this is the point about the ouster question which my learned friend did not address your Honour on orally, but 95 following on to 98, and 98 in particular makes clear that the Court of Appeal did not rely in a conclusive manner on what is stated in 35.3(b). Rather they say even if it be unenforceable and even if we are not allowed to look at it, the construction that we put forward is based upon the text of this particular contract. That, in our submission, is a matter of some significance.

If your Honour then turns to the decision of the Court of Appeal in relation to the Court of Appeal’s refusal of an injunction by reference to the tests as set out in Burgundy Royale by his Honour Justice Brennan, there are two matters I ought to bring to your Honour’s attention. The first is at paragraph 23, and your Honour will see that the Court of Appeal again states that they did not see this appeal as “an occasion to attempt to state general principles of broad application”, and again there is recorded what CPB accepted in relation to the questions that it had formulated.

Then, your Honour, reference is made by the Court of Appeal to your Honour’s judgments in Ecosse Property at paragraph 25, and thereafter at paragraph 26 to 28 there is attention given to the construction put forward by CPB and the statement that the task that the Court of Appeal saw itself discharging did not go beyond:

the conventional approach to construction –

and:

CPB’s contention that the construction we adopted is, or is likely to be found by the High Court to be, wrong was not developed before [the Court of Appeal], beyond the general submission that it involved reading into GC 35.3(a) words which are not there.

Then the Court of Appeal’s judgment records:

CPB’s contention that its construction avoids that difficulty is not easily reconciled with its submissions on appeal.

So those observations, in our submission, reveal that ultimately the question of contractual construction that is raised by this is not a matter that invites the conclusion that it involves a question of principle or matter of public importance. Insofar as reliance is placed on the decision of the New South Wales Court of Appeal in Lucas Stuart, does your Honour have a copy of that decision?

HIS HONOUR: No, I do not.

MR DHARMANANDA: I can hand one - - -

HIS HONOUR: Thank you, that would be kind. Thank you.

MR DHARMANANDA: If I could invite your Honour’s attention to paragraphs 40 to 42, where Appeal Justice Macfarlan identified the two purposes that such a security may provide and then deals with it essentially as a matter of the construction of that individual contract.

HIS HONOUR: I suppose the point that his Honour makes in paragraph 41 could be said to be applicable here, could it not?

MR DHARMANANDA: Well, your Honour, that turns on the proper construction of the contract and that is our point.

HIS HONOUR: It is the payable point, is it not?

MR DHARMANANDA: I beg your pardon?

HIS HONOUR: That is the payable point.

MR DHARMANANDA: Yes, your Honour, it is one word within one clause which the Court of Appeal construed and that is why we say that it does not engage the disputation that may exist as to the appropriate approach to the proper construction of such instruments.

So, in short, your Honour, CPB has not shown that it has substantial prospects that special leave will be granted and, in our submission, no question of law or public importance is raised. Then, turning to the balance, there are, as we identified in our written submissions, factors that go against CPB quite heavily. The first is it is not suggested that JKC is not good for the money and my learned friend confirmed that to be the case this morning.

The second is, as identified and as was the subject of concession in the Court of Appeal, any reputational harm could easily be avoided by the tender of cash on condition and that is made apparent in the transcript before the Court of Appeal where questions were raised by his Honour Justice Beech of my learned friend. That is a course that is available to it, a course that he has not taken, and on the other side of the balance, JKC is being kept out of its contractual rights, as has been found, by four judges of the Supreme Court of Western Australia including the Court of Appeal. That, in our respectful submission, is a matter of some significance in a project of this nature where JKC happens to be the main contractor that is answerable up the chain to the principal. It is the nature of such instruments, your Honour, that they work in a particular way in these type of linked contracts. Those are our submissions, your Honour.

HIS HONOUR: Thank you very much, Mr Dharmananda. Any reply, Mr Thomson?

MR THOMSON: Two very short points. In relation to JKC being good or not good for the money, I should draw your Honour’s attention to paragraphs 88 and 89 of Mr Zeb’s affidavit. In effect, he says:

JKC does not own the land on which the . . . Project is being constructed . . .

I am not aware of JKC’s financial position but consider that JKC may not be in a position to repay the amount of the Security. This is because the entire Project is riddled with high value disputes from subcontractors claiming against JKC, and I therefore believe that JKC may at some stage be troubled with debts due and payable in excess of its own financial capabilities in favour of multiple subcontractors who have worked on the project.

I think what your Honour can infer is simply that we just do not know what the position about JKC is because we do not have that information and it has not been put before the Court. The other thing that I would say is that some emphasis has been placed by my friend upon this being a bespoke process of construction in relation to particular terms of the individual contract. In a sense, every matter of contractual construction will always be a bespoke thing unless you are doing it in terms of a standard form contract.

However, this case raises an issue of general importance by reason of the introduction of the subject development into a clause which does not immediately appear to have that in it in relation to a right of recourse and, as I have indicated, that is a question that has occupied the minds of intermediate Courts of Appeal at a number of different levels in a number of different States on large construction projects across the last few decades.

And that question does hinge upon a point of general principle which is a question about who should bear the risk in this type of contract when it is not expressly allocated. So we would say that notwithstanding that you can try and diminish the point by saying it is a bespoke contract and you always have to look at the particular terms, then it is a case which involves a general point of principle about construction issues.

Can I say that he made some reference to a concession that the Court of Appeal said in paragraph 89 of the judgment that we had accepted “the unconditional nature of the performance bond . . . can be taken into account”. It is a matter of detail only but if you look at the particular transcript references that the court gave, if you look at page 62 which follows one of the transcript references it was abundantly clear that we certainly took it into account only for the purpose of understanding what the reason for the unconditional nature of the undertaking was, which we have always put and maintained in the court, was to prevent the financial institution being drawn into the underlying dispute. Those are the matters that we would say in reply.

HIS HONOUR: Thank you very much. Gentlemen, I am not yet ready to give judgment but I appreciate that it needs to be given today. I am also appreciative of the fact you probably want to get back to the other side of the country.

MR THOMSON: Your Honour, can I say that the arbitration hearing due to time differences actually does not occur until 7.00 pm Western Standard Time which would be 9.00 pm Eastern Standard Time on Monday. So, if your Honour needed the weekend and all of Monday, then that would be satisfactory.

HIS HONOUR: No, I do not think I will need that long. What I was contemplating it would be about 4 o’clock or 4.30 this afternoon.

MR THOMSON: Certainly.

HIS HONOUR: Is that too inconvenient to you, Mr Dharmananda?

MR DHARMANANDA: I had intended to take an earlier flight, your Honour.

HIS HONOUR: There is no reason why you need to stay; you could be excused if you wished to - - -

MR DHARMANANDA: Thank you very much, your Honour.

HIS HONOUR: Well, I will adjourn now until 4 o’clock this afternoon.

AT 11.12 AM THE MATTER WAS ADJOURNED
UNTIL LATER THE SAME DAY

UPON RESUMING AT 4.03 PM:

HIS HONOUR: This is an application for an interim injunction to preserve the status quo pending determination of an application for special leave to appeal from the dismissal by the Court of Appeal of the Supreme Court of Western Australia (Buss P, Murphy and Beech JJA)[1] of an appeal from the judgment and orders of Le Miere J[2], dismissing an application by the applicant (“CPB”) for an interlocutory injunction to restrain the respondent (“JKC”) calling on and realising funds totalling $26,100,054.10 in connection with four bank guarantees (“the bank guarantees”) provided by CPB to JKC as security under a construction sub-contract made 12 October 2012 for engineering, procurement, construction and commissioning works relating to the construction of various permanent onshore buildings associated with the Ichthys LNG Project.

As appears from Le Miere J’s judgment, the Ichthys LNG Project is a very large off-shore oil and gas project that includes an onshore processing facility. JKC is the head contractor responsible for the construction and delivery of the project. CPB entered into a sub-contract with JKC to perform engineering, procurement, construction and commissioning works relating to the onshore buildings associated with the project. The sub-contract is comprised of a number of documents including Subcontract General Terms & Conditions (General Terms), Schedule of Compensation, and Work Time Schedule.

Earlier this year, JKC demanded that CPB pay liquidated damages of $39,225,000, which JKC alleges are due by reason of delays by CPB in completion of the sub-contract works. CPB disputed JKC’s claim, contending that CPB is entitled to certain extensions of time which JKC has wrongly refused to acknowledge. The dispute as to the extensions of time has since been referred to international arbitration. CPB feared, however, that JKC would have recourse to the bank guarantees to recover the amount of liquidated damages before the dispute as to the extensions of time was determined.

CPB instituted proceedings in the Supreme Court of Western Australia seeking an injunction to restrain JKC having recourse to the bank guarantees until the dispute as to time extensions had been determined. On 20 April 2017, Le Miere J dismissed that application on the basis that CPB had not made out a prima facie case that JKC was not entitled to call on the bank guarantees and, in any event, because his Honour considered that the balance of convenience favoured the refusal of an interlocutory injunction. On 30 June 2017, the Court of Appeal refused CPB’s appeal from the orders of Le Miere J, substantially for the same reasons as had been given by Le Miere J. The Court of Appeal did, however, grant an interim injunction, until 6 July 2017, to allow time for CPB to make an application for an interlocutory injunction pending determination of CPB’s application to this Court for special leave to appeal. On 6 July 2017, the Court of Appeal dismissed that application[3].

On 4 July 2017, CPB made an application for an interim measure in the international arbitration to prevent JKC having recourse to the bank guarantees, on the basis that, even assuming the correctness of the construction attributed by Le Miere J and the Court of Appeal to the relevant provisions of the sub-contract, it would be unreasonable and contrary to Art 6.7 of the sub-contract for JKC to call upon the bank guarantees. That application is listed to be heard by the arbitrators at 7.00 pm AWST on 17 July 2017, and they have granted interim relief until they make their decision, or until 23 July 2017, whichever comes first. Accordingly, if the arbitrators do not grant the interim measure which is sought, JKC will be free to call on the bank guarantees.

Two of the bank guarantees may expire on or about 30 July 2017 but CPB has offered to undertake that, if a stay pending the determination of the application for special leave is granted, it will arrange for extensions of the guarantees.

Jurisdiction

The Court has inherent jurisdiction to grant an interim injunction to preserve the status quo pending determination of an application for special leave to appeal. But the jurisdiction is extraordinary and is to be exercised only in exceptional circumstances where refusal to grant the relief which is sought would render an appeal nugatory[4]. Other factors relevant to the exercise of the Court’s discretion to grant such relief include, but are not limited to, whether there is a substantial prospect of special leave to appeal being granted; whether the applicants have done what they could to procure interim relief from the court below; whether the grant of interim relief would cause loss to the respondent; and, otherwise where the balance of convenience may lie[5].

Prospects of success

The grounds of the application for special leave to appeal in substance repeat the grounds of appeal to the Court of Appeal. It is contended that they yield two special leave questions appropriate for this Court’s consideration:

(1) Whether a contractual provision can inform the proper construction of other contractual provisions if it is void or unenforceable because it ousts the Court’s jurisdiction? and

(2) When does a provision prescribing the circumstances in which recourse may be had to a bank guarantee have the purpose of allocating risk between contractual parties pending resolution of a dispute over whether an amount is due?

In substance, the Court of Appeal answered the first of those questions, yes, consistently with views expressed by the Court of Appeal of the Supreme Court of Victoria in Anaconda Operations Pty Ltd v Fluor Daniel Pty Ltd[6]; and answered the second question to the effect that it depends on the terms and context of the contract in issue but, in this case, having regard to the terms and context of the sub-contract, the circumstances in which recourse could be had to the bank guarantees assisted in the conclusion that a purpose of the bank guarantees was to ensure that JKC would be “in the money” pending determination of any dispute as to CPB’s liability for liquidated damages.

As at present advised, I take leave to doubt that the chances of CPB succeeding in its application for special leave would be sufficient to warrant the grant of the relief that is sought. Although my perception of the matter is necessarily preliminary and at best tentative, the principles applicable to the construction of bank guarantees are well established[7] and, subject to one possible exception to which it will be necessary to refer, the reasoning and conclusions of the Court of Appeal accord closely with the weight of authority.

The exception concerns views expressed by Macfarlan JA (with whom Campbell JA relevantly agreed) in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd[8] as to whether the fact that a bank guarantee is “unconditional” (in the sense that the issuer of the bank guarantee is obliged to pay without argument as to the underlying liability under the construction contract) is or may be an indication that amounts “payable” under the construction contract are permitted to be claimed under the bank guarantee notwithstanding that the underlying liability under the construction contract is bona fide disputed. Macfarlan JA stated[9] that, contrary to the approach in Clough and cases which have followed it, it was not obvious to his Honour:

“why the terms of the guarantee given by the issuer should have been regarded as affecting the proper construction of this provision which related to the circumstances in which the Principal was entitled to call on the guarantee”.

Counsel for the CPB submitted that the difference in approach as between Clough and the cases which have followed and applied it, and Lucas Stuart, raises a point of principle of general importance that it is in the interests of justice for this Court to consider.

That may or may not be so; it will be for the panel that determines the application for special leave to decide. But I observe that a possible difficulty with the point is that it appears to have been accepted before the Court of Appeal[10] that, in this case, the unconditionality of the bank guarantees was a relevant consideration in the determination of what was meant by “payable” in clause 35.3(a) of the sub-contract.

Balance of convenience

More to the point, however, I am certainly not persuaded that the balance of convenience lies in favour of CPB. It is true, as CPB contends, that, if JKC has recourse to the bank guarantees, the subject matter of the application for special leave to appeal will, in one sense, be destroyed. The bank guarantees will be discharged, or at least discharged pro tanto. But in substance, all that will have occurred is that a sum of money will have been paid over to JKC; and, as was conceded, depending upon the outcome of the international arbitration that sum may be recovered. This is not a case where JKC’s calling on the bank guarantees will render the application for special leave or any appeal thereafter futile[11].

The question of whether JKC was entitled to have recourse to the bank guarantees can still be argued after JKC has had recourse to the bank guarantees; and, if special leave to appeal is granted, the question of whether JKC was entitled to have recourse to the bank guarantees may then be determined on appeal. It would be an appropriate case for declaratory relief[12]. If CPB is successful in the appeal, CPB may move to recover any amounts paid to JKC under the bank guarantees to which it is determined JKC was not entitled. And it was not suggested below that CPB would be unable to recover the moneys or even that CPB would be caused any cashflow or other financial stress pro tem[13]. Subject to a suggestion of possibly increased costs of finance, that remained the case in the course of argument before me.

In the affidavit of Jason Zeb sworn 10 July 2017 in support of the application, it was deposed that a call by JKC on the bank guarantees could “potentially have an adverse effect on the financial position of CPB” because “[i]f a financial institution assesses CPB or other members of the CIMIC group [of which CPB is a member] as having a high or higher degree of financial risk, this can affect the price of CIMIC obtaining capital generally”. Similarly, it was stated that “CPB may also suffer adverse consequences to its lending arrangements as the price of CPB’s existing financing will increase”. Since that evidence was not challenged, I accept it. But it is to be observed that it is expressed in markedly tentative terms and, although Mr Zeb also stated in the affidavit that it could prove difficult to quantify the amount of loss which CPB might thereby suffer, it was not suggested that the amount of any such loss could not be assessed and recovered in the international arbitration if found to be due.

Mr Zeb further deposed that, if JKC makes a call on the bank guarantees, CPB’s “reputation in the industry will be adversely affected” the result of the liability to the bank thus incurred needing to be brought to account in CPB’s and CIMIC’s books of account, and thus would be perceived negatively by CPB’s customers and financiers. Once again, that evidence was not challenged and, therefore, I accept it. But I observe that, although a call on the bank guarantees would need to be reflected in CPB’s books of account, so too would need to be recorded the contingent asset constituted of CPB’s claim for repayment of the moneys which it says were not payable. The true and fair view of the company’s financial position thus stated would represent a true reflex of the facts, namely, that there is a dispute as to CPB’s liability for liquidated damages which remains to be determined by international arbitration.

Mr Zeb stated as well that a call on the bank guarantees would be an indication to “the market” that CPB cannot uphold its obligations in delivering projects. Perhaps; but I take leave to doubt it. Granted, as CPB contends, the prospect of reputational harm has been accepted as a relevant consideration by several experienced construction law judges[14]. But each case depends on its facts. Here, it is clear from Le Miere J’s and the Court of Appeal’s reasons for judgment that there has not yet been a determination of CPB’s alleged substantive liability for liquidated damages – that remains to be determined in the international arbitration – and it is clear from the Court of Appeal’s reasons for judgment that their Honours’ conclusion as to the proper construction of the sub-contract is that JKC should “be in the money, to the extent of the Bank Guarantees, pending resolution of any dispute”[15]. If that be correct, and until and unless there is a successful appeal it must be accepted that it is correct, the fact that JKC is permitted to draw down under relevantly unconditional bank guarantees pending determination of the issue of substantive liability can hardly be seen as reflecting on CPB’s performance or, therefore, reputation as a contractor.

Finally, as was in effect also observed by the Court of Appeal, it is open to CPB to avoid risk of reputational damage by tendering a sum equal to the amount of the claim, on account, in substitution for the amount payable under the bank guarantees[16]. Pressed repeatedly on that point in argument before me, counsel for CPB did not dispute it.

Conclusion

In the result, the application is dismissed with costs.

AT 4.04 PM THE MATTER WAS CONCLUDED

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[1] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123.
[2] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASC 112.
[3] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 3] [2017] WASCA 132.
[4] See generally Tait v The Queen [1962] HCA 57; (1962) 108 CLR 620 at 624-625; [1962] HCA 57;
Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd [1987] HCA 45; (1987) 61 ALJR 612 at 614;
[1987] HCA 45; 75 ALR 461 at 464; National Mutual Life Association of Australasia Ltd v General Television
Corp Pty Ltd (1988) 62 ALJR 553 at 554-555; 80 ALR 555 at 556-557; Paringa Mining &
Exploration Co Plc v North Flinders Mines Ltd (1988) 81 ALR 501 at 504; Patrick Stevedores
Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 31; (1998) 72 ALJR 868; 153 ALR 641;
Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health
[1991] HCA 13; (1991) 65 ALJR 360 at 361; [1991] HCA 13; 99 ALR 417 at 419. See also Daley, “Interlocutory Orders Pending
High Court Litigation”, (1995) 13 Australian Bar Review 41 at 44.
[5] Paringa Mining (1988) 81 ALR 501 at 504-506.
[6] [1999] VSCA 214 at [15] per Brooking JA (Ormiston JA and Buchanan JA agreeing at [32],
[33]).
[7] See for example Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443 at 445 per
Barwick CJ, 453 per Gibbs J (Barwick CJ agreeing at 445), 457-458 per Stephen J; [1979]
HCA 21; Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (2008) 249 ALR 458
at 477 [76]; Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 at
822-823 per Charles JA, 827 per Callaway JA (Batt JA agreeing with both Charles JA and
Callaway JA at 831); Simic v New South Wales Land and Housing Corporation (2016)
[2016] HCA 47; 91 ALJR 108 at 111 [2] per French CJ; [2016] HCA 47; 339 ALR 200 at 202; [2016] HCA 47.
[8] [2010] NSWCA 283 at [40]- [43]; see and compare RCR O’Donnell Griffin Pty Ltd v Forge
Group Power Pty Ltd [2016] QCA 214 at [95]- [98] per Philip McMurdo JA.
[9] [2010] NSWCA 283 at [43].
[10] CPB Contractors [2017] WASCA 123 at [89].
[11] See and compare Erinford Properties Ltd v Cheshire County Council [1974] Ch 261 at 268;
Paringa Mining (1988) 81 ALR 501 at 505-506; Patrick Stevedores Operations No 2 Pty Ltd v
Maritime Union of Australia (No 2) (1998) 72 ALJR 869 at 872 [23]; [1998] HCA 32.
[12] CGU Insurance Ltd v Blakely [2016] HCA 2; (2016) 90 ALJR 272 at 279-280 [26] per French CJ, Kiefel, Bell
and Keane JJ, 289-290 [83]-[86] per Nettle J; 327 ALR 563 at 571-572, 585; [2016] HCA 2.
[13] CPB Contractors [2017] WASCA 132 at [34].
[14] Austrak Pty Ltd v John Holland Pty Ltd [2006] QSC 103 at [29]- [34]; Abigroup Contractors Pty
Ltd v Peninsula Balmain Pty Ltd, Supreme Court of New South Wales, unreported, 2 December
1999; Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991)
23 NSWLR 451 at 461; Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd
(1999) 15 BCL 158 at 167 per Austin J.
[15] CPB Contractors [2017] WASCA 123 at [112].
[16] CPB Contractors [2017] WASCA 132 at [35].