Where an injunction will have the practical effect of granting
final relief, courts apply a higher standard in determining where
the balance of convenience lies. This requires balancing the risk
of doing an injustice, and the court must be satisfied that the
party seeking injunction would ultimately succeed if the matter
went to trial.
Samsung C&T Corporation (Samsung)
subcontracted Laing O'Rourke Australia Construction Pty Ltd
(LORAC) for structural steel and related works for
the port landside package of the Roy Hill Iron Ore Project.
Less than a year later, Samsung terminated the subcontract for
its convenience and the parties entered into an Interim Deed under
which the bank guarantees LORAC had provided under the subcontract
were returned and replaced by another bank guarantee for $7.5
million (Replacement Security).
As a result of several disputes between the parties, Samsung
notified LORAC of its intention to call on the Replacement
Security. LORAC applied for an interim injunction restraining
Samsung from demanding or receiving the benefit of the Replacement
Tottle J characterised the terms of the injunction (at ) as
having "the practical effect of granting LORAC the final
relief it seeks".
LORAC argued that it was entitled to an injunction on a number
of grounds. The most significant of these was that Samsung failed
to satisfy the contractual condition for a call on the Replacement
Security requiring it to consider, acting bona fide, that it is or
will be entitled to recover more than $7.5 million from LORAC.
Although Tottle J accepted that LORAC had established that there
was a serious question to be tried in respect of whether this
condition had been satisfied, his Honour was not persuaded by
LORAC's arguments that Samsung had not acted bona fide in
calling on the Replacement Security.
LORAC relied on ten matters which it argued gave rise to an
inference that Samsung's call on the Replacement Security
failed the contractual requirement. Among these were that each new
assessment by Samsung of the cumulative value of the Subcontract
works showed a progressive downward valuation of those works, and
the basis of these assessments were not clearly explained.
Tottle J took the view that the evidence LORAC sought to rely on
in establishing a lack of bona fides was not sufficient to meet the
standard required in a case where the injunction would have the
effect of changing, as opposed to preserving, the status quo. That
status quo derived from the parties' bargain about which of
them would bear the risk of being out of pocket pending final
determination of their disputes. To avoid the injustice that
Samsung might suffer if it were deprived of the benefit of its
contractual bargain (that is, that LORAC would bear the risk of
being out of pocket while disputes were finally determined), Tottle
J found (at ) that LORAC's case that there was a serious
question to be tried ought to be "...of sufficient
strength to engender confidence that it would succeed if the matter
went to trial".
LORAC's case was held to a higher standard because the
practical effect of LORAC's injunction was to give it final
The general observations that Tottle J made suggest that a court
is highly unlikely to grant an injunction based on an inference
that a party calling on a security has failed to comply with
contractual requirements governing that call. The logic behind this
is easy to understand: since there is a greater risk of error when
drawing an inference than concluding from proven facts, it is more
likely the court will cause injustice to the party seeking the
benefit of a security if it grants an injunction based on an
inference of non-compliance with contractual provisions governing
Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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