REASONS FOR JUDGMENT
Introduction
1 This appeal arises out of a claim by an Australian company, Clough Engineering Ltd (Clough), for interlocutory injunctive relief to restrain an Indian company, Oil and Natural Gas Corporation Ltd (ONGC) and three Australian banks from calling upon, or paying under, performance guarantees issued by the banks. The guarantees were furnished by Clough pursuant to its obligations under an international construction contract (the Contract).
2 Clough contended that there was a genuine dispute between the parties as to whether it was in default of its obligations to perform the Contract. It also contended that any breach was caused by ONGC's failure to perform.
3 The two principal issues which arose on the claim for injunctive relief were:
. First, whether in those circumstances, upon the proper construction of the Contract, ONGC was entitled to invoke the performance guarantees;
. Second, whether a call on the performance guarantees contravened s 51AA of the Trade Practices Act 1974 (Cth) (TPA) on the ground that it was unconscionable within the meaning of the unwritten law of Australia.
4 The learned primary judge rejected Clough's submissions as to the construction of the Contract. He also found that ONGC did not engage in unconscionable conduct by invoking the performance guarantees. His conclusion, in that respect, did not turn upon whether ONGC was responsible for Clough's breaches. Rather, he held that Clough had breached the Contract in two further important respects relating to the extension of the guarantees and certain insurance policies. In addition, the primary judge considered that the claim for injunctive relief should be rejected on discretionary grounds.
5 Clough appeals against each of these findings, including the findings of fact that it was in breach of the Contract. A further issue was raised on the appeal by way of a notice of contention. The Contract was governed by Indian law and the parties agreed to submit any dispute to arbitration. ONGC contended that the Court ought to have given effect to the arbitration clause and thereby declined to entertain the proceedings. There was a strong argument in favour of that contention and it would have been preferable for his Honour to have addressed it at the threshold: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45. See also as to the grant of interim relief: Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334. In the event Clough failed on the merits before his Honour. In our opinion his Honour's reasoning on the merits was correct and the appeal should be dismissed. It is not necessary in the circumstances to deal with the matters raised in the notice of contention.
Factual and procedural background
6 In January 2005 Clough entered into the Contract with ONGC. The Contract was a lump sum contract for an amount in excess of US$215 million. It related to the development of oil and gas fields off the coast of the State of Andhra Pradesh in India and the construction of associated onshore facilities.
7 It was a term of the Contract that Clough would furnish ONGC, within two weeks of signing, an unconditional and irrevocable performance bank guarantee for the performance of the Contract. The form of the guarantee was set out in Appendix III, Annexure A of the agreement. The amount for which the guarantees provided was to be in excess of US$21 million, representing 10% of the contract price. There was provision in the Contract for extension of the guarantee in the event that completion of the works was delayed. ONGC had the right under the Contract to invoke the performance guarantees "… in the event of the Contractor failing to honour any of the commitments entered into under this contract".
8 Under each performance guarantee the guaranteeing bank undertook to pay immediately on first demand in writing the moneys demanded to the extent of the limit of the guarantee "… on breach of contract by Contractor without any demur, reservation, contest or protest or without any reference to the Contractor." Any demand made by ONGC on the bank by serving a written notice was to be "… conclusive and binding, without any proof on the bank as regards the amount due and payable, notwithstanding any dispute(s) pending before any Court, Tribunal, Arbitrator or any other authority …". It was agreed that the guarantee was irrevocable.
9 The Contract contained an arbitration provision covering "… any dispute, difference, question or disagreement" which might arise between the parties or their respective representatives or assignees "… at any time in connection with construction, meaning, operation, effect, interpretation or out of the contract or breach thereof …". There was provision for three arbitrators and a mechanism for their appointment. It is not in dispute that the International Arbitration Act 1994 (Cth) applies to the arbitration for the purposes of Australian law.
10 The Contract contained a choice of law provision requiring that all questions, disputes or differences arising under, out of, or in connection with, the contract be settled in accordance with the laws of India (both procedural and substantive) from time to time in force and to the exclusive jurisdiction of the courts in India. This was subject to the provisions of the arbitration clause.
11 The performance guarantees were provided by three banks, the Commonwealth Bank of Australia, the HSBC Bank Australia Ltd and BNP Paribas. The banks are all Australian companies and the guarantees were entered into in Australia.
12 Disputes arose between Clough and ONGC over extensions of time for the performance of the Contract and, associated with those disputes, issues relating to the extension of the guarantees and of insurance cover for Clough. On 4 June 2007 the Contract was terminated by ONGC by a facsimile letter to Clough bearing that date. On the same date, ONGC made demand upon the banks under the guarantees.
13 On 5 June 2007 Clough commenced proceedings in this Court naming ONGC and the three banks as respondents. It sought final relief by way of declarations, injunctions and damages arising from conduct on the part of ONGC said to have been in contravention of s 51AA of the TPA, which prohibits corporations in trade and commerce from engaging in unconscionable conduct according to the unwritten law of the States and Territories.
14 By way of interlocutory relief Clough sought orders on 5 June 2007 for leave to serve the application out of the jurisdiction on ONGC in India. It also sought an injunction, until trial or determination of the proceeding, to restrain ONGC from making a demand for payment from any one or more of the banks under the performance guarantees granted by the banks which were apparently dated 14 January, 19 January and 13 January 2005 respectively. It sought an injunction, until trial and determination of the proceeding or until further order, to restrain the banks from making payment to ONGC. It proffered an undertaking as to damages. On that day an ex parte interlocutory injunction was granted against the banks restraining each of them from making payment to ONGC.
15 The originating application was amended by leave granted by Gilmour J on 6 June 2007. On 7 June 2007 an ex parte interim injunction was granted against ONGC restraining it from taking further steps to demand or obtain payment or renewing such claims or demands, from the banks under the performance guarantees: Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2007] FCA 881. Orders were also made on 7 June 2007 for leave to serve ONGC out of the jurisdiction. The injunction against the banks was extended on 12 June 2007 and on 19 June 2007, following an inter partes hearing, when an application by the banks to discharge the injunction was dismissed: Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (No 2) [2007] FCA 927.
16 On 20 July 2007 ONGC filed a motion seeking orders that the amended application be set aside, service of the amended application on it be set aside and that the order granting leave to serve the amended application out of the jurisdiction be set aside. ONGC also sought an order that the interlocutory injunction granted against it on 7 June 2007 and extended on 12 and 19 June 2007 be discharged.
17 On 21 December 2007, for reasons which he then published, his Honour made orders effectively in terms of the motion. He also discharged the injunctions against each of the banks. His Honour made an order on the same day staying the execution of his orders pending the determination of an application for leave to appeal from his judgment: Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd (No 3) [2007] FCA 2082.
18 On 29 February 2008 his Honour granted Clough leave to appeal from his judgment and stayed the execution of his orders of 21 December 2007 pending the determination of the appeal. He extended the injunctions granted by paragraphs 4 and 5 of his orders made on 19 June 2007 pending the determination of the appeal and made a direction that the hearing of the appeal be expedited.
19 The appeal came on for hearing before the Full Court on 29 May 2008.
The Contract
20 The Contract between Clough and ONGC was dated 6 January 2005. It was entitled "Contract for Integrated Development of G-1 and GS-15 Fields (G1DP) Project". The Contract recited that Tender Inquiries had been invited on 29 March 2004 and that Clough had submitted its offer on 9 August 2004. It recited that the Contract had been awarded as a negotiated lump sum equivalent contract price of US$215,351,156.33. The work to be carried out under the Contract was defined in cl 1.1.37 of the General Conditions as including:
everything required to provide and complete a full functioning GS-15-1 Well platform, Pipelines (both Rigid and flexible), Sub sea Control system and Control Umbilical (Offshore and Onshore), Sub sea manifold, Sub sea Christmas Trees, Modification of existing platform GS-15-4, Onshore Oil & Gas processing Facilities, Gas Compression Facilities and Oil Pumping Facilities etc. at offshore fields G-1 and GS-15 in Krishna Godavari Basin located off the East Coast of India and Onshore facilities at Odalarevu, Near Amlapuram, Andhra Pradesh, India…
The works were more fully described in the "Bidding Documents".
21 The Contract comprised a covering Agreement and documents which were together listed in order of priority as follows:
1. Agreement
2. Annexure 'A' General Conditions of Contract
3. Annexure 'B' Bidding Documents comprising of Volume II to Volume V (Part IV) including Addenda/other documents issued by Company, agreed Minutes of the Prebid Meetings, subsequent correspondences exchanged between the Company and the Contractor which have been agreed to by the Company and the Contractor. Drawings and Datasheets have been prepared as preliminary data from which the Contractor should, after review for suitability and conformance with the requirements of Project, develop its own design and engineering for the Works.
The Company does not warrant or guarantee the accuracy or adequacy of the data in Bidding document. In case of conflicts within the Bidding documents cited below, same shall be referred to Company for clarifications:
i) Description of the Works & Design Criteria
ii) Specifications/data Sheets
iii) P&IDs and other drawings/Documents
In the event of conflict between the documents, the order of precedence is addenda and subsequent correspondences, Scope of Work, Design Basis, then Technical Specifications (Annexure-B).
4. Annexure 'C' Contract price schedule and Rental Rate Schedule.
5. Annexure 'D' Construction schedule/Project Key Dates.
6. Annexure 'E' Project Instructions.
7. Annexure 'F' Milestone payment formula giving break-up of the negotiated lump sum prices.
22 The Contract was said to constitute the entire Agreement between ONGCand Cloughwith respect to the subject matter of the contract and to supersede all communications, negotiations and agreements (whether written or oral) of the parties with respect thereto made prior to the date of the Agreement. The Entire Agreement clause was repeated in cl 1.2.5 of the General Conditions of Contract.
23 Choice of law and arbitration clauses which were the subject of contention on this appeal were as follows:
1.3.1 All questions, disputes or differences arising under, out of or in connection with this Contract shall be settled in accordance with laws of India (both procedural and substantive) from time to time in force and to the exclusive jurisdiction of the Courts in India, subject to the provisions of clause 1.3.2.
1.3.2 Arbitration
Except as otherwise provided elsewhere in the contract if any dispute, difference, question or disagreement arises between the parties hereto or their respective representatives or assignees, at any time in connection with construction, meaning, operation, effect, interpretation or out of the contract or breach thereof the same shall be decided by an Arbitral Tribunal consisting of three Arbitrators. Each party shall appoint one Arbitrator and the Arbitrators so appointed shall appoint the third arbitrator who will act as Presiding Arbitrator.
…
It is a term of the contract that the party invoking arbitration shall specify all disputes to be referred to arbitration at the time of invocation of arbitration and not thereafter.
It is also a term of the contract that neither party to the contract shall be entitled for any interest on the amount of the award.
...
The venue of the arbitration shall be the place from where the contract has been made.
…
Subject to as aforesaid the provisions of the Arbitration and Conciliation Act, 1996 and any statutory modifications or re-enactment in lieu thereof shall apply to the arbitration proceedings under this clause.
24 An important part of the General Conditions related to performance guarantees and relevantly provided as follows:
3.3 Performance Guarantee
3.3.1 The Contractor shall furnish to the Company within 2 weeks from the date of signing of this Contract an unconditional and irrevocable Performance Bank Guarantee for due performance of the Contract, as per proforma given at Appendix - II [sic] of Annexure A of Agreement, for a sum equivalent to 10% of the Contract price. This irrevocable Performance Bank Guarantee shall be drawn in favour of the Company and shall be valid initially upto [sic] a period of Scheduled Completion Date for the Works of the Contract and warranty period plus sixty (60) days.
3.3.2 In the event completion of Works is delayed beyond the Scheduled Completion Date for any reasons whatsoever, the Contractor shall get the validity of the guarantee suitably extended so as to make it valid for 12 months plus 60 days from the actual date of completion of Works. However if the delay is attributable to the Company, Company shall bear the cost of extension of such Performance Guarantee for such extended period at the normal bank rates as applicable to International Banking procedures.
3.3.3 The Company shall have the right under this guarantee to invoke the Banker's guarantee and claim the amount there under [sic] in the event of the Contractor failing to honour any of the commitments entered into under this Contract. In case Contractor fails to furnish the requisite Bank Guarantee as stipulated above, then the Company shall have the option to terminate the Contract and forfeit the Bid security amount and no compensation for the Works performed shall be payable upon such termination. Upon completion of Works the above said guarantee shall be considered to constitute the Contractor's warranty for the Work done by him or for the Works supplied and their performance as per the specifications and any other conditions against this Contract. The warranty shall be in force for 12 months, from the completion date as provided in Clause 5.10.2 & 5.10.3.
3.3.4 The foreign bidders will give bank guarantees from an Indian nationalized/scheduled bank situated in their country or in India, or from any bank as given at Appendix IV of Annexure-A. If any foreign bidder desires to furnish guarantee from a bank other than above, such bidder should furnish collateral security/guarantee/confirmation from any of the above foreign banks or the State Bank of India.
3.3.5 Notwithstanding what has been stated here above in this Clause in the event of completion of project being delayed beyond the Scheduled Completion Date(s) or extended date(s) extended as per provision of the Contract, the Company may without prejudice to any other right or remedy available to the Company under the Contract, operate the Bank Guarantee to recover the liquidated damages leviable as per Clause 6.3.2. The Bank Guarantee amount shall there upon [sic] be increased to the original amount, or the Contractor may alternatively submit a fresh Bank Guarantee for the equivalent amount of liquidated damages recovered.
3.3.6 The Contractor shall also arrange for the Performance Guarantee to remain valid until the expiration of the Guarantee period for entire Works or if different Guarantee periods become applicable to the different part of Works, then until expiration of latest of such guarantee period. If different guarantee period become [sic] applicable to different parts of Works, then the Performance Guarantee is to be kept valid for 10% of the full value of the part of the Works (as accepted by the Company) for which the guarantee period are yet to expire.
3.3.7 The Company shall return the Performance Guarantee to the Contractor upon the expiration of the Performance Guarantee unless any extension is required in accordance with the Contract.
25 Section 6 of the General Conditions dealt with guarantees and liabilities under the Contract. In clause 6.1.1 Cloughagreed to ensure that the materials, equipment and components used in the execution of the works under the Contract would be new and unused. It also warranted that every work executed under the Contract would be free from all defects and faults in design and engineering, materials workmanship and handling. The warranty was valid for a period of 12 months from the date of the issue of the certificate of completion and acceptance.
26 By clause 6.1.2 if, during the period of the warranty, the plant, machinery and equipment was discovered not to conform to the description and quality referred to in clause 6.1.1, or to have deteriorated otherwise than by fair wear and tear, then Clough was required to make good the defects and any damage to the works caused by such defects. In default, ONGC would be entitled to use other agencies to carry out the relevant rectification work and to recover the costs from Clough. The clause then provided:
The Contractor agrees to make payment against such claim within 30 days of receipt thereof. If the Contractor fails to pay the amount to the Company within 30 days from the receipt of the invoice then amount may be deducted by the company from any money which is due or may become due to the Contractor including Company's right to encash the performance guarantee furnished by the Contractor in accordance with provision of Clause 3.3.
It may be noted that that part of the clause does not appear to make grammatical sense.
27 There was also provision in the General Conditions for liquidated damages, for failure to complete the entire works before the scheduled date or extended date or if Clough repudiated the contract for completion of the works. There was provision for termination of the contract on notice:
The Company may without prejudice to its right to effect recovery by any other method, deduct the amount of liquidated damages from any money belonging to the Contractor in its hands (which includes the Company's right to claim such amount against Contractor's Bank Guarantee) or which may become due to the Contractor. Any such recovery of liquidated damages shall not in any way relieve the Contractor from any of its obligations to complete the Works or from any other obligations and liabilities under the Contract.
28 Part 7 of the General Conditions was entitled "RISK DISTRIBUTION" and provided, inter alia, for Clough to take out insurance for the benefit of and in the joint names of ONGC and itself against all risk for physical losses or damage suffered by works and temporary works or part of the works up to the Contract value thereof or such additional sum as might be specified in the Contract. The policies to be taken out by Clough were specified in clause 7.3.6. They were:
(i) Cargo Transit Insurance
(ii) Contractor's All Risks Insurance
(iii) Third Party Liability Insurance
(iv) Automobile and Transportation Liability Insurance
(v) Workman's Compensation
(vi) Such other insurances as might be specifically agreed upon by the parties.
29 Clause 7.3.8 required Clough, prior to commencing any relevant part of the works, to deliver to ONGC copies of the insurance policies as evidence that the required policies were in full force and effect. In the event of a failure by Clough to take out and keep in force the relevant insurance policies, then ONGC was authorised by clause 7.3.9 to take out and keep in effect appropriate and necessary insurance. ONGC could pay the necessary premiums and deduct the amount so paid with interest from any moneys due or which might become due to Clough or recover the same as a debt.
Pro forma for performance guarantee letter
30 Appendix III of the General Conditions of Contract set out a pro forma for the performance guarantee letter between any relevant bank and ONGC. It was in the following terms:
To:
Oil and Natural Gas Corporation Limited
15-E, Maker Towers
Cuffe Parade, Colaba,
Mumbai - 400 005 (India)
Dear Sirs,
1. In consideration of Oil and Natural Gas Corporation Ltd incorporated under the Companies Act 1956 having its registered office at Jeevan Bharati, Tower-II, 124 Indira Chowk, New Delhi - 110 001, India and one of its offices at 15-E, Maker Towers, Cuffe Parade, Mumbai- 400 005 & Rajahmundry Asset situated at Godavari Bhavan, ONGC Base Complex, Rajahmundry - 533 106, AP (hereinafter referred to as "Company" which expression shall unless repugnant to the context or meaning thereof includes all its successors, administrators, executors and assigns) having entered into a Contract No … dated … (hereinafter called "The Contract" which expression shall include all the amendments thereto) with M/s … having its registered/head office at … (hereinafter referred to as "The Contractor") which expression shall, unless repugnant to the context or meaning thereof include all its successors, administrators, executors and assigns) and Company having agreed that the Contractor shall furnish to Company a performance guarantee for Indian Rupees/US$... for the faithful performance of the entire Contract.
2. We … (name of the Bank) registered under the laws of … (name of the country) having head/registered office at … (hereinafter referred to as "the Bank") which expression shall, unless repugnant to the context or meaning thereof include all its successors, administrators, executors and permitted assigns) do hereby guarantee and undertake to pay immediately on first demand in writing and any/all moneys to the extent of Indian Rs/US$... (in figures) (Indian Rupees/US Dollars …) (in words) on breach of Contract by Contractor without any demur, reservation, contest or protest and/or without any reference to the Contractor. Any such demand made by Company on the Bank by serving a written notice shall be conclusive and binding, without any proof, on the bank as regards the amount due and payable, notwithstanding any dispute(s) pending before any Court, Tribunal, Arbitrator or any other authority and/or any other matter or things whatsoever, as liability under these presents being absolute and unequivocal. We agree that the guarantee herein contained shall be irrevocable. This guarantee shall not be determined, discharged or affected by the liquidation, winding up, dissolution or insolvency of the Contractor and shall remain valid, binding and operative against the Bank.
Company shall have the unqualified option to operate this bank Guarantee to recover Liquidated Damages as leviable under the Contract.
3. The Bank also agree that Company at its option shall be entitled to enforce this Guarantee against the Bank as a principal debtor, in the first instance, without proceeding against the Contractor and notwithstanding any security or other guarantee that Company may have in relation to the Contractor's liabilities.
4. The Bank further agree that Company shall have the fullest liberty without our consent and without affecting in any manner our obligations hereunder to vary any of the terms and conditions of the said Contract or to extend time of performance by the said Contractor(s) from time to time or to postpone for any time or from time to time exercise of any of the powers vested in Company against the said Contractor(s) and to forebear or enforce any of the terms and conditions relating to the said agreement and we shall not be relieved from our liability by reason of any such variation, or extension being granted to the said Contractor(s) or for any forbearance, act or omission on the part of Company or any indulgence by Company to the said Contractor(s) or any such matter or thing whatsoever which under the law relating to sureties would, but for this provision, have effect of so relieving us.
5. The Bank further agree that the Guarantee herein contained shall remain in full force during the period that is taken for the performance of the Contract and all dues of company under or by virtue of this Contract have been fully paid and its claim satisfied or discharged or till Company discharges this guarantee in writing, whichever is earlier or until the date of expiry of the claim period specified in para 9 of this Bank Guarantee, whichever shall first occur.
6. This Guarantee shall not be discharged by any change in our constitution, in the constitution of Company or that of the Contractor.
7. The Bank confirms that this guarantee has been issued with observance of appropriate laws of the country of issue.
8. The Bank also agree that this guarantee shall be governed and construed in accordance with Indian Laws and subject to the exclusive jurisdiction of Indian Courts of the place from where tenders have been invited.
9. Notwithstanding anything contained herein above, our liability under this Guarantee is limited to Indian Rs/US$... (in figures) (Indian Rupees/US Dollars…) (in words) and our guarantee shall remain in force until … (indicate the date of expiry of bank guarantee).
Any claim under this Guarantee must be received by us before the expiry of this Bank Guarantee. If no such claim has been received by us by the said date, the rights of Company under this Guarantee will cease. However, if such a claim has been received by us within the said date, all the rights of Company under this Guarantee shall be valid and shall not cease until we have satisfied that claim.
In witness whereon, the Bank through its authorised officer has set its hand and stamp on this … day of … at …
Other contractual documents
31 A number of other documents were incorporated in the Contract. Documents to which reference was made on the hearing of the appeal included:
1. Letter from Clough to ONGC dated 19 October 2004. The letter concerned discussions held on 19 October 2004. The letter recorded that in a meeting held on that date ONGC had emphasised that Clough's offer had insurance numbers of 10% of contract value (US$22.76m).
2. Letter from Clough to ONGC dated 25 October 2004. This letter referred to a meeting of 25 October 2004 and ONGC's belief that Clough's insurance costs appeared to be high. Clough referred to its experience in insurance for deep water projects and observed that the normal premiums were always greater for sub sea deep water projects because of the need to cover additional risks.
3. ONGC clarifications to responding bidders' queries. A bidder had sought a "neutral" choice of law clause and proposed that disputes arising out of or in connection with the contract be settled in accordance with the laws of England and Wales. This was not agreed and the bidder was required to follow bid document requirements. A request that arbitration under the contract be settled in accordance with the Rules of Arbitration of the International Chamber of Commerce and for the venue of such arbitration proceedings to be London and their language to be English was rejected. A request for deletion of the interest provision in clause 1.3.2 on the basis that arbitral proceedings in India are a long drawn out process was also rejected.
Milestone payment formula
32 The milestone payment formula in Annexure F to the General Conditions of Contract provided for the first milestone payment to be made upon submission of the policy or policies of insurance specific for the project and certificate of insurance for other policies and proof of 100% premium paid and accepted by the company.
Statutory Framework - The International Arbitration Act 1974
33 The International Arbitration Act 1974 has four parts. Part I contains Preliminary provisions. Part II is entitled "Enforcement of foreign awards" (ss 3-14). Part III relates to international commercial arbitrations (ss 15-29). Part IV deals with the application of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.
34 Three international instruments are scheduled to the Act. Schedule 1 comprises the United Nations Conference on International Commercial Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Although scheduled to the Act it is not given the force of law by the Act. Schedule 2 comprises the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985). Section 16 of the Act provides, inter alia, that subject to Pt III, the Model Law has the force of law in Australia. The Investment Convention, which is set out in Schedule 3, also has the force of law in Australia (s 32) but is not material for present purposes.
35 Section 3 of the Act which is contained in Pt II - Enforcement of foreign awards, provides the interpretation of various terms used in that Part. The following definitions are relevant:
arbitration agreement means an agreement in writing of the kind referred to in sub-article 1 of Article II of the Convention
…
court means any court in Australia, including a court of a State or Territory.
36 Article II of the Convention provides:
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
37 Section 7 deals with the enforcement of foreign arbitration agreements. It provides:
(1) Where:
(a) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a Convention country;
(b) the procedure in relation to arbitration under an arbitration agreement is governed, whether by virtue of the express terms of the agreement or otherwise, by the law of a country not being Australia or a Convention country, and a party to the agreement is Australia or a State or a person who was, at the time when the agreement was made, domiciled or ordinarily resident in Australia;
(c) a party to an arbitration agreement is the Government of a Convention country or of part of a Convention country or the government of a territory of a Convention country, being a territory to which the Convention extends; or
(d) a party to an arbitration agreement is a person who was, at the time when the agreement was made, domiciled or ordinarily resident in a country that is a Convention country;
this section applies to the agreement.
(2) Subject to this Part, where:
(a) proceedings instituted by a party to an arbitration agreement to which this section applies against another party to the agreement are pending in a court; and
(b) the proceedings involve the determination of a matter that, in pursuance of the agreement, is capable of settlement by arbitration;
on the application of a party to the agreement, the court shall, by order, upon such conditions (if any) as it thinks fit, stay the proceedings or so much of the proceedings as involves the determination of that matter, as the case may be, and refer the parties to arbitration in respect of that matter.
(3) Where a court makes an order under subsection (2), it may, for the purpose of preserving the rights of the parties, make such interim or supplementary orders as it thinks fit in relation to any property that is the subject of the matter to which the first-mentioned order relates.
(4) For the purposes of subsections (2) and (3), a reference to a party includes a reference to a person claiming through or under a party.
(5) A court shall not make an order under subsection (2) if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
38 Section 18 of the Act provides:
Courts specified for purposes of Article 6 of Model Law
The following courts shall be taken to have been specified in Article 6 of the Model Law as courts competent to perform the functions referred to in that article:
(a) if the place of arbitration is, or is to be, in a State - the Supreme Court of that State;
(b) if the place of arbitration is, or is to be, in a Territory:
(i) the Supreme Court of that Territory; or
(ii) if there is no Supreme Court established in that Territory - the Supreme Court of the State or Territory that has jurisdiction in relation to that Territory.
39 Relevant provisions of the Model Law are as follows:
Article 1. Scope of application
(1) This Law applies to international commercial arbitration, subject to any agreement in force between this State and any other State or States.
(2) The provisions of this Law, except articles 8, 9, 35 and 36, apply only if the place of arbitration is in the territory of this State.
(3) An arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.
…
(5) This Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this Law.
40 Article 2 provides, inter alia, that the term "court" means a body or organ of the judicial system of a State (in this context referring to a nation state). Article 5 provides:
In matters governed by this Law, no court shall intervene except where so provided in this Law.
41 Article 7 deals with the definition and form of arbitration agreements. Articles 8 and 9 deal with cases which are the subject of arbitration agreements are brought before a court. They are in the following terms:
Article 8. Arbitration agreement and interim measures by court
(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable or being performed.
(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.
Article 9. Arbitration agreement and interim measures by court
It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.
42 It will be noted by reference to Article 1(2) that the provisions of Articles 8 and 9 will both apply whether or not the place of arbitration is in the territory of the contracting State. That is to say, Articles 8 and 9 are applicable to a court before which an action is brought in a matter which is the subject of an arbitration agreement under which the place of arbitration is outside Australia.
Statutory framework - Trade Practices Act 1974 (Cth)
43 Section 51AA of the TPA provides:
(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC.
44 Section 80 provides for the grant of injunctive relief in relation to contraventions of provisions of the Act (including s 51AA). Section 80(2) authorises the Court to grant an interim injunction pending determination of an application for final relief under s 80.
45 There was contention about the effect of the provision of the Contract applying the laws of India and whether that provision could be invoked as a defence against a claim of unconscionable conduct in connection with the exercise of ONGC's powers to call on the performance bank guarantees under the Contract. Some reference was made to ss 67 and 68 of the TPA which void any term of a contract which has the effect, inter alia, of excluding the conditions and warranties implied into certain classes of contract under Div 2 of Pt V of the TPA. It was argued that these express provisions in Div 2, and the absence of any like exclusion in relation to s 51AA, indicated that parties to a contract could effectively "contract out" of the application of s 51AA.
The primary judge's reasons for decision
46 The primary judge identified the bases upon which Clough sought to restrain the invocation of, or payment under, the performance bank guarantees. These were:
1. The Contract properly construed prohibited a demand being made in the circumstances.
2. Alternatively, ONGC had caused or contributed to the circumstances leading to the claimed breaches.
3. Alternatively, ONGC's claim was unconscionable conduct in contravention of s 51AA of the TPA.
4. The demand made by ONGC did not satisfy the conditions of a valid demand under the performance bank guarantees.
47 His Honour characterised ONGC's motion, under O 9 r 7, to set aside service of the amended application as involving a review of the original decision to grant leave and a rehearing which could proceed on the basis of additional material. To maintain service out of the jurisdiction Clough would need to demonstrate a prima facie case for the relief which it claimed. The test was whether, on the material before the Court, inferences were open which if translated into findings of fact would support the relief claimed. An arguable case had to be demonstrated.
48 His Honour turned first to the motion to set aside service. The question whether there was a prima facie case required a "detailed consideration" of four questions:
(a) the proper construction of the performance bank guarantee provisions in the Contract;
(b) whether any of the claimed or demonstrated breaches of the Contract by Clough was arguably caused by breaches on the part of ONGC and, if so, whether ONGC was thereby in contravention of s 51AA in making demands under the performance bank guarantees;
(c) whether any demonstrated breach of the Contract relied upon by ONGC, not caused or even arguably caused by breach(es) on the part of ONGC, entitled ONGC to make demands under the performance bank guarantees;
(d) whether the demands made by ONGC under the performance bank guarantees were invalid on their face.
49 His Honour took the view that it was appropriate to resolve the construction issue despite the interlocutory nature of the motion. Full argument had been presented by both sides over a three day hearing. There was no suggestion that the evidence was other than complete. The area of contest was not beset by difficulty or novelty. He observed that the entitlement under clause 3.3.3 was expressed as conditional upon "the contractor failing to honour any of the commitments entered into under this contract". The principal issue was whether the words "failing to honour" required that it be established as a fact that Clough had failed in some respect to honour its contractual commitments or whether it was sufficient that ONGC claimed that Clough had so failed. These alternatives defined a "construction spectrum".
50 Clough's submissions on the construction of clause 3.3 were summarised. Clough submitted that the performance bank guarantees could be called on only in specific circumstances, namely:
(a) where there was an acknowledgment or arbitral or other determination giving ONGC the right to obtain moneys during the performance of the Contract and prior to practical completion (other than in relation to matters covered by clauses 5.9.7.2 and 7.3.9 of the Contract);
(b) where Clough failed to pay an amount claimed by ONGC under clause 5.9.7.2 (effectively for the cost of the removal and substitution of suitable materials or removal and rectification of any work) or failed to pay money claimed by ONGC under clause 7.3.9 (effectively for any premium paid for insurance by ONGC);
(c) where Clough failed to pay for the costs of remedial works within 30 days during the guarantee/warranty period as required under clause 6.1.2 of the Contract; and
(d) where there was an acknowledgment or arbitral or other determination that ONGC had a right to recover liquidated damages under clause 6.3.2 of the Contract.
51 Clough argued that clause 3.3.3 allocated risk to it in the specified circumstances. The clause otherwise provided ONGC with the capacity to have recourse to the banks in the event that Clough was slow to, or unable, or unwilling to pay ONGC where ONGC had established that Clough had failed to honour its commitments. Clough submitted that its construction was in harmony with Appendix III. The proforma performance bank guarantee in that Appendix conditioned a call on "breach" not "asserted or claimed breach".
52 The Contract is governed by Indian law: see clause 1.3.1. However, it was not suggested that there was evidence which demonstrated that Indian law would approach the question of construction of the Contract in a different way. The appeal, and the hearing before the primary judge, were argued upon the basis that in the absence of evidence to the contrary, Indian law is presumed to be the same as the law of Australia: Neilson v Overseas Projects Corporation of Victoria Ltd(2005) 223 CLR 331; at [125] per Gummow and Hayne JJ at [249] per Callinan J and at [267] per Heydon J.
53 The question of whether the Contract contains an express or implied negative stipulation which qualified the entitlement of ONGC to call upon the performance guarantee turns upon the proper construction of clause 3.3 of the Contract. The learned primary judge held at [53] that upon the proper construction of the clause, ONGC was entitled to call upon the performance guarantees where it had a "bona fide belief" in its claim that Clough was in breach of the Contract.
54 His Honour began by observing that the terms of the guarantees, set out in Appendix III of Annexure A to the Contract, had to be construed in the context of the document as a whole. They promised payment, even where disputes were pending before a court or arbitrator. That was a powerful indicator that a mere claimed breach of contract, not fraudulently asserted, was sufficient to trigger an entitlement to call on the guarantees. There was no contention in this case that ONGC had made a fraudulent claim. That construction was reinforced by the requirement on the banks to pay "without any demur, reservation, contest or protest and/or without any reference to the contractor". Their liability under the guarantees was "absolute and unequivocal".
55 His Honour referred to Ideas Plus Investments Ltd v National Australia Bank Ltd (2006) 32 WAR 467 in which the Western Australian Court of Appeal held that a certificate provided by the National Australia Bank to HSBC certifying that conditions of a letter of credit had been met "amounted to no more than an implied representation that [NAB] had reasonable grounds for issuing the certificate" (at [51]). Written demands were also analogous to the requisite statutory declaration in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812 to the effect that the amount claimed represented an amount remaining unpaid to the owner. This was so even where the amount was disputed.
56 His Honour said that if ONGC could not call on the guarantees until there was admitted or established breach of contract, the time at which the matter might be determined by the arbitral tribunal or court could be well after the performance guarantee had expired. Such a construction would not make commercial common sense.
57 His Honour considered that a commercial object of the performance bank guarantees under the Contract was to allocate the risk of a party being out of pocket pending the resolution of a dispute and that ONGC was entitled to call upon them even where a genuine dispute existed as to whether or not Clough was in breach and whether or not damage had been suffered. ONGC says that this construction was supported by the requirement in clause 3.3.1 that Clough furnish ONGC, within two weeks of signing the Contract, with an unconditional and irrevocable performance bank guarantee in terms set out in the Appendix. His Honour referred to Wallace IND, Hudson's Building and Engineering Contracts (11th ed, London Sweet & Maxwell, 1995) at [17,075]:
insofar as a construction contract may make clear provision for the furnishing of an unconditional guarantee as security for due performance, the normal interpretation … will be that, in response to the stipulated demand, an unqualified transfer of the sums in question is intended, provided only that there is a bona fide dispute or claim on the secured party's part, and any further investigation of its merits or extent is not usually intended by the contract.
58 His Honour considered that Clough was not assisted by clauses 3.3.2-3.3.5 and 8.3.5 which entitled ONGC to withhold approval and payment of progress claims. That would provide a form of security to ONGC where there was a dispute because while arbitration was pending it was not required to pay the disputed amount to Clough. It did not inform the question of the circumstances in which the performance guarantees could be called upon.
59 His Honour did not accept Clough's submission that ONGC's construction would permit a call on the full amount of the performance bank guarantees, US$21.5 million, even in the case of a trivial or a general breach. Equity would generally intervene to ameliorate the application of a legal right if employed capriciously or unreasonably or harshly or oppressively such as to be unconscionable. Section 51AA of the TPA might also afford relevant protection. This did not mean that the entitlement at law to call on the whole amount should be read down from what was otherwise a construction in harmony with the Contract as a whole and which in its context produced a commercially sensible meaning. His Honour said (at [53]):
Accordingly, in my opinion, upon the proper construction of cl 3.3.3, ONGC was entitled to call on the performance guarantees where it had a bona fide belief in the genuineness of its claim that Clough had failed to honour commitments under the Construction Contract.
His Honour did not consider that there was a prima facie case or a serious issue to be tried in favour of the construction contended for by Clough.
60 Having found adversely to Clough on the construction of clause 3.3.3, his Honour considered the argument that ONGC had contravened s 51AA of the TPA. Although he had found that the performance bank guarantees could be invoked merely upon an assertion of breach on the part of Clough there were examples of demonstrated breach. Clough had accepted that it was in breach in:
(a) failing to deliver three "Christmas Trees" which were vital components for completion of the well;
(b) failing to undertake shallow water works and onshore works separately from the offshore works.
Clough contended that the breaches which it conceded had been caused by ONGC's own breaches and that it would be unconscionable, within the meaning of s 51AA, for ONGC to call on the performance bank guarantees. Clough argued that its delay in providing the "Christmas Trees" flowed from ONGC's breach relating to "DHPTT Cards". ONGC had also failed to effect well completion in relation to deep water work and had lost the first "Christmas Tree" and certain tools, all of which delayed the project. ONGC's own breaches were also said to have occasioned Clough's failure to undertake shallow water works.
61 ONGC contended that Clough was indisputably in breach of its contractual obligations in two further respects. It had failed to extend the period for the validity of the performance bank guarantees in response to an extension of time for completion of the Contract. It had also failed to provide documentary proof that relevant insurance cover was being maintained. ONGC maintained that those obligations existed even on the assumption that the need for extensions of time was the result of breaches on its part.
62 His Honour referred to the importance of performance guarantees stating (at [63]):
Performance guarantees play a critical part in international commerce and in international construction contracts, in particular.
Objectively viewed, they were of critical importance to ONGC under the Contract. No payments would become due and payable to Clough until it had furnished the guarantees and the certificate of insurance.
63 His Honour traversed the history of dealings between the parties in relation to an extension of time for the Contract. He referred to correspondence over a period commencing on 20 March 2006 through to 4 June 2007. On 15 April 2006 ONGC sent a letter to Clough provisionally extending the time for completion of the works to 31 January 2007 without prejudice to its rights to recover liquidated damages under the contract. On 3 June 2006 ONGC required Clough to extend the guarantees as required by the Contract. It repeated that demand by letter dated 16 June 2006. Clough advised ONGC on the same date that the new schedule completion date should be 11 July 2007. On 21 July 2006 Clough agreed with ONGC at a meeting in New Delhi to adopt a "proactive approach" to the expeditious completion of the project by the end of the working season of 2007, which was the end of April 2007.
64 ONGC again required Clough to extend the performance bank guarantees on 29 July 2006 and repeated its request on 12 August 2006. The time for completion of the project was extended to 13 April 2007 by a letter from ONGC to Clough dated 4 September 2006. On 7 October, 2 and 6 November 2006 and 29 March 2007, ONGC wrote to Clough requesting it to extend the guarantees. At that time they were current to 14 June 2007. Clough contended that clause 3.3.2 required it to extend each guarantee to "make it valid for 12 months plus 60 days from the actual date of completion of Works". At that time the date was not known, nor would be known, until a further determination and agreement between the parties. Clough would await that agreement and then act accordingly. ONGC provisionally granted a further extension of time for completion of the works until 30 April 2008 by letter of 11 April 2007, which also required Clough to extend the guarantees. The latter request was repeated by a letter dated 14 April 2007.
65 Clough proposed a "road map" to meet objectives towards completion of the works. It said it would require the three performance guarantees held by ONGC to be returned, but was willing to provide a performance guarantee to the value of 10% of the remaining work. On 1 June 2007 Clough's chief executive officer wrote to ONGC saying:
I understand that the bonds (referring to the performance guarantees) currently expire in June and appreciate that allowing the bonds to lapse may be contrary to that agreed between ourselves. I am seeking agreement from my Board to extend the bonds to ensure we have sufficient time to conclude our negotiations. This action is of course subject to your agreement to reach a negotiated exit solution as was the direction from Mr Bose at my last meeting.
66 His Honour found against Clough's contention that the extension of time for the scheduled completion of the Works by ONGC to 4 July 4007 was unilateral and not the subject of mutual agreement. ONGC's reservation of rights to recover liquidated damages did not detract from the agreement reached between the parties. In his Honour's opinion, Clough was obliged, under clause 3.3.2 of the contract to extend the validity of the guarantees so they would be valid for 12 months plus 60 days from the date of completion of works as varied. On the basis of the two variations to which he had referred (extending the date for completion to 31 January 2007 and later to 13 April 2007) Clough, within a reasonable time of the date of each variation, was required to extend the guarantees to 31 March 2008 and 30 June 2008 respectively. We understand his Honour to have intended to say 13 rather than 30 June, ie 12 months plus 60 days after 13 April 2007.
67 Even if it were the case that clause 3.3.2 required Clough to extend the performance bank guarantees at any time prior to their lapsing, as Clough contended, it was clear that:
(a) at 16 April 2007 Clough was not prepared to extend the performance bank guarantees;
(b) at 1 June 2007 the CEO of Clough had no relevant authority from the board to extend them and, in any event, the authorisation was said to be subject to ONGC agreeing "to reach a negotiated exit solution".
His Honour held that the guarantees were never extended prior to the termination of the contract. Accordingly, whatever view was taken of the obligation to extend the validity of the insurance policies, Clough was in breach of clause 3.3.2 in relation to the guarantees. He also found Clough to be in breach of its contractual obligations to provide relevant policies of insurance or certificates of insurance. This was a breach of clause 7.3.8.
68 His Honour found that Clough was in actual breach of the Contract in two important respects, namely its failure to extend the performance guarantees and its failure to deliver copies of the relevant policies of insurance and certificates of insurance covering the extended completion dates and warranty periods.
69 His Honour said (at [95]):
It follows that, in calling up the performance guarantees in respect of those breaches, ONGC was acting according to a legal entitlement under cl 3.3.3 untainted by conduct which could even arguably be characterised as unconscionable in contravention of the TPA. The position is the same in relation to the breach by Clough of cl 7.3.8 concerning the insurance documents.
His Honour was therefore not persuaded that there was any prima facie case or serious issue to be tried in respect of the alleged contraventions by ONGC of s 51AA of the TPA in that respect.
70 His Honour also dealt with a contention by Clough that demands made by ONGC against the banks were not valid because they failed to contain a statement of an amount due and payable by Clough to ONGC. His Honour accepted that the performance guarantees each contemplated that less than the full amount guaranteed might be the subject of a demand. However, each also contemplated a demand for the full amount. A demand for the full amount was made in each case predicated on a statement that Clough was in breach of the construction contract. His Honour found no serious issue of prima facie case as to the invalidity of the demands.
71 His Honour then made some findings in relation to the balance of convenience. He said (at [101]):
This obviously is not to inform my discretion as to whether to grant injunctive relief.
There being no serious issue to be tried, the exercise of his discretion did not arise.
72 In that respect his Honour found there was no evidence to establish any specific irreparable damage to Clough. Some of the consequences to which it had pointed were not uncommon in such matters and, indeed, were often the probable consequences. Such consequences broadly were in the anticipation of Clough when the performance guarantees were given.
73 As to the effect of payment under the performance bank guarantees on Clough's commercial reputation, his Honour accorded no significant weight to those concerns.
Issues on the appeal
74 There were 17 grounds of appeal. It is not necessary to set them out in full, but it is convenient to summarise, from them, the issues for determination:
A. Whether on their proper construction clause 3.3.3 of the Contract and the terms of the performance bank guarantees entitled ONGC to call on the guarantees solely on condition of a bona fide claim that Clough had failed to honour commitments under the Contract or whether there was an implied or express negative stipulation requiring actual breach (grounds 1 to 5).
B. Whether the demands under the performance bank guarantees were validly made (ground 6).
C. Whether Clough was in breach of its obligations under the Contract in respect of extension of the performance bank guarantees and provision of insurance cover (grounds 7 to 13).
D. Whether ONGC acted unconscionably in calling on the performance bank guarantees (grounds 7 to 13).
E. Whether the balance of convenience favoured the grant of the injunction (grounds 14 to 17).
F. Whether Clough is precluded by the Choice of Law provision in the Contract from invoking s 51AA of the TPA (notice of contention 4).
G. Whether Clough is precluded from seeking injunctive relief against ONGC by reason of the arbitration clause in the Contract (notice of contention 5).
H. Whether injunctive relief should have been refused on the basis that damages was an adequate remedy for Clough (notice of contention 7).
I. Whether injunctive relief should have been refused because Clough commenced proceedings in breach of clauses 1.3.1 and 1.3.2 of the Contract (notice of contention 8).
Before turning to the particular issues it is helpful to consider general principles relevant to the construction of contract provisions relating to performance guarantees.