Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : CPB CONTRACTORS PTY LTD -v- JKC AUSTRALIA LNG PTY LTD [2017] WASC 112

Practice and procedure - Appeals - Application for injunction pending application for special leave to appeal - Turns on own facts

Anaconda Operations Pty Ltd v Fluor Daniel Pty Ltd [1999] VSCA 214

Apple and Pear Australia Ltd v Pink Lady America LLC (No 2) [2017] VSCA 10

Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40; [1999] 1 VR 420

Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219

Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458

CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASCA 85

CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486

Erinford Properties Ltd v Cheshire County Council [1974] 1 Ch 261

Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812

Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; (1986) 161 CLR 681

Mercanti v Mercanti [2017] HCA 1; (2017) 91 ALJR 258

Nugawela v Deputy Commissioner of Taxation [No 2] [2017] WASCA 66

Obeid v The Queen [2016] HCA 9; (2016) 90 ALJR 447

Odzic v Commonwealth of Australia (as represented by the Department of Infrastructure and Regional Development) [2017] FCA 439

Paringa Mining & Exploration Company PLC v North Flinders Mines Ltd [1988] HCA 53; (1988) 165 CLR 452

Rinehart v Welker [2012] NSWCA 1; (2012) 83 NSWLR 347

Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services and Health [1991] HCA 13; (1991) 65 ALJR 360

Tey v Michael Mischin MLC, Attorney General for Western Australia [No 2] [2015] WASCA 243

1 On 30 June 2017, this court dismissed CPB's appeal from the decision of the primary judge dismissing its application for an interlocutory injunction restraining JKC from demanding payment under the performance bonds procured by CPB under the Contract.[1]

2 On 27 April 2017, this court granted an interlocutory injunction restraining JKC from demanding payment under the performance bonds pending the determination of CPB's appeal to this court.[2] By consent, on 30 June 2017, when judgment on the appeal was delivered, that injunction was extended until 6 July 2017 to enable CPB to apply for an injunction pending the determination of an application by it for special leave to appeal to the High Court. On 3 July 2017, CPB made such an application, returnable on 6 July 2017 in accordance with directions made on 30 June 2017.

3 On 4 July 2017, CPB applied to the arbitrators appointed to arbitrate the dispute between CPB and JKC for an urgent interim measure restraining JKC from demanding payment under the bonds. By consent, on 5 July 2017, the arbitral tribunal granted an interim injunction until the earlier of its decision or 23 July 2017. It also ordered that CPB's interim measure application be heard on 17 July 2017.

4 On 6 July 2017, we dismissed CPB's application to this court, stating that we would publish our reasons later. These are our reasons.

(1) An injunction is necessary to preserve the subject matter of the litigation, namely the performance bonds. There is a real risk that if an injunction is not granted, JKC will call on the performance bonds, thereby destroying the subject matter of any further appeal.[3]

(2) CPB has substantial or 'not insubstantial' prospects of obtaining a grant of special leave. In this respect, CPB relies on three points:

(a) the court erred in having regard to GC 35.3(b) in the process of construing GC 35.3(a) in circumstances where the primary judge had found that GC 35.3(b) was contrary to public policy and this court did not conclude otherwise. CPB contends that it is not permissible to have regard to a provision that is void as contrary to public policy on the ground that it ousts the jurisdiction of the court when construing another provision of the contract.[4] Whether that is so is a matter of public importance;[5]

(b) there are, as the court observed in its reasons, some differences of approach in decisions of intermediate appellate courts as regards the significance of the unconditional nature and terms of a performance bond for the question of construction as to the right of the beneficiary to call upon the performance bond. While the court said that it was not necessary to attempt to resolve any such differences, the court stated that the agreed proforma document 'tends to confirm that the parties to this contract contemplated that recourse should be effectuated in favour of the contractor irrespective of the existence or prospect of an underlying dispute between the contractor and subcontractor'.[6] Given the divergent approaches of appellate courts, the High Court may wish to consider whether what this court said as to the relevance of the terms of the performance bonds reveals error;[7]

(c) CPB contends that the overall effect of this court's decision is to introduce words into GC 35.3(a) to such an extent as to go beyond what can be achieved by a process of construction, and involves in substance rewriting the terms of GC 35.3(a).[8]

(3) The balance of convenience favours the grant of an injunction because:

(a) in circumstances where there is no evidence or submission that JKC has any pressing need for the funds, JKC will not suffer any material prejudice because the security will be available for it to call upon in the event that CPB is unsuccessful in its application for special leave to appeal or any subsequent appeal;

(b) by contrast, if an injunction is not granted there is a real risk that the subject matter of CPB's appeal may be destroyed. Moreover, there is also a real risk of reputational harm to CPB if the security is called, as has been recognised by this court in granting interlocutory relief.[9]

Injunctions and stays pending special leave: general principles

6 The applicable principles were summarised by Brennan J in Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1):[10]

A stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted ... In exercising the extraordinary jurisdiction to stay, the following factors are material to the exercise of this Court's discretion. In each case when the Court is satisfied a stay is required to preserve the subject-matter of the litigation, it is relevant to consider: first, whether there is a substantial prospect that special leave to appeal will be granted; secondly, whether the applicant has failed to take whatever steps are necessary to seek a stay from the court in which the matter is pending; thirdly, whether the grant of a stay will cause loss to the respondent; and fourthly, where the balance of convenience lies.

7 What was said by Brennan J has been routinely applied in subsequent decisions of the High Court and this court in considering whether to grant a stay or injunction pending special leave.[11]

8 In Obeid v The Queen,[12] Gageler J observed that the considerations mentioned by Brennan J in Jennings Constructions v Burgundy Royale do not always arise in every case and do not exhaust the relevant considerations in every case. Nevertheless, Brennan J's observations are of valuable assistance.

9 The same principles apply in relation to an application for a stay pending the grant of special leave, and an application for an interlocutory injunction pending the grant of special leave.[13]

10 The High Court has observed many times that, if a stay or injunction is to be granted, the duration of the stay or injunction should extend to the disposition of the special leave application and, if special leave is granted, until the hearing and determination of the appeal, so as to avoid the need for an application to be made to the High Court.[14]

11 There are many cases in which the extraordinary nature of the jurisdiction to grant a stay or injunction is emphasised, as is the need for exceptional circumstances.

12 Further, many cases emphasise the significance of the question of whether the applicant has demonstrated a substantial prospect that special leave to appeal will be granted. Recently, Kiefel J (as her Honour then was) explained that this should not be understood as requiring that the prospects of success on the application for special leave be high.[15] Her Honour referred to the fact that in Jennings Construction v Burgundy Royale Brennan J had concluded that the prospects of a grant of special leave were not insubstantial, and expressed her conclusion in those terms.[16]

13 In Rinehart v Welker (No 2),[17] Bathurst CJ, Beazley and McColl JJA concluded that it was not in all cases an essential prerequisite for the grant of a stay that the court finds there are substantial prospects of success on the special leave application. Their Honours observed that there may be cases, albeit rare, when the other factors material to the grant of a stay may be of such significance that a stay should be granted even if the court was unable to reach the view that the application has substantial prospects of success. We accept that that is so. Nevertheless, whether an applicant demonstrates substantial prospects of a grant of special leave remains a matter of central significance in determining whether to grant a stay or injunction pending a special leave application. We note that the appellant did not point to any case in which a stay or injunction was granted notwithstanding a finding that the special leave application did not have substantial prospects.

14 The subject matter of the application for special leave and of any appeal to the High Court is whether JKC should be restrained from calling on the performance bonds. The first question is whether, if no injunction were granted by this court, would there be a real risk that JKC would call on the performance bonds, thereby rendering the subject of the appeal nugatory?

15 The answer to that is not straightforward. As noted earlier, in the arbitral tribunal, CPB already has the benefit of an interim injunction and has applied for an interlocutory injunction, restraining JKC from calling on the bonds. CPB contends, in the arbitral tribunal, that, even on this court's construction of GC 35.3(a), it has a right to restrain JKC from calling on the bonds.

16 If CPB were to succeed in its interlocutory injunction application in the arbitral tribunal, there would be no prospect of the bonds being called in any event. As we are unable to form a view of the merits of that application, it is difficult to assess the extent of the risk of the bonds being called, absent the grant of an injunction by this court. Nevertheless, for present purposes, we will assume in favour of CPB that, notwithstanding its claimed entitlement to an injunction in the arbitral tribunal, there remains a real risk that unless this court grants an injunction, the appeal would be rendered nugatory. The question of whether CPB would suffer any loss or damage as a consequence of that is, however, another matter. That matter is addressed in connection with the balance of convenience.

17 We turn to the question of the prospects of the grant of special leave to appeal.

18 The court that delivered judgment is in a position of some disadvantage in seeking to assess the prospects of the grant of special leave and, if leave is granted, the prospects of an appeal being allowed.[18] Nevertheless, it is a task that can be performed consistently with having dismissed the appeal,[19] and given the clear statements by the High Court that an application for a stay or injunction pending special leave should be made to the intermediate appellate court, that is what is required.

19 The criteria for the grant of special leave to appeal are set out in s 35A of the Judiciary Act 1903 (Cth). CPB's proposed application for special leave was formulated by reference to the criterion in s 35A(a)(i), as involving a question of law of public importance. CPB did not suggest that it would invoke s 35A(b).

20 CPB contends that its proposed application for special leave to appeal would identify two special leave questions:

(1) Can a contractual provision that is void or unenforceable, because it ousts the court's jurisdiction, inform the proper construction of other contractual provisions?

(2) Is a court permitted to introduce, by way of construction, the requirement of honest or bona fide belief, into a clause prescribing when a party may have recourse to a performance bond, or does that involve the court exceeding its function and rewriting the contract?[20]

21 CPB's first point is that this court erred in having regard to GC 35.3(b) in construing GC 35.3(a), in circumstances where the primary judge had found that GC 35.3(b) was contrary to public policy and this court did not conclude otherwise. CPB's case on appeal would be that this court erred in finding that if GC 35.3(b) is unenforceable as an ouster of the jurisdiction of the court, it is nevertheless permissible to take it into account in construing GC 35.3(a).[21] CPB accepts that the approach taken by this court is supported by appellate authority: Anaconda Operations Pty Ltd v Fluor Daniel Pty Ltd.[22] CPB did not suggest that there are any authorities taking a contrary approach. In any event, as CPB accepted,[23] and as we explained in our reasons,[24] if the construction task is undertaken without regard to GC 35.3(b), we construe GC 35.3(a) in the same fashion as we do having regard to GC 35.3(b). Consequently, success on the part of CPB in relation to its proposed first special leave question would not alter the result, unless CPB also succeeded in relation to its proposed second special leave question.

22 Counsel for CPB accepted that this was so. He said that it would be necessary for CPB to succeed either on both its special leave questions, or on the proposed second special leave question standing alone.[25] We would venture to suggest that it would be necessary for CPB to succeed in respect of both its proposed special leave questions. It would seem difficult to contemplate CPB succeeding in relation to the construction of GC 35.3(a) without demonstrating that GC 35.3(b) must be disregarded. That is because, as we observed in our reasons,[26] par (b) of GC 35.3 would serve no discernible purpose if GC 35.3(a) were construed as CPB contends, a point accepted by CPB.[27]

23 We turn to CPB's second point in relation to the prospects of the grant of special leave.[28] In oral submissions, CPB clarified that this point was subsidiary to and fed into CPB's second proposed special leave question; it was not said to raise a special leave question in itself.[29] As we explained in our reasons,[30] we did not consider this appeal was an occasion to attempt to state general principles of broad application or to resolve any apparent differences in emphasis in other appellate decisions. Rather, the resolution of the appeal lay in the proper construction of the provisions of the Subcontract. CPB accepted that when, as was the case here, the Subcontract annexes and approves the form of the performance bond, in construing the terms of the Subcontract, the unconditional nature of the performance bond, and its terms generally can be taken into account.[31] The passage of our reasons to which CPB points is expressed in terms that the agreed proforma document 'tends to confirm' the construction which we adopted. CPB's submissions did not explain how or why that involved giving excessive or impermissible weight to the terms of the performance bond.

24 That brings us to CPB's third point: that this court's construction involved impermissibly rewriting the terms of GC 35.3(a). CPB submits that while all questions of contractual construction will necessarily arise in the context of a specific contract, this court's decision involves construing words governing the availability of recourse to a performance bond as being based on a subjective belief of a party when the terms of the contract do not expressly say that.[32] CPB submits[33] that similar approaches to construction have been taken in other appellate decisions, namely Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd,[34] Bachmann Pty Ltd v BHP Power New Zealand Ltd,[35] and Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd.[36]

25 CPB further submits that the limits of contractual construction are a question of broad importance. In this regard, CPB points[37] to the following recent observations of Nettle J in Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd:[38]

Poor drafting may justify a court in being more ready to depart from the natural and ordinary meaning of the terms of a contract, and no doubt, the poorer the drafting, the less willing a court should be to be 'driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention'. But poor drafting provides 'no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made'. Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other. But where, as here, the language and surrounding circumstances of a commercial contract present a choice between, on the one hand, a plain, ordinary and commercially not irrational meaning of a clause and, on the other, a meaning which is significantly removed from the natural and ordinary meaning of the terms of the clause, which ill-accords with other provisions of the agreement, and which in the end produces an outcome that is more commercially acceptable from one of the parties' point of view only, the precept runs out of application. Unless the Anglo-Australian objective theory of contract is now to be cast aside, the commercial approach to construction is not a licence to alter the meaning of a term that is 'clear and fairly susceptible of one meaning only' to achieve a result that the court may think to be reasonable. The court is not authorised under the guise of construction to make a new contract for the parties at odds with the contract to which they have agreed. Where, as here, all things considered, the words of a clause are fairly susceptible of only one meaning, they must be given that effect.

26 His Honour's observations emphasise that the text of a contract imposes significant limits on how far considerations of context, object or purpose, and the adoption of a commercial construction can stretch meaning. That point has been recognised by this court.[39] In Ecosse Property, Nettle J, who was in dissent as to the result, found that the appellant's construction involved attributing a meaning which was 'significantly removed from the natural and ordinary meaning of the terms of the clause', and which 'ill-accords with other provisions of the agreement'. It is not clear to us whether CPB would contend that the same could be said of the construction which we have adopted in the present case. CPB's submissions acknowledge that this court's construction involved having regard to other provisions of the contract and construing GC 35.3(a) so as to make it operate harmoniously with those other provisions.[40] Our reasons outlined that, in adopting our construction, we had regard to a number of matters including:

(a) the language of various aspects of GC 35.3(a) including the words 'payable', 'recourse', 'at any time' and 'on demand';[41]

(b) the stipulated duration of the Bank Guarantees;[42]

(c) the terms of the approved proforma Bank Guarantees;[43]

(d) conventional usage of the word 'payable';[44] and

(e) use of the word 'payable' or other similar or related expressions in other provisions of the Subcontract.[45]

27 Our approach to the task of construing GC 35.3(a) does not seem to us to depart from the conventional approach to construction.

28 CPB's contention that the construction we adopted is, or is likely to be found by the High Court to be, wrong was not developed before us, beyond the general submission that it involved reading into GC 35.3(a) words which are not there. CPB's contention that its construction avoids that difficulty is not easily reconciled with its submissions on appeal.[46]

29 Further, there is no evidence or submission by CPB that the Subcontract includes terms that are commonly used in other contracts.

30 Nothing in our reasons suggests that there are any special rules applicable to the task of construing a provision enabling one party to have recourse to a performance bond in its favour procured by the other party. We do not think there are any such special rules. Rather, the usual principles of construction are to be applied. That poses an obstacle for CPB's contention that the correctness of the decision in this appeal raises CPB's second special leave question.

31 We are not persuaded that CPB's proposed special leave application and the proposed second special leave question would involve anything more than the application of settled principles of contractual construction to the particular provisions of the Subcontract.

32 For these reasons, CPB has not demonstrated that its prospects of a grant of special leave are better than insubstantial. We are not persuaded that CPB's proposed special leave application has substantial prospects of success.

34 In relation to the balance of convenience the following factors are relevant. First, there is no suggestion that if the bonds were called, or if CPB paid the money without the bonds being called, CPB would not recover the money, with interest, in due course if it were found in the arbitral tribunal that JKC had no entitlement to the money claimed. In this respect, it should be noted that there is no evidence or submission from CPB that if the money were paid, it would cause it any cashflow or other financial stress. To the contrary, counsel for CPB submitted that 'no one is saying that ... being in the money or out of the money is going to cause them prejudice in the sense of cashflow difficulties'.[47] Rather, according to counsel for CPB, whoever is ultimately found to have been entitled to be in the money will, to the extent that they had been out of the money, be compensated by a remedy of interest.[48]

35 Secondly, according to CPB, its real concern is to avoid any reputational harm which it may or will suffer if the bonds are called. However, it is prima facie open to CPB to avoid the risk of JKC calling the performance bonds by paying JKC a sum equal to the amount of the performance bonds. While JKC claims to be entitled to liquidated damages in a sum substantially exceeding the amount of the performance bonds, it is open, as counsel for CPB accepted,[49] for CPB to tender a sum equal to the amount of the performance bonds on the basis that the moneys so tendered and received are on account of and in substitution for the amount recoverable by JKC under the performance bonds. If the amount were so tendered and accepted, CPB would prevent the reputational harm which it seeks to avoid by the grant of an interlocutory injunction by this court. The tender has not been made, and we would not infer that if it were, it would be rejected.

36 Thirdly, and in any event, as counsel for CPB appeared to accept,[50] any loss arising from reputational damage to CPB would likely be compensable if, following a successful appeal to the High Court, it were found that the bonds were called in breach of GC 35.3(a), albeit that damages might be difficult to assess. Although we have assumed in favour of CPB that if the performance bonds are called the appeal would be rendered nugatory, it may be open to CPB to seek, in its proposed appeal to the High Court, a declaration as to the proper construction of GC 35.3(a) in order to overcome any issue estoppel arising from this court's decision, with a view to making a claim for damages for breach of contract by JKC in calling the bonds.

37 Fourthly, we do not accept CPB's submission that JKC will not suffer any material prejudice from the grant of an injunction because the Bank Guarantees will be available for JKC to call upon when and if CPB's application for special leave or appeal is dismissed. On our construction of GC 35.3(a), which accords with the construction adopted by the primary judge, JKC has an immediate entitlement to call upon the performance bonds. Restraining the exercise of JKC's right of recourse pending the application for special leave, and, if leave is granted, the determination of the appeal, would substantially impair that right on the part of JKC. We acknowledge that CPB's proposed application for special leave would seek to challenge the existence of that right, but, at this stage, four judges have considered the question and have determined that the right exists.

38 CPB points to the decision of this court granting an interlocutory injunction pending the determination of the appeal to this court.[51] There is a substantial difference between the grant of a stay or injunction in relation to an appeal as of right, and an application for a stay or injunction pending special leave to appeal, particularly bearing in mind the criteria for the grant of special leave in s 35A of the Judiciary Act 1903 (Cth).[52] Moreover, this court granted an injunction in circumstances where the hearing of the appeal to this court had been fixed for a date just under one month after the grant of the interlocutory injunction. The time of hearing of an application for special leave and, if leave is granted, an appeal to the High Court is unknown.

39 In all the circumstances, we were not persuaded that the extraordinary jurisdiction to grant an injunction pending an application for special leave to appeal should be exercised.

40 For these reasons, CPB's application was dismissed, with costs.

[1] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123 (appeal reasons). We use the terminology and abbreviations used in those reasons.

[2] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [2017] WASCA 85.

[3] CPB's submissions [3], [4a], [11] - [12].

[4] CPB's submissions [14] - [18]; appeal ts 158.

[7] CPB's submissions [21] - [24]; appeal ts 162 - 163.

[8] CPB's submissions [25] - [29]; appeal ts 159 - 162.

[10] Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 1) [1986] HCA 84; (1986) 161 CLR 681, 684 - 685.

[11] Some of the High Court decisions are collected in Rinehart v Welker [2012] NSWCA 1; (2012) 83 NSWLR 347 [13] - [18]; in this court, see for example, Tey v Michael Mischin MLC, Attorney General for Western Australia [No 2] [2015] WASCA 243 [33]; Nugawela v Deputy Commissioner of Taxation [No 2] [2017] WASCA 66 [3].

[12] Obeid v The Queen [2016] HCA 9; (2016) 90 ALJR 447 [14].

[13] Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services and Health [1991] HCA 13; (1991) 65 ALJR 360; Apple and Pear Australia Ltd v Pink Lady America LLC (No 2) [2017] VSCA 10 [14].

[14] Jennings Construction v Burgundy Royale (684); Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services and Health (362); Mercanti v Mercanti [2017] HCA 1; (2017) 91 ALJR 258 [9]; Apple and Pear Australia Ltd v Pink Lady America LLC (No 2) [16].

[16] Mercanti v Mercanti [9], [11].

[17] Rinehart v Welker (No 2) [48].

[18] See, by analogy, Paringa Mining & Exploration Company PLC v North Flinders Mines Ltd [1988] HCA 53; (1988) 165 CLR 452, 459; see also Apple and Pear Australia Ltd v Pink Lady America LLC (No 2) [18].

[19] See Erinford Properties Ltd v Cheshire County Council [1974] 1 Ch 261, 267 - 268.

[22] Anaconda Operations Pty Ltd v Fluor Daniel Pty Ltd [1999] VSCA 214 [15].

[23] CPB's submissions [19], appeal ts 159.

[34] Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136; (2008) 249 ALR 458.

[35] Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40; [1999] 1 VR 420.

[36] Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812.

[38] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486 [98] (footnotes omitted).

[39] See, for example, Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42(3), (5), (7), (9)].

[40] CPB's submissions [25] - [26].

[46] See appeal reasons [100] - [101].

[51] [2017] WASCA 85.

[52] Odzic v Commonwealth of Australia (as represented by the Department of Infrastructure and Regional Development) [2017] FCA 439 [69].