Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd (No 2) [2012] FCA 1 (6 January 2012)

Last Updated: 9 January 2012

FEDERAL COURT OF AUSTRALIA

Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd (No 2) [2012] FCA 1

Citation:		Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd (No 2) [2012] FCA 1
Parties:		REDLINE CONTRACTING PTY LTD (ABN 23 001 685 025) v MCC MINING (WESTERN AUSTRALIA) PTY LTD (ABN 69 123 854 740)
File number:		WAD 458 of 2011
Judge:		SIOPIS J
Date of judgment:		6 January 2012
Catchwords:		CONTRACT - construction contract - unconditional undertaking procured by the contractor in favour of the principal - each party purported to terminate the construction contract - the principal claimed damages from the contractor - the contractor claimed an interlocutory injunction to preclude the principal from resorting to the unconditional undertaking - whether contractor demonstrated a prima facie case that the principal is precluded from resorting to the security.
Legislation:		Trade Practices Act 1974 (Cth) s 51AA Australian Consumer Law s 20
Cases cited:		Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] FCA 1337 Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40; [1999] 1 VR 420 Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458 FMT Aircraft Gate Support Systems v Sydney Ports Corporation [2010] NSWSC 1108 Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224; [2003] 1 Qd R 259 Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] QCA 273; (1995) 2 Qd R 521 Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd [2002] VSC 579 Sudholz Pty Ltd v Airlie Summit Pty Ltd [2007] QSC 199 Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380
Date of hearing:	30 November 2011
Place:	Perth
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	71
Counsel for the Applicant:	Mr P Dunning SC and Mr G Beacham
Solicitor for the Applicant:	Holding Redlich
Counsel for the Respondent:	Mr SK Dharmananda SC and Mr MR Collins
Solicitor for the Respondent:	Corrs Chambers Westgarth

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 458 of 2011

BETWEEN:	REDLINE CONTRACTING PTY LTD (ABN 23 001 685 025) Applicant
AND:	MCC MINING (WESTERN AUSTRALIA) PTY LTD (ABN 69 123 854 740) Respondent

JUDGE:	SIOPIS J
DATE OF ORDER:	6 JANUARY 2012
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The orders made on 15 November 2011, are discharged.
2. The applicant’s application dated 15 November 2011, is dismissed.
3. Costs are reserved.
   

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 458 of 2011

BETWEEN:	REDLINE CONTRACTING PTY LTD (ABN 23 001 685 025) Applicant
AND:	MCC MINING (WESTERN AUSTRALIA) PTY LTD (ABN 69 123 854 740) Respondent

JUDGE:	SIOPIS J
DATE:	6 JANUARY 2012
PLACE:	PERTH

REASONS FOR JUDGMENT

1. On 11 November 2011, I heard an urgent application by the prospective applicant, Redline Contracting Pty Ltd (Redline), for an interlocutory injunction restraining the prospective respondent, MCC Mining (Western Australia) Pty Ltd (MCC Mining), from calling upon any or all of four unconditional undertakings given to MCC Mining by Swiss Re International SE, an insurance company. These undertakings had been procured in favour of MCC Mining by Redline, pursuant to an obligation under a pipeline construction contract between Redline and MCC Mining in relation to the Sino Iron Project. That obligation required Redline to furnish a security in respect of 10% of the contractual sum, being AUD6,636,801.72. Accordingly, each of the four undertakings comprised an undertaking by Swiss Re International SE to pay unconditionally, the sum required by MCC Mining up to a maximum of AUD1,659,200.43.
2. Redline sought an urgent interlocutory injunction because it had received two letters from MCC Mining’s solicitors each dated 4 November 2011, in which MCC Mining demanded payment of the sums of AUD89,716.90 and AUD1,290,368.05 respectively. On 5 November 2011, MCC Mining sent its own letters to the same effect. The sum of AUD89,716.90 demanded by MCC Mining, related to the outstanding balance of an advance payment which MCC Mining had provided to Redline under the construction contract. The sum of AUD1,290,368.05 demanded by MCC Mining, related to unpaid fuel invoices and interest.
3. Each of the letters, also, stated that the letter in question, constituted notice of intention to have recourse to the unconditional undertakings given by Swiss Re International SE. Thus, for example, the letter demanding the payment of AUD1,290,368.05 stated:

Our client requires payment of $1,290,368.05 for its unpaid fuel invoices and outstanding interest immediately. The letter constitutes notice of intention to have recourse under GC5.2 of the contract.

4. On 11 November 2011, I dismissed Redline’s application for an interlocutory injunction on the basis that it had failed to establish a prima facie case that cl 5.2 of the contract constituted an implied negative stipulation not to call upon the unconditional undertakings in the circumstances then prevailing (Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] FCA 1337 (Redline (No 1)). These reasons are to be read in conjunction with the reasons delivered in respect of the first interlocutory application. However, for the sake of convenience, I again set out the terms of cl 5.2 of the contract:

5.2 Recourse

Security shall be subject to recourse by a party who remains unpaid after the time for payment where at least 5 days have elapsed since that party notified the other party of intention to have recourse. (Original emphasis.)

5. On 14 November 2011, MCC Mining wrote a letter to Swiss Re International SE calling upon all four of the unconditional undertakings. Thus, whilst the amounts demanded in its letters of 4 and 5 November 2011 totalled the sum of AUD1,380,084.95, MCC Mining called upon the payment of the undertakings for the full amount of AUD6,636,801.72.
6. On 15 November 2011, in response to MCC Mining’s actions in calling upon the unconditional undertakings for the full amount of the security, Redline brought an application for an interim injunction, on an urgent basis, seeking to restrain MCC Mining from calling upon the unconditional undertakings for any amount in excess of its demands for AUD89,716.90 and AUD1,290,368.05.
7. On 15 November 2011, I granted an interim injunction restraining MCC Mining, until further order, from calling upon the undertakings, save in respect of the amount comprised by the two demands. Redline varied its call upon the unconditional undertakings, accordingly, and was paid the sum of AUD1,380,084.95.
8. On 17 November 2011, MCC Mining sent a letter to Redline to the following effect:

Contract No MCCM-C-0030 (Contract)
Sino Iron Project
Unpaid claims

We refer to our Notice of Dispute dated 12 October 2011 (attached).

1. Paragraph 1.7 of the Notice of Dispute notified that, following termination of the Contract by reason of Redline Contracting Pty Ltd’s substantial breach(s), MCC Mining (Western Australia) Pty Ltd (MCCM):
   

(a) has incurred $4,090,515.22 in costs repairing the defective WUC [which it is entitled to recover from Redline]; and

(b) is entitled to recover from Redline:

(i) the cost of re-tendering and awarding a new contract to Murphy Pipe & Civil to complete the Contract’s scope of work in the amount of $303,830.00; and

(ii) the additional amount paid by MCCM to Murphy Pipe & Civil to complete the Contract’s scope of work in the amount of $41,441,987.90.

2. In lieu of the process required by GC42.2 of the Contract, MCCM and Redline agreed that the conferral requirement for the matters described in the Notice of Dispute would be satisfied by the structured mediation that took place in Perth between 2-4 November 2011.
   
3. As you know, MCCM and Redline were unable to settle the matter at the mediation.
   
4. The time for payment of MCCM’s claims has passed. Redline has had sufficient time to consider MCCM’s claims (as described in the Notice of Dispute) and pay the amount due. It has refused to do so.
   
5. In circumstances where the Contract does not expressly deal with the time for payment of claims made by MCCM against Redline, section 18 of the Construction Contracts Act 2004 (WA) (Act) states that:
   

The provisions in Schedule 1 Division 5 about the time when a payment must be made are implied in a construction contract that does not have a written provision about that matter.

6. Redline has, in correspondence, accepted that the Contract is a construction contract for the purposes of the Act.
   
7. Schedule 1 Division 5 of the Act implies the following provisions into the contract between MCCM and Redline:
   
   6. a payment claim means a claim –
      

(a) by the principal to the contractor for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under this contract.

7(1) If a party receives a payment claim –

(a) believes the claim should be rejected because the claim has not been made in accordance with this contract; or

(b) disputes the whole or part of the claim,

the party must, within 14 days after receiving the claim, give the claimant a notice of dispute.

7(3) Within 28 days after a party receives a payment claim, the party must do one of the following, unless the claim has been rejected or wholly disputed in accordance with subclause (1) –

(a) pay the part of the amount of the claim that is not disputed;

(b) pay the whole of the amount of the claim.

8. It follows that, by operation of the implied provisions in Schedule 1 of the Act, the time for payment of MCCM’s claims passed on 9 November 2011.
   
9. We also note that in passing that Redline issued its own Notice of Dispute on 1 November 2011. That notice makes no mention of MCCM’s claims.
   
10. MCCM requires payment of its claims described in paragraph 1 above (exclusive of interest) immediately.
    
11. This letter constitutes notice under GC5.2 of the Contract of MCCM’s intention to have recourse to the full amount of the security (as defined in GC1) in respect of MCCM’s unpaid claims. (Original emphasis.)
    
9. On 30 November 2011, I heard full argument in respect of Redline’s application for an interlocutory injunction restraining MCC Mining from calling upon the unconditional undertakings save to the extent of the sum of AUD1,380,084.95, being the amounts demanded by the letters of 4 November and 5 November 2011.
10. In Redline (No 1), I did not accept Redline’s argument that it had established a prima facie case that cl 5.2 of the contract constituted an implied negative stipulation which precluded MCC Mining from calling upon the unconditional undertakings consequent upon the notices given on 4 November and 5 November 2011. Those demands were in respect of two liquidated sums. However, the sums referred to in MCC Mining’s letter of 17 November 2011 (reflecting the amounts referred to in its notice of dispute dated 12 October 2011), comprised MCC Mining’s assessment of the amount of unliquidated damages it had suffered consequentially upon Redline’s breach of contract and its termination of the contract consequent upon such breach.
11. At the hearing on 30 November 2011, much of the argument was directed towards the question of whether Redline had established a prima facie case that cl 5.2 of the contract comprised an implied negative stipulation which precluded MCC Mining from calling upon the unconditional undertakings in respect of a disputed claim for unliquidated damages.
12. In its written submissions, Redline, as it had in Redline (No 1), concentrated on the words “unpaid after the time for payment” which appear in cl 5.2 of the contract. Redline contended that the words “time for payment” in cl 5.2 were to be construed as referring to the payment of a sum which is “due and payable” and, therefore, did not contemplate the circumstance of MCC Mining calling upon the unconditional undertakings in support of a disputed claim for unliquidated damages. Redline contended that there was no arguable basis on which MCC Mining could have recourse to the contractual security for its damages claim because the time for payment of any damages has not yet arisen and will not arise until there is judgment in favour of MCC Mining or an agreement with Redline. Accordingly, said Redline, the MCC Mining’s unliquidated damages claim did not engage cl 5.2.
13. MCC Mining, on the other hand, contended that the commercial purpose behind cl 5.2 was to make provision for the allocation of risk between MCC Mining and Redline as to which party was to be out-of-pocket pending the resolution of any dispute. Accordingly, said MCC Mining, it was entitled to call upon the unconditional undertakings in respect of its unliquidated damages claim, notwithstanding that the parties were in dispute as to the existence and the amount of the claim. MCC Mining went on to contend that provided its call on the undertakings was not fraudulent, specious or fanciful, it was entitled to do so, pending the resolution of any dispute between the parties as to its claim for unliquidated damages. In support of its contention, MCC Mining referred to Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 (Fletcher Construction); Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40; [1999] 1 VR 420 (Bachmann); Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458 (Clough) and FMT Aircraft Gate Support Systems v Sydney Ports Corporation [2010] NSWSC 1108 (FMT Aircraft Gate).
14. In support of its contention, Redline referred to a number of cases. First, it referred to the case of Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224; [2003] 1 Qd R 259 (Queensland University of Technology). That case concerned the construction of a clause in a contract which provided that the principal was able to set off, against sums payable to the contractor, a sum which was “payable by the Contractor to the Principal”. Redline relied, particularly, on the observations of Holmes J (with whom Davies JA and Mullins J agreed) that it was clear enough that damages which might become due to the principal on termination of the contract, would not constitute a “sum which is payable by the Contractor to the Principal”.
15. The Queensland University of Technology case did not involve the construction of a clause in a contract regulating the circumstances in which recourse could be had to a security. In that case, the respondent, the principal, paid two progress claims which had been made by the first appellant, the contractor. The payments of AUD22,376 and AUD457,131 were paid to the second appellant, which was entitled to receive the payments. However, on the day before the payments were made, the first appellant’s licence under the Queensland Building Services Authority Act 1991 (Qld), had been suspended. The suspension was not known to the respondent when it paid the progress claims. The suspension of licence, contended the respondent, was a substantial breach of contract entitling it to give the first appellant notice to show cause why the respondent should not terminate the contract or “take out of the hands of the [first appellant] the whole or part of the work remaining to be completed”. This, said the principal, would have given rise to a claim against the contractor which exceeded the amount of the two payments.
16. A question before the court was whether the respondent had, or might have had, any entitlement to set-off the payment of the two instalments against damages claimable from the contractor upon termination of the contract. This required a construction of a set-off clause in the contract which provided that “the Principal may deduct from any moneys due to the Contractor any sum which is payable by the Contractor to the Principal whether or not the Principal’s right to payment arises by way of damages debt restitution or otherwise”.
17. It was in this context that the observations referred to in [14] above by Holmes J (with whom Davies JA and Mullins J agreed) were made.
18. The wording in the set-off clause referred to in Queensland University of Technology, is different to the wording in cl 5.2 in this case. This contract does not refer to any “sum which is payable by the Contractor to the Principal”. The word “payable” is crucial in that distinction. That word is missing from cl 5.2.
19. Next, Redline, relied on observations made by McPherson JA in Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] QCA 273; (1995) 2 Qd R 521 (Merritt Cairns Constructions). In that case, the Queensland Court of Appeal considered a set-off clause which provided, that a principal was able to set-off “money due from the Contractor to the Principal”. McPherson JA said that the word “due” was susceptible of different shades of meaning and the proper meaning depended upon the context in which it appeared. McPherson JA said that, without more, it did not include an amount which is only contingently due. McPherson JA, also, observed that in the context of the set-off clause there being considered, that until judgment was given, or there was an agreement, or an award as to the amount being claimed as damages for delay, it could not be said that the principal was “entitled” to deduct money in respect of that claim. McPherson JA said of the principal’s claim, at 526: “Both its title to the money and its right to deduct it remain in dispute”.
20. The clause, the subject of judicial observation, in the Merritt Cairns Constructions case, is also distinguishable from cl 5.2 in this case. The observations of McPherson JA, relied on by Redline, related to proper construction of a clause in a contract permitting a principal to deduct monies otherwise “due” to the contractor. The court observed that the principal could not deduct the amount it claimed as unliquidated damages for delay, because that amount was not “money due”. There is no reference in cl 5.2 to there being monies “due” – all that is required is that there be a “time for payment”.
21. Redline, also, referred to the case of Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 (Lucas Stuart). In that case, the New South Wales Court of Appeal upheld an appeal against a decision of the primary judge declining to grant an injunction restraining the respondent from calling upon performance bonds which had been provided by a contractor to a principal under a construction contract.
22. Clause 16.3 of the contract in that case, provided that the principal may call upon the performance bonds if the contractor failed to comply with the terms of a notice given under cl 16.2 of the contract.
23. Clause 16.2 provided that if the contractor had not materially complied with its obligations under the contract, the principal may give a written notice to the contractor stating:

16.2.1 The contractor’s breach.

16.2.2 What the principal requires the contractor to do to remedy the breach.

16.2.3 A specific reasonable time in which the contractor must remedy the breach.

24. On 16 July 2010, the project director had included a schedule of defects with its letter to the contractor, enclosing certificates of practical completion, which defects were required to be rectified by 30 June 2011. However, on 19 July 2010, the respondent, the principal, itself issued a notice to the contractor, the applicant, identifying various of the defects that it required to be rectified by a much earlier date, namely, 25 September 2010. The respondent’s notice purported to be a notice issued under cl 16.2 of the contract.
25. By a notice of motion dated 14 September 2010, the applicant contractor sought an interlocutory order restraining the respondent principal from calling upon the performance bonds in reliance upon non-compliance with the respondent’s notice of 19 July 2010. The applicant contended that the notice dated 19 July 2010 was invalid. The primary judge found that there was no serious question to be tried as to the validity of the notice dated 19 July 2010 and refused to grant the interlocutory injunction.
26. On appeal, the contractor argued that the notice was invalid because the condition precedent to the issue of such a notice, namely, that the applicant “has not materially complied with its obligations” under the contract, had not been satisfied. The New South Wales Court of Appeal allowed the appeal and granted an interlocutory injunction.
27. The Court of Appeal held that there was a serious question to be tried that there had not been compliance with cl 16.2, because, on the evidence, it was arguable that there had not been a material non-compliance by the contractor because the defects disclosed in the schedule of defects, were not sufficiently serious as to constitute a material non-compliance.
28. Macfarlan JA observed that cl 16.2 was not conditioned by the respondent being satisfied of the existence of material non-compliance by the applicant. Macfarlan JA went on to say at [36]: “Rather, it is conditioned in my view upon the objective fact of such non-compliance”.
29. In this regard, Macfarlan JA disagreed with the primary judge who held that it was sufficient compliance with cl 16.2 that the principal have a bone fide claim of material non-compliance by the contractor with the contract. Macfarlan JA distinguished the decision in Clough, upon which the primary judge had relied, because in Clough, there was a pro forma performance bond contained in the contract under consideration in that case, which required payment by the guarantor “notwithstanding any dispute(s) pending” and “without any demur, reservation, contest or protest or without any reference to the Contractor”. Macfarlan JA went on to say that there was no such limitation in the wording in the contract which was before the Court of Appeal.
30. Macfarlan JA, also, observed that the purpose of the performance bond in the case before the Court of Appeal, was to provide security in the event of the insolvency of the contractor. This was not a performance bond, said Macfarlan JA, to obtain payment of amounts the principal claimed, notwithstanding, disputes raised by the contractor. In his view, the principal’s right to call upon the guarantee was expressed in terms of “objective fact”.
31. The clause which was under consideration in the Lucas Stuart case is significantly different to clause 5.2 in this case. In Lucas Stuart, resort to the securities depended upon there being a “material non-compliance” by the contractor with its obligations under the contract. There is no such limitation in cl 5.2, which depends only upon the principal being unpaid after the time for payment has passed.
32. Next, Redline referred to the case of Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd [2002] VSC 579 (Rejan). In that case, Byrne J granted an interlocutory injunction restraining the principal from having recourse to bank bonds provided by the contractor.
33. In Rejan, the principal contended that by reason of its lawful termination of the building contract, it was entitled to recover losses from the contractor, which it had assessed in its “draft interim claim” at AUD697,747. Byrne J observed at [15], that the allegations of the principal could not be dismissed as “being specious, fanciful or not bona fide”.
34. The contract in Rejan, provided, relevantly, that the principal may have recourse to the security if it had “become entitled to exercise a right under the Contract in respect of the security, retention moneys or both”. The contract then prescribed circumstances when such a right may be exercised. Those rights were found in cl 42.8 and cl 42.9 of the contract. The former provision provided that the principal may deduct from moneys due to the contractor, “any money due from the Contractor to the Principal otherwise than under the Contract”, and if insufficient, then may have recourse to the security. The latter provided that the principal may also have recourse to the security where, “within the time provided by the Contract, a party fails to pay the other party an amount due and payable under the Contract”.
35. Byrne J found at [22], that cl 42.9 on its proper construction, did not give the principal an “immediate unqualified right in respect of the security” and that that right only arose where an amount was “due and payable under the building contract”, and there had been a failure to pay that amount within the time prescribed under the building contract. Byrne J found that the amount of the principal’s claim had not been determined under a mechanism provided for under the contract.
36. Further, Byrne J found that the principal’s claim for damages did not fall within the ambit of “money due...otherwise than under the contract” for the purposes of cl 42.8. Byrne J observed at [24]:

As a matter of terminology, it is difficult to characterise as “money due” a sum which is asserted by a party in a dispute to be owing by its adversary in a draft interim claim without substantiation and without detail, and of course, without any determination by adjudication, arbitration or otherwise.

37. Byrne J distinguished the case of Bachmann on the grounds that the relevant clauses in that case, were different to the clauses with which he was concerned. At [40] in Rejan, Byrne J observed:

In the circumstances, I construe the present building contract to oblige the Principal, which wishes to exercise rights under cl 5.6 as a consequence of an ex-contract liability, to demonstrate that this liability in fact exists. This it may do by agreement or by some authoritative determination whether by judicial order or arbitral award.

38. However, the clauses considered by Byrne J in Rejan, are in very different terms to cl 5.2 in the contract in this case. In this contract, there is no reference to the terms which Byrne J regarded as crucial, namely, that “an amount is due and payable under the building contract” or that there is “money due”. Further, it appears that Rejan was not a case where, as here, the parties had agreed a pro forma bank bond which the contractor was required to procure. In Clough, which is binding authority on this Court, the Full Court of this Court held that this factor was relevant in construing the contractual terms governing the circumstances in which resort may be had to the security.
39. Redline, also, referred to the case of Sudholz Pty Ltd v Airlie Summit Pty Ltd [2007] QSC 199 (Sudholz). This was a decision of Mackenzie J. In that case, the applicant, a contractor, obtained an interlocutory injunction restraining the respondent, the principal, from calling upon a bank guarantee in favour of the respondent. Each of the parties in that case, as in this case, had purported to terminate the construction contract founded upon the allegedly unlawful conduct of the other.
40. The reasons for judgment show that cl 5.2 of the construction contract in Sudholz, regulated the circumstances in which a party may have resort to the bank guarantee. However, the full terms of that clause are not reproduced in the reasons for judgment. It was, however, one of the applicant’s contentions in Sudholz that the respondent was to “be entitled to payment of an entitlement under the contract” before it could resort to the bank guarantee. Further, the applicant in Sudholz, also, relied on the observations in Merritt Cairns Constructions, referred to at [19] above, in support of its claim. As mentioned, those observations were made in respect of clauses in different terms to cl 5.2 in this case. In particular, those clauses, unlike cl 5.2 in this case, contained the expression “money due”. Further, there is no requirement in cl 5.2 that limits MCC Mining’s resort to the unconditional undertakings to circumstances when it “has an entitlement to payment under an entitlement under the contract”.
41. In any event, Mackenzie J distinguished the cases of Fletcher Construction and Bachmann, decisions of the Victorian Court of Appeal, which he said were contrary to the Queensland authorities which had for a considerable period “taken a less constrained view of the circumstances in which injunctive relief will be granted”. Sudholz was decided before the decision of the Full Court of this Court in Clough, which cited both Fletcher Construction and Bachmann with approval. In addition, there is no suggestion in Sudholz that there was a pro forma bank guarantee agreed by the parties, which informed the construction of cl 5.2 in that case.
42. Redline, also, contended that Fletcher Construction was distinguishable from this case on the basis that the relevant terms of the construction contract in Fletcher Construction, were different to cl 5.2 in this case. In my view, whilst there were differences in the terms of the respective contracts, the differences were not sufficiently material, to render the reasoning in Fletcher Construction inapplicable to this case.
43. In Fletcher Construction, the terms of cl 3.13(b) of the contract regulated the circumstances in which the owner, Varnsdorf, could have recourse to the security. Whilst the terms were different to cl 5.2 in this contract, they were, in my view, not materially different in effect. In Fletcher Construction, Charles JA recorded Varnsdorf’s submissions as to the proper construction of cl 3.13(b), as follows at 818:

Mrs Crennan submitted that cl 3.13(b) expressly permitted Varnsdorf to make a call upon the unconditional letters of credit provided that two conditions were satisfied, first that a notice containing a demand had been sent to Fletcher and secondly that there had been a failure to pay the amounts demanded within 10 business days. She submitted that cl 3.13(b) contained no requirement that a further condition be satisfied to the effect that Varnsdorf’s entitlement to Time Damages must be established, whether by admission, by determination in an arbitration, or by judgment of a court.

44. Before this Court, MCC Mining has made submissions that cl 5.2 of the contract with Redline, was to be construed to similar effect.
45. The Victorian Court of Appeal in Fletcher Construction accepted Varnsdorf’s submissions; and had regard to the fact that the parties had agreed to a clause in those terms, in determining that the function of the security was to allocate between the parties, the risk of being out-of-pocket, whilst any dispute between the parties as to their respective liabilities, was determined. A further factor which the Court of Appeal regarded as relevant in making that determination, was that the bank guarantee provided in that case was an “unconditional” guarantee.
46. The approach of the Victorian Court of Appeal in Fletcher Construction was approved in Bachmann and, importantly, for this Court, by the Full Court of this Court in Clough.
47. Further, for the reasons referred to above, I do not accept Redline’s submissions that by reason of the difference between the wording of the relevant clauses in each of the contracts in Bachmann and Clough, and the wording of cl 5.2 of this contract, that the reasoning in those two cases, has no application to this case.
48. It follows that, as I have said in Redline (No 1), it is likely that at trial the Court will find that the proper characterisation of cl 5.2, is as a risk allocation clause, and that resort to the security by MCC Mining is not conditioned upon there being an undisputed amount due and payable by Redline. It is sufficient, in my view, that MCC Mining bona fide believed that it had such a claim. It is also likely, in my view, that the trial court will find that the resort by MCC Mining to the unconditional undertakings will not be precluded, by reason only, that the disputed claim is in respect of an unliquidated amount as damages.
49. In the case of FMT Aircraft Gate, the relevant clause regulating the entitlement of the defendant to have recourse to the security, provided that the purchaser may have recourse to the security where the purchaser has “any claim or entitlement to payment or damages, costs or an amount or debt due by the Contractor to it under this contract”. Each party had purported to terminate the contract.
50. Pembroke J considered that there was no serious question to be tried in support of the contention that the clause did not permit resort to the security, where there was a claim by the beneficiary of the security for an amount of unliquidated damages arising from defective workmanship.
51. Pembroke J found at [30], that it was not a necessary prerequisite of being able to resort to the security, that it be in support of a liquidated claim for damages:

Although in some cases, the absence of quantification may suggest that the claim is specious, fanciful or untenable, it does not follow as a matter of language, logic or common sense that quantification is always necessary. In this case, the defendant had a genuine claim for damages which had been assessed internally although no amount had been finalised and communicated to the plaintiff.

52. In my view, those observations are germane to the circumstances of this case. Further, they are consistent with the decision in Clough, where the performance bond was called without any liquidated amount having been specified.
53. Redline, also, contended that, in any event, the time for payment of the amount claimed as damages had not yet arisen. This was because, said Redline, the notice of dispute of 12 October 2011, did not constitute a claim. Also, said Redline, the provisions of the Construction Contracts Act 2004 (WA) referred to by MCC Mining in its letter of 17 November 2011, had no application to MCC Mining’s claim for damages following termination of the contract; and there was, in any event, no scope for the implication into the contract, of any term in relation to the time for payment under that Act, because there were express terms dealing with this question.
54. In my view, it is unnecessary to decide whether the provisions of the Construction Contracts Act have any application to the circumstances of MCC Mining’s claim for damages. This is because, in my view, it is likely that the trial court will find that the time for payment of the damages claimed, is specified in MCC Mining’s letter of 17 November 2001, as “immediately”. Further, the letter goes on to state that MCC Mining intended to have recourse to the full amount of the security in respect to the unpaid claim. More than five days has elapsed since the time for payment specified by MCC Mining in its letter of 17 November 2011. Redline has not paid the amount claimed by MCC Mining. It follows that it is likely that the trial court will find that the conditions specified in cl 5.2 have been satisfied, and that MCC Mining, has satisfied the requirement imposed by the provision, before having recourse to the full amount of the security.
55. Accordingly, in my view, Redline has failed to demonstrate a sufficient likelihood of success in respect of its claim to restrain MCC Mining from calling upon the undertakings for the full amount on the basis that cl 5.2 comprises an implied negative stipulation precluding such conduct, to justify the grant of an interlocutory injunction.

UNCONSCIONABILITY

56. Further, Redline said that the attempt by MCC Mining to resort to the security in respect of its unliquidated damages claim, was unconscionable conduct in contravention of s 51AA of the Trade Practices Act 1974 (Cth) (now s 20 of the Australian Consumer Law).
57. Redline relied upon a number of grounds in support of its contention. First, Redline contended that the proposed call in respect of the entire amount of the security was unconscionable because the sum for which the call had been made is not yet due or payable and may never be due. This is to be contrasted, said Redline, with the position where MCC Mining may have had a claim for monies which were due, but in respect of which, Redline may be relieved of liability by reason of a set-off.
58. Secondly, it was said that MCC Mining has no need for the money.
59. Thirdly, Redline said that it would suffer reputational harm by the call upon the unconditional undertakings for the whole of the security.
60. Fourthly, Redline said that there was an ulterior purpose on the call. The ulterior purpose was not identified, but there was evidence of a failed mediation between the parties, and the implication appears to be that MCC Mining is putting commercial pressure on Redline to settle its dispute with it.
61. In Clough, the Full Court of this Court found that there was no serious question of unconscionable conduct to be tried. The Full Court stated at [138]:

As already pointed out, on their proper construction, the performance bank guarantees were unconditioned on any actual breach and did entitle ONGC to call upon them for the full amount. Given the commercial purpose of such guarantees, recognised in Wood Hall assuming the absence of fraud, there would seem to be very little, if any, scope for the application of equitable doctrines of unconscionable conduct to restrain the exercise by a party of its legal rights under such guarantees. There may be extreme cases which would merge into the area of bad faith exercises of the power. However that may be, the present is not a case which, on the materials before his Honour, justified any finding of a serious question to be tried of a contravention of s 51AA. The wide purpose of the performance bank guarantees and their character as reflecting an allocation of risk and a provision of security to their holder militate against any argument as to disproportion in their exercise.

62. It is to be noted that in Clough, one of the matters of which Clough complained, was that it would suffer reputational harm if the guarantee was called upon.
63. Further, it is, also, to be observed that in Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380 (Olex Focas), Batt J (as his Honour then was) rejected a claim that there was a serious question to be tried that the principal had acted unconscionably. One of the matters to which Batt J referred as having been raised in support of the contention that the principal had acted unconscionably, was that the bank guarantee had been called upon as part of a stratagem to put pressure on the contractor.
64. At 403, Batt J observed:

I reach that conclusion against the background of the historical purpose and use of such bonds, as discussed in the cases that I have referred to earlier and in the textbooks, and against the background of the High Court in Wood Hall, noting with apparent equanimity that it seemed that in making the demands the authority was acting pursuant to what it is described as a “strategy” to put pressure on the contractor in the hope that the dispute between the parties might be settled more advantageously to the authority.

65. In my view, the observations from Clough and Olex Focas, apply equally to this case. In this case, in my view, a trial court is likely to find that MCC Mining is doing no more than enforcing its contractual legal rights to resort to the security consequent upon a disputed claim for unliquidated damages. There is no suggestion that in making the claim, or calling on the undertakings, MCC Mining is acting in bad faith.
66. In Clough, the Full Court, cited with approval the observations of Hobhouse LJ in Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Law Rep 516 at 520, to the effect that parties to a commercial contract are taken to have contracted against a background which included earlier authorities on the construction of similar contracts. The Full Court decision in Clough was delivered in July 2008, and this contract was made in December 2009. If, as Redline contends, a contractor’s reputation is inevitably harmed in the industry when a performance bond or like instrument is called upon, it was open to Redline to protect itself by concluding a contract which provided for, expressly and unequivocally, the more limited range of circumstances in which the unconditional undertakings could be called upon, for which it now contends. In my view, it is unlikely that a trial court will find that in those circumstances, MCC Mining is acting unconscionably, in resorting to the security, by reason of any potential harm to Redline’s reputation.
67. Further, in light of my finding that it is likely a court would find that the commercial purpose of cl 5.2 is a risk allocation purpose, the fact that MCC Mining has no need for the money, is not the point.
68. Accordingly, in my view, there is no serious question to be tried, that in calling upon the unconditional undertakings for the full amount in support of its unliquidated claim for damages, the principal, MCC Mining, acted in contravention of s 20 of the Australian Consumer Law.
69. In light of my finding that Redline has failed to demonstrate a prima facie case that it is entitled to restrain MCC Mining from resorting to the unconditional undertakings for the full amount of the security, either, on the grounds of an implied negative stipulation in the contract, or on unconscionability grounds, it is unnecessary to have regard to the question of balance of convenience.
70. Nor, is it necessary to have regard to MCC Mining’s alternative contention that it was entitled to have resort to the full amount of the unconditional undertakings in support of its claims made in the letters of 4 November 2011 and 5 November 2011.
71. Redline’s application is dismissed and the orders made on 15 November 2011, are discharged.
    

I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

Associate:

Dated: 6 January 2012