Kingswood Aluminium Pty Ltd v Watpac Construction

REASONS FOR JUDGMENT 1 This matter commenced on 22 December 2014. On that day, the applicant applied ex parte for an injunction against the respondent to restrain it from calling upon, or from taking any further steps to demand or obtain payment in respect of, two bank guarantees both dated 21 June 2013 issued by Australia and New Zealand Banking Group Ltd, and guaranteeing the applicant's potential liability to the respondent. 2 An interim injunction was granted on that date. Because of the proximity to the Christmas break, the period for operation of the ex parte interim injunction was somewhat longer than usual, namely 13 January 2015, and the order was to run until that date. Orders were made to ensure the prompt service of the application, and the respondent given leave to apply on short notice to discharge the injunction if necessary. 3 The interlocutory injunction was listed for hearing on 13 January 2015. 4 On that date, the respondent gave an undertaking by counsel to give not less than 14 days' notice in writing to the applicant of its intention to call upon either of the guarantees. On that basis the applicant appropriately did not seek an interlocutory injunction. The interim injunction lapsed on that date according to its terms. 5 On 13 January 2015, the respondent applied for an order for the costs of the application for an interlocutory injunction, including the hearing on 13 January 2015, to be the applicant's costs in any event. That application was opposed by the applicant, which urged that the costs of the injunction, including the hearing listed on 13 January 2015, be reserved, and be reconsidered in the light of the outcome of the substantive proceedings. 6 Directions were given for the exchange of submissions, the filing of such further affidavit evidence as the parties considered appropriate, and for determination of the issue as to costs on the papers. 7 This judgment deals with that issue. 8 The underlying circumstances, so far as they are not contentious, can be stated briefly. The respondent is the constructor of, or part of, the Ibis Hotel. It entered into a sub-contract with the applicant for the applicant to supply, install and glaze aluminium windows at the Ibis Hotel. There is a dispute as to whether the applicant has fully performed its contract, and is entitled to final payment including variations, or whether the applicant has not yet fully performed its contract, or by reason of its delay or defective performance, it is indebted to the respondent. 9 On 24 November 2014, the applicant served on the respondent a Payment claim for the balance of the contract sum and variations. In effect, that made a claim for final payment under the sub-contract. That led to a meeting between representatives of the applicant and the respondent, respectively Mr Millar, a director of the applicant, and Mr Prentice, the commercial manager for Victoria of the respondent on 2 December 2014. There may have been others present. It became clear during that meeting that the applicant's claim for payment of the final amount would not be met, and that the respondent asserted (as it had previously asserted) that the applicant's indebtedness to it was considerably in excess of the amount of its final claim. 10 The guarantees were provided pursuant to cl 5.1 and Sch 1 of the subcontract. It is Millar's recollection of that meeting that nothing was said about the guarantees either by Millar or by Prentice. Following that meeting, the respondent gave to the applicant a Payment Schedule asserting that it owed the applicant nothing in response to the Payment Claim, and it gave notice of a proposed claim for liquidated damages of a substantial sum, well in excess of the applicant's final claim. 11 There is evidence illustrating not insignificant dispute about the content of the conversation of 2 December 2014. 12 Millar deposed to a previous occasion when "injunctions were obtained by Kingswood" in June 2014, following which Prentice said to him that the respondent would give notice to the applicant before calling on the bank guarantees. He asserts that similar words were not offered by Prentice at the meeting on 2 December 2014. Millar's affidavit of 19 December 2014 said that he had real concerns that the respondent was about to call on one or both of the guarantees "given the tenor of our conversation" and the respondent's claim against the applicant. Millar appears to have regarded the potential outcome of that meeting as threatening, including by Prentice having said words to the effect that resolution of the dispute was in effect with persons above him, and within the control of the CEO of the respondent. 13 Prentice says that he reiterated that, if the respondent intended to make a demand under the guarantees, it would provide notice in advance in accordance with an agreement reached in June 2014 (the June agreement). Millar accepts that something was said about the June agreement, but he thinks Prentice said that whilst he would like to confirm that position on behalf of the respondent, he could not guarantee it without speaking to others. Prentice's affidavit is different in emphasis and indicates that the June agreement was in writing, under which Watpac agreed to give the applicant 14 days' notice of any future intention to call upon the bank guarantees, and that he intended that that agreement would last in respect of any future call by the respondent, and was not confined to the context in which the injunctions were apparently sought in June 2014. Prentice says that that conversation on 2 December 2014 was to the effect that he and Millar could negotiate generally, but if they could not resolve the dispute between themselves, the matter would have to escalate to more senior management within the respondent and would be out of his hands. That is obviously a different emphasis to Millar's evidence. There was considerable discussion about the extent to which, if at all, the applicant had delayed the progress of the works and the economic consequences of such delay to the respondent. Prentice denied saying to Millar that he could not guarantee that the respondent would adhere to the June agreement without "talking to other people", and that he regarded that that agreement as continuing to bind the respondent. He states he reiterated during that discussion that the respondent would give notice of any intention to call upon the guarantees in accordance with the June agreement. 14 There is also a dispute about the contents of a telephone conversation on 15 December 2014. Prentice says he called Millar on that day as a matter of courtesy to inform him that the respondent was about to issue a payment schedule with significant liquidated damages claimed. 15 He wished to explore avenues to resolve the dispute. He states he again reiterated during this conversation that the respondent would give notice of any intention to call upon the guarantees. On 15 December 2014, a letter was sent by the respondent to the applicant setting out the respondent's assessment of liquidated damages owing by the applicant under the subcontract. There was no threat of recourse to the guarantees. On the other hand, there was no reference to the June agreement. That claim on the part of the respondent had, apparently, been foreshadowed or maintained for some months prior to that date. 16 The Court's power to award costs is contained in s 43 of the Federal Court of Australia Act 1976 (Cth). The principles about when the Court will make an order for costs, where there has been no hearing on the merits, are relatively well settled: see Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194. It will be rare that the Court feels sufficiently confident about the probable outcome of a matter, including in my view at an interlocutory stage, to conclude that a party has acted unreasonably in having brought or having defended the action or the application: see Re Minister for Immigration and Ethnic Affairs; ex parte Lai and Qin (1997) 186 CLR 622 at 624-625 per McHugh J; see also generally Yates Property Corporation Pty Ltd v Boland (2000) 179 ALR 664. 17 It is the respondent's contention that, in this matter, the applicant acted unreasonably in two respects. Firstly, the applicant through Millar made no reference to the June agreement, except through what appears in his initial affidavit of 19 December 2014, filed on 22 December 2014, to have been an oral statement by Prentice and Prentice's failure to repeat that statement on 2 December 2014; it is pointed out by the respondent that the June agreement was in writing. Secondly, the applicant waited an unduly inappropriate time of three weeks between the meeting of 2 December 2014 and the issuing of the urgent application seeking ex parte relief, and then pursued it after the telephone conversation of 15 December 2014. It is said that the application should have been issued on notice, in which case the June agreement would have been affirmed without the need for any application, or the affirmation of the June arrangement should have been sought in any event before making the application. 18 As I have indicated, there are significant, but understandable, differences between what Millar and Prentice say as to what was said precisely at the meeting on 2 December 2014. Each affidavit represents their respective viewpoints about that conversation, perceived in the context of their own perception of the state of affairs at the time. I do not propose, nor is it possible simply on affidavit evidence, to resolve which of those versions of the conversation is accurate. I therefore assess the reasonableness of the applicant's application at this point by taking the affidavit evidence of Millar as being his honest perception of what was said. To determine that it was unreasonable of the applicant not to have raised with Prentice the adherence or otherwise to the June agreement involves an assessment as to more precisely what was said at the meeting on 2 December 2014 and the reasonableness or otherwise of the concerns which Millar then had. Without the benefit of hearing his evidence, including his understanding of the June agreement and the extent to which it was tied to the state of affairs which then existed, I do not presently conclude that his conduct in causing the applicant to pursue the application ex parte as unreasonable. He says he was concerned that, by raising the issue, the respondent might get in first and call up the guarantees. He says that he understood from the meeting on 2 December 2014 that Prentice might not be in a position to prevent that from happening. Of course, that does not represent a concluded finding of fact; it is simply what I think is an appropriate version to adopt for the purposes of considering, at this point, the respondent's application for costs. 19 I have taken into account that since June 2014 the respondent had consistently asserted an entitlement to set off liquidated damages against payments otherwise due to the applicant, and that the respondent had from time to time sought to engage with the applicant in respect of the foreshadowed offset in claims, as Prentice says in his affidavit. I have also taken into account the conduct of the respondent after 2 December 2014, in particular that it did not then proceed to call off the guarantees, that it spoke to Millar through Prentice on 15 December 2014 to forewarn him of the forthcoming demand, and of the terms of the demand itself. I note further that there was another week or so before the injunction was sought. That material is obviously relevant to deciding, when it becomes necessary, the actual content of those conversations. At present, I do not take the step of doing so. 20 The second set of conduct on which the respondent relies is that which occurred after the interim injunction was made. I do not think anything turns either way on that conduct. The respondent is critical of the applicant for not having sought reassurance about the June agreement but "waiting" until 7 January 2015 to serve the application and the supporting affidavit. As I have assumed that the applicant was concerned that, but for the injunction being given ex parte, the respondent might call upon the guarantees for the reasons given, I do not think it is shown to have been unreasonable of the applicant to serve the injunction order before dealing further with the respondent. It then tried to serve that material promptly. I am also not critical of the relatively short time between the date of service of the injunction order and the hearing on 13 January 2015, having regard to the Christmas break. It is not clear the extent to which the respondent was available to receive those documents in January 2015 prior to 7 January 2015, but it is clear that the applicant endeavoured to serve the respondent with the relevant documents promptly following the order on 22 December 2014. As to the reasonableness or otherwise of the conduct of the respondent in preparing for the injunction hearing, I make no adverse comment. 21 In those circumstances, I do not presently make an order for costs against the applicant as sought by the respondent. I accept the applicant's submission that it is appropriate to note the application for interlocutory relief, and to reserve the question of costs of and incidental to it to a date to be fixed. I will also give the respondent leave to review its application on reasonable notice. 22 If the principal proceeding is resolved adversely to the applicant, so that its claim is dismissed, the costs of the interlocutory application will be likely to be routinely included in any costs ordered in favour of the respondent. If it is successful, it is possible that the costs of the interlocutory application may have to be revisited. I note that r 40.13 of the Federal Court Rules 2011 (Cth) would, in the absence of any order to the contrary under r 1.35, mean that any order for costs in favour of the respondent would not enable the costs to be taxed and so to be paid until the principal claim is completed in any event. 23 I also, for much the same reasons, presently make no order about the costs argument which these reasons address. The parties may raise that issue, if that becomes necessary, in due course. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield.