Right to relief
46 In oral submissions, Mr Condon SC focussed on the possibility of relief arising from the unconscionability provisions in the Australian Consumer Law, being a right to statutory damages. He did not refer to any particular provision of that Law orally, but referred to s 21 in written submissions. Section 21 provides:
21 Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
47 Mr Condon SC submitted that "[p]lainly, it might be regarded as unconscionable for a party to call upon a performance bond if there was no proper claim for it". He gave the following examples of conduct that could be found to be unconscionable:
a claim upon a performance bond for more than what is plainly arguable;
a claim upon a forged performance bond;
a claim made where there is no subjective belief in the party calling on the bond as to the entitlement to do so, or as to the amount of the call.
48 Mr Condon SC noted that a court may restrain the issuer of a performance guarantee, on the application of the provider of the guarantee, from performing its unconditional obligation to make payments to prevent the holder of the performance guarantee:
(a) from acting fraudulently;
(b) from acting unconscionably in contravention of s 51AA of the Trade Practices Act 1974 (Cth) or the Competition and Consumer Act 2010 (Cth);
(c) from breaching a promise not to call upon the bond: Clough Engineering Ltd v Oil & Natural Gas Corp Ltd [2008] FCAFC 136; (2008) 249 ALR 458 at [77]; Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 at [138].
49 These three instances are exceptions to the general rule that a court will not enjoin the issuer of a performance guarantee from performing its unconditional obligation to make payment. The general rule is derived from the principle of autonomy, which was explained by Austin J in Boral Formwork & Scaffolding Pty Ltd v Action Makers Ltd [2003] NSWSC 713; (2003) ATPR 41-953 ("Boral Formwork") as follows (at [32]):
Broadly speaking, the principle of autonomy provides that the financier's unconditional payment obligation in commercial instruments is independent of the underlying contract between the applicant for the instrument ("the account party") and the beneficiary of the instrument; therefore, with limited exceptions, courts do not interfere with performance of the payment obligation. The principle was developed in respect of documentary letters of credit, and was applied to standby letters of credit and various kinds of demand guarantee (including performance bonds) as these instruments were developed: A Ward and G McCormack, "Subrogation and Bankers' Autonomous Undertakings", (2000) 116 LQR 121, 122ff; R Edwards, "On-demand Guarantees or Performance Bonds: Rotten at the Root", (2002) 18 Australian Banking and Finance Law Bulletin 13.
50 Mr Condon SC referred to the decisions of Balfour Beatty Civil Engineering v Technical & General Guarantee Co Ltd [2000] CLC 252; (2000) 68 Con LR 180 and Safa Ltd v Banque du Caire [2000] 2 Lloyd's Rep 600 as support for the proposition that the issuer of a performance guarantee may have a claim against a person who makes a fraudulent claim on the bond.
51 Mr Kidd SC, senior counsel for Eagle Downs, accepted, for the purposes of the argument, the possibility of such a claim.
52 On the possibility of a claim based on unconscionable conduct, Mr Kidd SC submitted that it is difficult to envisage relevant unconscionable conduct in this context that would not amount to fraud. In that regard, if clause 5.5 is treated as evidence of the likely contractual arrangement between WDS and Eagle Downs, WDS would have been precluded from taking any steps to injunct or otherwise restrain Swiss Re from paying Eagle Downs pursuant to the undertaking or Eagle Downs from using the money received under any such undertaking.
53 In support of the possibility of a claim by Swiss Re against Eagle Downs on the ground of unconscionability, Mr Condon SC relied upon JBE Properties Pte Ltd v Gammon Pte Ltd [2010] SGCA 46 ("JBE"). Although that case involved a dispute between principal and contractor, the Singapore Court of Appeal made the following observations relevant to the position of an obligor under a performance bond:
Even where a performance bond is expressed to be payable "on first demand without proof or conditions" (as in Edward Owen Engineering [Ltd v Barclays Bank International Ltd and Another [1978] QB 159] (at 170)), which, strictly speaking, means the paying bank is contractually obliged to pay the beneficiary once it makes a call on the performance bond, there is no reason why fraud (which is often difficult to prove) should be the sole ground for restraining the beneficiary from receiving payment. To adopt such a position is to "apply a standard of proof which will virtually assure the beneficiary [of] … immediate payment … and … does nothing more than to transfer the security from the [paying bank] … to the beneficiary" (see Chartered Electronics [Industries Pte Ltd [1990] 2 SLR(R) 520] at [37]). This may in turn cause undue hardship to the obligor in many cases. For instance, where a call is made in bad faith, especially a call for payment of a sum well in excess of the quantum of the beneficiary's actual or potential loss, the beneficiary will gain more than what it has bargained for. Furthermore, if the amount paid to the beneficiary pursuant to a call is subsequently proved to be in excess of the quantum of its actual loss, the obligor runs the risk of being unable to recover any part of the excess amount should the beneficiary become insolvent. Yet another relevant consideration is that an excessive or abusive call can cause unwarranted economic harm to the obligor. This is particularly relevant in the context of the construction industry, where liquidity is frequently of the essence to contractors. In this regard, while the sum stipulated to be paid under a performance bond is usually pegged at only 5% to 10% of the contract price, this typically amounts to one or more progress payments under a building contract. In very large building contracts, the deprivation of a whole progress payment might well be fatal to the contractor-obligor's liquidity. These concerns are by no means fanciful, as evidenced by the mechanisms evolved by the construction industry to ensure the quick settlement of disputes relating to progress payments.
54 Taking into account the decision in JBE, I will proceed on the basis that, in appropriate circumstances, Swiss Re may possibly have a claim against Eagle Downs based on unconscionability under the Australian Consumer Law. In this regard, I note that, in Boral Formwork at [74], Austin J acknowledged that the principle of autonomy could not override the Trade Practices Act 1974 (Cth). At [94], his Honour made the following observations:
I hope it is clear that, in deciding to grant the relief sought by Boral, I have given anxious consideration to the principle of autonomy and the dangers associated with any judicial intervention with the performance of unconditional commercial obligations. The terms of the irrevocable instrument and the underlying contract, properly construed, are highly relevant to the decision whether conduct in connection with those arrangements is unconscionable for statutory or equitable purposes. It is not normally unfair or unreasonable or otherwise unconscionable to exercise commercial rights under an autonomous commercial contract, even if (for example) for the purpose of applying pressure to resolve a dispute. Even if the conduct is unconscionable, the principle of autonomy is relevant to the exercise of the Court's discretion to grant injunctive relief or leave the plaintiff to other remedies. Here the circumstances, involving as they do a call on the letter of credit on a false basis, are sufficiently special to overcome the hesitation which the principle of autonomy generates.
55 I acknowledge that the parties in Boral Formwork were in a different contractual relationship from Swiss Re and Eagle Downs.