Plaintiff v Defendant

(1) commence work under the contract within 21 working days of notice to do so, or

(2) progress at a rate to facilitate the due and proper completion of the contract within the timeframes specified in the contract within 21 days of notice in writing to do so, or within such longer period specified in such notice.

Event n. is if KBR, having been given notice in writing requiring it to remedy a default not otherwise mentioned in cl 12.2.1, and:

(1) failed within 21 working days to commence action to remedy the default, or

(2) failed to remedy the default within 21 working days or any longer period specified in such notice.

10 Then, most significantly in this case, cl 12.3 provided for termination for convenience, as follows:

"12.3.1 In addition to any other rights it has under the Contract, AA may terminate the Contract or reduce the scope of the Contract by notifying the Contractor in writing.

12.3.2 Where the AA Contract Manager issues a notice under clause 12.3.1, the Contractor shall:

a. stop work in accordance with the notice;

b. comply with any directions given to the contractor by AA; and

c. mitigate all loss, costs (including the costs of its compliance with any directions) and expenses in connection with the termination, including those arising from affected Subcontracts.

a. payments under the payment provisions of the Contract for work conducted before the effective date of termination;

b. any reasonable costs incurred by the Contractor that are directly attributable to the termination; and

c. subject to clause 12.3.5, materials purchased and/or for purchases committed in the performance of the Contractor's obligations under the Contract as at the date of the notice of termination less any amounts that the Contractor is able to recover in reselling or reusing those materials,

where the Contractor substantiates these amounts as determined by the AA Contract Manager.

12.3.4 The Contractor shall not be entitled to profit anticipated on any part of the Contract terminated.

12.3.5 The Contractor, in each Approved Subcontract, shall secure the right of termination and provisions for compensation functionally equivalent to that of AA under clause 12.3."

11 As I understand it, it is common ground that these clauses mirror the provisions in the contract between AA and the Commonwealth. They are standard provisions, not drafted specifically for the purpose of the sub-contract between AA and KBR. More particularly, the provision for termination for convenience is to be understood in the defence material procurement area, in which the Commonwealth is the head contracting party, as reflecting the principle of executive necessity. The requirement of cl 12.3.5 ensures that if the Commonwealth were to terminate the head contract for convenience, each contract down the line could also be terminated for convenience. However it is not stated in cl 12.3.1 that the power is conditional upon the Commonwealth having first exercised the like power in its contract with AA.

12 KBR having entered upon its contract, consideration of the facts can move forward to 20 December 2006 when AA gave KBR written notice under cl 12.2.1 m.(2) and cl 12.2.1 n. The former notice alleged that KBR was failing to progress at a rate to facilitate the due and proper completion of the contract within the timeframes specified therein. The notice specified five grounds on which it was given. The latter notice alleged that KBR had failed to remedy defaults of its obligations, and specified eight grounds on which the notice was given. Each notice warned that AA would be entitled to exercise its rights under cl 12.2.1 if KBR did not remedy the defaults within 21 working days.

13 KBR responded on 21 December 2006 with a request for a meeting on 12 January, and on 22 December with an email refuting the grounds and that it was in default, and advising that a detailed response would be provided. The parties met on 18 January. For the purpose of retaining confidentiality of the minutes I note only that AA was to consider the issues raised including KBR's responses and determine between termination, de-scoping, and changing the way of working, with the parties to meet again on 24 January. It appears on the evidence that the reference to termination and de-scoping was a reference to possible action under cl 12.2.1 and not cl 12.3.

14 On 6 February 2007 KBR sent a detailed response to AA refuting the basis on which the December notices were provided.

15 The parties met again on 13 and 15 March 2007.

16 According to Wayne McAuley, who was employed by KBR as a project director in relation to the subject project, and who attended the meeting on 13 March, Graeme Robert Breen of AA said at that meeting that AA wanted to further de-scope KBR's work (there having been an earlier de-scope in relation to the TNAR matter referred to in the affidavits) so that AA could introduce a "management interface of training development" to facilitate communication with the Commonwealth. Mr Rob Hawketts of KBR responded that that was not necessary, rather that AA should provide KBR with the information necessary to enable it to perform its obligation. McAuley further said that the first reference to AA terminating for convenience occurred at this meeting when Joseph Saporito of AA said that if AA and KBR could not reach an agreement on the de-scoping, AA would terminate the contract for convenience. Also at the meeting Hawketts complained that AA employees had been denigrating KBR, and referred to a KBR employee having told Karl Currier, a KBR employee, that a colleague of his seeking employment with KBR had been told by AA that KBR was going to be "kicked off" the project. McAuley stated that it became apparent to him that AA intended to replace KBR so that it could perform the training in respect of the MRH 90 itself, and that AA's negotiations and dealings were not in good faith.

17 In an answering affidavit Breen said that AA had attended the meeting with an open mind to discuss and resolve differences between the parties, and to achieve the ongoing requirements of the contract. He said that during the meeting it became apparent that differences between the parties were irreconcilable and that without re-scoping the contract there would be a high probability that critical milestones within the head contract would not be met. He referred in this respect to the suggested re-scoping referred to by McAuley to facilitate communication with the Commonwealth. He said that the motivation for discussing the re-scope was to see if it was possible to achieve a way for the parties to continue to work together. He did not deny McAuley's evidence of AA's intimation that it would terminate for convenience if the re-scope was not agreed. Breen did however state, as to the meeting on 13 March and generally, that he did not agree with McAuley's "versions of and imputations from the conferences between the parties" which he (Breen) attended. In particular Breen denied the suggestions that AA did not act in good faith.

18 At the 15 March meeting AA's proposed de-scoping of KBR's work under the contract was discussed. According to McAuley, Eric Lucien Guegano of AA said that KBR had to reduce its work force for the project from 30 to seven, and that AA and KBR had to form an integrated team of instructors for the project. McAuley said that he stated that he could not terminate the employment of 23 employees, and that they had assembled a core team of experienced helicopter instructors to undergo training in France and to form the core team of instructors for the MRH 90. He said that he would put the proposal to KBR. In a brief affidavit sworn on 7 May and filed on 8 May Guegano said with reference to paras 36 to 41 of McAuley's affidavit - the above evidence being contained in para 36 - that he took issue with many of the allegations therein. Doubtless because of the shortness of time available to him - I was told he had been away - Guegano did not elaborate on that general statement except to deny a statement McAuley ascribed to him at the meeting on 23 March and which I refer to below.

19 On 16 March 2007 KBR sent a draft response to a senior officer of AA setting out terms on which KBR would agree to a change to its scope of works, while denying AA's allegations concerning KBR's contractual performance.

20 AA responded by email on 19 March. It was stated that at the meeting on 13 March AA indicated that it intended to terminate the contract for convenience under cl 12.3. This was stated to be AA's preferred course, rather than take action for KBR's default. Further, at the same meeting AA had offered to discuss changing KBR's scope of work under the contract; if a change was mutually agreed AA would be able to keep the contract in place but with a new scope of work for KBR. The email concluded with advice that if no agreement was reached on a changed scope of work by 20 March AA will proceed with the process of termination for convenience.

21 KBR emailed a response on 20 March in which, noting the failure to reach agreement on the notices given on 20 December, it formally notified AA that it considered they were in dispute and invoked the operation of cl 12.1.4, the grounds of the dispute being those contained in the notices.

22 On 23 March 2007 the parties met to discuss the principles for a change to the scope of the contract. Again they discussed the number of instructors required in the training phase, and the effect of de-scoping on KBR's work force. No agreement was reached. It was however agreed that KBR would submit a quotation for a changed scope. Minutes of this meeting were prepared; it was requested they be kept confidential. I mention however evidence of McAuley that at this meeting Guegano said that having reviewed the AIR 87 project it was apparent to him that only KBR was making money on it, and that AA wanted to recover some of its costs by becoming more involved in the provision of training. McAuley deposed that he said this was unacceptable and that KBR would if necessary tender in its own right for the sustainment training phase of the project when it came up in the next two years. McAuley further deposed that Guegano said that AA did not intend to allow KBR the opportunity to make itself a competitor in respect of that work in that phase of the project for which AA also intended to bid; in his affidavit Guegano deposed that that statement was false, adding that he did not make it or any similar statement.

23 On 28 March KBR emailed AA a quotation for a de-scoped phase 2 and for phases 4 and 6.

24 Also on 28 March AA emailed a letter to KBR advising, with regard to the meeting on 23 March and KBR's subsequent action, that AA considered the notice constituted by KBR's letter of 20 March and the operation of cl 12.1.4 "to be suspended".

25 A further meeting was held on 30 March but no agreement was reached on an amended scope of work. According to McAuley, at this meeting Breen advised that AA had engaged Eurocopter Training Services France to perform the preliminary stage training of the project in case agreement was not reached on de-scoping KBR's work. McAuley deposed that that exacerbated his concerns about AA's intentions.

26 On 2 April Saporito sent an email to KBR in which AA drew a distinction between matters of default summarised in the notices given under cl 12.2.1 m. and n. "and the ongoing discussions concerning the possible agreement on a change to the scope of work under [the] contract in lieu of AA terminating the contract for convenience". The email stated that AA intended to exercise its unilateral right to terminate for convenience if a change to the scope of work was not agreed upon. AA's right to terminate for convenience could be exercised "at any time and for any reason". It was stated that the current discussions being held in an attempt to agree on a change to the scope of work in lieu of termination for convenience was "not an issue of dispute". AA was prepared to fulfil the cl 12.1.4 procedure following KBR's dispute notice, but that will not deal with termination for convenience.

27 On 3 April AA sent a letter which rejected KBR's quotation, stating that AA "cannot pursue discussions on this basis". That included the requirement that KBR receive the contract for phase 4 and 6, as to which Breen deposed that it was not part of the de-scoping discussions. It was a separate contract that had not arisen.

28 On 5 April KBR sent a response which concerned its quotation.

29 On 13 April KBR wrote advising the name of KBR's senior management representative for the purpose of the dispute resolution process under cl 12.1.4, and noting that those representatives must meet by 20 April.

30 Later on 13 April AA sent KBR two letters. The first advised that it was obvious that there was no useful purpose in continuing discussions on reducing KBR's scope of work. The second gave notice that AA terminated the contract "for convenience with immediate effect". KBR was "directed to stop work immediately and take steps to mitigate all costs (including the costs of complying with this notice) and expenses in connection with the termination, including those arising from affected sub-contracts. If KBR believes it is entitled to any payment under cl 12.3.3, it should submit details of its claim and supporting substantiation".

31 Later on 13 April KBR referred AA's notice of termination for convenience to its solicitors TressCox who on 16 April emailed AA stating that the termination was wrongful and that it had and would cause KBR loss and damage, and demanding that by 4.00 pm on 18 April AA undertake to treat the contract as remaining in force and not rely on the notice. Some discussions were had between TressCox and AA but AA refused to give the undertaking and treat the contract as remaining in force.

32 Two days later, on 20 April KBR filed the writ to commence the present proceeding along with a summons for interlocutory orders and two affidavits in support. Thereafter the parties moved quickly and filed a number of affidavits, including during the hearing before me. The application ultimately came on before me on 7 May and after argument all that day and part of the following two days I reserved my decision.

33 Although the indorsement on the writ is not a statement of claim it is clear that KBR's case is founded on the proposition that AA's right to terminate for convenience is subject to an implied term of good faith and fair dealing. It is put more expansively in para 4 of the indorsement but that is the essence of it, and that is what counsel relied upon. For the sake of completeness I mention that further implied terms are alleged which include that neither party act so as to deny the other party the substantial benefit of the contract, that AA not exercise its rights under cl 12.3.1 (termination for convenience) if the dispute resolution process in cl 12.1.1 has been invoked, and that the rights under cl 12.3.1 not be exercised in respect of or relating to the same defaults or grounds relied upon to terminate under cl 12.2.1 and which were the subject of the dispute resolution process.

34 It is alleged in the indorsement that AA's purported termination for convenience constituted a breach of the implied terms in that:

(a) it denied KBR the substantial benefit of the contract;

(b) it was not given in good faith, fairly and reasonably, for just cause or upon proper and reasonable grounds;

(c) it was given capriciously, for an improper or extraneous purpose, and in respect of or in relation to the same defaults or grounds relied on in the notices given on 20 December 2006 which were the subject of the dispute resolution process; and

(d) the dispute resolution process had been invoked.

Finally, it was alleged that KBR is and was ready, willing and able to perform the contract.

35 In addition to temporary and permanent injunctions the writ sought declarations that the contract was in force, that AA perform its obligations, that AA participate in the dispute resolution process under cl 12.1 invoked by KBR on 20 March, and damages.

36 On the same day that the writ was filed - 20 April - AA advertised in the Australian newspaper for MRH 90 program instructors, advising that AA had vacancies for instructor positions to supplement its work force in the conduct of MRH 90 training for the Australian Defence Force. The positions ranged across the following skills: qualified flying instructor (helicopters), aircrewman/loadmaster instructor, technician instructor (avionics or mechanical), ground crewman instructor and instructional designers. The closing date for applications was stated to be 27 April 2007. McAuley deposed that the advertisement evidenced an attempt by AA to employ persons who are now part of KBR's core team for the project, or similarly qualified persons, to perform KBR's role under the contract. Breen denied in an affidavit that AA's planning in taking on KBR's work was based on having to use any of KBR's staff. I interpolate that it is reasonable to suppose that qualified persons employed by KBR would be attracted by the advertisement if KBR lost the contract and, in consequence, the work for those employees. To deny that is to deny the obvious probability, particularly in view of the skilled and specialised area of work.

37 At about the same time as that advertisement appeared, an employee of KBR advised Currier that he had been approached by Troy Edmonds of AA who said that he should join AA because KBR's future on the project was uncertain. As to this incident, Breen deposed that it occurred after AA's employees were aware that KBR's contract had been terminated for convenience. Breen said that AA's employees had had no authority to solicit employees and that he (Breen) had instructed that no employee of AA was to approach KBR's employees with offers of employment.

38 McAuley contended (in para 50 of his further affidavit sworn on 27 April) that AA's termination pursuant to cl 12.3 was not done in good faith and was an opportunistic attempt by AA to (1) oust KBR from the benefits of the contract and seize them for itself, and (2) avoid the risk of the neutral third party finding that the 20 December notices were without substance. In support of this contention he pointed to:

(a) the giving of the 20 December notices;

(b) AA's unilateral withdrawal from the dispute resolution process;

(c) AA trying to de-scope KBR's work and thereby moving it aside, not for performance reasons but to take over the contract for its own benefit;

(d) exerting pressure on KBR to agree to its demand to de-scope its work, and when discussing AA's allegations of default, by stating that AA intended to terminate the contract for convenience; and

(e) by referring, at the same time as agreeing to participate in the dispute resolution process invoked by KBR, to AA's intention to terminate for convenience.

Furthermore, AA so acted at a time, in circumstances and in a manner that would lead uninformed third parties to assume that KBR had been removed from the project because of a failure to perform its obligations under its contract.

39 McAuley deposed that if the injunction were not granted KBR would suffer significant damages and irreparable harm and prejudice, including damage to its reputation, that damages would not cover. He developed the several respects in which this would occur. There is of course the loss of profit on the subject contract. Neither that or any other item of actual loss and damage had yet been able to be quantified. More generally, KBR was to be seen as part of an international group of companies specialising in engineering, construction and services, in particular relating to the defence industry. The defence industry in Australia is significant but relatively small in terms of the companies involved; it is very competitive and always involves the Defence Materiel Organisation ("DMO"). KBR had developed a reputation as a reliable and leading services company in the defence industry in Australia and in the region, especially in the area to which the subject contract relates. KBR's parent had earmarked it to be the centre for such services in Australia and the region. KBR had an excellent reputation with the DMO, its employees and competitors. McAuley said that if the injunction were not granted and the termination stands, KBR would lose the benefit of these relationships and goodwill built up over 14 years. Hence, if the termination stands, there will be the slur left by the unresolved allegations of default. Then there is the adverse effect on KBR's reputation in the defence procurement industry, and with the DMO in particular, and a consequent detriment to its ability to win contracts whether as the main contractor or as a sub-contractor. Associated with this matter of the ability to win contracts is the probable loss of KBR's skilled work force which had taken two years to form and which could render KBR uncompetitive in seeking work. The loss of this work force would have a consequent adverse effect on KBR's reputation as an employer, at the same time as enhancing AA's in the event (which is likely) that it engages KBR's work force. Pertinent to these matters were the upcoming contracts for phases 4 and 6 which will run until 2011 and two other defence contracts each likely to be for a term of between 10 and 15 years and generating large revenue. Relevant to this is that defence force procurement contracts such as the subject contract and those just referred to, come up usually every 10 to 15 years when the defence force upgrades its capability. Hence, if the injunction is not granted, and even if later the notice of termination for convenience is set aside, KBR will have been, and will continue to be, prejudiced in its efforts to be selected as a contractor for the above contracts. It will effectively have been removed as a competitor in the Australian defence industry aerospace market for the next 10 to 15 years.

40 Furthermore, if the injunction sought is not granted and it is held at trial that the termination for convenience was wrongful, it would be very costly and difficult for KBR to recommence work under the contract as compared to now continuing under the force of an injunction. And, if it did not regain the job, the loss could not be compensated adequately in damages.

41 Finally, McAuley deposed that if KBR is allowed to continue to perform its work under the contract pending determination of the lawfulness of the termination, the project will not be delayed and AA will not be prejudiced. AA had not terminated the contract due to KBR's default. Further, KBR's continued involvement would not require supervision as it would be regulated by the terms of the contract. It is pointed out that KBR and AA are parties to an ongoing contract for the AIR 87 project.

42 It is to be noted on the matter of KBR's reputation that Breen deposed that AA has not publicly acknowledged any failure by KBR to perform its obligations under the contract, or publicly derided KBR. The letter to the Commonwealth notifying AA's intention to terminate did not criticise KBR's performance.

43 I have not referred to everything said in the affidavits, in particular as to certain matters of difference and dispute that have previously occurred under the contract. I do not overlook, let alone ignore, those matters, but what I have referred to is sufficient to indicate the context in which KBR seeks the interlocutory injunction.

44 In their written and oral submissions counsel comprehensively canvassed the relevant issues and referred to many authorities. Indeed I was provided with a total of four lever arch files of authorities concerning the approach to the grant of an injunction pending the hearing and determination of a proceeding, and the implication into contracts of a term of good faith and fair dealing.

45 On the matter of the approach to the grant of an injunction pending the hearing and determination of a proceeding, in Bradto Pty Ltd v State of Victoria[1] the Court of Appeal in this State, constituted by Maxwell P and Charles JA, stated that:

"whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been 'wrong', in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial."

46 At [34] their Honours referred with approval to the statement of Lord Woolf MR in Broadmoor Special Health Authority v Robinson[2], adopting the words of Lord Cooke in TV3 Network Ltd v Eveready New Zealand Ltd[3] that:

"The remedy of injunction should be available whenever required by justice."

47 The approach of considering the lower risk of injustice was first identified by Hoffman J in Films Rover International v Cannon Film Sales Ltd[4] and is well established in this Court; see K-Mart Australia Ltd v Stud Park Investments Pty Ltd[5]; Optus Networks Pty Ltd v Stonnington City Council[6]; Optus Networks Pty Ltd v City of Boroondara[7]. As an illustration of the underlying wisdom in this respect the observations of Baggally LJ in Newson v Pendex[8], referred to with approval in K-Mart, are most instructive.

48 It is also well established that in considering where the lower risk of injustice lies all relevant factors are to be considered overall. That means that matters pertaining to the strength of the case to be tried and the balance of convenience are to be weighed in the balance; see K-Mart and Bradto at [39]. That is because the several elements relate to each other, as Lush J so succinctly pointed out in Slater Walker Superannuation Pty Ltd v Great Boulder Gold Mines Ltd[9] in a passage approved by the Full Court of this Court in Magna Alloys and Research Pty Ltd v Coffey[10] and referred to in other cases.

Serious question to be tried

49 In the present case it is conceded by AA that there is a serious question to be tried, which must mean as to whether a term of good faith and fair dealing is implied in the contract and, whether the notice of termination was given in breach of that term.

50 Notwithstanding the concession of a serious question to be tried, AA's counsel referred to authorities on the implication of a term of good faith and fair dealing for the point of submitting that it was by no means certain that KBR would establish the implied term at trial. This was an appropriate submission as the strength of KBR's case is a relevant consideration.

51 KBR's counsel submitted that the terms alleged in the writ are to be implied to give business efficacy to the contract, first by operation of law, and secondly from use and practice in the defence procurement industry. Passing over any confusion introduced by referring both to business efficacy and operation of law, counsel referred to a series of authorities said to provide a foundation for the implication of the term by operation of law. These were Renard Constructions (ME) Pty Ltd v Minister for Public Works[11] (which concerned a building contract), and Alcatel Australia Ltd v Scarcella[12] where (at 369) Sheller JA, with whose reasons Powell and Beazley JJA agreed, held that the decisions in Renard and Hughes Aircraft Systems International v Airservices Australia[13] meant that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract. In that case such a duty was implied as part of the lease with which the Court of Appeal was concerned.

52 Support for the recognition and application of an implied term of good faith is found in judgments in the Federal Court of Australia, including Hughes in the context of a tender evaluation process, Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd[14] in the context of a motor car dealership, and Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd[15] in the context of a licence to use trade marks. In Pacific Brands Finkelstein J expressed the opinion obiter (at [64]), that the duty of good faith is an incident (not an ad hoc implied term) of every commercial contract, unless the duty is either excluded expressly or by necessary implication. His Honour acknowledged that the duty could not override an express or unambiguous term to a different effect. He also inclined to the view that the duty operated as a fetter upon the exercise of the subject discretions and powers created by the contract but otherwise did not provide a remedy for breach.

53 In another decision in the Federal Court, GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd[16], Finn J discussed the evolution of termination for convenience clauses and, although obiter, at [753] accepted that the exercise of such a clause would, as of course, be subject to a duty of good faith and fair dealing. That is the position in the United States of America; see in addition to the judgment of Finn J, the article by FW Claybrook, "Good faith in the termination and formation of federal contracts"[17].

54 In Victoria there are instances of trial judges in this Court recognising a term of good faith in the context of the particular case with which they were concerned. See Far Horizons Pty Ltd v McDonalds Australia Ltd[18], and Bamco Villa Pty Ltd v Montedeen Pty Ltd[19]. However in Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL[20] the Court of Appeal of this Court rejected an asserted good faith term and emphasised the need to have regard to the terms of the agreement in question before implying a requirement to act in good faith, for the terms of contract may not permit such an implication. Particular caution in subjecting a power to a duty to act in good faith was said to be required where the power in question is conferred to serve only the interest of the party entrusted with its exercise. It is to be noted that none of these cases concerned a termination for convenience clause, let alone arose in the defence procurement area.

55 It is not necessary that I refer to other authorities in this area. I note that Dodds-Streeton J reviewed, obiter, a number of the authorities in Meridian Retail Pty Ltd v Australian Unity Retail Network[21].

56 Perusal of the authorities reveals a deal of obiter on the issue. Further, the High Court is yet to consider the issue. The question, of course, is whether in the particular case in question the terms of the subject contract permit the implication of the suggested term. If the term is not one that the law recognises as an incident of such a contract, or which is not imported by custom and usage, the question will be whether the term may be implied on the basis stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[22]. That consideration will involve an appreciation of termination for convenience clauses in the context of defence procurement and, of course, the relevant factual matrix in this case.

57 The second basis upon which the term is to be implied is use and practice in the defence procurement industry. Of the above cases the only one in which reference has been made to a termination for convenience clause in this area is GEC Marconi. Passing from that reference, but not overlooking the discussion in Finn J's judgment and in Claybrook's article, the evidence to support KBR's contention was deposed to by its solicitor Trevor Duncan Lloyd of TressCox. Lloyd deposed to having advised clients regarding numerous contracts for defence acquisition projects, first in 1988 and regularly since then. His recollection is that each project has been conducted under contracts which include a termination for convenience provision. He had no involvement in relation to the formation of the subject contract between AA and KBR, and he has not seen the head contract with the Commonwealth. While, as I have already noted, it was accepted before me that at least cl 12 mirrored the head contract it is pertinent to note the reasoning by which Lloyd arrived at that same conclusion.

58 The first step was to note the current standard contract format published by the DMO of the Commonwealth and designed for use in relation to the acquisition of high risk, software intensive systems, including major platforms known as ASDEFCON (Strategic Material). That set of contract documents includes a set of conditions of contract which include a provision dealing with termination for convenience as part of its standard terms, and describe that clause as a "core" provision. That indicated that the provision is required to be included as a term of each contract created using that set of documents. He produced a copy of the termination for convenience clause in those conditions. I interpolate that it is evident enough that cl 12.3.1 to 12.3.5 in the subject contract have, with some adaptation materially irrelevant for present purposes, been derived from that core clause. Lloyd explained that the MRH 90 supply contract was a major platform and, accordingly, that it would be expected the head contract would have used the ASDEFCON (Strategic Material) conditions of contract. In that event the provisions of the head contract would have required the inclusion of certain clauses in each sub-contract, in particular cl 12.3.5 would be required to be included. Based on his review Lloyd believed that KBR's contract was drawn in this way. Counsel for AA did not challenge the correctness of that conclusion. Indeed he said that KBR's contract relevantly mirrored the head contract.

59 Lloyd then said that he understood that the principal reason for the inclusion of a termination for convenience clause is to enable the Commonwealth to terminate its contract (as with AA), in certain limited circumstances, and ensure that in that event its contracting party (here AA) is in a position to terminate its substantial sub-contracts. The correctness of that understanding was not challenged; indeed it is highly probable that it is correct. In referring to this evidence I do not overlook that at trial Lloyd could not give evidence of a commentary or personal observation nature explanatory of the form and terms of the contract, or to establish custom and usage as a basis for the implied term[23]. At the same time it was not so much his above evidence but the following that was more contentious in this respect.

60 By way of explanatory background as to the reason for termination for convenience clauses, Lloyd referred to the Defence Procurement Policy Manual Version 6.0, 2006 published by the DMO. In a section dealing with termination for convenience, which section he produced, it is stated that such clauses:

"8. ... give contractual form to the common law doctrine of 'Executive Necessity' which allows the Commonwealth to terminate a contract if it is necessary to do so for Government purposes. However, Defence's ability to utilise this doctrine outside of contingencies such as national emergencies is untested, and purchasing areas should not rely on this clause to terminate a contract without first seeking advice from the General Counsel Division or other contracting specialists.

9. Termination for convenience clauses should not be used where another provision in the contract provides a more appropriate remedy (eg. where Defence is entitled to terminate the contract for default). Any termination of a contract for convenience should be undertaken by Defence in good faith and in accordance with the principle of fair dealing.

10. An example of where the exercise of the provision might be warranted could be where an unexpected change in national strategic priorities due to a shift in the international situation makes the continuation of a procurement process unnecessary."

Of course this is no more than the statement of a view, as is the view expressed in the Commercial Notes published by the Australian Government Solicitor, that the clause requires good faith and fair dealing. And it is not mere "views" that would be admissible at trial. Yet it is pertinent to an overall understanding of the reason for the provision and its apprehended application, at least as far as persons on the side of the Commonwealth is concerned. It sheds light on the area, and on the argument to come. In saying that I do not overlook that KBR's contract is to be construed objectively in the light of admissible evidence. I also note that the contract has an entire agreement clause and that I have no evidence of any pre-contractual discussion of the purpose and role of the provision. Nor was evidence of that sort suggested to me; at the same time the application came on very quickly.

61 In my view, regarding the matter overall, it is well understandable that AA conceded there was a serious question to be tried on the matter of the implied term. It is plain that there is a serious question to be tried, both as to the existence of the term and its breach. I would apprehend that the case for the implied term and for its breach is well arguable. The gravamen of KBR's case is that AA has used the power to terminate for convenience for the purpose of damaging its contracting party and itself taking advantage of the consequent situation for its material benefit, both under the subject contract and generally in the event of future contracts. For several reasons however it is neither necessary nor appropriate that I develop further the case for the implied term or the breach. For one thing the relevant evidence is not all in as it would be at trial. For another, that is the province of the trial. I should not now develop an analysis that might embarrass or impede the trial judge in his or her consideration of the issue.

Balance of convenience

62 I turn now to the balance of convenience and the question where the balance lies in this case. I have already referred to the matters relied on by KBR as constituting the irreparable harm and prejudice to be suffered if an injunction is not granted and the termination for convenience stands. It was further suggested by McAuley that if KBR is not enabled by injunction to resume work under its contract, there is a real risk that the project itself will be delayed. If that were to occur there must be a risk that AA will claim damages on the basis that the delay was attributable to KBR's breach. It is therefore a further area of possible harm and prejudice to KBR.

63 In submitting, as he did, that the real issue was the balance of convenience, AA's counsel relied on the following matters.

64 The first matter was that any loss or damage KBR might suffer as a result of AA having wrongly terminated the contract was compensable in money terms.

65 Thus, damages was an adequate remedy should KBR succeed in the proceeding. AA's counsel submitted that apart from costs and expenses incurred and profit lost under the contract, all of which were covered either by cl 12.3 or an award of damages should KBR succeed in the proceeding, the other areas of suggested irreparable harm and prejudice were not matters of substance. As to damage to KBR's reputation, counsel submitted that that apprehension was at odds with bringing litigation in which KBR's reputation would be put on the line. As to KBR's reputation with the DMO and others, there was no independent evidence of such reputation. As to harm to the prospect of KBR obtaining the contract for phases 4 and 6, it was plain on what had passed between the parties that KBR could have no confidence in that regard. As to KBR's reputation with its employees, there are few of them and while some may think less of KBR they must know what is happening, so an injunction would not aid KBR's reputation. As to KBR's employees losing their employment, that was possible but not a certainty, and given their skills they may well be employed elsewhere. As to damage to KBR's reputation among its competitors, that would be a usual risk and bringing litigation seemed an unusual way to protect it.

66 The second matter concerned the harm that AA said it would suffer if forced to continue the contractual relationship with KBR pending determination of the proceeding. In this respect the following matters were relevant: the extent of KBR's failures in performance to date which reflected an inability and unwillingness to perform its obligations, and the detriment thus likely to be suffered by AA under its contract with the Commonwealth. The Commonwealth contract was "more than one hundred times more valuable" and had numerous tight deadlines which were "now looming as a result of the extent of the defaults on KBR's part". Failure to meet the milestones would cause significant harm to AA in terms of contract performance, payment and risk of termination by the Commonwealth. Further, the relationship between KBR and AA was at rock bottom, there even being from KBR an allegation of bad faith.

67 In developing this second aspect, and in submitting that KBR's contractual performance had been poor, AA's counsel criticised KBR in the most severe terms. Moving finally to KBR's letter of 28 March, counsel said that "KBR maintained exactly the same intransigent and frankly commercially ridiculous propositions that it had maintained all along since the meetings in January". It was in that context, counsel submitted, "that the relationship then broke down entirely and the decision was made and acted upon to terminate the contract for convenience". It was submitted that in light of the history of events (which counsel had gone through) it was "not surprising in the slightest that decision was taken, because the relationship by that stage had got to the point where AA could have no confidence whatsoever in KBR's ability or willingness to perform". It was also apparent to AA that KBR would not agree to de-scope the contract in such a way as to enable it to move forward on "a sensible commercial footing for both parties" without the requirements of KBR being satisfied which AA was not obliged to agree to.

68 In so referring to counsel's submission I have not set out his comments on the letters and events as he went through them. I do not overlook all that he referred to and said. It is not necessary to set it all out. Nor is it necessary to set out all of the evidence of Breen on these matters and McAuley's evidence pertaining thereto. What was said by Breen and counsel constituted an attack on KBR's contractual performance down to, and as showing justification for, the termination for convenience. It was also said to indicate or establish the probability of future non-performance were the contract to continue as a result of the injunction being granted, and that Breen's stated lack of confidence in KBR's ability to perform its contractual obligations was soundly based. As to this Breen acknowledged that while AA and KBR were working together on another contract, the personnel on that and the present contract were different, there were more stringent requirements under the subject contract, and it was not feasible to force the parties to work together under the subject contract where the parties had fundamentally different approaches. I have regard to all that Breen deposed to in that regard.

69 In the course of his submissions AA's counsel put some emphasis on the acquisition of the MRH 90 helicopters being a significant enhancement to Australia's defence needs, and in particular to the aspect of training those flying and maintaining the fleet. In one of his affidavits Breen had asserted that given the national importance of the MRH 90 project, it was not practical or desirable to force the parties to work together under the contract. Having been urged to do so, I take that submission into account. The submission of KBR that the head contract may be delayed if the injunction is not granted, which also involves wider considerations, I likewise take into account. In other words both parties urged me to regard the consequences and effects of granting or refusing an injunction beyond the immediate effect on the parties under their contract.

Sufficiency of KBR's undertaking

70 The third and final matter relied on by AA's counsel concerned the worth of KBR's undertaking for damages. It was submitted that KBR's financial position is such that it would not be able to compensate AA at the level required to protect AA's position under the head contract. In short, KBR's undertaking - which was offered in the usual form - was valueless. For this reason alone (as it ultimately came to be submitted) the injunction should be refused as KBR could not pay the price for its grant[24]. This submission was based upon an analysis of the 2005 and 2006 financial statements of KBR and KBR Holdings and other related information. KBR was described by counsel as a relatively small company with an unsatisfactory balance sheet and a member of a group in which a related party to the company had been placed in liquidation following an arbitral award against it of $60.3M. I deal more fully with this matter below.

Decision

71 I consider the balance of convenience in the overall context of all of the matters relied upon by the parties, and their submissions. I do so bearing in mind that the task with which I am concerned is the ascertainment of where the lower risk of injustice lies. In this respect, as Campbell J stated in Corporate Transport Services v Toll[25], a judgment about the balance of convenience is a pragmatic judgment as to the best way of preserving the situation pending the hearing of the proceeding.

72 In my view, taking all matters into account including the strength of the case, the lower risk of injustice favours the grant of an injunction pending trial. My reasons for this conclusion may be shortly stated.

73 First, I consider it plain that the potential harm to be suffered by KBR if an injunction is not granted, and it succeeds in the proceeding, outweighs that which might be suffered by AA if an injunction is granted and KBR fails in the proceeding. There is no reason, in my opinion, and I heard substantial argument, why the question of the existence of the implied term of good faith and fair dealing and its breach could not be heard and determined speedily. I am quite unpersuaded by anything that counsel said to the contrary. Further, I am quite unpersuaded, having considered all of the evidence and heard all that counsel said, that with common sense and appropriate endeavour the parties could not continue working under the contract to the time of the hearing and determination of the proceeding. Further, if an injunction is not granted and it is later held that the implied term existed and had been broken, and in the meantime KBR had lost employees and its position had been taken over by AA if not another with its employees it would, I am well satisfied on the evidence, be extremely difficult if not practically unrealistic to suppose that the contractual relationship could be restored. On the other hand, if the injunction is granted but KBR fails at trial it is speculative that AA will have suffered loss and damage by reason of the injunction. There may, it must be conceded, be some loss and damage, but all Breen has deposed to is that if AA is late in "delivering" to the Commonwealth, such late delivery "will have ramifications [on AA] in respect of contracts for a total sum exceeding $2 billion". There are two aspects to this evidence, first as to the likelihood of KBR causing AA to be late in delivery under its contracts and, secondly, the likelihood of any such lateness resulting in the Commonwealth imposing financial penalties or redress on AA. It is obvious that a variety of factors outside the domain of KBR could operate to produce such results. Overall, however, Breen's evidence is speculative. Moreover, not only is there no substantiating (or any) evidence from the Commonwealth, there is no evidence that as matters stand AA will not meet its obligations to the Commonwealth. Hence, as KBR's counsel pointed out, there was no way of measuring the degree to which any delay in performance of KBR could or would impact on the ability of AA to meet its delivery obligations to the Commonwealth.

74 Whether or not an award of damages would provide KBR with relief that was adequate is but one consideration. I consider however that the consequential effects of the termination would be likely to be such that damages would not adequately compensate KBR. The consequences would, for instance, be felt in the loss of employees and the present and future effect on KBR's ability to gain contracts and attract new employees. It would also impact on its commercial reputation with a similar likely effect in relation to gaining contracts. Particularly is that so where the termination was not for cause, which may be readily identified to and by third parties and dealt with, but for convenience which may carry a tendency to indicate unspecified inability or inappropriateness in the area of a defence procurement contract, a nasty sting.

75 Although AA terminated for convenience, rather than cause, AA's submissions very much went to explain or justify the termination on the basis of KBR's poor contractual performance. Of course this alleged poor performance was also relied on as establishing a reason why an injunction should not be granted. That is to say, AA resisted having KBR imposed on it by continued application of their contract, on the basis that KBR was likely to engage in poor performance as it had in the past. This approach raised something of a conundrum. The matters of poor performance would seem to be those matters alleged in the notices given on 20 December 2006. If they were not that which was alleged in those notices one is left to wonder at the relative importance of the alleged acts of poor performance. Further, when AA gave notice terminating for convenience KBR had invoked the dispute resolution process under cl 12.1. It is possible that, if that process had run its course, the neutral third party might have resolved the disputes in favour of KBR. In that event, absent the termination for convenience, the contract would proceed in accordance with that determination. In that event it seems reasonable to suppose that AA could hardly have made the argument that it did of poor performance by KBR. By giving notice of termination before that process had run its course AA pre-empted the process and the risk of a result favourable to KBR. Having done so, it is somewhat curious for AA to take the position that the dispute resolution process can be pursued to completion but the termination will stand whatever the outcome of the process might be. Indeed, as the contract has been terminated there is little or no utility in pursuing the process. More pertinently though in the present situation, in so proceeding and then relying before me on asserted poor performance by KBR, AA may be seen as seeking advantage in its own tactical manner of proceeding. And, as KBR's counsel not unfairly said, AA's conduct suggested a lack of conviction in the substance of its complaints of breach and delay.

76 In making these observations I do not overlook the evidence relied on as establishing or indicating poor performance by KBR. Nor do I overlook the extensive submissions which counsel made in this respect. At the same time I also note McAuley's denial of Breen's allegations. It is also to be noted that the matters have not been tested either by neutral third party determination or curial process.

77 Then, as to whether it is reasonable to grant an injunction that would involve KBR and AA continuing to work together under the contract, it is to be noted that they presently have a working relationship on other projects. McAuley denies Breen's evidence that the parties cannot work together. Of course I have not heard any cross-examination and cannot resolve disputed matters of fact. The evidence of McAuley and Breen on this matter is to be considered in light of the fact that these companies are part of very large corporate groups accustomed to conducting substantial contracts. It is a fact of commercial life that personality and other conflicts can occur in contractual relationships. It is reasonable to infer that AA and KBR are well accustomed to handling such matters. Further, while strong words are sometimes used, and freely in a litigation context, the fact is that contracting parties learn to cope with difficulties. I am unpersuaded that with common sense and good judgment the parties cannot satisfactorily manage their relationship and progress the contract pending the hearing and determination of the proceeding.

78 Moreover, the parties' work will be conducted under and pursuant to their contract, the terms of which continue in full force and effect. There is in the injunction sought no element of supervision of the parties in their contractual performance. The injunction sought is purely negative in prohibiting reliance on the notice of termination. AA is otherwise unrestrained in relation to the exercise of its rights under the contract, including under cl 12.

79 In the circumstances I would, regarding the matter overall, consider that the balance of convenience favoured the injunction being granted. There is, however, the question of the sufficiency of the undertaking and to that I now turn.

80 Ronald Frank Thomas, a director of KBR and KBR Holdings, deposed to financial matters concerning those companies. He produced the audited financial statements of KBR for the year ended 31 December 2006 and the audited accounts of KBR Holdings and its controlled entities for the years ended 31 December 2005 and 2006, a letter of financial support from KBR Inc to KBR Holdings dated 27 April 2007, identical letters of financial support from KBR Holdings to the directors of the KBR Group (of which KBR is a member) dated 7 July 2006 and 19 April 2007, and ASIC historical extracts of KBR and KBR Holdings.

81 It is to be noted that Thomas swore his affidavit on 8 May, the second day of the hearing, after AA's counsel had subjected KBR's audited financial statements for the year ended 31 December 2005 to critical analysis. The statements had been exhibited to an affidavit sworn by Breen on 26 April 2007.

82 It is pertinent to mention that in that affidavit Breen set out in an exhibit the amounts which, as at the date of termination, KBR had invoiced to AA, and which AA had paid, pursuant to their contract. That is one of the exhibits which I have been requested to keep confidential. Accordingly I say no more than that apart from the amount paid, the amount unpaid is large and measured in millions.

83 It is further to be noted that in his affidavit sworn on 27 April McAuley deposed that KBR Inc was listed on the New York Stock Exchange on 16 November 2006 and has annual revenues in the order of US $10 billion. Prior to that date the KBR business was owned by Halliburton Co.

84 While KBR's counsel submitted that the accounts indicated that KBR and the group were in robust good health, AA's counsel submitted that they showed a group in a parlous financial condition such that KBR's undertaking for damages was valueless. These widely diverging views and in particular the detailed analysis undertaken by AA's counsel, require some reference to the accounts.

85 The first point to note is that the auditor, KPMG, has not qualified the accounts. As to that however, the KBR letter of support dated 27 April 2007 is stated to be given in response to KPMG's comments and:

"acknowledges that a net current asset deficiency exists in the financial statements of KBR Holdings Pty Ltd and controlled entities ("the Entity") as of 31 December 2006. This deficiency is largely due to a significant amount of inter-company payables. We acknowledge that there are no current plans for these payables to be called; however, should they be called within the next twelve months, payments will only be required to the extent that sufficient cash is available within the Entity."

I refer below to the net current asset deficiency mentioned in that letter. Doubtless the letter of support was relevant to KPMG forming a view as to the ongoing viability of the KBR Holdings Group and to not mentioning any concern in that regard in their report.

86 Further, KBR and KBR Holdings are proprietary companies ultimately wholly owned by an overseas company, KBR Inc. The accounts disclose that cross collateralisation and tax allocation arrangements exist and that cash is moved between members of the group. AA's counsel relied on these matters as establishing that KBR, and KBR Holdings, were vulnerable to decisions made up the company line, and elsewhere in the group, and which could, at the worst, leave KBR with no net equity.

87 Turning to the accounts, and referring first to KBR, in the 2006 year KBR recorded a net profit after tax of $28,850,074 (2005: $3,522,950). The 2006 profit was earned on sales revenue of $239,691,744, an increase from the prior year sales of $199,358,182. It is to be noted that a significant contribution to profit was made by a business that was sold in 2006, the net amount contributed in 2006 being $17,334,221 and in 2005 $4,431,778.

88 Turning to KBR's balance sheet, the following is to be noted. First, there is a deficiency in current assets of $11,926,959. Overall however assets exceeded liabilities by $373,969; in 2005 there was a net deficiency of $29,084,497.

89 Attending more closely to the assets, in 2006 current assets included receivables of $51,717,829 (up from $31,251,564), and non-current assets included intangibles of $2,189,499 and deferred tax of $4,277,358. It is evident that intangibles and deferred tax were significant in achieving the overall net asset position. AA's counsel queried how realisable these items were.

90 I do not overlook but do not consider it necessary to refer to all that AA's counsel directed attention to in the accounts. His analysis went to establish that KBR was much subject to the situation of other entities in the group and in particular was vulnerable to requirements for financial support. Of the specific matters mentioned, the make up of receivables was emphasised. Putting aside trade receivables of $34,303,823, and other receivables of $4,220,082, there was an amount of $13,193,924 owing by two related entities. Of this latter amount only $751,997 was interest bearing. Further, in 2005 the amount owing by related entities was $6,796,299; the increase showed how money was moved between entities in the group.

91 Further on, it is disclosed that KBR had an overdraft of $10M secured by the ultimate parent company.

92 Then, under the contingent liabilities note, the following was disclosed; bank guarantees not otherwise provided for in the balance sheet of $7,531,267; litigated claims dealt with in the ordinary course; an amount of $4M received from a company, apparently related, which was placed in liquidation not long after an arbitral award against it of $60.3M; liability as a member of a tax consolidated group in the event the head entity defaulted in payment of tax, of which the possibility was stated to be remote. And there was liability under a banking services (or cross collateralisation) agreement, as to which no indemnity had been enforced and was not expected.

93 Finally, in a note concerning the ultimate controlling entity it is stated that KBR Holdings is obliged to support KBR for 12 months from the date of the financial report. The report is dated 30 April 2007. As to this matter of financial support, the letter from KBR Holdings (signed by Thomas) to the directors of the KBR Group and dated 19 April 2007 was criticised as inadequate by AA's counsel who submitted that its terms were vague and indefinite and not such as to meet the description in the note. Further, if KBR became a "non-trading or special purpose project" entity, which the directors could so resolve upon, the support would depend upon a legal obligation to provide it.

94 Turning to the 2006 accounts of KBR Holdings, they record a loss for the consolidated entity of $65,560,991 (an increase on the 2005 loss of $16,537,573) after income tax of $19,694,095 (2005: $1,771,612) and an impairment charge of $79,489,814 (2005: nil) in relation to holdings in entities with investments in the Alice Springs to Darwin Railway operations. It is evident that the company had substantial losses on investment in that project; KBR also has borne loss as a result. It may be that it was for this reason that the paid up capital of the company was increased from one issued share to 20,047,771 shares on which $40,645,723 was paid.

95 The balance sheet shows a deficiency of current assets of $73,720,106. Overall there are net assets of $5,575,897. However current assets include receivables of $70,857,618 and non-current assets include intangibles of $63,973,191. Current liabilities include payables of $138,214,173. The current receivables include $31,752,954 owed by related entities as to which $2.3M was interest bearing. The non-current receivables comprise $31,672,319 owed by associated companies in relation to the Alice Springs to Darwin Railway Project less $10,936,651 written off on the value of investments and receivables in/from the project.

96 As to payables, the greater amount here is $99,963,949 payable to two related companies, of which $0.8M bears interest, down from $233,736,024 in 2005. This again shows the significant financial inter-relationship of members in the group. That is reflected in the retained profits being a negative $35,447,170.

97 As with KBR, the bank overdraft of $10M or so is secured. The notes record a commitment provided for but not shown in the accounts and payable of $7.2M within three years, and being a working capital facility with Alice Springs to Darwin Railway entities. Contingent liabilities include guarantees not otherwise provided for in the accounts of $14,731,267, the banking services agreement referred to in KBR's accounts and litigation handled in the normal course of operation. The amount of $4M referred to in KBR's accounts as held by it in relation to the company liquidated after an arbitration was also referred to.

98 It was by reference to these matters that AA's counsel submitted that the KBR Group is in a parlous financial condition and that KBR's undertaking was valueless and should not be accepted. He submitted that for this reason alone the injunction should be refused. As mentioned earlier, KBR's counsel submitted that the accounts indicated that KBR and the Group are in robust good health. They included the director's opinion that the accounts give a true and fair view of the company and consolidated entity, and that there are reasonable grounds to believe the company will be able to pay its debts as and when they become due and payable. And the auditor had given an unqualified opinion. Further, the revenues are substantial and reflect a strong earning capacity, and large losses on the Alice Springs to Darwin Railway had been able to be absorbed. KBR returned a profit on increased revenues in 2006 in which year also the liabilities fell. Both KBR and KBR Holdings record a positive net equity for 2006. As to the loss in KBR Holdings in 2006, that was recorded after writing off $79,489,814 on the Alice Springs to Darwin Railway. It was submitted that KBR and the group was able to offer a meaningful undertaking. That could be supported by security in a sum determined by the Court but the difficulty in determining a sum was that AA had not demonstrated by evidence that it was likely to suffer any loss and damage by reason of KBR continuing work under the contract. Further, any breach of contract by KBR would be covered by KBR Holdings' guarantee.

99 Whether regarded on its own or as part of the KBR Group I do not consider that KBR's undertaking is properly to be considered as valueless. That is not to disregard any of the matters relied on by AA's counsel to establish his fundamental proposition that KBR and the KBR Group was in a parlous financial situation, and in particular the significance to the balance sheet of items of receivables, intangibles and deferred tax. Of course companies in a group among the members of which there are arrangements such as those here are vulnerable to actions and movements in the affairs of others in the group. That possibility does not carry the result that KBR's undertaking is valueless. It is merely one aspect to which regard must be had in the overall consideration of the relevant financial circumstances. Those circumstances include a strong revenue base, the ability of the Group to withstand a substantial loss and that overall (as seemed common ground) KBR was a member of a very large international group. KBR is not a single stand alone company with a present likelihood or real risk of falling over in which event items such as intangibles and deferred tax might be difficult to collect and possibly prove to be of little value. It is the overall combination of factors to which regard must be had and, having done so, I consider that the undertaking constitutes the provision of a real and valuable price for the injunction.

100 The evidence does not enable an estimation of damage that AA may suffer and which might be payable if it is held that the injunction should not have been granted. Hence it is not possible to identify an approximate level of worth or value that the undertaking should possess. All I can conclude, as I do, is that KBR's undertaking has value and to an extent likely to be sufficient. Although I cannot be precise as to that, if I considered the undertaking was not likely to be sufficient I would require the provision of security to support it. But, as mentioned, the evidence would not enable a reasonable estimation of the amount justly and appropriately to be required. However while not requiring the provision of security it is appropriate that KBR Holdings itself, as KBR's holding company, also provide an undertaking for damages and I will require that. The structure of the KBR Group and the corporate inter-relationship makes that appropriate. A further factor indicating such appropriateness is that KBR Holdings is the guarantor of KBR's obligations under the contract. It is pertinent to note that that guarantee will continue to run in respect of any ongoing performance by KBR of its obligations under the contract. Hence, while the guarantee is not an undertaking for damages it provides cover, and was the guarantee AA was prepared to accept for such cover, of KBR's performance including damages for breach.

101 For these reasons the injunction sought will be granted on KBR and KBR Holdings providing an undertaking for damages in the usual form.

[1] [2006] VSCA 89 at [35].

[2] (2000) 2 All ER 727 at 732.

[3] [1993] 3 NZLR 435 at 438.

[4] [1987] 1 WLR 670.

[5] Unreported, Appeal Division, 14 October 1994.

[6] [1996] VICSC 12; [1996] 2 VR 209.

[7] [1997] 2 VR 318.

[8] (1884) 27 Ch D 43 at 58.

[9] [1979] VicRp 13; [1979] VR 107 at 110.

[10] [1981] VicRp 3; [1981] VR 23 at 28.

[11] (1992) 26 NSWLR 234.

[12] (1998) 44 NSWLR 349.

[13] (1997) 76 FLR 151.

[14] [1999] FCA 903 at [35] and [36].

[15] [2005] FCA 288.

[16] [2003] FCA 50; (2003) 128 FCR 1 at 173-174.

[17] (1997) 56 Maryland Law Review 555.

[18] [2000] VSC 310.

[19] [2001] VSC 192.

[20] [2005] VSCA 228.

[21] [2006] VSC 223 at [162]- [210].

[22] (1977) 180 CLR 266.

[23] As to custom and usage see Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 236.

[24] See First Netcom Pty Ltd v Telstra Corporation Ltd [2000] FCA 1269; (2000) 101 FCR 77.

[25] [2005] NSWSC 166; (2005) 214 ALR 644 at 653 [42]; [2005] NSWSC 166.