Siemens v Bulgana [2019] VSC 771 (27 November 2019)

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
Not Restricted

 

S ECI 2019 4613

 

BETWEEN:

 

SIEMENS GAMESA RENEWABLE ENERGY PTY LTD
(ACN 614 784 575)

Plaintiff

v
BULGANA WIND FARM PTY LTD (ACN 162 201 569) and
NEOEN AUSTRALIA PTY LTD (ACN 160 905 706)

Defendants

 

PRACTICE AND PROCEDURE – Injunctive relief – Building and Engineering Contract – Application to restrain beneficiary of performance guarantee from calling on two unconditional bank guarantees – Serious issue to be tried – Consideration of whether appropriate to decide contract interpretation question as if on a final basis – Proper approach – Balance of convenience – Application for injunction dismissed.

 

HIS HONOUR:

Outline of SGRE’s Application

  1. The plaintiff, Siemens Gamesa Renewable Energy Pty Ltd (SGRE) applies to restrain the first defendant, Bulgana Wind Farm Pty Ltd (BWF), from calling upon two unconditional bank guarantees (Performance Securities) issued in favour of BWF, in connection with an Engineering, Procurement and Construction Contract (EPC Contract) between the parties, pursuant to which SGRE is constructing a large wind farm for BWF in Victoria.
  1. By Amended Originating Motion and Amended Summons, both dated 18 October 2019, SGRE seeks:

(a)        an interlocutory injunction restraining BWF from making any demand under or pursuant to the Performance Securities pending any arbitral reference or until further order; and

(b)       an order pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) that so much of these proceedings as involves the determination of a claim for final relief be stayed pending any arbitral reference between the parties.

  1. Further, by its Amended Originating Motion, SGRE also claims alternative relief in the nature of a permanent injunction restraining BWF, via its employees, agents or otherwise, from making any demand, in relation to a disputed claim to Delay Liquidated Damages (DLDs) under the EPC Contract, under or pursuant to the Performance Securities.
  2. SGRE has not pressed its claim for an order pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) save to argue that such relief remains available, even if no arbitral tribunal is relevantly in place and has in relation to SGRE’s claim for an interlocutory injunction, taken the position that SGRE’s application should be tested on the basis of the identification of a serious question to be tried, and not finally determined as to the contract interpretation questions in issue on the basis that the court moves to make a determination, ‘as if’ on a final basis, in relation to the contract construction issues.
  3. However, SGRE’s submissions include its submission that, contrary to SGRE’s primary position, it is necessary or appropriate to construe the part of the 30  September 2019 Agreement which is in issue on an ‘as if’ basis and submits that its interpretation should be upheld for the reasons it has submitted on that issue, in the alternative.
  4. BWF opposes SGRE’s application to restrain access to the Performance Securities, in summary because:

(a)        there is no serious question to be tried in relation to BWF’s contractual entitlement to call on the Performance Securities in satisfaction of its claims for DLDs; and

(b)       the balance of convenience lies overwhelmingly against an injunction restraining BWF from calling upon the Performance Securities,

and as no relief is sought against the second defendant, Neoen Australia Pty Ltd (NEOEN), the entire proceeding against it should be dismissed.

  1. BWF also submit that here because of the contractual context and circumstances and on authority, the SGRE application should be determined ‘as if’ on a final basis, that is BWF’s contractual entitlement to have recourse to the Performance Securities provided under the EPC Contract should be decided now, pending resolution of the underlying dispute.

Background

  1. SGRE and BWF are parties to the EPC Contract for the engineering, procurement and construction of 56 wind turbine generators and a battery storage solution located in central Western Victoria, known as the Bulgana Green Power Hub (Works).  The Works comprise the BESS Works, namely the supply, installation and commissioning of the battery energy storage system and the Main Works, which are all of the Works other than the BESS Works.
  2. Together with the Security Trustee (National Australia Bank), SGRE and BWF are also parties to a separate Tripartite Deed (Consent Deed).  Relevantly for the purposes of this application, under the terms of the Consent Deed the parties are not permitted to amend the EPC Contract without the prior written consent of the Security Trustee.
  3. Under the terms of the EPC Contract, SGRE (as Contractor) was required to achieve Practical Completion of the Works by the Date for Practical Completion.
  1. The agreed Date for Practical Completion of the Works is 16 August 2019.  No extensions of time have been granted.
  2. BWF alleges that SGRE failed to achieve Practical Completion of the Works by 16 August 2019, and Practical Completion is yet to be achieved.
  3. The parties are in dispute as to responsibility for SGRE’s failure to achieve Practical Completion by the contractually agreed date.  Central to that dispute are issues between the parties as to SGRE’s alleged failure to ensure that the Works comply with relevant generator performance standards.
  4. Under cl 13.8 of the EPC Contract, if SGRE fails to reach Practical Completion of the Works by the Date for Practical Completion, it is liable to pay DLDs at the agreed daily rate up to and including the Practical Completion Date.  The contractually agreed rates are $218,400 per day in respect of the Main Works and $10,000 per day in respect of the BESS Works.
  5. Pursuant to cl 13.8(d) of the EPC Contract, DLDs become due immediately on the issue of a notice by BWF to SGRE setting out the amount payable.  Pursuant to cl 13.8(e) of the EPC Contract, BWF may, at its election, recover the amount due on demand from SGRE by deducting the amount of DLDs from any amount certified as due from BWF to SGRE or by deducting the amount from or calling on the Performance Securities.
  6. On 19 August 2019, BWF wrote to SGRE stating that the Date for Practical Completion of 16 August 2019 had passed.  BWF also noted in its letter of 19 August 2019 that DLDs were accruing at the rate of $218,400 per day, and reserved BWF’s right to recover DLDs by any manner permitted by the EPC Contract.
  7. On 2 September 2019, BWF wrote to SGRE stating that DLDs of $3,494,400 were due and payable on 31 August 2019 (August 2019 DLDs) and advised its intention under cl 13.8(e) to deduct those DLDs from the amount of $3,038,036 (plus GST) which had been certified for payment to SGRE on 6 August 2019 (August Payment Sum).
  8. By letter dated 5 September 2019 SGRE’s solicitors, Clayton Utz, asserted that any attempt by BWF to set-off the August 2019 DLDs against the August Payment Sum or to make a demand on the Performance Securities would be in breach of the EPC Contract and also asserted a statutory entitlement to payment under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SoP Act). Further, SGRE’s letter of 5 September 2019 asserted that SGRE was under no present liability in relation to DLDs.
  9. On 9 September 2019, BWF wrote to SGRE stating that BWF would not forgo or fetter its rights to DLDs, and enquired whether SGRE had ‘… a preference as to whether the current amount is accepted to be set-off against payments otherwise due or recovered from security, or satisfied by some other means …’.
  1. On 19 September 2019, BWF wrote to SGRE noting that the August 2019 DLDs remained due and payable and were continuing to accrue and enclosed an invoice for payment of the August 2019 DLDs.  In the same communication BWF also reserved its rights to recover those DLDs by any manner permitted under the EPC Contract.

Outline of events of 30 September 2019

  1. On 30 September 2019, BWF communicated to SGRE that it was making arrangements to call on the Performance Securities in accordance with its asserted contractual entitlements.  On 30 September 2019 Mr Laurent Francisci (Francisci) telephoned Mr  Thomas Hertling (Hertling) and, after initial missed calls, at about noon that day Hertling called and spoke to Francisci and he and Francisci discussed matters relating to BWF’s recovery of DLDs under the EPC Contract and discussed modes of recovery and also notice from BWF to SGRE in relation to access to Performance Securities.  Francisci and Hertling also discussed SGRE’s claim related intentions under the SoP Act.  The duration of this conversation was about five minutes.
  2. In the telephone conversation which occurred on 30 September 2019 both Francisci and Hertling reached agreement in principle, however Francisci and Hertling agreed that this arrangement should be documented by their respective in-house lawyers, Mr  Richard Lim (SGRE) and Mr Vaughan Williams (BWF).
  1. Further telephone, text and email exchanges, took place after about noon and just before 6.30pm between Francisci and Hertling on 30 September 2019.
  2. SGRE and BWF’s agreed position on the above matters, discussed at about noon on 30 September 2019, was documented by the parties’ in-house lawyers in the letter dated 30 September 2019 signed by the parties between about 6.29pm (signed by SGRE) and 6.34pm (countersigned by BWF).
  3. SGRE submits that the 30 September 2019 conversation and agreement reflected in the signed 30 September 2019 Agreement were intended by the parties to agree to such a fetter in respect of any DLDs claims.
  1. In essence BWF’s position is that it was not agreed either in principle in the telephone conversations of 30 September 2019 or in terms of the final agreement between the parties in the signed 30 September 2019 letter, that BWF would forgo its contractual entitlement to levy and recover DLDs, or that it would abandon its contractual right to call on the Performance Securities provided for under the EPC Contract.  What was agreed on 30 September 2019 was that the sequence of contractual steps  BWF would take to recover DLDs in relation to August 2019 would be first to set-off SGRE against payments of amounts due to SGRE for the project rather than accessing the Performance Securities in relation to the certified August 2019 DLDs, and BWF would give 5 business days’ prior written notice to SGRE prior to making a claim in respect of the Performance Securities.

Call on Performance Securities

  1. By letter dated 1 October 2019, BWF confirmed that it had recovered the August  DLDs by set-off pursuant to cl 13.8(e)(2) of the EPC Contract.  The letter further noted that DLDs were continuing to accrue, because SGRE had not reached Practical Completion.
  1. By letter dated 2 October 2019,  BWF advised SGRE that DLDs of $6,852,000 were immediately due for the period 1 to 30 September 2019 (September 2019 DLDs) and attached a tax invoice for payment.  That letter advised SGRE that in accordance with the arrangements put in place on 30 September 2019, the September 2019 DLDs would be deducted from payments due to SGRE.
  1. By letter dated 2 October 2019 to SGRE, BWF:

(a)        asserted BWF’s entitlement to DLDs of $6,852,000 are due for the period 1 to 30 September 2019, and attached an invoice demanding payment of the same;

(b)       confirmed its intention to deduct, inter alia, the above amount from payments certified as due to SGRE in respect of its progress payment claims;

(c)        asserted that a balance of $3,342,363.40 is due to BWF after the set-off referred to in (b) above; and

(d)       gave 5 business days’ prior written notice that it intends to call on the Performance Securities to satisfy the outstanding amount referred to in (c) above.

  1. On 3 October 2019 Clayton Utz (solicitors for SGRE) sent White & Case (solicitors for BWF) a letter, responding to White & Case’s letter dated 19 September 2019.  The letter stated SGRE’s position that:

Your client’s assertions that our client is responsible for the delay to the achievement of Practical Completion, and that the Works are not fit for purpose, are rejected by our client.

The present delay to Practical Completion (which is continuing) is wholly to your client’s account.

Presently, our client is entitled to:

(a)          be paid $3,341,839.60 plus interest immediately;

(b)          significant extensions of time and Delay Costs;

(c)          damages arising from your client’s breach of contract (which includes the loss of Early Generation Revenue); and

(d)          costs incurred by our client in assisting your client to overcome deficiencies in the Related Works.  In this respect, we note that your client has expressly instructed these works, including in your letter of 19 September 2019.

Your client’s actions constitute a serious breach of the EPC Contract.

A failure to pay an amount of money due to our client could also constitute a Principal Event of Default.

A copy of this letter is exhibited at pages 240 to 241.

  1. On 3 October 2019, SGRE served the Dispute Notice under the EPC Contract on BWF.  The Dispute Notice concerned SGRE’s entitlements to extensions of time for delays to the Works for which it was not responsible and refuted BWF’s entitlement to DLDs.
  1. To date there has not yet been a meeting of ‘Senior Representatives’ pursuant to cl  41.2(c) of the EPC Contract in respect of the matters raised in the Dispute Notice.  No arbitral tribunal has to date been empanelled in respect of the 3 October 2019 Notice of Dispute.
  1. In the events which have occurred, the amount of the September 2019 DLDs significantly exceeded the $3,593,797 which had been certified for payment to SGRE on 24 September 2019.  Consequently, the total sum asserted by BWF to be due from SGRE to BWF was $3,342,363.40 (Current Balance Due).
  1. By letter dated 3 October 2019 , SGRE disputed that BWF was entitled to recover DLDs for SGRE’s delay and rejected the demand for payment in relation to the Current Balance Due.  That position remains unaltered.
  1. On 4 October 2019, Clayton Utz sent White & Case a letter, requesting that BWF undertake in writing by no later than noon on Monday 7 October 2019 that BWF not draw on the Performance Securities in relation to alleged DLDs.
  1. On 16 October 2019 SGRE also served a Dispute Notice referring the dispute between the parties in relation to the 30 September 2019 Agreement to arbitration pursuant to cl 41 of the EPC Contract.  No tribunal has to date been empanelled in respect of this Dispute.

Relevant terms and conditions of the EPC Contract

  1. The relevant terms and conditions of the EPC Contract include:

13.8     Delay Liquidated Damages

(a)          If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor will be liable to pay to the Principal Delay Liquidated Damages at the Delay Liquidated Damages Rate for every day after the Date for Practical Completion up to and including the Practical Completion Date.

(b)          The total amount of any Delay Liquidated Damages payable by the Contractor to the Principal will be set-off by an amount equivalent to the Offset Revenue (if any) that the Principal has received.

(c)       The payment of Delay Liquidated Damages does not:

(1)          relieve the Contractor of its obligations to perform the Works or any of its other obligations under this Agreement;

(2)          prejudice the rights of the Principal to any relief or remedy to which it is or may become entitled under this Agreement in consequence of any other breach; or

(3)       prejudice the rights of the Principal under clause 13.10.

(d)          Delay Liquidated Damages become due immediately on the issue of a notice by the Principal on the Contractor setting out the amount of Delay Liquidated Damages payable by the Contractor to the Principal.

(e)       The Principal may recover the amount of Delay Liquidated Damages:

(1)       on demand from the Contractor;

(2)          by deducting the amount from any amount certified by the Principal’s Representative under clause 20.4; or

(3)          by deducting the amount from or calling on the Performance Securities,

even though Practical Completion has not occurred.

(f)       If after:

(1)       the Contractor has paid; or

(2)       the Principal has deducted,

Delay Liquidated Damages, the Date for Practical Completion is extended, the Principal must repay to the Contractor, within 10 Business Days after the date on which the Date for Practical Completion is extended, any Delay Liquidated Damages paid or deducted in respect of the period prior to and including the new Date for Practical Completion.

(g)          If it is determined by a court of competent jurisdiction or in accordance with clause 41 that the Contractor’s liability for Delay Liquidated Damages is deemed to be or becomes void, voidable or unenforceable in any way so as to disentitle the Principal from claiming Delay Liquidated Damages, then

(1)          the Principal is entitled to claim against the Contractor damages at Law as an alternative to Delay Liquidated Damages if the Practical Completion Date is later than the Date for Practical Completion; and (2) the limitation of Delay Liquidated Damages as specified in clause 42.1(a) will apply to any amount recovered by the Principal under clause 13.8(g)(1).

(h)      For the avoidance of doubt, clause 42.2 does not apply to this clause.

(i)           The Principal and the Contractor acknowledge and agree that Delay Liquidated Damages:

(1)          are a genuine pre-estimate of the Loss likely to be suffered by the Principal for failure of the Contractor to reach Practical Completion by the Date for Practical Completion;

(2)          will be paid as liquidated damages and not as a penalty by the Contractor to the Principal; and

(3)       are:

(A)          without limiting the Principal’s rights under clauses 23 and 39; and

(B)          except in the case of any right the Principal has to recover Excluded Loss where this Agreement has been terminated due to conduct of the Contractor or any of its Subcontractors referred to in clauses 42.1(c)(6) and 42.2(b)(4) (in which case, the limitation of Delay Liquidated Damages as specified in clause 42.1(a) will apply to any amount recovered by the Principal as referred to in this clause 13.8(i)(3)(B),

the Principal’s sole and exclusive remedy for the Contractor’s failure to reach Practical Completion by the Date for Practical Completion.

 

 

25.7     Conversion of Security

(a)          Without limiting the unconditional nature of the Performance Securities and the Principal’s right to demand, receive or use the proceeds of the Performance Securities, the Principal may demand, receive and use the proceeds of any Performance Securities whenever the Principal asserts a right to the payment of money by the Contractor under, arising out of or in connection with:

(1)       this Agreement (including liquidated damages); or

(2)       otherwise at law relating to the Works under this Agreement.

(b)          Without limiting the unconditional nature of the Advance Payment Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds  of the Advance Payment Security, the Principal may claim, draw upon, demand, receive and use the proceeds of any Advance Payment Security when:

(1)          the Contractor has failed to transfer title in the relevant Materials and Equipment relating to the Advance Payment by the Date for Practical Completion; or

(2)          on termination of this Agreement, the Contractor fails to either transfer title in the relevant Materials and Equipment relating to the Advance Payment or fails to repay the Advance Payment to the Principal.

(c)          Without limiting the unconditional nature of the Punch List Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds of the Punch List Security, the Principal may demand, receive and use the proceeds of any Punch List Security when the Contractor has failed to rectify or replace (as applicable) the relevant Punch List item in the time specified in the Punch List.

(d)          Without limiting the unconditional nature of each Shipping Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds of each Shipping Security, the Principal may demand, receive and use the proceeds of the applicable Shipping Security when the Contractor has failed to deliver any Shipped Equipment to the Site by the earlier of:

(1)       the Date for Practical Completion; and

(2)       the date of termination of this Agreement.

(e)          The Contractor covenants with the Principal that the Contractor will not institute any proceedings, or exercise any right or take any steps to injunct or otherwise restrain:

(1)          the financial institution that issued the Security from paying the Principal pursuant to the Security;

(2)          the Principal from taking any steps for the purpose of making a demand under any Security or receiving payment under any Security, or otherwise exercising its rights under any Security; or

(3)          the Principal using the money received under the Security, even where the Contractor disputes the Principal’s right to payment (including where dispute resolution proceedings have been commenced under clause 41).

(f)           Where the Principal has had recourse to any Security and it is subsequently found that the amounts drawn down were not payable by the Contractor:

(1)          subject to clause 25.7(f)(2), the Principal will repay the amount not payable by the Contractor within 30 Business Days with interest at the Interest Rate; and

(2)          the Principal may, prior to repayment, set-off any such amounts referred to in clause 25.7(f)(1) against any Loss the Principal has suffered.

(g)          Except as expressly provided for in clause 25.7(f)(1), the Principal is not liable for, or in connection with, any Claim by the Contractor (and the Contractor will not make any Claim) arising out of or in connection with any such wrongful recourse to the Security.

41.4     Commercial Disputes and Arbitration

(a)          If the Dispute:

(1)          relates to a commercial or legal issue in relation to this Agreement; and

(2)          is not resolved by the Senior Representatives within 20 Business Days after the relevant Dispute Notice was delivered,

then the Dispute must be referred to arbitration

(b)          Arbitration pursuant to this clause 41.4 will be conducted by Resolution Institute in accordance with the UNCITRAL Rules of Arbitration current at the time of the reference to arbitration and as otherwise set out in this clause.

 

41.6          Injunctive or urgent relief

Nothing in this clause 41 prejudices either party’s right to institute proceedings to seek injunctive or urgent declaratory relief in respect of a Dispute under this clause 41 or any other matter arising under this Agreement.

Relevant Terms of the Consent Deed

  1. By a Consent Deed dated 18 March 2018, SGRE (as Contractor) and BWF (as Borrower) covenanted that:

3.1          (e)       Subject to clause 3.2, the Contractor consents and acknowledges that the Borrower may not without the Security Trustee’s prior written consent:

(1)          amend, vary, supplement, terminate, rescind, repudiate (otherwise than by breach) or accept the termination, rescission or repudiation of the Contract;

 

3.2      Permitted amendments

The Borrower and the Contractor will not agree or consent to any amendment, waiver, release, variation or other change in the scope of the Contract or enter into any document or agreement in relation to the Contract which has the effect of amending, waiving, releasing, varying or supplementing the Contract with the Security Trustee’s prior written consent, except:

(b)          where the amendment or variation:

(1)          results in an additional cost of less than $500,000 and when aggregated with all other variations under the Contract, does not result in an aggregate additional cost exceeding $2,000,000; and

(2)          does not materially impact on or materially alter the performance of the Works; or

(c)          in respect of any amendment, variation or waiver of an immaterial, minor or inconsequential nature or to correct a manifest error,

provided that the Borrower must, promptly following the relevant amendment, variation or waiver (as applicable) under this cl 3.2, notify the Security Trustee of such amendment, variation or waiver and provide the Security Trustee with all relevant information as reasonably requested by it in connection with such amendment, variation or waiver.

 

The parties agree and acknowledge that if the Borrower does not obtain the Security Trustee’s prior written consent in accordance with this cl 3.2, the relevant amendment, waiver, release or variation will be invalid and the Contractor and the Borrower will not be bound by such amendment, waiver release or variation.

Summary Outline of SGRE’s submissions

  1. SGRE does not assert that the terms and conditions of the EPC Contract provide for any relevant fetter in relation to BWF’s entitlement to call upon the Performance Securities.
  1. SGRE however asserts that the subsequent 30 September 2019 Agreement agreed not to call upon the Performance Securities in satisfaction of BWF’s purported DLDs claim under the EPC Contract.
  1. SGRE argues that the 30 September 2019 Agreement amounts to an agreement on the part of BWF not to call upon the Performance Securities in satisfaction of BWF’s purported DLDs claim and that BWF’s threat to do so would be in breach of the 30 September 2019 Agreement.

Serious question to be tried

  1. SGRE submits that there is at least a serious question to be tried that, pursuant to the 30 September 2019 Agreement, BWF be not permitted to call upon the Performance Securities and should be restrained from doing so.
  2. SGRE also submits that the final determination of the dispute regarding the 30 September 2019 Agreement, together with the wider dispute between SGRE and BWF should be resolved by arbitration pursuant to cl 41.4, as agreed by the parties under the EPC Contract.
  3. Further, SGRE submits that it is not appropriate for the Court to go further on this application than to determine whether there is a serious question to be tried as to questions in relation to the proper interpretation and effect of the 30 September 2019 Agreement which SGRE has identified, and outlined.
  4. SGRE submit that there is no inflexible rule that an application of the type it makes should be determined ‘as if’ on a final basis, and that whether it is appropriate to proceed will depend on the circumstances of the case including whether there is any disputed evidence.  SGRE submit that on this application there is disputed evidence as disclosed by Hertling and Francisci in their account of the conversation of 30  September 2019.
  1. SGRE also submit that because the parties have agreed that the disputes should be referred to arbitral determination under the EPC Contract the matters presently in issue between the parties, including in relation to the 30 September 2019 Agreement, should, except for any necessary urgent interlocutory relief, be dealt with by arbitral tribunal.
  1. SGRE also contends that for various reasons the balance of convenience here favours an interlocutory injunction being granted to SGRE.
  1. The 30 September 2019 letter which gives rise to the issues of interpretation on this application states –

1.           BWF will continue to offset any DLDs against payments or any amounts due to SGRE for the above project.

2.           Except in any process provided for in clause 41 of the EPC Contract, SGRE undertakes not to object to or oppose any such offset (other than for mathematical mistakes apparent in the old DLDs calculations) and additionally will not exercise its rights under or in connection with the security of payment legislation in relation to this matter.

3.           BWF will accordingly exercise its rights to draw on the Performance Securities in its possession in relation to this matter.  For the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days prior written notice.

BWF’s submissions

  1. BWF submits that it should not be restrained by interlocutory injunction from accessing the Performance Securities because there is in this case, notwithstanding the 30 September 2019 Agreement, no serious question to be tried in relation to BWF’s contractual entitlement to call upon the Performance Securities in satisfaction of its claims for DLDs and that the balance of convenience lies overwhelmingly against the issue of an injunction in the present circumstances.
  1. Further, for various reasons the balance of convenience in this matter favours rejecting the injunctive relief sought by SGRE.
  1. Further, BWF submits that there should be no interlocutory injunction issued because no relief is sought against NEOEN, and the entire proceeding should be dismissed against NEOEN.

BWF argues that there is no serious question to be tried in this instance

  1. BWF relies upon what it says are the clear terms of cls 13.8(e) and 25.7 of the EPC Contract that, in substance, notwithstanding the existence of any relevant dispute as to the cause of SGRE’s failure to achieve Practical Completion of the Works, BWF is entitled to demand and recover DLDs from SGRE and to make a call on the Performance Securities in the event that such a demand is not satisfied.
  1. BWF argues that the EPC Contract gives rise to no fetter upon BWF’s right to call upon the Performance Securities.  Furthermore, BWF submits that other than the 30  September 2019 Agreement requiring 5 business days’ prior written notice in that regard, there is no fetter in respect of BWF’s rights to call upon the Performance Securities, which is reflected on the proper interpretation of the 30 September 2019 Agreement.
  1. In that regard, BWF asserts that by its current application SGRE seeks to circumvent the parties’ agreed allocation of risk under the EPC Contract by either seeking to restrain permanently or alternatively until resolution of the disputes, BWF’s call upon the Performance Securities.
  1. BWF submit that the Court in this instance can appropriately resolve the contractual construction issue on a final basis without making any declaration or alternatively, were the Court to make a declaration in this instance as to the proper construction of the Contract, it can do so without infringing the parties’ underlying agreement to arbitrate their disputes, because cl 41.6 of the EPC Contract provides for an express ‘carve out’ from the arbitration agreement between the parties in respect of ‘injunctive or urgent declaratory relief in respect of a dispute’.
  1. BWF submits that –

Where, as here, the contractual provisions under consideration are intended to operate as a contractual risk allocation mechanism pending the final determination of the parties’ contractual entitlements, a failure to resolve the construction issue now would render that contractual mechanism effectively nugatory and deprive the parties of their commercial bargain.  The relevant status quo to which the Court must have regard is what the parties have agreed as to which of them should bear the financial risk pending final determination of the underlying dispute.  Here, the status quo will best be maintained by refusing the injunction, and thereby preserving the agreed risk allocation.

  1. BWF also relies heavily on the Victorian Court of Appeal decision in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd (Sugar Australia) stating:

As to the proper construction of contractual provisions in relation to the provision of security, in Sugar Australia, Osborn and Ferguson JJA noted, relevantly:

(a)          a critical question of construction – and the first question which the court must address – is whether the provision under consideration is intended to allocate risk prior to the final determination of the parties’ rights;

(b)          the fact that a performance bond is intended to operate as a risk allocation device is not necessarily determinative of the right of a party to have recourse to it. The bond may be subject to a contractual qualification or limitation upon the circumstances in which recourse may be had. However, the fundamental characteristic of a risk allocation device informs the task which the Court must undertake in resolving whether or not to grant an injunction;

(c)          if the contractual provision requiring security is intended to operate in part as a risk allocation provision, the failure to resolve its construction until trial renders it effectively nugatory in this respect and defeats its evident commercial purpose. An interlocutory injunction restraining recourse to a performance bond pending trial in the circumstances would, in effect, amount to final relief in respect of a principal benefit intended to be conveyed by the performance bond; and

(d)          if the grant of injunctive relief is effectively dispositive of a material part of the claim, the plaintiff carries a heavy onus.

  1. BWF’s submission is that pursuant to the express terms of the EPC Contract it is entitled to have recourse to the Performance Securities which was intended by the parties to be equivalent to accessible cash in accordance with the terms of the EPC Contract, pending the resolution of any underlying dispute in the nature of the disputes relating to the present contractual entitlement on the part of BWF to DLDs.

Legal principles applicable to the determination of the application before the Court

  1. Both SGRE and BWF submit in respect of the governing principles in relation to the grant of an interlocutory injunction, that ordinarily the applicant must demonstrate both that there is a serious question to be tried in relation to the final relief ultimately to be sought at trial in the proceeding, and that the applicant must establish that were the injunction not acceded to, the applicant will, or is likely to, suffer injury or prejudice for which an award of damages would not represent an adequate remedy.  Further, the applicant must establish that the balance of convenience favours it and the issue of the injunction sought.  BWF however submitted that in this instance the contract interpretation issues should be determined ‘as if’ on a final basis.

Performance Guarantees – Construction and Engineering Contracts

  1. In the setting of construction and engineering contracts, save for circumstances sufficiently raising the spectre of fraudulent or relevantly unconscionable conduct, courts will not ordinarily restrain the beneficiary of a performance guarantee from recourse thereto unless the contract expressly or impliedly constrains the entitlement of the beneficiary to access the performance guarantee.  Such a constrain, where it exists, is often referred to a fetter on access to the security concerned.
  1. Contract construction questions concerning the existence of an express or implied constraint usually subsume the further question(s) as to whether or not the contract in issue requires the beneficiary to establish the existence of some entitling event or circumstance before accessing the performance guarantee, for example whether it is adequate for the beneficiary to assert the existence of such events or circumstances proving that assertion to be bona fide, and also often the related question as to whether on the proper construction of the subject agreement between the parties, the performance guarantee related terms and conditions were intended by the parties to provide a security fund accessible to the beneficiary in the event of a relevant dispute as to rights and entitlements being declared, or provide for a security guarantee fund which was immediately accessible to the beneficiary of the performance guarantee pending resolution of any relevant dispute, as a risk allocation mechanism under the contract.
  1. In my view in relation to the subject EPC Contract it is clear that the terms of cl 25.7 of the EPC Contract reflect the parties’ intent that BWF as the beneficiary of the subject Performance Securities, is under no requirement to establish any fact and/or circumstance in the nature of preconditions before it is entitled to access the Performance Securities under the EPC Contract, and need only assert a right to the payment of money by the Contractor under, or arising out of, or in connection with:

(a)        this Agreement (including DLDs); or

(b)       otherwise at law relating to the Works under this Agreement.

  1. Further, the same terms of the EPC Contract, notwithstanding the effect of the 30 September 2019 Agreement in issue, also, in my view, reflects the clear intention on the part of BWF and SGRE that the Performance Securities referred to in cl 25.7(a) of the EPC Contract would provide a security fund accessible to BWF in accordance with the EPC Contract terms referred to above, in the event that any relevant dispute arose between it and SGRE in connection with BWF’s asserted right to payment under or in connection with the EPC Contract or the Works.  It is clear on the basis of the express terms of the EPC Contract referred to above that the Performance Securities regime established by the EPC Contract here was intended by BWF and SGRE to also establish a security fund which would be accessible to BWF pending the resolution of disputes between it and SGRE, including of the type which presently exists in relation to the dispute concerning DLDs.  That is, cl 25.7 of the EPC Contract is intended by the parties, on its clear and unqualified terms to operate as a risk allocation mechanism pending the resolution or determination of disputes between the parties.

Whether in this particular instance the Court should be constrained to proceed to finally determine the contract interpretation related issues concerning the alleged 30 September 2019 Agreement

The parties’ submissions as to the proper approach to this application for injunctive relief

  1. On this application BWF submits that the critical issue for resolution is whether the EPC Contract, in light of the 30 September 2019 Agreement, contains an express or implied fetter to BWF’s right to call upon the Performance Securities and whether, in the proper exercise of the Court’s discretion, that question should be determined on this application ‘as if’ on a final basis.
  1. SGRE’s position is that its application for injunctive relief should be approached on the basis that SGRE need only establish that there is a serious issue to be tried in relation to the asserted fetter or access to the Performance Securities which it was provided, and once such an issue is adequately identified, subject to balance of convenience considerations, an interlocutory injunction should be ordered, leaving the final resolution of the question of the meaning and effect of the 30 September 2019 Agreement to the determination of an arbitral tribunal pursuant to cl 41 of the EPC Contract.

It is however to be noted that SGRE also submits that if its argument in favour of only interlocutory resolution of its application at this stage is rejected, SGRE submit that it is open to the Court, at this juncture, to finally determine the meaning and effect of the 30 September 2019 Agreement.  SGRE submit that the Court has flexibility in this regard, and SGRE also identifies, in this application, the arguments it puts in relation to the proper construction of the 30 September 2019 Agreement in the event that the Court decides in its discretion to move to finally determine the proper construction and meaning of the 30 September 2019 Agreement on this application.

  1. There is high authority in support of the approach argued for by BWF on this application.  That is that a court called upon to determine an interlocutory application for an injunction restraining access to Performance Securities should, if not inconvenient or appropriate to do so, move to finally determine issues in connection with the parties’ dispute as to the correct interpretation of relevant contractual stipulations in relation to a Performance Securities provision and course regime.
  2. I recognise that there may be circumstances in which it is impractical or inappropriate to finally determine an interlocutory application.  I also recognise that one such circumstance may well be when the resolution of the matters in issue would necessarily involve deciding such an application where there is conflicting affidavit evidence of materiality relied on by the parties.
  3. In my view however, although in such interlocutory matters courts are often reticent to proceed to finally decide applications where there is a conflict of affidavit evidence, the existence of this circumstance does not foreclose the question of what approach, in the exercise of discretion is most convenient, just and appropriate.
  4. In Sugar Australia, the Victorian Court of Appeal (Osborn and Ferguson JA, as her Honour then was) stated (citations omitted):

The need to construe the clause in order to assess the evidence

39          The respondent identifies two construction questions arising in relation to GC 5.2. The first is that to which we have already referred, namely, the meaning of the phrase ‘acting reasonably’. The appellant contends that this involved a subjective concept, whereas the respondent contends that it establishes an objective requirement.

40          The second question is whether GC 5.2 only permits the appellant to have recourse to the performance bonds for reimbursement of moneys presently due or expended by the appellant or whether, on the other hand, recourse might be had in respect of moneys payable in the future.

41           The primary judge explicitly recognised the significance of the first of the construction issues to the exercise of the Court’s discretion:

Whether there is a serious issue to be tried as to whether Sugar Australia has an entitlement under clause 5.2 of the Construction Contract to seek recourse to the Bank Guarantees in the circumstances advanced by Lend Lease, will in significant part depend upon the proper construction of the words ‘acting reasonably’ found in the clause, and in particular, whether these words are confined to a subjective analysis, or import the concept of an objective assessment.

42          His Honour was correct to so conclude and this consideration also strongly supported the conclusion that the words ‘acting reasonably’ should be construed for the purpose of deciding whether injunctive relief was appropriate. Without so doing, the question of whether there was a serious question to be tried on the facts as to whether the appellant was entitled to seek recourse to the bank guarantees could not be determined.

The ordinary practice of the courts

43          The practice adopted in the reported cases relating to performance bonds to which the primary judge was referred in argument also supports the view that it is ordinarily appropriate to resolve construction issues which are capable of resolution at the interlocutory stage and which bear squarely on the justice of preventing reliance upon a performance bond pending trial.

44          It was submitted to the primary judge on behalf of the appellant that a central issue in the proceeding was the construction of the relevant contract and that because this did not depend upon the assessment of evidence but was confined to an examination of the four corners of the document, the Court was obliged to finally determine the construction question at this stage of the proceeding.

45          That submission placed reliance upon the dissenting decision of Young JA in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd. In that case, the majority overturned the grant of an interlocutory injunction because the primary judge misconstrued a contractual condition governing recourse to a performance bond. Further, it was in this context that Young JA made the following statement:

The first is that when there is an application for an interlocutory injunction which depends on the construction of a contract, it is for the judge to determine whether he or she has sufficient material to be able to construe the contract on a final basis. The urgency with which the case has to be heard, or the lack of factual investigation to that point, may mean that the judge deals with the question of whether there is an arguable case on flimsy material. However, where the question of construction can be dealt with, then the decision on that matter is a final determination, and ordinarily, if no other remedy is given, a declaration should be made as to the construction of the contract.

46          Whilst the primary judge was correct to conclude first that this statement was obiter, and secondly, that it cannot be understood as stating an inflexible rule, the approach of all three judges in the case demonstrates the centrality of the construction of the contract in disputes over breach of negative conditions qualifying performance bonds and the necessity, in the ordinary course, to resolve construction issues of the type here in issue.

48          In the present case, the appellant placed specific reliance upon the following statement by Charles JA:

Mr Archibald’s submission [made on behalf of Fletcher] on this first issue was that the terms of the agreement, properly construed, show that resort to the security under cl. 3.13 is subject to the express qualification that Varnsdorf’s entitlement must be undisputed. This qualification was not said to be implied or inferred. I did not understand it to be suggested that the determination of this point of law required the examination of a factual matrix not presently available. Accordingly this court should, in my view, now decide the question of law involved in the interpretation of the contract.

49          Charles JA referred, in turn, to the decision of Young J in Hortico, a case concerning an application for an interlocutory injunction restraining enforcement of a performance bond given by an owner with respect to payment for the design, supply and installation of a boiler. A central issue in that case was whether the bank guarantee in issue was independent of the works contract. Young J said:

On an application for interlocutory injunction which raises questions of law, the approach of this Court has been, I believe, to decide questions of law which arise unless in the opinion of the judge, those questions should be better left until later. I think that the only exceptions to that general rule are where time does not permit proper consideration of the questions of law at the interlocutory stage, or where the determination of the points of law requires a factual matrix which is not available until the facts in the entire proceedings have been proved.

Accordingly, although some of the issues in this case such as whether time is of the essence of the contract and who breached the contract may involve facts which are not yet available and should not be decided at this stage, the basic legal issues in the case can and should be decided now. These issues are whether the ‘guarantee’ given by the bank should be read independently of the contract or as part of the contractual arrangements between the parties.

51           It is plainly true that the appropriateness of the ordinary approach identified by Young J in Hortico must ultimately be governed by the circumstances of the case. Nevertheless, the authorities referred to exemplify the application of that approach in cases such as the present.

52          The further decisions of Bachmann Pty Ltd v BHP Power New Zealand LtdCloughFMT Aircraft Gate Support Systems v Sydney Ports CorporationRedline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd and Otter Group Pty Ltd v Maria Margaretha Wylaars to which reference was made in submissions also reflect the centrality of construction issues to the resolution of applications for interlocutory relief with respect to performance bonds.

53          In our view, when all of these authorities are referred to it is plain that the ordinary practice in a case such as the present is to construe contractual terms which bear on basic issues in the case and which are capable of construction in the absence of further evidence. This practice also favours the conclusion that the contractual provisions here in issue should have been construed by the primary judge.

55          The ordinary course adopted in the authorities referred to also conforms with the overarching purpose stated in s 7 of the Civil Procedure Act 2010, namely, to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute between the parties.

56          Nevertheless, it must of course be accepted that the particular circumstances of a case may dictate a departure from the ordinary practice. We turn now to the circumstances which the judge found determinative of the issue.

65           It follows that his Honour was incorrect to put off the question of construction of the contract until the trial of the proceeding and to regard the issues which arose with respect to construction as giving rise to a serious issue which should be tried subsequently.

66          For completeness, we note that in expressing his conclusions his Honour said that it was appropriate to reserve the construction question to a final determination at the trial of the proceeding, or at least to the trial of a separate question, pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 if such were ordered on an application made on proper notice. The postulation of an alternative procedure does not resolve the problems with his Honour’s conclusions. In terms, he put off the construction questions to the trial and for the reasons we have explained this was not appropriate. Further, the trial of a separate question would not provide an appropriate vehicle for the resolution of interrelated issues arising upon the injunction application.

Conclusion

67          The primary judge did not decide whether GC 5.2 was intended to allocate risk pending the resolution of a dispute. In our view it was so intended and this in turn constitutes a consideration of fundamental importance in assessing whether the grant of an injunction carries with it the lower risk of injustice.

68          The parties made a commercial agreement as to when and how the performance bonds might be called upon. In doing so, they effectively determined which of them would bear the financial risk (up to approximately $4.2 million) without the need for the appellant to prove an entitlement to be paid. The safeguard negotiated and agreed by the parties was that the appellant must act reasonably when claiming an entitlement to payment and calling on the bonds. One important commercial effect of this was that the appellant did not have to wait until trial for payment of some amount by the respondent. This evident commercial purpose of GC 5.2, when viewed in the context of the accepted principles governing the grant of interlocutory injunctions and the ordinary practice adopted in performance bond cases, required the primary judge to resolve the construction issues raised in order to properly determine whether an injunction should be granted. If this were not done, in effect, the parties would be deprived of the commercial bargain that they made.

  1. Further, Kaye JA, stated:

111          In my view, the authorities to which the primary judge was referred, and which I shall shortly discuss, support the proposition that, ordinarily, on an application for an interlocutory injunction to restrain recourse to a security provided under a building contract, a court should determine a controversial issue of law, if the determination of that issue is a necessary step to a conclusion whether an applicant is entitled to the injunction, unless, in the particular circumstances of the case, it is not practicable or appropriate to do so.

112          Those principles were stated by Young J in Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd. In that case, the applicant sought an interlocutory injunction to restrain its bank from paying monies to the beneficiary of a bank performance bond. In refusing that application, Young J rejected the construction of the bank guarantee relied on by the applicant. In doing so, his Honour expressed the applicable principles as follows:

On an application for interlocutory injunction which raises questions of law, the approach of this Court has been, I believe, to decide questions of law which arise unless in the opinion of the judge, those questions should be better left until later … I think that the only exceptions to that general rule are where time does not permit proper consideration of the questions of law at the interlocutory stage … or where the determination of the points of law requires a factual matrix which is not available until the facts in the entire proceedings have been proved.

113          That passage, from the judgment of Young J in Hortico, was cited, with approval, by Charles JA in Fletcher Construction Australia Limited v Varnsdorf Pty Ltd.

116          In addition to the cases that I have just mentioned, there are a number of other instances in which the courts have undertaken a final construction of a security clause in a building contract, for the purposes of determining an application for an interlocutory injunction to restrain a building proprietor from having recourse to the security provided by that clause. Those cases include Clough Engineering Ltd v Oil & Natural Gas Corporation LtdFMT Aircraft Gate Support Systems v Sydney Ports Corporation, and Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd.

119          Based on those principles, in my view, the primary judge ought to have determined the correct construction of GC 5.2, in order to determine whether the respondent had demonstrated that there was a serious issue to be tried as to the application of that clause to the circumstances of the case revealed in the affidavits before him.

120         In the present case, it is not suggested that the construction of GC 5.2 would involve or require evidence as to the factual matrix in which the contract was concluded. The construction of clause 5.2 is a discrete question, which did not involve consideration of any detailed or complex material. The resolution of the application before the court was not urgent, as the respondent’s rights had been protected by an interim injunction. While it was important that the judge deliver his decision expeditiously, nevertheless the judge did have some time to consider the issues raised by the parties before him.

  1. In my view, the matters which I have outlined below and the obvious consequence of pursuing an approach whereby the present contractual dispute about the meaning and effect of the 30 September 2019 Agreement is not decided at this point, beyond characterising the controversy as to a serious issue to be decided in the future, would in effect contradict and negate the intent of the parties’ contractual regime for the provision of Performance Securities and their agreement in relation to the Principal’s entitlement to ready and unfettered access to that security fund.  Accordingly, to so proceed would also disrupt the parties agreed risk allocation regime in that regard.
  2. Further, it is to be noted that this application proceeded on the basis that BWF argued from the outset that in the proper exercise of the court’s discretion on this application should be determined ‘as if’ on a final basis.
  3. Although BWF’s contractual entitlement to have recourse to the Performance Securities in issue, pending resolution of the underlying dispute, and BWF’s opposition to the SGRE application for an injunction sought the determination of the underlying contract interpretation questions, ‘as if’ on a final basis, at no time did SGRE submit that it should be permitted to test BWF’s affidavit evidence or obtain further disclosure of documents save in relation to one document which SGRE sought via a Notice to Produce.  Nor did SGRE protest that if there was a prospect of the final determination of the proper interpretation and meaning of the 30 September 2019 Agreement, SGRE should have the opportunity to make further submissions.
  4. Further, in the present circumstances, as I have earlier noted, SGRE has acknowledged that, if its argument that its present application should at this stage be determined on an interlocutory basis is rejected, it would be a permissible approach to this application for the Court to move to determine the contractual issues in this matter ‘as if’ on a final basis.
  1. Further, SGRE has put the submissions it expressly states it desires to put as to the proper interpretation of the 30 September 2019 Agreement, in the event that the contract construction issues central to this application are, in the court’s discretion, decided on a final basis.
  1. SGRE also sought to rely upon Kawasaki Heavy Industries Ltd v Laing O’Rourke Australia Construction Pty Ltd  (Kawasaki) in relation to the question of how this application should proceed and be considered.  In my view however the decision of Kawasaki is of little assistance because the circumstances there were materially different.  In Kawasaki the Court was not prevailed upon to adopt the approach of finally determining the contract construction issues in question.  Furthermore, in Kawasaki it was acknowledged that the ruling agreement referred all disputes to arbitration.  Here the EPC Contract reference clause in cl 41, provides for a ‘carve out’ for applications of the type prosecuted by SGRE on this application, in cl 41.6.
  1. The EPC Contract here is for the above reason materially different to the situation referred to in Kawasaki.  Clause 41.6 of the EPC Contract provides for what is commonly referred to as ‘a carve out’ for injunctive or urgent declaratory relief in respect of a dispute to be the subject of a curial decision if the parties elect to pursue that relief.  This application is I consider one envisaged by cl 41.6, as SGRE presumably considered to be the case in bringing its application to this Court.

Correct approach to SGRE’s application for interlocutory injunctive relief

  1. Although as earlier raised I recognise and have given weight to the reticence of courts to finally decide an issue or issues in an interlocutory setting, as is the position on this application by SGRE, I consider that in this instance it is just, and more appropriate, to finally decide the effect of the 30 September 2019 Agreement, rather than dealing with this application for injunctive relief on the usual basis applicable to a decision made in relation to an interlocutory injunction.
  1. To take the approach of considering and determining this application on the usual basis, evaluating the first limb of the usual considerations, only as to whether SGRE as applicant has sufficiently demonstrated the existence of a serious question to be tried would, in this matter, give rise to probable injustice because that approach would likely result in significant, to an extent not defined by the applicant, delay until the hearing and disposal of the application at trial or in an arbitration in relation to which there has not yet been an arbitral panel established.  This scenario is likely to defeat the parties’ contractual intent in relation to a contractual regime which in substance provides for immediate access by the Principal under the EPC Contract, to the Performance Securities under cl 25.7.  Such a scenario would also trammel the parties’ agreed risk allocation regime under the EPC Contract.
  1. In this regard I again note that SGRE opposed its application being dealt with on an ‘as if’ on a final basis but also acknowledged the Court enjoyed the flexibility to move to finally determine the contract interpretation issues and it made submissions as to how I should decide the proper interpretation and effect of the 30 September 2019 Agreement if I was to hear and finally determine the question of the proper interpretation and effect of the 30 September 2019 Agreement.
  1. BWF argued that the appropriate course on this application was for the Court to:

Ordinarily, on an application for an interlocutory injunction to restrain recourse to a security provided under a building contract, the Court should determine a controversial issue of law (including the proper construction of the contract), if the determination of that issue is a necessary step to a conclusion whether an applicant is entitled to the injunction, unless, in the particular circumstances of the case, it is not practicable or appropriate to do so.

  1. In adopting the course I consider the more convenient, appropriate and just, I have also weighed in the balance that a factor which might militate against finally determining the proper construction of the parties’ 30 September 2019 Agreement in the present circumstances is the existence of certain conflicts of affidavit evidence asserted to be relevant to deciding the proper interpretation of the Agreement in issue.  I consider that in this case the existence of such conflicts of evidence to be of little consequence and to be an insufficient factor in the overall consideration of this procedural issue.  This is so in particular given the strong reasons identified above warranting a final decision on the relevant contract construction issues including that:

(a)   there has been no discovery or interrogation sought in relation to the affidavit evidence;

(b)  the parties to this application have not sought leave to cross-examine the deponents contested affidavit material nor, save in respect of one document the subject of SGRE‘s Notice to Produce, have the parties sought any disclosure in relation to this application;

(c)   in my view, there has been sufficient time available within which to do so, and it may be inferred from the extensive correspondence, emails, copies of text messages and the like that the parties have presented all the documents they consider germane to their cases as to the interpretation of the agreement in issue; and

(d)  this application has proceeded in a way which always forewarned SGRE that BWF was seeking to have the 30 September 2019 Agreement determined, ‘as if’ on a final basis in relation to BWF’s contractual entitlement to have recourse to the Performance Securities, pending the resolution of the underlying dispute.

  1. Although SGRE’s response to the BWF submission as to how this application should be addressed by the Court was to argue that the application should not be determined on an ‘as if’ final basis, primarily because here there is disputed evidence bearing on the proper construction of the 30 September 2019 Agreement, SGRE acknowledge that its application may, in the Court’s discretion be finally determined at this stage, and SGRE identified the arguments it wished to put on the critical contract interpretation issues in case the court decided to move to finally determine the matter in issue.
  1. On this aspect the SGRE submitted that:

Nonetheless, if (contrary to the foregoing) it is necessary or appropriate to construe clause 3 of the 30 September Agreement on an “as if” final basis, for the reasons given already, the preferable construction remains that for which SGRE contends.

But if Your Honour is persuaded that Your Honour does have to decide the question or should decide it as if on a final basis, it really makes no difference, so far as we’re concerned.  The same matters that we advance as supporting a serious question, in our submission, support the construction for which the plaintiff contends on an as if final basis, so that legal question as to the question of practice really is the approach that Your Honour should take, is not one, in our respectful submission, of any particular significance.

  1. Finally, in relation to the matter addressed above, although the affidavits relied upon in relation to the 30 September 2019 Agreement are in some respects in conflict, for the reasons I deal with below, I consider those parts of the affidavit material in conflict are of very little or no weight and are not probative in relation to the proper construction of the critical signed letter of 30 September 2019.
  1. Accordingly such conflict of affidavit evidence as exists in the affidavits relied on by the parties as directly relevant to the conversations between Hertling of SGRE and Francisci of BWF in connection with the matters agreed in the signed 30 September 2019 letter, are in my view not so material, significant or probative as to preclude me from finally deciding the contract interpretation issues in this application.
  1. For the above reasons I consider that it is appropriate, convenient and just on this application to finally determine the proper construction and meaning of the signed letter of 30 September 2019.

BWF’s submissions in relation to the 30 September 2019 Agreement

  1. BWF submits that the 30 September 2019 Agreement does not alter the party’s contractual entitlements in any material respect.  Further, BWF submits that a court decision to the contrary would require a decision to the effect that both parties had, in breach of the Consent Deed, materially varied the terms of the EPC Contract and done so without the consent of the Security Trustee.  Further, BWF submits that a court decision to the effect referred to would also necessarily require a finding that insofar as it affected the parties’ contractual rights it was invalid and not binding on the parties by force of cl 3.1(e)(1) of the Consent Deed.

  2. BWF also submits in essence that the 30 September 2019 Agreement, properly considered and construed, amounts to no more than:

(a)   a statement as to the sequence in which BWF will exercise its contractual rights to recover DLDs from SGRE, that is, by set-off, and

(b)  an undertaking to provide 5 business days’ prior written notice before calling on the Performance Securities.

SGRE’s submissions in reply dated 16 October 2019

  1. SGRE submits that a serious question to be tried arises from the first sentence of cl 3 of the 30 September 2019 Agreement which SGRE submits constitutes a promise by BWF not to call on the Performance Securities in relation to the DLDs, until the parties’ dispute as to the entitlement to those DLDs is resolved by agreement or arbitration pursuant to cl 41 of the EPC Contract.
  2. SGRE submits in reply that the Court should not go so far as to construe cl 3 of the 30 September 2019 Agreement ‘as if’ on a final basis and that the disputed affidavit evidence on this application arising from the Hertling and Francisci Affidavits is sufficient reason for the Court not to proceed to construe the 30 September 2019 Agreement ‘as if’ on a final basis.
  3. SGRE submits that ‘there is no inflexible rule’ on an application of the present kind that questions of construction should be determined ‘as if’ on a final basis.
  4. SGRE submits that whether the approach referred to in the last preceding paragraph is appropriate or not will depend on the circumstances of the case including whether there are any disputed evidentiary matters bearing on the construction of the component of the parties’ agreement in issue.
  5. SGRE submits that there is no support in the text of the letter of 30 September 2019 for the BWF assertion that cl 3 of that agreement relates only to a claim for the ‘August 2019 DLDs’.
  6. SGRE submits that in the present case, including because of the existence of the parties’ agreement to arbitration in cl 41 of the EPC Contract, the appropriate outcome on the present application is an interlocutory injunction pending further orders of the Court or an arbitral tribunal appointed under the EPC Contract.
  7. SGRE also submits that if the Court concludes that the 30 September 2019 Agreement should be determined ‘as if’ on a final basis, then SGRE argues that the preferable construction is as it has contended in relation to the fetter on recourse to the Performance Securities argued for by SGRE.

SGRE’s Supplementary Note dated 22 October 2019

  1. By its written submissions of 22 October 2019, SGRE  submits in substance that even if the 30 September 2019 Agreement is ultimately declared void, for example on some basis like the effect on it of cl 3.2 of the Consent Deed, that would give rise to the loss of irrecoverable rights including SGRE’s right under the SoP Act to seek an adjudication of its claims, because SGRE’s right to have its relevant claims addressed under the SoP Act have not been pursued as a result of the agreement made on 30 September 2019.  SGRE notes that it had agreed not to prosecute its SoP Act claim by paragraph 3 of the 30 September 2019 Agreement, and cannot now do so because of the requirement it to take action under the SoP Act within 10 business days to the date on which payment of each claim was due, a date now past.

BWF’s Supplementary Note dated 25 October 2019

  1. In response to SGRE’s supplementary note of 22 October 2019, BWF submit that SGRE suffered no irredeemable prejudice in respect of its SoP Act claim if the 30 September 2019 Agreement was void on some basis such as contravention of cl 3.2 of the Consent Deed.
  1. Amongst other reasons BWF point out that the SoP Act imposes no temporal limitation on a claimant commencing a summary debt proceeding.
  2. Further, BWF submit that SGRE impermissibly attempted to exclude as inadmissible a large portion of its own evidence upon which BWF has relied and BWF seek to rely on the Affidavit of Philippa Mitchell sworn 8 October 2019 (Mitchell Affidavit) in some form that affidavit may assist them.
  3. BWF submit that the evidence of Ms Philippa Mitchell is admissible as relied upon by BWF because it legitimately treats evidence of surrounding circumstances known to both parties and is relevant to assisting in the interpretation of the subject contract in circumstances where the language of the 30 September 2019 Agreement is ambiguous or susceptible of more than one meaning.
  4. BWF also submit that it is admissible to adduce extrinsic evidence to prove that the word ‘susceptible’ has more than one meaning and are applicable to only one of those meanings.  That is, not to alter the contract but to identify its subject.  The BWF submission is that where a contractual term is ambiguous, extrinsic evidence may be admitted as an exception to the parol evidence rule, to identify the subject matter of the contract.
  5. BWF also submits that there is no absolute rule that a draft agreement cannot be taken into account in construing the ultimately concluded agreement.
  1. BWF submits that the second sentence of paragraph [3] of the 30 September 2019 Agreement was concerned with any future call on the Performance Securities with respect to DLDs and submits that to the extent that the second sentence in paragraph [3] is ambiguous or susceptible of more than one meaning, evidence of the prior negotiation passing between Williams and Lim, including earlier drafts of the 30  September 2019 Agreement, are admissible at least for the purpose of identifying the subject matter of the term and, consequently, properly construing it.
  1. BWF submits that the communications in respect of the 30 September 2019 Agreement are relevant in two important ways:  first that the second sentence of paragraph [3] is concerned with BWF’s entitlement to call on a Performance Securities in respect of the DLDs and it is not concerned with ‘matters other than … delay liquidated damages’.
  1. BWF’s highlights in its submissions that it was not abandoning its right to call on the approximately $25 million Performance Securities in respect of DLDs which were continuing to accrue, rather it was merely agreeing not to call on the security in respect of the August 2019 DLDs and otherwise to provide 5 business days’ prior written notice of any future call.
  1. Secondly, BWF submits that the drafts of agreement and associated communications passing between the parties during the negotiations after about noon on 30 September 2019, demonstrate that the earlier ‘standstill agreement’ proposed by SGRE was unambiguously rejected by BWF and was not subsequently sought to be revived by SGRE.
  1. Further, BWF also points out that the abbreviated chronology provided during argument on 17 October 2019 (accompanied by the folder of chronological documents) was provided to the Court as a sub-set of the longer chronology handed up by BWF on 17 October 2019, which longer chronology BWF continues to rely upon as establishing a broader context of the irrelevant transactions.

SGRE’s Reply dated 28 October 2019 (to BWF’s Supplementary Note dated 25 October 2019)

  1. SGRE complains that BWF’s supplementary note [6]-[14] goes beyond leave granted to respond to SGRE’s earlier submission.
  2. In my view however, it is appropriate to grant leave to BWF to file and serve and rely upon its Supplementary Note dated 25 October 2019 and deal with BWF’s Supplementary Note given that no procedural unfairness or injustice arises, and that SGRE has had the opportunity to consider BWF’s additional submissions and respond by its Reply Submission of 28 October 2019.
  3. SGRE further submits that if the Court accepts that is so, SGRE’s submission is that it should be granted leave to rely upon its Reply Submission dated 28 October 2019 which makes the following points.
  4. The Mitchell Affidavit, although not read by SGRE was read by BWF and relied upon by it and it remains open to SGRE to contend that various of the exhibited documents are inadmissible and of some probative significance on the contract construction issues.
  5. SGRE objects to the draft agreements referred to at [8] and [13] as inadmissible as drafts.
  6. SGRE submits that this is not a case in which any of the draft agreements reflected an agreement or understanding between the parties.  That feature distinguishes the present case from, for example, Royal Botanic Gardens and Domain Trust v South Sydney City Council, (Royal Botanic Gardens) in which the prior dealings between the parties had resulted in an agreement of the type referred to in the second category of Masters v Cameron.  (In Masters v Cameron – category 2 the parties had completely agreed on all the terms of their bargain, but had made performance conditional upon the execution of a formal document).
  7. SGRE submits that the case of Lodge Partners Pty Ltd v Pegum, (Lodge Partners) is also distinguishable.  There the general rule excluding the admission of antecedent draft agreements was not applicable because evidence of a specific change made to a draft at the request of one of the parties, and agreed by the other party, was clear and undisputed and admitted without objection.
  8. SGRE submits that amongst other bases, drafts should not be admitted so as to construe the contents of a final agreement because the law accepts that it is open to a party to change his or her or, by its officers, its agreement during the course of negotiations.  This, SGRE submits, is the case in the present instance.
  9. In relation to paragraph [14] of BWF’s Supplementary Note, SGRE submits that the communications referred to are in the nature of Williams’ subjective intentions at a certain point during negotiations.  There being no claim in this matter, at present, for rectification of the 30 September 2019 Agreement, Williams’ subjective intentions are irrelevant and further SGRE submits that it can be seen that Williams was not the decision maker for BWF.
  10. In addition to the Objections to Affidavits Ruling referred to below, in my view nothing in this application turns on what is stated by Ms Mitchell in her Affidavit of 8  October 2019.  That Affidavit exhibits documents exchanged by the parties on 30  September 2019, however, insofar as they serve to reflect the subject intentions, opinions and conclusions of the parties, those communications are in the nature of negotiations in respect of which the parties agreed to the articulation of their final agreement in the 30 September 2019 letter signed by the in-house lawyer for the parties between about 6.29pm and 6.34pm on 30 September 2019 and all such communications were superseded by the post 6.00pm executed final version of the 30  September 2019 letter which was intended to reflect the parties’ final agreement.

The Meaning and Effect of the 30 September 2019 Agreement

  1. The proper approach to construction of both the EPC Contract and the 30 September 2019 Agreement and their intended interface and combined effect is to be determined objectively by reference to the text, context and purpose of those agreements.
  1. On 30 September 2019 senior representatives of BWF and SGRE signed the following letter to signify their agreement, on behalf of the parties on whose behalf they executed that document.
  1. The 30 September 2019 letter in issue stated –

SIEMENS Gamesa

R E N E W A B L E   N E R G Y

Neoen Australia Pty Ltd

Level 10/227 Elizabeth Street, Sydney

NSW 2000

Attention:  Vaughan Williams

Email:  vaughan.williams@neoen.com

Siemens Gamesa

Renewable Energy Pty Ltd

(A.B.N. 90 614 784 575)

Date

Melbourne, 30/9/19

Dear Vaughan

Bulgana Green Hub Facility EPC Contract dated 18 September 2017 between Bulgana Wind Farm Ltd (“BWF”) and Siemens Gamesa Renewable Energy Pty Ltd (“SGRE”) as amended by Deed of Amendment dated 16 March 2018 (“EPC Contract”)

Subject:  Delay Liquidated Damages (“DLDs”)

We refer to the above matter and our telephone conversation between our two (2) organisations today.

Without the admission of any liability and reserving any rights SGRE may have, we confirm as follows:

1.          BWF will continue to offset any DLDs against payments or any amounts due to SGRE for the above project.

2.          Except in any process provided for in clause 41 of the EPC Contract, SGRE undertakes not to object to or oppose any such offset (other than for mathematical mistakes apparent in the old DLDs calculations) and additionally will not exercise its rights under or in connection with the security of payment legislation in relation to this matter.

3.          BWF will accordingly not exercise its rights to draw on the Performance Securities in its possession in relation to this matter.  For the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days prior written notice.

Please do not hesitate to contact me, if you have any queries or require further clarification.

Yours faithfully,

………………..

Richard Lim

Company Secretary/Legal Counsel

for and on behalf of Siemens Gamesa Renewable Energy Pty Ltd

Neoen Australia Pty Ltd and BWF confirm agreement to the terms of this letter set out above.

……………………..

Vaughan Williams, Legal Director (Australia)

for and on behalf of Neoen Australia Pty Ltd and Bulgana wind Farm Pty Ltd

30/9/19

Date

  1. It is not disputed that the signed 30 September 2019 letter recorded an agreement between BWF and SGRE in relation to the EPC Contract and the Works being performed thereunder.  What is in issue is the proper construction and effect of that letter.
  2. In the exercise of construing the 30 September 2019 Agreement, unless a contrary intention is somehow indicated, the approach to the interpretation of what is unarguably a commercial agreement, amongst other things, is to objectively consider what a reasonable business person would have understood the subject terms to mean.  In so doing I am entitled to approach the task of giving this commercial agreement a business-like interpretation on the basis that the parties intended to produce a commercial result, not one which produced a commercial nonsense or one which worked a commercial inconvenience.
  3. Such interpretative questions are to be determined in the usual way and by reference to the familiar principles, recently restated in Simic v New South Wales Land and Housing Corporation:

There was also no dispute about those principles of construction. The proper construction of each Undertaking is to be determined objectively by reference to its text, context and purpose. As was stated in Electricity Generation Corporation v Woodside Energy Ltd:

[T]he objective approach [is] to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean… [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties…intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.

The Context in which the 30 September 2019 Agreement Arose

The EPC Contract Performance Securities Regime

  1. Commonly, engineering and construction contracts like the subject EPC Contract for engineering, procurement and construction of the Works, require the contractor undertaking the Works to specified standards and temporal constraints to provide a form of security for performance of its contractual obligations, often by way of unconditional bank guarantee.
  1. The contractual framework pursuant to such security for performance is provided by the contractor to the Principal for which the Works are to be delivered, defines the nature and timing of the security for performance required, the circumstances in which the security provided by the contractor will be returned to it, and the bases for access by the Principal to all or part of such security.
  1. The EPC Contract between BWF and SGRE stipulates in cl 25.1 for the provision and maintenance of the security for performance, and in cl 25.7 for the circumstances in which that security may be demanded, received and used by BWF as the Principal under the EPC Contract.
  2. The express terms in which BWF and SGRE have agreed in relation to BWF’s rights and entitlements in respect of conversion of the Performance Securities provided by SGRE under the EPC Contract, are clear, strong, unequivocal and unqualified in excluding any relevant constraint or fetter upon BWF’s right to demand, receive or use the proceeds of the Performance Securities.
  3. The EPC Contract provides, in cl 25.7, for unrestricted access to the Performance Securities provided by SGRE wherever BWF, as Principal, asserts a right to the payment of money by SGRE, as Contractor, under or arising out of or in connection with the EPC Contract, including with respect to liquidated damages, or otherwise at law relating to the work under the EPC Contract.
  4. Subclause (e) of cl 25.7 of the EPC Contract also provides that:

The Contractor covenants with the Principal that the Contractor will not institute any proceedings, or exercise any right or take any steps to injunct or otherwise restrain:

(1)          the financial institution that issued the Security from paying the Principal pursuant to the Security;

(2)          the Principal from taking any steps for the purpose of making a demand under any Security or receiving payment under any Security, or otherwise exercising its rights under any Security; or

(3)          the Principal using the money received under the Security, even where the Contractor disputes the Principal’s right to payment (including where dispute resolution proceedings have been commenced under clause 41).

  1. Here it is accepted by both BWF and SGRE that the effect of the terms of the EPC Contract do not give rise to any relevant fetter upon BWF’s entitlement in relation to recourse.  SGRE does not argue to the contrary.
  1. Courts have frequently upheld the agreement of parties to engineering and construction contracts, where clearly discernible as to the establishment of agreed circumstances enabling ready and unfettered access to performance security funds.  Courts have also commonly held that such security is intended to be readily accessible and as ‘good as cash’, even in the event of the Contractor’s strong dispute about the Principal’s right to access to such moneys, and pending resolution of such dispute.
  1. I consider it clear that the EPC Contract’s Performance Securities terms which constitute the underlying EPC Contract and which are a major component of the context in which the 30 September 2019 Agreement was made, is of the type described in the last preceding  paragraphs and also in the nature of a contractual risk allocation regime in that regard.  Clauses, including 13.8 and 25.7 of the EPC Contract, make that plain.
  1. In relation to the above characterisation, and justifying it, the EPC Contract provides:

(a)        by cl 41.1 (set out above herein) that if a dispute arises between the Contractor and the Principal, or the Contractor’s Representative and the Principal’s Representative, then such dispute will be dealt with in accordance with cl 41 of the EPC Contract, and in relation to a dispute in the nature of the dispute between SGRE and BWF relates to commercial or legal issues and must be referred to arbitration in accordance with the UNCITRAL Rules of Arbitration;

(b)       however it is to be noted that by cl 41.6 either party may institute proceedings to seek injunctive or urgent declaratory relief in respect of a dispute under cl 41 or any other matter arising under the EPC Contract;

(c)        by cl 44.8 the parties agreed to an Entire Agreement and no reliance clause; and

(d)       by cl 44.9 a Variation Agreement Clause which provides that a variation of any term of the EPC Contract must be in writing and signed by the parties.

  1. Further, the Consent Deed at cls 3.1(e) and 3.2 (which deal with certain exceptions) prohibits amendment, waiver, release or variation to, or in respect of the EPC Contract.  However the exceptions to this prohibition defined in cl 3.2 include amendment variations or waivers of an immaterial, minor, or inconsequential nature.
  1. SGRE’s arguments in relation to the above include in summary that:

(a)        the 30 September 2019 Agreement was an agreement entered into after the formation of the EPC Contract, and therefore the entire agreement and reliance provisions in cl 44.8 do not have any application;

(b)       the requirement of cl 44.9, as to variations to terms of the EPC Contract being in writing and signed by the parties is satisfied by the signed letter of 30 September 2019;

(c)        this application by SGRE is, as provided in cl 41.6, one that the parties have contemplated and agreed to permit under the ‘carve out’ exception to the reference of all commercial and legal disputes to arbitration under cl 41 of the EPC Contract; and

(d)       the 30 September 2019 Agreement is not rendered invalid or ineffective by cl 3.1(e) or cl 3.2 of the Consent Deed.

The parties relevant contract correspondence leading up to 30 September 2019

  1. The formal contractual correspondence passing between the parties in the lead up to 30 September 2019 is also a significant part of the context in which the 30 September 2019 Agreement is to be interpreted.  That particularly relevant contract correspondence between the parties leading up to the 30 September 2019 Agreement includes:

(a)   BWF to SGRE dated 19 August 2019 –

Subject:  Date for Practical Completion and Delay Liquidated Damages

We refer to previous correspondence and note that the Contractor has failed to reach Practical Completion by the Date for Practical Completion (i.e. 16 August 2019).  Accordingly, the Contractor is liable to pay to the Principal Delay Liquidated Damages at the rate of $218,400 per day (i.e. $3,900 x 56 turbines) for every day after the Date for Practical Completion up to and including the Practical Completion Date.

The Principal hereby formally reserves its right to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law.

(b)  BWF to SGRE dated 2 September 2019 –

Subject:  Bulgana Wind Farm – Delay Liquidated Damages (Main Works) Set-off – Tax invoice 6520001094

We refer to:

1.           Principal’s letter dated 19th August 2019 and titled “Date for Practical Completion and Delay Liquidated Damages” [Ref:  BGPH-LET-20190819-097], communicating Principal’s reservation to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law;

2.           Contractor’s tax invoice no. 6520001094 dated 14 August 2019 and received by the Principal’s Representative on 14 August 2019, and;

3.           Principal’s Representative’s Progress Claim Certificate (3318804_PC_15.0) dated 6 August 2019

Capitalised terms used in this notice but not otherwise defined have the meanings given to them in the EPC Contract, and references in this notice to clauses are references to clauses in the EPC Contract.

Delay Liquidated Damages

As you are aware, Delay Liquidated Damages of $3,426,000 are now due and payable by the Contractor to the Principal pursuant to the terms of the EPC Contract for the period 16 August – 31 August 2019 (“Delay Liquidated Damages Amount”).

Under the EPC Contract the Principal is entitled to recover the Delay Liquidated Damages Amount by any manner prescribed under clause 13.8(e) of the EPC Contract. …

Further, we note that as of the date of this letter Delay Liquidated Damages at the Delay Liquidated Damages Rate continue to accrue because the Contract has still failed to reach Practical Completion.

The Principal continues to reserve its right to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law.

(h)  White & Case to Clayton Utz dated 19 September 2019 –

Bulgana Wind Farm – Bulgana Green Hub Facility EPC Contract (EPC Contract)

We act for Bulgana Wind Farm Pty Ltd and have been instructed with your letters to our client dated 5 and 13 September 2019.

In the meantime, absent responsible efforts and effective engagement by your client on the real issues, there is no basis for commercial concessions to be sought or considered, and your client is on notice that the Principal expressly reserves all rights under the EPC Contract and at law, without limitation.

The facts and circumstances

  1. Further, the facts and circumstances set out in the Background section above commencing at paragraph [8] also form part of the relevant context in which the 30  September 2019 Agreement is to be construed.

The Affidavit evidence relied upon by the parties

  1. SGRE relies upon the Affidavits of Thomas Hertling affirmed 8 October 2019 (First Hertling Affidavit) and affirmed 16 October 2019 (Second Hertling Affidavit).
  2. BWF relies upon the Affidavits of Laurent Francisci sworn 14 October 2019 (First Francisci Affidavit) and sworn 17 October 2019 (Second Francisci Affidavit) and the Affidavit of Philippa Mitchell sworn 8 October 2019.

SGRE’s submissions in relation to the admissibility of affidavit evidence

  1. SGRE submitted that the rights and liabilities of parties under a provision of a contract are to be determined objectively, by reference to its text, context and purpose.  Ordinarily, the process of construction is by reference to the contract alone.
  2. Accordingly, SGRE submits if an expression is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.  If an expression is ambiguous, it may be necessary to have recourse to objective events and circumstances external to the contract.
  3. SGRE adds that even where evidence of surrounding circumstances is permissible, evidence of the parties’ statements and actions reflecting their actual intentions and expectations will be inadmissible.  Accordingly, much of the Francisci Affidavit (including paragraphs 38, 41-44, 49, 53, 57-59) is inadmissible.  On this aspect SGRE filed a Schedule of Objections to certain affidavit evidence.

BWF’s submission as to the admissibility and relevance of affidavit material

  1. BWF submits that evidence of surrounding circumstances known to the parties is admissible to assist in the interpretation of the contract, if the language of that contract is ambiguous or susceptible of more than one meaning.  BWF also submits that it is permissible to adduce extrinsic evidence to prove that ambiguous words or passages which are susceptible of more than one meaning should have one of those meanings, that is, to employ such extrinsic evidence, not to alter the subject contract but to identify its subject.  Similarly where a contractual term is ambiguous, extrinsic evidence may be admitted, as an exception to the parol evidence rule, to identify the subject matter of the contract.  BWF also submits that drafts in the evolution of what is finally agreed cannot be taken into account in construing the concluded agreement but only on BWF’s submission in respect of the ambiguity it argues arises by reason of the second sentence in paragraph 3 of the 30 September 2019 Agreement and only then so as to identify the subject matter of that term, as an aid to its proper construction.

  2. BWF’s submission is that the crucial question of construction is the intention of the parties as embodied in the second sentence of paragraph 3 of the 30 September 2019 Agreement.  In relation to this element of the 30 September 2019 Agreement, BWF submits that ambiguity arises.  BWF poses the questions arising and thereby identifies ambiguity to be, in what circumstances, or in respect of which matters, may BWF make a demand or claim under the Performance Securities.
  1. In response to SGRE’s argument that the second sentence of paragraph 3 of the 30  September 2019 Agreement has its sense in providing for access to the Performance Securities in relation to BWF’s contractual entitlements other than DLDs, BWF also submits that there is no evidence that the question of access to the Performance Securities was in respect of any other matter apart from DLDs.
  1. BWF also submits that the second sentence of paragraph 3 is concerned with any future call on the Performance Securities in respect of DLDs and that to the extent that the second sentence in paragraph 3 may be considered to be ambiguous or susceptible of more than one meaning, evidence of prior negotiations passing between Williams and Lim including earlier drafts of the 30 September 2019 Agreement under discussion, are admissible at least for the purpose of identifying, on BWF’s submission, the subject matter of the term and, consequently, properly construing it.
  1. BWF also submit that communications between the respective in-house counsel for BWF and SGRE reveal two critical matters:

(a)        that the second sentence of paragraph 3 is concerned squarely with BWF’s entitlement to call on the Performance Securities in respect of DLDs;

BWF adds that the second sentence of paragraph 3 is not concerned with any matters other than DLDs;

BWF calls upon these matters in further support of its argument that BWF was not abandoning its right to call on approximately $25 million in Performance Securities in respect of DLDs, which were continuing to accrue, but was merely agreeing not to call on that security in respect of the August 2019 DLDs, and otherwise provide 5 business days’ prior written notice of any future call on the Performance Securities; and

(b)       that an earlier agreement proposed by SGRE was unambiguously rejected by BWF and was not subsequently sought to be revived by SGRE.

  1. BWF also filed a Schedule of Objections to various parts of the affidavit evidence sought to be relied on in the Francisci’s affidavits.  My approach to and decision on these objections is dealt with below.

Admission of drafts in the exercising of interpreting a finally agreed contract

  1. In addition to the above outlined submissions of both BWF and SGRE in relation to the other affidavit evidence, the parties take a different position as to the admissibility of the drafts of the letter of 30 September 2019 and associated communications passing between the parties on the afternoon of 30 September 2019.

Summary of SGRE’s submissions in relation to the admission of drafts of the 30 September 2019 Agreement

  1. SGRE submitted that the draft agreements passing between the parties on the afternoon of 30 September 2019 are not admissible, and the authorities relied upon by BWF on this issue are distinguishable from the present case.
  2. SGRE contended this is not a case in which any of the draft agreements reflect, ‘an agreed understanding’ between the parties.  SGRE further contended this distinguishes the present case from Royal Botanic Gardens relied upon by BWF.  Moreover, SGRE contends that prior dealings between the parties resulted in an agreement that falls within the second category of Masters v Cameron, being that the parties had completely agreed on all the terms of their bargain, but had made performance conditional upon the execution of a formal document.
  3. SGRE submitted that the present case is also distinguishable from Lodge Partners upon which BWF also relies.  In Lodge Partners the plaintiff submitted that the general rule excluding the admission of antecedent draft agreements did not apply because, ‘the evidence of the change made to the draft on 24 November 2006 at Mr Pegum’s request and agreed to by Mr Lodge was clear, undisputed, and admitted without objection’. 

  4. SGRE submitted that a reason for drafts not being admissible when construing the content of the final agreement is because, ‘a party may change his or her mind as to the provisions of a draft agreement for many reasons during the course of negotiations’.  SGRE further submits this was not the case in Royal Botanic Gardens or Lodge Partners and contended that it is a factor in the present case hence rendering the authorities relied upon by BWF of no relevance.

BWF’s submissions in relation to the admission of draft agreements

  1. BWF repeated its submission in relation to this issue that evidence of surrounding circumstances known to both parties is admissible to assist in the interpretation of the contract if the language relevantly employed is ambiguous or susceptible to more than one meaning.  BWF also submits it is equally legitimate to adduce extrinsic evidence to prove that words which are susceptible of more than one meaning are applicable to one only of those meanings, insofar as not to alter the contract but to identify its subject.  BWF submitted where a contractual term is ambiguous, extrinsic evidence may be admitted, as an exception to the parol evidence rule, in order to identify the subject matter of the contract.

  2. BWF submitted that it is not an absolute rule that a draft agreement cannot be taken into  account when construing the concluded agreement.  BWF relied on Royal Botanic Gardens and Lodge Partners.  BWF submits that in the circumstances the drafts passing between the parties on the afternoon of 30 September 2019 should be admitted here to assist in properly construing the purpose of the ambiguous second sentence of paragraph 3 of the 30 September 2019 Agreement.

Conclusion – admissibility of draft agreement

  1. I consider that the numerous drafts of proposed formulations of what was finally agreed between the parties as to the signed 30 September 2019 Agreement and associated communications, which were circulated for consideration on the afternoon of 30 September 2019, should not be taken into account by me in the process of construing the subject agreement.
  1. In my view the draft agreements concerned are in the nature of communications of preferred positions and language exchanged by SGRE and BWF in their effort to agreement on the terms ultimately formally executed between about 6.29pm and 6.34pm on 30 September 2019.  I consider the final executed expression of the parties’ agreement in that letter of 30 September 2019, precludes, and renders of no assistance in this interpretive exercise, reference to early drafts and associated communications.
  1. Furthermore, I do not consider that any draft of the ultimate executed letter reflects a relevant discrete agreement or agreed understanding between the parties.  Furthermore here there is the above summarised dispute as to the appropriateness of utilising such drafts in the process of construing the letter in issue.  That is SGRE objects to their admission in the determination of the contract interpretation task required.  On these bases I regard this case as distinguishable from the situation in Lodge Partners and Royal Botanic Gardens, cases relied upon by BWF.
  1. Finally, I also consider that here I should reject reliance on drafts of the agreement in question as in the nature of exchanges in a negotiation in respect of which parties may permissibly change their minds and should not be discouraged from proffering desired negotiating positions, terms or outcomes confident that later, somehow such communications will not be used against them.

The 30 September 2019 Agreement is in part ambiguous

  1. I consider that paragraph 3 of the letter of 30 September 2019, is patently ambiguous.
  1. This ambiguity arises from both the language in the first sentence of that paragraph read together with the second sentence of the same paragraph. The first sentence states that BWF will not exercise its right to draw on the Performance Securities in its possession in relation to this matter.
  1. This language SGRE submits reflects the parties’ agreement that BWF has agreed in an unqualified way, not to draw on the Performance Securities in respect of DLDs under the EPC Contract.
  1. However, the second sentence of paragraph 3 of the 30 September 2109 Agreement states that, for the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days’ prior written notice.
  1. This second sentence in paragraph 3, in my view, gives rise to the patent ambiguity to which I have earlier referred.  This is because whereas standing alone the first sentence of paragraph 3 may reflect an unqualified abandonment or open-ended deferral of BWF’s rights of recourse to the contract Performance Securities in relation to DLDs owed by SGRE to BWF, the second sentence of paragraph 3 of the 30 September 2019 Agreement contemplates that BWF has an immediate and ongoing right to draw on the Performance Securities and that in respect of that right the parties have agreed that BWF must give at least 5 business days’ prior written notice before making any such demand or claim.  Patent ambiguity is thus established.  In my view the great significance of that right has been emphasised by the parties use of the phrase ‘for the avoidance of doubt’.
  1. Further, the second sentence of paragraph 3 of the letter of 30 September 2019 is also in its own terms ambiguous and susceptible of more than one interpretation because its language does not render it clear in what circumstances, or in respect of which matter, BWF  is entitled to make a demand or claim under the Performance Securities.
  1. Accordingly, I consider it permissible and desirable that, in addition to the evidence I refer to above which establishes relevant context, and a large part of the circumstances informing the genesis of the 30 September 2019 Agreement, in the task of interpreting the terms of the letter in issue, I also consider that it is, in the circumstances, permissible and of utility, while giving primacy to the text of the 30 September 2019 letter and ultimately taking the text of the subject agreement as the starting point, to consider all elements referred below as part of the context in which the subject letter was agreed, so as to best ascertain the commercial purpose or object intended to be secured by the parties through that Agreement, and to do so, in addition to the elements of context already addressed in these Reasons to draw on those parts of the affidavit evidence filed in this matter which I consider to be of some weight, materiality and probative value.

The parties objections to Affidavit evidence

  1. Both SGRE and BWF objected to parts of each other’s affidavit evidence.  In respect of the parties’ objections, which are summarised in Schedule format and which were exchanged during the hearing on 17 October 2019, and also at that time discussed as a mode of disposal at transcript 3.5 to 4.28, I have provided to the parties my Ruling on each of their notified objections to affidavits.
  1. The substance of my Rulings is that I have admitted all of the affidavits relied upon by SGRE and BWF but subject to the parties’ objections as they bear upon affidavit evidence put forward in relation to questions concerning the proper interpretation of the 30 September 2019 Agreement.  On this topic I have ascribed no weight to the evidence of Hertling and Francisci, which is in the nature of their subjective intentions, desires, opinions, conclusions and understandings.  In the end result I consider that the only probative evidence of material weight and which is probative as to the conversations between Hertling and Francisci is the specific evidence in the Second Hertling Affidavit at [27] and the First Francisci Affidavit at [37].
  1. I have given no weight to the evidence in the Second Hertling Affidavit at [29] on the contract interpretation issues because that evidence is in the nature of Hertling’s personal views, interpretations, opinions and conclusions and is in the nature of a submission in relation to matters said not to be discussed with Francisci.  Furthermore, and most significantly, Hertling’s evidence at [29] does not deal with what was actually said between him and Francisci, but is in the nature of conclusive assertions.
  1. I also ascribe no weight to [36] of the Second Hertling Affidavit because in that part Hertling does no more than refer to the earlier agreement with Francisci at about noon on 30 September 2019.  Furthermore, a conversation of this substance at 5.20pm on 30  September 2019 is denied by Francisci at [14] and [15] of the Second Francisci Affidavit.
  1. It is Hertling’s specific more detailed evidence of what was said at about noon that day at [27] of the Second Hertling Affidavit which I accept is of weight and probative.
  1. Nor have I given any weight to the Second Francisci Affidavit in relation to the contract interpretation issues because it is the only content which purports to specifically describe what was said in conversations he had with Hertling makes it plain that there was no meaningful dialogue in relation to the 30 September 2019 Agreement at about 5.20pm that day, and no meaningful dialogue about the earlier discussion they had at about noon earlier that day.
  1. For the reasons further outlined below, on the contract construction issues, and apart from their references to the contractual and factual background to the 30 September 2019 Agreement, I consider that it is only the specific detailed evidence of what was said between Hertling and Francisci at about noon on 30 September 2019, which is in an admissible and probative form, in the Second Hertling Affidavit at [27] and the First Francisci Affidavit at [37] which are, in my view, to be considered in relation to identifying the object or purpose of the 30 September 2019 Agreement.
  1. As to Hertling’s position in SGRE, Hertling affirms that he is the Acting Managing Director Technical and that this role is similar to a Chief Executive Officer of SGRE.  Hertling also affirmed that he holds qualifications in finance, economics and law.  Hertling deposes that as Managing Director his responsibility included overall financial and operational performance of SGRE, setting and executing company strategy, customer relations, company governance and suppliers and subcontractor performance.
  1. Between 2017 to September 2019, Hertling was the Managing Director Finance and Administration, which he deposes is a role similar to a Chief Financial Officer of SGRE, responsible for overall finance performance, reporting and compliance, customer relations and business development.
  1. As to Francisci’s position in BWF, Francisci deposes that he is a Director of BWF and holds degrees in Business and Administration, Civil Engineering and has 25 years of experience with Major Infrastructure Projects.

Lead up to 30 September 2019 Agreement (Hertling and Francisci Affidavits)

  1. Hertling also refers to communications with Francisci, Chief Operating Officer of BWF and NEOEN leading up to and in relation to the 30 September 2019 Agreement.
  1. In that regard, Hertling states that on 18 September 2019 Francisci and Hertling agreed that it would be desirable to keep operational and legal aspects of the project separate so that the operational aspects of the project could be resolved as soon as possible, leaving the legal aspects to be resolved by further agreement or the dispute resolution process under the EPC Contract.  Francisci does not in his affidavits refute this matter.

The object and purposes of the 30 September 2019 Agreement

  1. With minor and in my view inconsequential differences, both the Second Hertling Affidavit and the First Francisci Affidavit make statements in relation to a telephone conversation on 30 September 2019 around midday in which Francisci warned that BWF was intending to call on SGRE’s Performance Securities in relation to BWF’s claim in respect of DLDs.  Francisci states in relation to that conversation that he suggested that SGRE could agree to BWF continuing to deduct DLDs from SGRE’s payment claim and agree to giving up SGRE’s claims under the SoP Act and Hertling responded in substance that SGRE’s preference would be for BWF to continue to deduct DLDs from payment claims rather than call upon SGRE’s bank guarantee, and said in addition that SGRE would be willing to agree not to make claims under the SoP Act.
  2. The detail of the words actually spoken as referred to in the Second Hertling Affidavit at [27] and in the First Francisci Affidavit at [37] provide the best and most persuasive evidence of the key relevant conversations between those senior executives.
  1. It is noteworthy in my view that neither Hertling nor Francisci, in the said conversation, referred to in their more detailed and probative evidence to which I have referred, mention discussing a general or ongoing moratorium or prohibition on BWF being able to call on SGRE’s Performance Securities.  Rather, Hertling and Francisci in the conversation of midday 30 September 2019, on an objective and fair reading of what they stated to each other, focus on the deduction of DLDs from SGRE’s payment claim within the context of an existing invoice from BWF in relation to a DLDs claim by BWF which had at the time of the conversation not been paid by SGRE.  That Invoice it is accepted was the Invoice for August 2019 DLDs.  The conversation also addressed BWF continuing to deduct DLDs from payment claims rather than call up SGRE’s bank guarantee and SGRE not making a security of payment claim which at that point SGRE had raised in relation to BWF’s offer to set-off DLDs against SGRE’s payment entitlement.
  1. In the Second Hertling Affidavit at [29], Hertling disagrees with Francisci (at [38] of the First Francisci Affidavit) in which Francisci denies that he and Hertling discussed BWF giving away its right to call on security.  In the Second Hertling Affidavit at [29] Hertling states that his noon conversation with Francisci was about BWF not calling on the Performance Securities with BWF’s claims for DLDs and in return SGRE not  agreeing to make a claim under the SoP Act and allowing BWF to set-off DLDs against SGRE’s payment claims.
  1. In relation to both Hertling’s said evidence at [29] and Francisci’s said evidence at [38], as I have earlier noted, I consider these summary statements to be of no real assistance in construing the 30 September 2019 Agreement.  What is said in those paragraphs by each witness is in the nature of rolled upon general evidence replete with summary subjective conclusions, interpretations and opinions.
  1. Hertling’s specific evidence at [27] of his Second Affidavit is of assistance.  In that conversation Hertling conveyed in substance that SGRE was in a difficult position contractually (‘between a rock and a hard place’) and expressed a preference for SGRE to be subject to deduction (set-offs) of DLDs from SGRE’s right to payment claims, rather than have its bank guarantees accessed.  SGRE also made it clear in the circumstances, if BWF continued to deduct DLDs, SGRE was willing not to prosecute its security of payment claims.  I note again that this more detailed and persuasive evidence of Hertling does not refer to BWF discussing giving away its rights to calling on Performance Securities.
  1. I also note as important, and uncontradicted by Hertling, Francisci at [37] of the Second Francisci Affidavit, refers to the context of the noon 30 September 2019 discussion as one in which BWF has invoiced DLDs which have not been paid.  It is conceded by SGRE in argument that these DLDs, were those certified against BWF in August 2019.  Francisci also stated that setting of DLDs would allow the parties to stay within the contract.
  2. In my view, the admissible and persuasive parts of the above evidence of Hertling and Francisci in relation to the telephone discussion at about midday on 30 September 2019 persuade me that the call was one in which the discussions did not reflect that the parties intended to deal in their agreement with an unqualified or an ongoing fetter on BWF’s ability to access the Performance Securities, but rather the focus was on an agreement whereby BWF would deduct DLDs from SGRE’s payment claims in respect of then invoiced unpaid DLDs.  On this aspect, as I have earlier noted, the parties accept that at that time the only invoiced DLDs were the August 2019 DLDs.  This, in my view, also reconciles with Francisci’s statement that ‘if we don’t call the security you (SGRE) could send me a letter for set-off and we would stay within the contract and you would not make a security of payment claim’.  Hertling does not directly dispute that the above statement was made by Francisci.
  3. Further, it is I consider clear that on 30 September 2019 both Hertling and Francisci were proceeding on the basis that their discussion of about midday that day was to be the subject of a formally drafted letter to be executed in terms setting out the parties’ agreement.
  4. I am persuaded that the object and purpose of the 30 September 2019 Agreement are informed in relation to the ambiguous text of paragraph 3 of that agreement, by those aspects of the parties’ affidavit evidence referred to above, and although any final conclusion as to the proper interpretation of the 30 September 2019 Agreement is subject to the primacy of the text of that agreement, I am persuaded for the reasons I have outlined, that Hertling and Francisci’s discussions at about noon on 30  September 2019, support the conclusion that, as BWF submits, that the object or purpose of that agreement was to agree to the sequence  in which BWF would exercise its contractual right to recover DLDs from SGRE by way of contractual set-off and, if and when the Performance Securities were to be called up, for BWF to give 5 business days’ prior written notice in relation to its intend to do so.

Reasons for interpretation of 30 September 2019 Agreement

Does the 30 September 2019 Agreement give rise to a contractual qualification or limitation in relation to recourse to the Performance Securities

The 30 September 2019 Agreement on SGRE’s submission impair terms of the Performance Securities provision and recourse agreement at cl 25.7 of the EPC Contract.

  1. In my view, the language and intent of the 30 September 2019 Agreement is clear from the express terms of the parties’ signed letter of 30 September 2019 save in relation to the ambiguities I have earlier identified in relation to paragraph 3 of that Agreement.
  2. It is the text which is to be given primacy in the task of interpreting a contract, and only if that text is not clear may other than legitimate considerations such as context and purpose be brought to bear.
  3. I consider that a fair reading of the language used in the parties’ 30 September 2019 Agreement would communicate to a reasonable business person that:

(a)        The agreement was generally to do with the subject of DLDs in relation to the Project.  This is, in my view, clear from the heading of the letter ‘Subject:  Delay Liquidated Damages (‘DLDs’)’ and the reference to that same general subject matter in the first sentence, which reads ‘We refer to the above matter and our telephone conversations between our (2) organisations today’ informed by any admissible evidence of the telephone conversations.

(b)       I do not however accept that the references to ‘this matter’ in paragraph 2 of the letter and the reference to ‘this matter’ in paragraph 3 of that letter are references to the generality of DLDs.  Those references are informed by the conversations between the parties at noon on 30 September 2019, and the express terms agreed as part of the 30 September 2019 signed letter.

(c)        In my view, the reference to ‘this matter’ in paragraph 2 of the letter, read in the context of the whole of the letter of 30 September 2019, and in particular the context and specific terms agreed in paragraph 2 thereof, fairly read conveys that the parties intended ‘this matter’ to refer to the core of the agreement by BWF to continue to offset any DLDs against payments due to SGRE and SGRE’s concomitant agreement not to oppose such offset and not to exercise its rights in relation to the SoP Act.

  1. Accordingly, in my view, the thrust of SGRE’s submission that BWF agreed by the 30 September 2019 letter not to draw on the Performance Securities in its possession in relation to its entitlement to DLDs generally and without further qualification, save as to notice, is not supported by the text under consideration or by the parties’ likely intent in relation to the matter to which they agreed by the terms of paragraph 1 and 2 of the subject agreement.
  1. I consider SGRE’s submission in relation to the breadth of the ‘matter’, which it contends in substance to be that BWF agreed to forego the exercise of its rights to access the Performance Securities, fails to engage with the terms and intent of the ‘offset’ arrangement which the parties established by the letter of 30 September 2019, and is at odds with the above express terms and intent, and would produce a most uncommercial and illogical outcome, indeed in my view a commercial nonsense for reasons explained below.
  1. SGRE’s submission that the effect of the express terms in the first sentence of cl 3 of the 30 September 2019 Agreement is that BWF promised not to exercise its rights to call on the Performance Securities ‘in relation to this matter’, namely on SGRE’S submission the dispute between SGRE and BWF regarding BWF’s entitlement to DLDs under the EPC Contract, is for the same above reasons, not in my view supported by the text in particular and my conclusions above as to the likely intent of the parties in relation to their use of the words ‘this matter’ in paragraph 2 and 3 and my conclusion below in relation to the proper resolution of the ambiguity patent on the face of cl 3.
  1. By so submitting, SGRE contends that by the third paragraph of the 30 September 2019 Agreement, SGRE and BWF not only sought to agree on a ‘set-off’ regime and a new arrangement pursuant to which BWF would give 5 business days’ prior written notice before seeking to access the Performance Securities, also that BWF would for an unspecified period, agree not to exercise its rights to draw on the Performance Securities in relation to any DLDs which it asserted SGRE was obliged to pay under the EPC Contract.
  1. For the above reasons and those referred to below, the interpretation which SGRE seeks to place on the 30 September 2019 Agreement does not find support in the clear terms of paragraph 1 and paragraph 2 of that letter, and does not reflect the likely intent of the parties as recorded in the agreed terms in paragraph 3 thereof.  Further, SGRE’s interpretation is most unlikely to be in accord with the parties’ intent for the reasons referred to and is not supported by the context and purpose of the 30 September 2019 Agreement as outlined below.
  1. Paragraph 3 of the 30 September 2019 Agreement is, I consider, ambiguous in the way I identify in these reasons.
  1. Further the second sentence in paragraph 3 of the letter contradicts SGRE’s thesis that the first sentence of that paragraph amounted to BWF agreeing not to draw on the Performance Securities.  If that were so there would be no need to include a term such as exists in the sentence of paragraph 3 that expressly recognises BWF’s right to make a demand or claim under the Performance Securities and adds a term of agreed notice where otherwise cl 27 of the EPC Contract required none.
  1. SGRE argues that the purpose of the second sentence of paragraph 3 is ‘to make it clear that BWF’s promise does not prevent it from exercising its rights to call on the Performance Securities in relation to other BWF entitlements than its claimed entitlement to liquidated damages’.
  1. I also reject this interpretation proffered by SGRE, and note that this submission appears to be quite inconsistent with SGRE’s submissions that under the 30 September 2019 Agreement the term ‘matter’ is intended to refer to BWF’s entitlement to DLDs generally and it is not submitted by SGRE that the term is intended to refer to any other subject matter.
  1. If the last above contention on the part of SGRE as to what was meant by ‘this matter’ was correct, there would be no need to add a new 5 business days’ prior written notice term in respect of BWF’s entitlement to access the Performance Securities on bases other than an entitlement to DLDs.  Further, it would have been an easy matter for the parties to add words to make it clear that the additional 5 business days’ prior written notice agreement related not to a demand or claim under the Performance Securities in respect of BWF’s entitlement to DLDs, but BWF’s entitlement to some other payment or compensation under the EPC Contract.
  2. I also reject SGRE’s argument that the reference in paragraph 2 to ’any such offset’ and ‘continue to offset’ in paragraph 1 are inconsistent with the interpretation proffered by BWF, for the reasons I have addressed.
  3. I accept BWF’s argument that there is no textual support for the argument that the second sentence of paragraph 3 of the subject agreement was in relation to some obligation on the part of SGRE, other than for DLDs.  Further I repeat the earlier identified reason why it is more likely that the last sentence of paragraph 3 is intended to refer to a demand on Performance Securities, in respect of DLDs and also accept BWF’s submission that the parties intended that this would apply to future DLDs which could not be set-off against SGRE’s progress payment entitlements.  The work the parties intended to be done by the first sentence of paragraph 3 was, I consider, in relation to the non set-off August 2019 DLDs above.
  4. Ultimately, in my view, as I have sought to further explain below, taking into consideration the several elements of context identified, and taking also into consideration the object and purposes of the 30 September 2019 Agreement disclosed in the only weighty and probative evidence given by Hertling and Francisci, the Agreement in issue had as an important part of its genesis the by then most recently invoiced August 2019 DLDs claim, asserted by BWF and put in place by the parties, was in significant part to prevent BWF accessing the Performance Securities in relation to that asserted debt for DLDs certified for August 2019.

Context

  1. The context in which the parties agreed the terms of the 30 September 2019 letter includes the clear and strong terms of the EPC Contract defining BWF’s rights and entitlements in respect of the Performance Securities provided by SGRE.  As earlier noted above, the regime established by the contract included a clear option to BWF at its election to recover any amount of DLDs by demand from SGRE or by deducting the amount from the amount certified as payable to SGRE by the Principal’s Representative, or by deducting an amount which BWF asserted it was entitled to in respect of, amongst other asserted entitlements, DLDs pursuant to cl 25.1 of the EPC Contract.
  1. The relevant context also included the factual setting referred to in the Background section above and the matters communicated and raised in formal contractual correspondence between the parties, in particular in the parts of the letters also extracted above.
  1. The correspondence extracted clarify important aspects of the position of the parties, including that by 16 August 2019, SGRE had failed to achieve Practical Completion and was, according to BWF, liable to it for DLDs thereafter accruing on a daily basis.  By letter dated 19 August 2019 BWF advised that it reserved its rights to recover from SGRE and to do so in any manner permitted by the EPC Contract or at law.  By letter dated 2 September 2019 BWF advised SGRE that pursuant to cl 13.8(d) of the EPC Contract, DLDs were due and payable to BWF in the sum of $3,494,400 as of 31 August 2019 and that BWF intended to deduct that sum from the amount certified as being due to the Contractor, although it reserved its right to recover DLDs in any manner permitted under the EPC Contract.
  1. By email dated 5 September 2019 Clayton Utz, on behalf of SGRE, rejected BWF’s right to set-off or the demand on the Performance Securities, and on behalf of SGRE asserted that SGRE was not liable to pay BWF any DLDs because delays to the Works were to the Principal’s account.  In Clayton Utz’s email of 5 September 2019 it required written confirmation from BWF that SGRE would be paid its certified progress amount of $3,341,839.60 and confirmed that it would not make any demand on the contract security on the basis of alleged entitlements to DLDs without giving SGRE 5 business days’ prior written notice.
  1. BWF’s letter of 9 September 2019 refuted SGRE’s claim that it was not liable to BWF for DLDs and further stated that there was no basis for SGRE’s request that the Principal’s agreed rights under the EPC Contract in any relevant respect be qualified, deferred or otherwise amended or fettered by the provision of prior notice or any call on security being made, and otherwise reserved BWF’s rights under the contract.  However, BWF also stated:

If your client has a reasonable proposal or preference regarding the Principal’s rights to recover Delay Liquidated Damages, including a preference as to whether the current amount is accepted to be set-off against payments otherwise due or recoverable from secured, or satisfied by some other means, then please provide written confirmation of your client’s position by 11am on 10 September 2019.

Subject to express agreement in writing to the contrary, the Principal expressly reserves all of its rights to recover Delay Liquidated Damages from the Contractor by any means permitted under the EPC Contract or at law.

  1. By letter of 13 September 2019 to BWF, SGRE responded to BWF’s letter of 9 September 2019 referring to SGRE’s earlier request for confirmation about payment of its PCC progress claim and confirmation that BWF would not make any demand on the security on the basis of DLDs without giving SGRE 5 business days’ prior written notice, and again demanded payment of what it asserted was an amount of $3,341,839.60 of PCC progress claims.
  1. BWF’s letter of 19 September 2019 to SGRE, DLDs of $3,426,000 were due and payable by SGRE under the EPC Contract for the period 16 to 31 August 2019 and restated that BWF was entitled to recover DLDs in any manner prescribed by cl 13.8(e) of the EPC Contract.  BWF also noted that DLDs were continuing to accrue and that SGRE had not yet reached Practical Completion.  BWF again reserved its right to recover DLDs in any way permitted by the EPC Contract or at law.
  1. On 19 September 2019 White & Case on behalf of BWF wrote to Clayton Utz summarising the contractual position, on their client’s instructions, in relation to the Bulgana Wind Farm project, and closed their letter referring to there being no basis for commercial concessions to be sought or considered and placing SGRE on notice that the Principal expressly reserved all rights under the EPC Contract and at law without limitations.

Key aspects of the correspondence to September 2019

  1. The formal contract communications between the parties in my view create a context, up to and as proximate as late September 2019 in which both parties were formally addressing their contractual rights and entitlement, and BWF was again and again emphasising its entitlement to DLDs and the various ways, including set-off or access to the Performance Securities, available to it to satisfy what it claimed as due to it from SGRE in relation to DLDs.
  1. Further, as at late September 2019 it is clear that it was SGRE which sort to have BWF set-off DLDs against its certified progress payment entitlement and it was also SGRE which was seeking an agreement by BWF not to make a demand on the Performance Securities on the basis of DLDs without giving SGRE 5 business days’ prior written notice.  Further, both parties had by 19 September 2019 deployed their legal advisers to deal with communications about these issues.
  1. The context in which the parties agreed the 30 September 2019 letter also included the earlier highlighted terms of the Consent Deed, which prohibited the parties without the Security Trustee’s written permission, from in any way amending, waiving, releasing or varying the EPC Contract, save in respect of minor or inconsequential amendments or variations (to deal with a manifest error in a contract).
  1. Further, the context in which the 30 September 2019 Agreement was reached included the conversations referred to above between Hertling and Francisci on 30 September 2019.
  1. In my view for the reasons I have earlier outlined the object and purpose of the Agreement in issue was to afford accommodation to SGRE in relation to the August 2019 Invoice for DLDs.  In my view the affidavit evidence contradicts, and most certainly conspicuously fails to support, an agreement reached at about noon on 30  September 2019, by which BWF agreed in an open-ended manner to forgo its right to access to the Performance Securities.
  1. Nor do I consider that the awareness of the parties, which I accept, that the BWF claim for DLDs in the month of September 2019 would exceed the progress payment to which SGRE was entitled for that month by more than $3 million, rendered it unlikely that the parties would make such an agreement which, if confined to the August 2019 DLDs, would almost terminate in operation before they began.
  1. On this aspect, in my view, SGRE’s submissions ignores the evidence about SGRE’s objectives to have agreed a regime where set-off would be the primary means of recovery of DLDs by BWF, and its second objective to procure agreement to a 5 business days’ prior notice period before BWF accessed Performance Securities.  These matters were sought by SGRE in its correspondence to BWF in September 2019 were, prior to 30 September 2019, in essence what SGRE wanted to have implemented.  Further, in my view these contextual matters render it even more probable that the 30  September 2019 Agreement was focused on setting off August 2019 DLDs against the SGRE then progress claim entitlements of in excess of $3 million.  Considering the commercial realities it is not in my view remarkable that BWF would accept an arrangement under which it did not seek to recover the approximate $100,000 by which it would not be able to recover its invoiced August 2019 DLDs by set-off, by access to the Performance Securities in respect of those DLDs.  That sum remained payable to BWF, and otherwise recoverable by BWF.
  1. The same factors also I consider render it most commercially improbable that BWF would agree to only an ongoing right to set-off eschewing access to the Performance Securities, because the facts establishing the relevant context reveal that there would be a very large shortfall for BWF after set-off in September 2019 and that situation would greatly escalate thereafter if SGRE did not achieve Practical Completion.  At the same time the likely value of SGRE’s progress payment entitlements would diminish as work was more and more complete, and it is reasonable to infer that for the same reason SGRE’s value of theoretical SoP Act claims would diminish.
  2. SGRE also argues that it would be inherently unlikely for it to agree to not pursue its SoP Act claim for nothing more than BWF’s promise not to call on the Performance Securities in relation to its August 2019 DLDs claim.  SGRE submit this is particularly so because Francisci recognised at 30 September 2019 that the claimed DLDs entitlement in August 2019 could be almost fully offset against SGRE’s August payment entitlement.  I do not accept this SGRE submission for the reasons relating to its potential SoP Act claims referred to above, and for the further reason that in eschewing its SoP Act claim(s) SGRE did not abandon its contractual right to recover those same sums in the arbitration it appears to be seeking.

  3. Finally, nor am I of the view that SGRE’s submissions in relation to the terms and operation of the ‘Consent Deed’, relevant to present contract construction arguments render the Consent Deed irrelevant to present issues.  SGRE’s argument includes a submission the Consent Deed in any event breached, is of no significance because both parties would have perpetrated the same breaches and accordingly there would be no basis upon which to prefer either SGRE or BWF’s construction of the 30 September 2019 Agreement.
  1. I reject SGRE’s submission that the 30 September 2019 Agreement, if to the effect argued for by SGRE, would not relevantly amend or vary the EPC Contract.  On SGRE’s submission, the 30 September 2019 Agreement does amend or vary the EPC Contract.  But introducing a fetter on access to the Performance Securities which would in my view materially alter the operation of cl 13.8(e) and 27.5(1), and perhaps other terms of that EPC Contract.  Further, on SGRE’s contention, the 30 September 2019 Agreement would fall within the exceptions created by cl 3.2(b) and thereby obviate the need to obtain the Security Trustee’s consent.
  1. I consider for the above reasons I have outlined as to the likely effect of the 30 September 2019 Agreement were it interpreted as having the meaning and effect asserted by SGRE, cl 3.2(b) would not apply and the consent of the Security Trustee would likely be required.
  1. Further, in my view, it is not to the point that were the Consent Deed to be breached by both parties perpetrating the same breach, the effect would be neutral in relation to their competing preferred constructions of the 30 September 2019 Agreement.  Rather the point in my view is that part of the context in which the 30 September 2019 Agreement was made is one where both parties can be taken to be aware that they were prohibited, absent prior written agreement from the Security Trustee, to in any way amend, vary or supplement the EPC Contract and that any purported amendment, variation, waiver or release, without consent of the Security Trustee, was agreed by SGRE and BWF to be invalid and not binding.  This, in my view, is a further contextual fact militating against BWF and SGRE entering into an agreement on 30 September 2019 which had the effect of materially amending or waiving or releasing or varying the term relating to the Performance Securities under the EPC Contract.
  1. As a corollary, in my view it might be inferred that both BWF and SGRE, as BWF in fact argues, did not consider that the 30 September 2019 Agreement did anything other than agree immaterial, minor or inconsequential procedural matters in relation to the EPC Contract, namely a sequence as to set-offs prior to access to the Performance Securities in relation to SGRE’s payment entitlements under the contract, non-recourse in relation to the outstanding balance of August 2019 DLDs (which outstanding balance remained payable to BWF) and a requirement for 5 business days’ prior written notice by BWF before it accessed the Performance Securities, and therefore both SGRE and BWF considered the 30 September 2019 Agreement fell within the immaterial, minor or inconsequential meaning and exception in cl 3.2(c) of the Consent Deed.  Consistent with this agreement BWF made the demands it did on 3 October 2019, three days after the 30 September 2019 Agreement.

Purpose

  1. SGRE submits that the purpose of the 30 September 2019 Agreement was to address the manner in which BWF’s claimed entitlement to DLDs would be dealt with.  SGRE also submits that the purpose of the 30 September 2019 Agreement was to do so:

(a)        while the parties sought to resolve issues associated with achieving practical completion; and

(b)       pending resolution by them to arbitration of their broader contractual disputes including as to the extent of BWF’s entitlement to DLDs.

  1. BWF submits that the purpose of the 30 September 2019 Agreement was to agree the sequence in which BWF would exercise its contractual right to recover DLDs from SGRE, that is by way of set-off under cl 13.8(e)(ii) and also to provide BWF’s agreement to 5 business days’ prior written notice before calling upon the Performance Securities.  BWF also submitted that agreement was concerned to, and as an element agreed, not to call on the Performance Securities in respect of the August 2019 DLDs not set-off.
  2. I am satisfied for the reasons I have outlined above, including in relation to the material evidence of Hertling and Francisci, that the fundamental purpose of the 30  September 2019 Agreement was as argued for by BWF.
  1. I consider that the contextual matters identified above also all support BWF’s construction of the 30 September 2019 Agreement, namely to make an agreement by which the sequence in which BWF would exercise its contractual rights in relation to the recovery of DLDs and to agree to give SGRE 5 business days’ prior written notice of a demand under the Performance Securities, which in the result avoided BWF accessing the Performance Securities in relation to the August 2019 DLDs Invoice.
  1. In the circumstances, bearing in mind the position in which SGRE considered itself to be at 30 September 2019, and the numerous occasions in September 2019 on which BWF had formally communicated to SGRE that it was entitled to insist upon its rights under the EPC Contract and was not disposed to compromising those rights, it is most improbable that BWF would enter into an agreement which abandoned, or even materially impaired its very clear cut right to draw on the Performance Securities in the sum of $25 million provided under the EPC Contract, particularly when at 30  September 2019 the Contract Works had failed to reach Practical Completion on time, and were still not Practically Complete, and BWF had at that stage accrued entitlements to DLDs, which entitlements were continuing to accrue on a daily basis and were already accruing at a rate above the SGRE entitlement to payment as certified in August 2019 and that position would be more aggravated from BWF’s perspective in September 2019.
  1. In the circumstances referred to, as earlier observed, I consider that it would be most improbable and would have amounted to commercial nonsense for BWF to enter into an agreement on 30 September 2019 which fettered its right to access the Performance Securities under the EPC Contract, whereas I consider that it made commercial sense for SGRE to agree the terms of that agreement as I consider it was intended to operate.
  1. These matters render it far more likely that the 30 September 2019 Agreement was intended to have the effect argued for by BWF, namely an agreement which did not alter the EPC Contract in any material respect and effected an agreement whereby  BWF would not exercise its rights to draw on the Performance Securities in relation to that part of the August 2019 DLDs which could not be set-off against SGRE’s certified progress entitlement and BWF would in the future first set-off DLDs against SGRE’s certified progress entitlements before accessing the Performance Securities with any such access would be on 5 business days’ prior written notice, thus also not breaching the prohibitions on amendment or variation, or the like under the Consent Deed.
  1. It was however not improbable and not in my view commercially contradictory or nonsensical for SGRE to enter into the 30 September 2019 Agreement, if it had the effect argued for by BWF because leading up to 30 September 2019 SGRE appreciated the very difficult contractual position which had developed, in particular, post the Date for Practical Completion that it was ‘between a rock and a hard place’ in relation to such matters, and sufficiently pressed by the financial exigencies and the Principal’s clear rights under the EPC Contract and BWF’s stated intentions in that regard, that SGRE readily gave up its rights under the SoP Act in return for accommodation by BWF in relation to SGRE’s desire to do all it could to avoid access to any part of the Performance Securities in relation to the August 2019 DLDs claim.
  1. I consider for the above reasons that, save in respect of any outstanding August 2019 DLDs, properly construed the parties agreement of 30 September 2019 contains no express or implied fetter of BWF’s right to call upon the Performance Securities as established by the terms of the underlying EPC Contract.

Construction

  1. In my view the ambiguity referred to in paragraph 3 of the letter at issue is resolved by the contextual and purposive evidence referred to and relied upon in these Reasons, which I consider inform the parties’ intent in relation to paragraph 3 of the letter in contention, and sufficiently establish what the parties thereby intended as explained above.  Further, I consider this to be the intended extent of the meaning and effect of paragraph 3 of the 30 September 2019 signed letter as elsewhere mentioned, and to resolve the arguable tension in that paragraph and give meaningful but limited work for the first sentence to do.
  1. In my view as elsewhere mentioned, the terms of paragraph 1 and 2 of the subject agreement are clear on the usual meaning of the language used therein by the parties, including  BWF’s agreement to offset DLDs (where an offset could be effected), as the primary means of recovering certified DLDs and SGRE’s agreement to eschew its SoP Act claims.

Balance of Convenience no longer relevant

The 30 September 2019 Agreement was not intended to effect an unqualified fetter upon BWF’s contractual right to access the Performance Securities

  1. I have decided the proper interpretation and effect of the 30 September 2019 Agreement and decided to dismiss the SGRE applications.
  1. Accordingly in my view, this conclusion and finding renders it unnecessary and inappropriate to decide issues of balance of convenience which would only be relevant because relief in the nature of an interlocutory restraining order may be granted on the application.
  1. If it were otherwise and some form of interlocutory restraining order was made at this time on SGRE’s application, or at the time of this decision, it would be most relevant to ensure that balance of convenience issues were evaluated and taken into account, because there may be different ultimate outcomes on the relevant issue to be tried and the extent of prejudice to the parties bearing in mind alternative scenarios in relation to the relief granted or refused at trial.
  1. Here the position is different.  I have finally determined the SGRE application and will dismiss SGRE’s Summons and Originating Motion.  That is the outcome on the issue which SGRE framed and argued in support of injunctive relief.  The final determination of that issue, in the negative, in my view wholly disposes of SGRE’s Summons and Originating Motion.

Decision

  1. I have decided and hold that on the proper construction and meaning of the parties’ 30 September 2019 Agreement that Agreement does not give rise to any express or implied fetter upon the EPC Contract Performance Securities regime, but effects an agreement whereby BWF would not exercise its rights to draw on the Performance Securities in relation to that part of the August 2019 DLDs which could not be set-off against SGRE’s certified progress entitlement and reflects an agreement whereby BWF would in the future first set-off DLDs against SGRE’s certified progress entitlements before accessing the Performance Securities and that any such access would be on 5 business days’ prior written notice.
  1. For the above reasons SGRE’s application for an injunction, and underlying Motion to restrain BWF calling upon the Performance Securities is dismissed.

Orders

  1. Accordingly I shall order that the plaintiff’s application by Amended Summons dated 18 October 2019 is dismissed.
  1. I shall hear the parties as to the form of final Orders, and in relation to costs, when convenient.