Irrevocable letter of credit - Construction of terms of letter of credit - Turns on own facts

Trade Practices Act, s 5(3), s 52, s 51AA, s 82, s 87

Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 206 ALR 387

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51

Bateman Project Engineering Pty Ltd & Ors v Resolute Ltd [2000] WASC 284; (2001) 23 WAR 493

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Commissioner of State Revenue (Vict) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51

Punjab National Bank v de Boinville [1992] WLR 1138

Roxborough & Ors v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516

Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 24

Allen v Carbone [1975] HCA 14; (1975) 132 CLR 528

B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227

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

Boral Formwork & Scaffolding Pty Ltd v Action Makers Ltd (in Administrative Receivership) [2003] ATPR 41-953

Brambles Holdings Ltd v Bathhurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153

Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78; (2001) 79 SASR 374

DTR Nominees Pty Ltd v Mona Homes Pty Ltd & Anor [1978] HCA 12; (1978) 138 CLR 423

Duetsche Genossenschaftbank v Burnhope [1996] 1 Lloyd's Rep 113

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

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Heimann v Commonwealth (1938) 38 SR (NSW) 691

Hoyts v Spencer [1919] HCA 64; (1919) 27 CLR 133

Ideas Plus Investments Ltd v National Australia Bank [2002] WASC 167

Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896

Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] UKHL 19; [1997] AC 749

Manufacturers' Mutual Insurance Ltd v Withers & Anor (1988) 5 ANZ Ins Cas 60-853

McCann v Switzerland Insurance Australia Ltd & Ors [2000] HCA 65; (2000) 176 ALR 711

Milankov v DCH Legal Group [2004] WASC 58

Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380

Pan Foods Company Importers & Distributors Pty Ltd & Ors v Australia & New Zealand Banking Group Ltd & Ors [2000] HCA 20; (2000) 170 ALR 579

Prenn v Simmonds [1971] 1 WLR 1381

Royal Botanic Gardens & Domain Trust v South Sydney Council [2002] HCA 5; (2002) 186 ALR 289

Westpac Banking Corporation v South Carolina National Bank (1986) 60 ALJR 358

Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443

1 COMMISSIONER SIOPIS SC: This is an action brought by the plaintiff for the payment of the sum of $5 million with interest, alternatively, damages. The plaintiff is a company which is incorporated in the British Virgin Islands. The defendant is a corporation which carries on banking business in Australia. The action arises out of the circumstances in which the defendant called upon, and received payment of, $5 million under an irrevocable letter of credit. The irrevocable letter of credit in question was issued by the Hong Kong and Shanghai Banking Corporation in Singapore.

2 The plaintiff was the company that procured the issue of the irrevocable letter of credit in favour of the defendant and in so doing was required to enter into an indemnity agreement with the Hong Kong and Shanghai Bank in Singapore. After the Hong Kong and Shanghai Bank in Singapore met the call on the irrevocable letter of credit, and paid $5 million to the defendant, it, relying on the indemnity agreement, debited the plaintiff's account in the sum of $5 million. The plaintiff seeks to recover the $5 million from the defendant in these proceedings.

3 Mr Kuo Hea Wong (referred to during the course of the proceedings as Mr K H Wong) and Mr Michael Wong gave evidence on behalf of the plaintiff, Mr David Watts, an officer of the defendant, and Mr Barry Honey, a chartered accountant and registered liquidator gave evidence as part of the defendant's case. I find that all the witnesses were satisfactory witnesses.

4 At all material times Mr K H Wong, was a director of the plaintiff. Other directors of the plaintiff were Mr Hamed Sepawi, Mr Wahab Dolah and Mr Michael Wong. Mr K H Wong was also a director of each of the companies in a group of companies known as the Queenswest Group. That group of companies included a company called Kingwest Investments Pty Ltd. Mr K H Wong was at all material times the Executive Chairman of Queenswest Group.

5 From about 1994 Kingwest Investments Pty Ltd was a major shareholder of a company called Whittakers Ltd which carried on business in Western Australia. Mr K H Wong was appointed to the board of Whittakers Ltd in November 1994 and as Managing Director of Whittakers Ltd in November 1995.

6 Mr K H Wong said that he had known Mr Michael Wong for over 30 years and that they had been born in the same town and attended the same school. Mr Michael Wong had assisted Mr K H Wong since about 1989 in some of the wide range of Mr K H Wong's business interests.

7 Mr Michael Wong was born in Malaysia and moved to Australia in 1975 to further his education at the University of Western Australia. He has been a permanent resident of Australia since 1978. Mr Michael Wong has since March 1994 been a director of the plaintiff.

8 In addition to having interests in the Queenswest group of companies Mr K H Wong and his business partners also have interests in two companies - Zadella Pty Ltd and Jewelcourt Holdings Pty Ltd. Between 1995 and 1997 Mr Michael Wong assisted Mr K H Wong and his business partners in the purchase of a number of commercial properties in Western Australia through these two companies. In the course of arranging finance for the purchase of these properties Mr Michael Wong dealt with Mr Steve McLaren, an employee of the defendant at its West Perth branch. Mr Michael Wong says that he established a good working relationship with Mr McLaren.

9 In April 1997 Whittakers Ltd's existing banker was the Hong Kong Shanghai Bank Australia Ltd and Whittakers Ltd conducted its banking operations with that bank through its Sydney office. Mr McLaren canvassed with Mr Michael Wong the possibility of Whittakers Ltd transferring its banking operations to the defendant's West Perth branch. In turn, Mr Michael Wong raised this prospect with Mr K H Wong, who was amenable to pursuing the matter further, because he held the view that the banking operations being located in Sydney often meant that decisions could not be made as quickly or as effectively as he thought would be the case if there was local management. Some time in early 1997 Mr Michael Wong introduced Mr K H Wong as the Managing Director of Whittakers and Mr Peter Hatful, then the Deputy Chief Executive Officer of Whittakers to Mr McLaren.

10 During the period April 1997 to September 1997 there were discussions between Mr K H Wong, Mr Michael Wong and Mr McLaren about the possible transfer of the banking facilities of Whittakers Ltd from the Hong Kong and Shanghai Banking Corporation to the defendant. These discussions included discussions regarding Whittakers Ltd's existing banking arrangements. Mr K H Wong says that he told Mr McLaren, in the course of those discussions, the banking arrangements included a 1996 irrevocable letter of credit in favour of the Hong Kong and Shanghai Bank. Mr K H Wong said that he told Mr McLaren that the 1996 irrevocable letter of credit was a standby security that he had organised due to Kingwest Investment's substantial shareholding in Whittakers Ltd. Mr K H Wong said that a similar irrevocable letter of credit in favour of the defendant could be arranged but his preference was that the requirement for an irrevocable letter to be either removed or reduced. Mr K H Wong says that Mr McLaren subsequently told him that the defendant wished to be provided with an irrevocable letter of credit on terms similar to the existing letter of credit in favour of the Hong Kong and Shanghai Bank whose office was in Sydney.

11 By a letter dated 22 August 1997 addressed to the Directors of Whittakers Ltd the defendant stated that one of the requirements for it to provide financial accommodation to Whittakers Ltd would be the provision of an unconditional irrevocable standby letter of credit for $5 million to be issued in favour of the defendant. The letter also stated that it would require Whittakers Ltd to enter into a registered mortgage debenture over the assets and undertaking of Whittakers Ltd in favour of the defendant. Mr K H Wong says that this letter came to his attention.

12 There was an issue in trial as to whether during the discussions at any of the meetings between the two Mr Wongs and Mr McLaren, Mr K H Wong told Mr McLaren that the plaintiff would arrange for the issue of the irrevocable letter of credit. Mr K H Wong says that he said no more than that he would arrange for the issue of the irrevocable letter of credit. Mr Michael Wong's recollection was that Mr K H Wong had said that the plaintiff would arrange for the issue of the irrevocable letter of credit. I prefer the evidence of Mr K H Wong. Mr Michael Wong said that his memory has been adversely affected by an accident he had suffered. I find, therefore, that there was no reference during the discussions with Mr McLaren to the fact that the letter of credit would be arranged by the plaintiff. Mr K H Wong also said in cross-examination that he knew of no written communication between the plaintiff and the defendant taking place prior to 29 May 1999.

13 Mr K H Wong says that on his direction the Hong Kong and Shanghai Bank in Singapore prepared an application for a new irrevocable letter of credit which was then signed by him and submitted on behalf of the plaintiff.

14 The plaintiff entered into a deed dated 23 September 1997 with the Hong Kong and Shanghai Banking Corporation Ltd, Singapore, whereby it undertook in consideration of the Hong Kong and Shanghai Bank in Singapore providing the irrevocable letter of credit in favour of the defendant in the sum of $5 million to indemnify the bank in respect of any loss arising from the issue of the irrevocable letter of credit.

15 On 24 September 1997 the Hong Kong and Shanghai Bank in Singapore issued to the defendant a documentary letter of credit. The material terms of the letter of credit were as follows. The form of the documentary credit was described as "irrevocable". The date of issue was 24 September 1997. The date of expiry was 30 September 1998 and the place of expiry was Singapore. The applicant was described as "Ideas Plus Investments Ltd, c/o 111 Northbridge Road, HEXO7-19 Peninsular Plaza, Singapore 179098". The beneficiary is described as the "National Australia Bank Ltd International Service Centre WA, Perth, Western Australia". The maximum credit amount is AUS$5 million. The letter of credit contains the following provision:

"Additional conditions:

At the request of Ideas Plus Investments Ltd c/o 111 Northbridge Road, HEXO7-19 Peninsular Plaza, Singapore 179098, we hereby issue this irrevocable standby letter of credit number SDCOCB709676 in your favour to secure general banking facilities extended by yourselves to Whittakers Ltd. This credit is available upon presentation of your drafts at sight drawn on the Hong Kong and Shanghai Banking Corporation Ltd, Singapore bearing the clause:

'Drawn under the Hong Kong and Shanghai Banking Corporation Ltd, Singapore standby letter of credit number SDCOCB709676 dated 24 September 1997 up to an aggregate amount of AUS$5 Million accompanied by your signed statement stating amount claimed and certifying that:

(A) The amount drawn hereunder represents and covers the unpaid indebtedness and interest thereon due to you arising out of your extending general banking facilities to Whittakers Ltd, 14-16 Resolution Drive, Belmont WA 6104.

(B) You have demanded payment of the amount owed by Whittakers Ltd and payment has not been made as demanded.

Partial drawings are allowed provided that total of all drawings do not in aggregate exceed the amount of this standby letter of credit.'

This irrevocable standby letter of credit will only become operative upon facilities currently extended by Hong Kong Bank of Australia Ltd, Perth to Whittakers Ltd being paid out and upon the issuing bank receiving confirmation by tested from Hong Kong Bank of Australia Ltd, Perth of this cancellation of our standby letter of credit number SDCOCB512826 issued in their favour. Upon receipt of such confirmation we will telex advise you accordingly. This letter of credit shall expire on 30 September 1998 at our counter."

16 Once the 1997 irrevocable letter of credit was issued the defendant advanced funds to pay the Whittakers Ltd's debt due to the Hong Kong and Shanghai Bank in Australia and the 1996 irrevocable letter of credit which had been issued in favour of that bank was duly cancelled.

17 On 25 September 1997 Whittakers Ltd entered into a debenture deed pursuant to which Whittakers Ltd granted a fixed and floating charge over the land which it owned and other assets in favour of the defendant. The debenture deed was entered into as security for the repayment of the facilities provided by the defendant to Whittakers Ltd.

18 The irrevocable letter of credit issued to the defendant was due to expire on 30 September 1998. On 9 September 1998 the plaintiff made an application to the Hong Kong and Shanghai Bank of Singapore to amend the existing letter of credit.

19 By a telex dated 9 September 1998 to the defendant, the Hong Kong and Shanghai Bank in Singapore proposed the following changes to the existing letter of credit:

"Amendment Narrative

ADDITIONAL CONDITIONS

DELETE:

(A) THE AMOUNT DRAWN HEREUNDER REPRESENTS AND COVERS THE UNPAID INDEBTEDNESS AND INTEREST THEREON DUE TO YOU ARISING OUT OF YOUR EXTENDING GENERAL BANKING FACILITIES TO WHITTAKERS LIMITED, 14-16 RESOLUTION DRIVE, BELMONT WA 6104.

(B) YOU HAVE DEMANDED PAYMENT OF THE AMOUNT OWNED BY WHITTAKERS LIMITED AND PAYMENT HAS NOT BEEN MADE AS DEMANDED.

INSERT:

(A) YOU HAVE TAKEN NECESSARY STEPS TO ENFORCE YOUR RIGHTS UNDER THE DEBENTURE(S) EXECUTED BY WHITTAKERS LIMITED IN YOUR FAVOUR.

(B) THE AMOUNT DRAWN HEREUNDER REPRESENTS AND COVERS THE UNPAID INDEBTEDNESS DUE TO YOU ARISING OUT OF YOUR EXTENDING GENERAL BANKING FACILITIES TO WHITTAKERS LIMITED, 88 COLIN STREET, WEST PERTH, WESTERN AUSTRALIA 6005.

(C) YOU HAVE DEMANDED PAYMENT OF THE AMOUNT OWED BY WHITTAKERS LIMITED AND THE SHORTFALL IN PAYMENT AFTER YOUR CLAIM ON THE DEBENTURES AS STIPULATED ABOVE HAS NOT BEEN MADE AS DEMANDED.

Sender to Receiver Information

THIS IS AN OPERATIVE AMENDMENT AND NO MAIL CONFIRMATION WILL FOLLOW"

20 On 10 September 1998 the International Service Centre of the defendant in Western Australia advised Mr McLaren of the acceptance by the defendant of the proposed amendments to the letter of credit.

21 On 30 September 1998 the defendant received from the Hong Kong and Shanghai Bank in Singapore a request to make further amendments to the letter of credit. Materially, the request proposed the following amendments to the irrevocable letter of credit:

(A) You have taken necessary steps to enforce your rights under the debenture(s) executed by Whittakers in your favour.

(B) The amount drawn hereunder represents and covers the unpaid indebtedness due to you arising out of your extending general banking facilities to Whittakers Limited, 88 Colin Street, West Perth, Western Australia 6005.

(C) You have demanded payment of the amount by Whittakers Limited and the shortfall in payment after your claim on the debentures as stipulated above has not been made as demanded.

(A) You have taken all necessary and available steps including issuing and proper prosecution of proceedings in the appropriate courts in Western Australia and elsewhere to enforce your rights under the debenture or debentures executed by Whittakers Limited in your favour up to and including the liquidation of that company.

(B) The amount drawn hereunder represents and covers the unpaid indebtedness due to you arising out of your extending general banking facilities to Whittakers Limited, 88 Colin Street, West Perth Western Australia 6005 following the conclusion or finalisation of the liquidation of that company.

(C) You have demanded payment of the amount owed by Whittakers Limited or of any duly appointed receiver or liquidator thereof and the shortfall in payment after your claim on the debentures as stipulated above has not been made as demanded.

(D) There is no change in the present management of Whittakers Ltd, Perth since 01 July 1998.

This credit is only available to the present management of Whittakers Limited, Perth. In the event of any change in management, prior consent in writing/tested telex to be sought from the issuing bank."

22 In October 1998 Mr K H Wong resigned from the Board of Whittakers Ltd. In about March 1999 KPMG was appointed by the defendant to investigate the financial position of Whittakers Ltd and to report to the defendant on the defendant's security position in relation to Whittakers Ltd.

23 On 16 April 1999 Mr Barry Honey, of KPMG, wrote to Mr David Watts and Mr Clyde Evans of the defendant reporting on the defendant's security position. Mr Honey assessed the position from the point of view of a book value, an optimistic scenario and a pessimistic fire sale scenario. Mr Honey reported as follows:

"Whittakers Limited and subsidiaries. Statement of estimated security value as at 9 April 1999

24 At this time, Mr David Watts was giving consideration to whether he should call upon the letter of credit as part of the realisation of the defendant's securities. Mr Watts had been advised by KPMG that the pessimistic scenario was the most realistic scenario on which to proceed. After 16 April 1999 Mr Watts proceeded on the basis that it was likely Whittakers Ltd's property was insufficient to satisfy Whittakers Ltd's debt to the defendant and that the defendant was going to have to call upon the irrevocable letter of credit.

25 On 23 April 1999 Mr Watts received legal advice on the construction of the terms of the letter of credit from Ms Dinny Laurence an in-house counsel with the defendant. The advice was that there were two possible ways of construing the irrevocable letter of credit. One of the ways was that par (a) of the letter of credit should be interpreted as requiring that the bank appoint a receiver and manager under the debenture and that the receiver and manager has concluded the getting in and realisation of the assets pursuant to his mandate. The other way of construing the letter of credit conditions was that it imposed an obligation to make a demand under the debenture but did not go so far as to require that the receiver and manager must have been appointed and have realised all of the assets before the letter of credit could be called upon. Mr Watts at that time also became aware of the fact that the Hong Kong and Shanghai Bank had sought to propose further amendments to the letter of credit in the form which I have referred to above and that the defendant had rejected those amendments.

26 On 4 May 1999 Mr Honey of KPMG provided a further assessment of the security position of the NAB in relation to the assets of Whittakers Ltd. This indicated deterioration in the defendant's security position.

27 On 6 May 1999 the defendant issued a demand under the registered mortgage debenture for the payment of $9,950,075.95. No payment was made in response to the demand. On 11 May 1999 Mr Watts caused the defendant to appoint Mr Barry Honey and Mr Colin Nicholl to be receivers and managers over the property of Whittakers Ltd, the subject of the registered debenture charge.

28 On 18 and 19 May 1999 Mr Watts sought and obtained advice from the law firm, Minter Ellison, in relation to the construction of the conditions in the letter of credit.

29 The advice that Mr Watts received was that whilst the irrevocable letter of credit was possibly ambiguous, the most likely commercial construction of it strongly favoured the conclusion that it was more likely that the receivers did not have to first realise the property of Whittakers Ltd prior to the defendant calling upon the irrevocable letter of credit.

30 On 21 May 1999, the defendant issued a further notice of demand to Whittakers Ltd. This notice of demand advised Whittakers Ltd that it had failed to meet the earlier demands and that the defendant had taken steps to enforce the defendant's rights under its securities and had appointed Receivers and Managers to Whittakers Ltd. The defendant demanded payment of the amount of $11,063,836 which included the amounts owing following the defendant taking steps to enforce its securities.

31 No payment was made by Whittakers Ltd in response to the demand.

32 On 29 May 1999 the defendant issued a certificate advising the Hong Kong and Shanghai Bank in Singapore that the conditions of the irrevocable letter of credit had been met and called upon the Hong Kong and Shanghai Bank in Singapore to honour the irrevocable letter of credit.

33 The Hong Kong and Shanghai Bank in Singapore honoured the letter of credit and paid the defendant the $5 million.

34 In turn, the Hong Kong and Shanghai Bank in Singapore debited the plaintiff's account with it in the sum of $5 million and advised it to that effect by a letter dated 4 June 1999.

35 The further re-amended statement of claim sets out the basis of the plaintiff's claim. The statement of claim relied upon three causes of action. The first cause of action relied upon is breach of contract, the second cause of action is for damages under s 82 of the Trade Practices Act, or compensation or other orders under s 87 of the Trade Practices Act arising from a breach of s 52 of the Trade Practices Act, and the third cause of action is for the same relief but arising from unconscionable conduct and conduct in breach of s 51AA of the Trade Practices Act (Cth).

36 The claim for breach of contract is based upon a contract alleged to have arisen between the plaintiff and the defendant directly. It is alleged that the contract arose by conversations at meetings during 1997 concluding with a meeting on 11 September 1997, between Mr K H Wong and Mr M S Wong with Mr McLaren, on behalf of the defendant, and by a letter to Whittakers Ltd dated 22 August 1997.

37 It is pleaded that Mr McLaren on behalf of the defendant proposed that the defendant take over from Hong Kong Bank of Australia Ltd the provision of banking facilities to Whittakers Ltd and that the defendant should be provided with the same security as Whittakers Ltd's existing banker, namely an irrevocable letter of credit to a limit of $5 million to be procured by the plaintiff from its banker the Hong Kong Shanghai Banking Corporation Ltd in Singapore and a charge over the assets of Whittakers Ltd.

38 It is then pleaded that the proposal was accepted by Mr K H Wong on behalf of Whittakers Ltd and Mr K H Wong and Mr M S Wong on behalf of the plaintiff at the meeting with Mr McLaren on 11 September 1997; and K H and M S Wong on behalf of the plaintiff then undertook to procure the letter of credit requested by Mr McLaren on behalf of the defendant from the plaintiff's banker.

39 It is pleaded that the contract, which I take to mean a contract whereby the plaintiff at the request of the defendant undertook to procure the letter of credit, (which is called the support contract), contained two implied terms. These terms are pleaded at pars 3(5) and 3(6) of the statement of claim. At par 3(5) it is pleaded:

"It was an implied term of the support contract, implied in law by reason of the relationship of the parties and/or in fact to give business efficacy thereto, that the defendant would not demand payment from the Hong Kong Shanghai Bank under the letter of credit unless any conditions which the defendant was required by the letter of credit to certify as having been met, had in fact been met."

At par 3(6) of the statement of claim it is pleaded that:

"It was a further term of the support contract, implied in law generally or by reason of the relationship of the parties, that the defendant would not exercise its right to demand payment from the Hong Kong Shanghai Bank under the letter of credit except in good faith and reasonably having regard to the interest of the parties."

40 At par 7(2) of the statement of claim the plaintiff then pleads that on its proper construction the letter of credit, as amended, provided that the defendant would not be entitled to draw down on it unless:

"(a) it had made demand upon Whittakers for the repayment of the unpaid loans made by the defendant to Whittakers;

(b) it had taken all steps necessary under the charge to sell the charged property; and

(c) the amount drawn down under the letter of credit represented the shortfall between the amount so demanded and the amount recovered after the exercise of its rights under the charge, including the sum realised after a sale of the charged property in the exercise of such rights."

41 The reference to the charge is a reference to the debenture which was entered into by Whittakers Ltd on 25 September 1997.

42 It is pleaded that on 28 May 1999 the defendant claimed under the letter of credit, as amended, the sum of $5 million and provided a certificate to the Hong Kong Shanghai Bank representing that the conditions of payment under the letter of credit, as amended, had been met. It is then said that in reliance on the representation that the conditions justifying payment had been met, Hong Kong and Shanghai Bank paid the sum of $5 million to the defendant and deducted from the plaintiff's account with the Hong Kong and Shanghai Bank, pursuant to its right of indemnity under the counter indemnity executed by the plaintiff, the sum of $5 million.

43 The plaintiff then pleads that the conditions justifying the payment under the letter of credit had not in fact been met because:

"(a) the defendant had not taken all steps necessary under the charge to sell the charged property so as to arrive at a shortfall between the unpaid loans and the amount realised by such sale;

(b) nor had it taken all (or any) steps necessary to enforce its rights under the charge other than to appoint receivers and managers."

44 It pleads that by reason of issuing the certificate the defendant had breached the implied term of the support agreement which is pleaded at par 3(5) of the statement of claim.

45 The plaintiff also alleges that the defendant breached the other implied term of the support agreement which is pleaded at par 3(6) of the statement of claim, namely, that in making the demand and issuing the certificate which said that the conditions had been met when the conditions had not been met, the plaintiff failed to act in good faith and reasonably, having regard to the interests of the plaintiff.

46 In support of this allegation the plaintiff says that the demand was made and the certificate issued in circumstances where it had proceeded without notice to the plaintiff, and notwithstanding:

"(a) written advice from its in-house counsel Ms Laurence dated 23 April 1999 in effect that whilst the meaning of the letter of credit was not clear there was a strong case for the construction accorded it by the plaintiff;

(b) written advice from its solicitors Minter Ellison by letter dated 18 May 1999 in effect that a reasonable construction of the letter of credit was that pleaded in paragraph 7(2) above;

(c) the opinion expressed by its officer Mr Watts dated 18 May 1999 in effect that if the defendant so proceeded it may expose the defendant to an action for damages by the Plaintiff for not proceeding strictly in accordance with the letter of credit and that the opinion of a Queen's Counsel should be sought;

(d) further advice from its solicitors Minter Ellison by letter dated 19 May 1999 in reply to Mr Watt's opinion, in effect that if the defendant forthwith claimed on the letter of credit and the Hong Kong Shanghai Bank paid out on it in the event that it was found upon a proper construction of the letter of credit that the defendant was not entitled to do so (ie because the assets of Whittakers had not been realised), then it would be Hong Kong and Shanghai Bank which would be liable to the plaintiff and not the defendant. The defendant [sic] also included the name of a suitable Queen's Counsel to give an opinion;

(e) the defendant did not obtain a Queen's Counsel's opinion as to the proper construction of the letter of credit."

47 The plaintiff's claim for misleading or deceptive conduct is founded upon the allegation that prior to issuing the certificate the defendant had not taken all steps necessary to arrive at a shortfall between the unpaid loans and the amount realised by such sale and had taken no steps to enforce its rights under the charge, other than to appoint receivers and managers. It is said that the representation in the certificate issued by the defendant was accordingly false and the Hong Kong and Shanghai Bank in Singapore had relied upon the misrepresentation in making payment to the defendant under the letter of credit. This caused loss to the plaintiff

48 It is said that the conduct of the defendant was unconscionable because when it issued the certificate and made demand under the letter of credit and prior to the receipt of the funds under the letter of credit the defendant knew that it had not satisfied the conditions of draw down and, alternatively, the defendant knew from the advice of its solicitors and in-house counsel that:

"1. It was doubtful whether under the terms of the letter of credit as amended the mere appointment of receivers and managers was of itself self-sufficient to give a right to claim payment from the Hong Kong and Shanghai Bank but so proceeded without prior notice to the plaintiff and otherwise in the circumstances which are referred to in support of its claim that the defendant breached the term of the supply contract repeated at 3(6) of the Statement of Claim.

2. The defendant knew that if it drew down against the letter of credit that would cause the plaintiff to suffer loss as it had to provide funds to its Bank to cover the letter of credit.

3. The plaintiff was in a position of special disadvantage viz a viz the defendant in that the plaintiff had lodged funds with its Bank to procure the issue of the letter of credit, and was powerless to prevent the Bank from meeting the defendant's demand for payment under the letter of credit, notwithstanding that the condition of draw down had not been met."

49 In its defence, the defendant denies the existence of the "supply contract". The defendant also denies that there was any contractual relationship at all between the plaintiff and the defendant. It admits that it did not take all necessary steps under the charge to sell off the charged property but says that it was not necessary to do so in order to comply with the conditions set out in the amended letter of credit. It denies that the construction of the letter of credit contended for by the plaintiff is correct; and it says that on its construction it was only necessary to make demand under the debenture and take some steps to enforce its rights under the debenture. It denies that by claiming the money and issuing the certificate it engaged in misleading or deceptive conduct. It denies the certificate was misleading or false and says that it had reasonable grounds for issuing the certificate. Further, it says that there was no reliance by the Hong Kong and Shanghai Bank because the bank was not concerned with the underlying truth of the certificate, it being under an obligation only to ensure that the certificate it received complied with the terms of the letter of credit. The defendant also denies that it engaged in unconscionable conduct in breach of the Trade Practices Act.

50 At the trial the plaintiff applied to amend the statement of claim so as to introduce two new causes of action. The first amendment which was moved by Mr McCusker QC on behalf of the plaintiff, and not opposed by Mr Martin QC on behalf of the defendant, was to insert as a further par 13A, the following words:

"By reason of the facts pleaded, the defendant has been unjustly enriched at the expense of the plaintiff."

51 I granted the plaintiff leave to make that amendment.

52 In addition, Mr McCusker QC also moved for the following amendment to be made to par 12(1) by substituting the use of the word "or" for "and" and adding the following words to the end of the paragraph: "and s 10(1) of the Fair Trading Act (WA)" so that, after amendment, cl 12(1) of the Statement of claim read:

"12. The making of the representation constituted conduct which was:

(1) misleading or deceptive in breach of s 52 of the Trade Practices Act and of s 10(1) of the Fair Trading Act (WA)."

53 This amendment to include a cause of action under Fair Trading Act (WA) was made in response to a query that I raised as to whether the plaintiff was required to obtain the written consent of the Attorney General under the provisions of s 5(3) of the Trade Practices Act. The amendment was not opposed by the defendant. I granted the plaintiff leave to make the amendment.

54 It was common cause at the trial that each of the plaintiff's causes of action was founded upon the assumption that the plaintiff was correct in its construction of the amended letter of credit which it pleaded in par 7(2) of the statement of claim.

55 Mr McCusker QC argued that the proper construction of the irrevocable letter of credit should be considered by reference to the surrounding circumstances which prevailed at the time of issue of the second letter of credit. Mr McCusker QC says that the facts known to both parties were that:

(a) the defendant sought to take over the provision of banking services to Whittakers but would only do so if Whittakers gave a charge over its assets and undertaking in favour of the defendant; and procured a letter of credit in the sum of $5 million

(b) the 1997 first letter of credit only required that the defendant make demand and that the defendant not be paid, as a condition to Hong Kong and Shanghai Bank being called upon under the letter of credit;

(c) the 1998 irrevocable letter of credit referred in addition to the need for the defendant to have "taken necessary steps to enforce its rights under the charge" and also referred to "a shortfall in payment after your claim on the debenture".

56 Mr McCusker QC then says that emphasis should be placed on the requirement in the second irrevocable letter of credit (ie the 1998 letter of credit) to take necessary steps to enforce the plaintiff's rights under the debenture and the use of the words "shortfall in payment". He argues that the second irrevocable letter of credit is to be construed as requiring the plaintiff to exhaust all its rights under the debenture before it is entitled to call upon the irrevocable letter of credit. He says that the construction contended for by the plaintiff, namely that he plaintiff must take some necessary steps to enforce its rights under the debenture short of exhausting its rights, would mean that for all practical purposes, the 1998 amendments made no material change at all when compared with the previous version of the irrevocable letter of credit. On the proper construction of the letter of credit more needs to be done than simply to make demand and appoint receivers. He argues that the letter of credit must be read as requiring more than the appointment of receivers because it is only after the sale by the receivers of Whittakers Ltd assets that a shortfall can be generated and meaning be given to the reference to "shortfall" in the clause. Mr McCusker QC also argued that the use of word "rights" plural and not "right" singular in the clause "you have taken necessary steps to enforce your rights under the debenture" connotes that all rights the defendant has under the debenture must be enforced before the irrevocable letter of credit can be called.

57 Mr McCusker QC also relied upon the case Punjab National Bank v de Boinville [1992] WLR 1138 to support his argument that in construing the second irrevocable letter of credit the court could have regard to the fact that the second irrevocable letter of credit was the product of amendments which had been introduced into the 1997 irrevocable letter of credit.

58 Mr McCusker QC also argued that a standby by letter of credit shares many of the attributes of a performance guarantee or an indemnity and that similar principle of construction as apply to construing those kinds of agreements to the construction of the irrevocable letter of credit. Thus, he says, that the irrevocable letter of credit is to be strictly construed and that any ambiguities are to be resolved in favour of the indemnifier (in this case the plaintiff). Mr McCusker QC relied upon dicta in the case of Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 206 ALR 387 at 392 - 396.

59 Mr Martin QC argued that in construing the second irrevocable letter of credit I should take into account the correspondence between the Hong Kong and Shanghai Bank in Singapore and the defendant which occurred at the end of September when the Hong Kong and Shanghai Bank in Singapore sought to introduce amendments to the second irrevocable letter of credit and the defendant rejected the proposed amendments. Mr Martin QC relied on the following dicta from Mason CJ in the case of Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352:

"There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances. See Heimann (1938) 38 SR (NSW) at 695."

60 In response to Mr McCusker QC's arguments, on the question of construction, Mr Martin QC says that the irrevocable letter of credit cannot be construed as requiring an exhaustion of the rights of the defendant under the debenture because that construction would effectively require a court to read words into the irrevocable letter of credit in circumstances where the addition of those words are not warranted. The construction contended for by the defendant is open on the words used in the letter and affords a workable construction. The construction contended for by the defendant does not lead to absurd results and there is no warrant for, in effect, reading words into the document that are not there.

61 Firstly, Mr Martin QC argues that the letter of credit only requires that the defendant take "necessary steps to enforce its rights under the debenture". He emphasises the absence of the word "all" before the words "necessary steps". He says that Mr McCusker QC's argument proceeds on the basis that the word "all" is there when its not. There is no warrant for inserting the word "all" in construing the clause because the can be given a workable meaning in the absence of the insertion of the word "all".

62 Secondly, Mr Martin QC argued that the reference to "shortfall" in the irrevocable letter of credit must be considered in its full context. Mr Martin QC concentrated on the fact that the clause did not refer to a shortfall in the amount owed after the realisation of other assets, but to a shortfall in payment "after your claim under the debentures as stipulated above has not been paid as demanded". The reference to a "shortfall in payment" after your claim under the debentures was not met as demanded was, he said, more aptly construed as a reference back the shortfall in payment following the claim for the outstanding monies made in the demand made under the debenture. This construction he argued was more in harmony with the words actually used in the document and did not require any words to be read into the document.

63 Thirdly, Mr Martin QC argues that he construction contended for by the plaintiff should be rejected because it is inconsistent with the commercial object of an irrevocable letter of credit. He argued that the time that it would take for a receiver to be appointed and for the receiver to realise the assets and then derive a shortfall figure form the amount owed was so long, that an irrevocable letter of credit such as this (which was for a term of 12 months) would effectively be deprived of its commercial utility as a readily realisable security. Mr Martin QC relied on the following dictum from Owen J in the case of Bateman Project Engineering Pty Ltd & Ors v Resolute Ltd [2000] WASC 284; (2001) 23 WAR 493 at 510. At [63] he said:

"There is another factor. In some other cases the undertaking was open-ended in a temporal sense. That is not the case here. It is an undertaking for a fixed time. It is unlikely that the parties would have contemplated that the parties could, by raising disputes, cause the benefit of the guarantee to be lost to one of them simply by effluxion of time.

[64] Looked at in this way, it seems to me to be a strong pointer that the presumed intention of the parties was, to adapt the language used in Fletcher Construction, to allocate to the plaintiffs the risk of being out of pocket pending resolution of the dispute."

Principles to be applied in construing the letter of credit

64 I cannot accept Mr McCusker QC's argument that the letter of credit must be construed contra proferentem the defendant. The Andar case (supra) was not a case which involved an irrevocable letter of credit. The dicta from the High Court which Mr McCusker QC relied upon were spoken in relation to an indemnity agreement. I accept Mr Martin QC's argument that there are differences between an indemnity agreement and an irrevocable letter of credit which is really to be regarded as sui generis, and that it was therefore inappropriate to apply principles by analogy. Accordingly, in approaching the construction of the irrevocable letter of credit I am to construe the terms of the letter in accordance with the ordinary rules on construing commercial agreements without adopting a contra proferentem approach to either party.

65 The position in relation to surrounding circumstances was stated thus in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra) per Mason J (as he then was) at 352:

"Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."

66 I accept the argument of Mr McCusker QC that in construing the second irrevocable letter of credit the court should take into account as part of the surrounding circumstances, that the second letter of credit was the product of amendments.

67 I accept Mr Martin QC's argument that the surrounding circumstances include the commercial setting known to both parties. However, I have doubts as to how far one can take Mr Martin QC's "temporal element" argument because there was no evidence that Hong Kong and Shanghai Bank in Singapore would be familiar with the time that it would take to complete a receivership in Australia and so generate the shortfall following the realisation of assets, that Mr McCusker QC argues is a necessary element in the proper construction of the clause. However, in my view, one can take into account as part of the surrounding circumstances that it would have been notorious to both the defendant and the Hong Kong and Shanghai Bank in Singapore that a commercial object of the an irrevocable letter of credit is that it has the capability of being readily realisable.

68 I do not accept, however, Mr Martin QC's argument that the court can take into account for the purpose of construing the irrevocable letter of credit the failed attempt by the Hong Kong and Shanghai Bank to amend the irrevocable letter of credit at the end of September 1998. In my view the dictum of Mason J in Codelfa (supra) on which Mr Martin QC relied, has no application to this situation because it is common cause that the terms of the second irrevocable letter of credit had already been agreed when the proposals for amendment of the second irrevocable letter of credit were proffered by the Hong Kong and Shanghai Bank. In those circumstances it seems to me that the proposals for the amendments constitute subsequent conduct by the Hong Kong and Shanghai Bank which I am not able to take into account in for the purposes of construing the words of the second irrevocable letter of credit.

69 In construing the irrevocable letter of credit, the court must seek to determine the intention of the parties, in this case, in the context of the surrounding circumstances I have referred to above. However, in determining the contractual intention of the parties the court does not have regard to the subjective intention of the parties but looks at the position objectively having regard to the language which the parties have actually used.

70 The court seeks to give effect to the natural and ordinary meaning to the words that the parties have actually used. In the case of Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Barwick CJ said:

"It may be granted that the computation of the amount of the annual figure according to the expressly stated formula in cl 2 may produce results which may not commend themselves to a person seeking to achieve an actual or even approximately constant value of the licence fee. But if that result is produced by the application of the words in which the parties have expressed themselves, it is no part of the function of a court by some process of divination as distinct from construction of the language employed to attribute to parties an intention to do something for which their express words do not provide. In that connexion, we were properly referred to Shore v Wilson (1842) 9 Cl & F 355 at pp 525-526 per Coleridge J; Cohen & Co v Ockerby & Co Ltd [1917] HCA 58; (1917) 24 CLR 288 at pp 299-300, per Isaacs J; Reid v Coggans [1944] AC 91 at p 98 per Lord Russell of Killowen and per Lord Macmillan at p 102; Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 at pp 173-174, 177 per Lord Reid."

71 However, it is recognised that if the words actually used by the parties used lead to a construction which leads to absurd results then the then contract should be construed so as to avoid the absurdity. In the case of Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 24 the New South Wales Court of Appeal approved at [19] the following dictum from Windeyer J at first instance in that case:

"The question is whether these words lead to an absurd situation ... If they do then they should be construed so as to avoid the absurdity by supplying omitting or correcting words."

"Returning to Windeyer J's line of reasoning, he went on to cite authority to the effect that the mere unreasonableness of itself is not enough to justify application of the absurdity rule. Again, we agree with him that the authorities justify this distinction."

72 In my view the construction to be preferred is the construction contended for by the defendant. That construction produces a workable result. The construction does not rely upon the notional insertion of words into the irrevocable letter of credit. It does not produce an absurd result such as would justify the inclusion of the word "all" before "necessary" and the notional modification of the language of the clause in order to accommodate the notion of an exhaustion of rights so as to generate a shortfall in the total amount due by Whittakers Ltd to the defendant. A perusal of the plaintiff's construction of the irrevocable letter of credit as pleaded in par 7(2) of the statement of claim demonstrates the considerable extent to which there would have to be a notional modification to the language actually used in the letter of credit, to accommodate the construction contended for by the plaintiff.

73 I reject Mr McCusker QC's argument that the use of the word "rights" instead of "right" in cl (A) of the 1998 irrevocable letter of credit can have the dramatic effect on the construction of the irrevocable letter of credit for which he contends. In my view the irrevocable letter of credit recognises that there are a number of rights that the defendant may have under the debenture, and that there are a number of necessary steps that are required to be taken enforce those rights. The clause requires that the defendant take one or more steps to enforce one of more of its rights. It does not stipulate that the defendant must take all necessary steps to enforce all of its rights.

74 Further, the defendant's construction does give meaning to the amendments. It requires that the defendant first have resort to the debenture, in that, it requires that the defendant take some enforcement steps under the debenture including at the least making a demand thereunder, which may or may not result in the debt from Whittakers Ltd to the defendant being paid or reduced. The defendant's construction in my view provides for a middle road between the position under the 1997 letter of credit (where there is no requirement to first resort to the debenture) and the position under the plaintiff's construction. Under the construction contended for by the defendant there is resort to the debenture (with the prospect that the debt may thereby be paid or reduced) and the commercial utility of the letter of credit as a readily realisable security is maintained. On the other hand, under the position contended for by the plaintiff, there is resort to the debenture but the commercial characteristic of a letter of credit as a readily realisable security is substantially undermined.

75 However, in the event that I am wrong in my construction of the irrevocable letter of credit I will deal briefly with each of the arguments advanced by the plaintiff in respect of the causes of action advanced by it.

76 Firstly, I would not have found that there was any "support contract" in the terms pleaded by the plaintiff. I have already found that Mr K H Wong did not advise Mr McLaren of the defendant that the plaintiff would be involved with the procurement of the letter of credit - all Mr K H Wong said was that he would arrange its procurement. There was no stipulation by Mr K H Wong that the plaintiff would require any special undertakings from the defendant as how it would exercise its rights under the letter of credit. In those circumstances, therefore, if the plaintiff's contention was right, on every occasion in which a lender/beneficiary required the procurement of a letter of credit there would arise by implication a contract between the lender/beneficiary and the person who happens to procure the issue of the irrevocable letter of credit, affecting the way that the lender/beneficiary would exercise its rights under the irrevocable letter of credit. I was not referred to any authority in support of that proposition. In my view, position contended for by the plaintiff would be inimical to the preservation of the certainty in the law in relation to commercial letters of credit. I accordingly would have rejected the plaintiff's argument in respect of that cause of action.

77 I now turn to the plaintiff's case in relation to misleading or deceptive conduct. The plaintiff alleges that the defendant engaged in misleading or deceptive conduct by stating that the conditions for the permitting the call of the irrevocable letter of credit had been fulfilled when they had not been. This conduct, it is said, misled the officials of the Hong Kong and Shanghai Bank in Singapore and that resulted in the Hong Kong and Shanghai Bank paying the defendant and calling upon the plaintiff under its counter indemnity, so causing the plaintiff's loss.

78 I do not accept the argument that the defendant's conduct would have been was misleading or deceptive if I had come to the view that the plaintiff's construction of the irrevocable letter of credit was the correct construction. In my view, by reason of the necessity for the defendant to first construe the meaning of the letter of credit, the proper characterisation of the representation implicit in issue of the certificate by the defendant was an implied representation that it had reasonable grounds for issuing the certificate. In my view, the defendant did have reasonable grounds for issuing the certificate, having taken legal advice and advice on its security position from Mr Honey. In my view, therefore, even if I were wrong on the construction of the irrevocable letter of credit, I would not have found that the issue of the certificate constituted misleading or deceptive conduct.

79 Thirdly, I would have rejected the argument that the plaintiff is able to claim restitution on the basis that defendant has been unjustly enriched at the expense of the plaintiff. As I understood his argument, Mr McCusker QC relied upon the existence of a general principle of unjust enrichment and, in any event, sought to characterise the claim made the plaintiff as falling within the category of total failure of consideration. He referred in particular to the case of Roxborough & Ors v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516

80 In support of the general principle argument Mr McCusker QC said the following were the essential elements of the claim: the defendant must be enriched; the enrichment must be unjust and the enrichment must be at the expense or cost of the defendant. He called in aid the reference by Kirby J in the Roxborough case to effect that "a successful restitutionary claim requires proof of (1) enrichment of the defendant; (2) gained at the plaintiff's expense; (3) as a result of an unjust factor; (4) in the absence of a recognised defence" (see footnote 257 on page 568). However, in the same case, Gummow J at 544 said:

"Considerations such as these, together with practical experience, suggest caution in judicial acceptance of any all-embracing theory of restitutionary rights and remedies founded upon a notion of 'unjust enrichment'. To the lawyer whose mind has been moulded by civilian influences, the theory may come first, and the source of the theory may be the writing of jurists not the decisions of judges. However, that is not the way in which a system based on case law develops; over time, general principle is derived from judicial decisions upon particular instances, not the other way around."

81 In my view, the reference to these elements by Kirby J must be read in the light of those comments by Gummow J and his comments at 545 where he refers to unjust enrichment as "a concept rather than a definitive legal principle". It is therefore in my view still necessary to bring a claim for money and received within traditional categories.

82 I now deal briefly with Mr McCusker QC's argument that the circumstances of this case fall within the traditional category of total future of consideration. Generally the restitutionary remedy for money had and received is applied where the party seeking the remedy is the party who has paid money to the defendant or has provided services to defendant, and it is that party who seeks a remedy in respect of the enrichment thereby derived by the defendant. (see Commissioner of State Revenue (Vict) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51 at 75). Here the payment that was made to the defendant was made by the Hong Kong and Shanghai Bank and not the plaintiff. The Hong Kong and Shanghai Bank has not challenged the making of the payment and has not sought restitution from the defendant. The payment which was made by the plaintiff was made to the Hong Kong and Shanghai Bank and not to the defendant. No authority was cited to me to support the basis for a claim in restitution by the plaintiff in these circumstances. Therefore, it would not have been open to me to uphold the plaintiff's restitutionary claim.

83 Finally, I would also not have been prepared to uphold the plaintiff's claim that the defendant acted unconscionably in calling the irrevocable letter of credit. Mr Watts was the officer of the defendant who authorised the calling of irrevocable letter of credit. I find that at the time that he made the decision to call on the irrevocable letter of credit he had received legal advice which recognised that there was some doubt in construction the letter of credit, but which favoured the view that the defendant could following the appointment of receivers call upon the irrevocable letter of credit, and that from advice that he received from Mr Honey, that he believed the defendant was facing a shortfall even after the letter of credit was called on. The case is to be distinguished from those cases where a party calls an irrevocable letter of credit in circumstances when the amount payable under the irrevocable letter of credit exceeds the debt that was due.

84 In my view there was nothing unconscionable the defendant acting in those circumstances to call the irrevocable letter of credit.

85 Further, the plaintiff was not under a "special disadvantage". It had entered into a commercial contract for which it had received good consideration in that the Hong Kong and Shanghai Bank in Singapore had issued the irrevocable letter of credit and the defendant had loaned the monies to Whittakers Ltd. The position the plaintiff was in was the ordinary commercial consequence of having procured the issue of the letter of credit (see Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 64 - 65).

86 Accordingly, for the reasons set out above, I would dismiss the plaintiff's action.