FEDERAL COURT OF AUSTRALIA

Swiss Re International SE v Eagle Downs Coal Management Pty Ltd [2015] FCA 1479

THE COURT ORDERS THAT:

1.    The prospective applicant’s application dated 22 October 2015 be dismissed.

2.    The prospective applicant pay the prospective respondent’s costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    By application dated 22 October 2015, the prospective applicant (“Swiss Re”) seeks preliminary discovery of nine categories of documents pursuant to rule 7.23 of the Federal Court Rules 2011 (Cth).

2    The application follows Swiss Re’s payment, on 25 August 2015, of $14,280,638.18 (“payment”) to the prospective respondent (“Eagle Downs”), in response to a direction from Eagle Downs dated 24 August 2015. The direction required Swiss Re to make the payment pursuant to an undertaking dated 22 January 2014 (“undertaking”). The undertaking was issued to Eagle Downs at the request of WDS Limited (“WDS”) in connection with a construction project at the Eagle Downs Mine Site, Moranbah, Queensland.

3    The application also follows the appointment, on about 2 September 2015, of administrators and receivers and managers to WDS.

4    Rule 7.23 provides:

(1)     A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant:

(a)    reasonably believes that the prospective applicant may have the right to obtain relief in the Court from a prospective respondent whose description has been ascertained; and

(b)    after making reasonable inquiries, does not have sufficient information to decide whether to start a proceeding in the Court to obtain that relief; and

(c)    reasonably believes that:

(i)    the prospective respondent has or is likely to have or has had or is likely to have had in the prospective respondent’s control documents directly relevant to the question whether the prospective applicant has a right to obtain the relief; and

(ii)    inspection of the documents by the prospective applicant would assist in making the decision.

(2)    If the Court is satisfied about matters mentioned in subrule (1), the Court may order the prospective respondent to give discovery to the prospective applicant of the documents of the kind mentioned in subparagraph (1)(c)(i).

5    The terms “prospective applicant” and “prospective respondent” are defined in r 7.21 as follows:

prospective applicant means a person who reasonably believes that there may be a right for the person to obtain relief against another person who is not presently a party to a proceeding in the Court.

prospective respondent means a person, not presently a party to a proceeding in the Court, against whom a prospective applicant reasonably believes the prospective applicant may have a right to obtain relief.

6    Swiss Re contends that it reasonably believes that it may have the right to obtain relief in the Court from Eagle Downs, being damages for loss suffered by Swiss Re by reason of the payment, on the basis that it was procured by Eagle Downs’ unconscionable conduct within the meaning of the Australian Consumer Law or fraud (being a claim for an amount which there was no reasonable basis to claim).

7    Eagle Downs opposes the application. It contends that the Court’s discretion to make an order under rule 7.23 has not been enlivened because the evidence does not demonstrate that Swiss Re has a reasonable belief that:

(a)    it may have the right to obtain relief in the Court from Eagle Downs;

(b)    the documents sought to be discovered are documents that are directly relevant to the question whether Swiss Re has a right to obtain the relief.

Evidence

8    Swiss Re relied upon affidavits of Damien Gorman sworn 22 October 2015 and 24 November 2015. Mr Gorman is the Head of Credit for Assetinsure Pty Limited (“Assetinsure”), Swiss Re’s agent.

9    Eagle Downs did not tender any evidence.

Background Facts

10    The undertaking is in the following form:

UNCONDITIONAL UNDERTAKING

Bond No: 201312-0056

At the request of WDS Limited ACN 121 517 860 of Level 10, 2 Elizabeth Plaza, North Sydney, NSW, 2060 (“the Contractor”) and in consideration of Eagle Downs Coal Management Pty Ltd ABN 78 107 199 619 of Level 10, 10 Market Street, Brisbane, QLD, 4000 (“the Principal”) accepting this undertaking in respect of the contract for Performance of Major Works in relation to the Eagle Downs Drift Construction – Situated at Eagle Downs Mine Site, Moranbah Queensland - Ref:4-020A (“the Contract”), Swiss Re International SE ABN 38 138 873 211 (“the Financial Institution”) C/- Assetinsure Pty Ltd ACN 066 463 803 of Level 3, 44 Pitt Street, Sydney, NSW unconditionally undertakes to pay on demand any sum or sums which may from time to time be demanded by the Principal to a maximum aggregate sum of Fourteen Million, Two Hundred And Eighty Thousand, Six Hundred And Thirty Eight Australian Dollars And Eighteen Cents ($14,280,638.18) (“the Sum”).

This undertaking is to continue until:

•    notification has been received from the Principal that the Sum is no longer required by the Principal; or

•    this undertaking is returned to the Financial Institution: or

•    payment to the Principal by the Financial Institution of the whole of the Sum or such part as the Principal may require.

Should the Financial Institution be notified in writing, purporting to be signed by for and on behalf of the Principal that the Principal desires payment to be made of the whole or any part or parts of the Sum, it is unconditionally agreed that the Financial Institution will make the payment or payments to the Principal forthwith without reference to the Contractor and notwithstanding any notice given by the Contractor not to pay same.

Provided always that the Financial Institution may at any time without being required so to do pay to the Principal:

•    the Sum less any amount or amounts it may previously have paid under this undertaking or

•    such lesser sum as may be required and specified by the Principal

and thereupon the liability of the Financial Institution hereunder shall immediately cease.

The Principal may not transfer, assign or otherwise deal with the benefit of this undertaking without the Financial Institution’s prior written consent.

Signed by the attorney of

Swiss Re International SE under

Power of Attorney dated 7th August 2012

This Twenty second day of January 2014

11    Swiss Re issued the undertaking pursuant to an agreement entitled “Terms Sheet for Contract Performance Bond Facility” dated 23 October 2013 between Assetinsure as agent for Swiss Re and WDS. The agreement refers to a deed of indemnity dated 24 March 2009 as security. WDS is a party to the deed of indemnity.

12    On 11 August 2015, WDS made a public announcement. The precise terms of the announcement are not in evidence. According to a report prepared by the administrators of WDS dated 28 September 2015, on 11 August 2015 WDS announced a revised expectation of a $15.5 million loss for the financial year ended 30 June 2015.

13    On 21 August 2015, Mr Gorman attended a meeting with senior representatives of WDS including the Chief Operating Officer and Executive Director of Finance, Barry Glendinning and the CEO and managing director, Lauri Voyer. According to Mr Gorman’s affidavit, the following matters were discussed:

(a)    the parties were at an ‘advanced’ stage to reach agreement to an amended contract; the terms of which, in summary, included a reduced contract sum, a reduced scope of work and WDS completing defect rectification works earlier in time than originally programmed;

(b)    the agreement to a revised contract could have the consequence that the amount of the bond would be reduced;

(c)    WDS expected the finalisation of the amended contract to occur in the next day or two; and

(d)    a further meeting between WDS and Eagle Downs was to occur on 1 September 2015 after the ‘OPR’ Test had occurred.

14    During the meeting, Mr Gorman asked whether the existing bond was at risk of being called by Eagle Downs. Mr Voyer replied: “No the bond is not at risk due to the current renegotiation of the contract.”

15    As noted at paragraph 2 above, on 24 August 2015, Eagle Downs made a demand for payment under the undertaking, and payment was made on 25 August 2015.

16    On 26 August 2015, Mr Gorman participated in a teleconference with senior representatives of WDS including Mr Glendinning, Mr Voyer and Ross Rolfe, the Chairman of WDS. During the teleconference, one of the WDS representatives said that WDS was “shocked and stunned at the suddenness of the call”. The same or another representative of WDS also said that:

Eagle Downs are very guarded in what they say about their actions. They have said to me the announcement on 11 August 2015 because it referred to a covenant breach was a concern, requiring them to call on the bond.

17    On 31 August 2015, Mr Gorman attended a meeting at the head office of WDS in Brisbane, with Messrs Rolfe, Voyer and Glendinning. At the meeting, Mr Rolfe said that Eagle Downs had put the bond proceeds into an “escrow account”.

18    On about 2 September 2015, WDS entered into voluntary administration and receivers and managers were appointed to WDS.

19    On 28 September 2015, the administrators of WDS published the report mentioned earlier. It states, relevantly:

On 11 August 2015 a new scope of works was agreed in principle with the Joint Venture. In conjunction with this in principle agreement the Company undertook a reforecast to reflect the agreement and as a result the Company announced a revised expectation of $15.5 million loss for FY15.

The Company and the Joint Venture worked on an amendment deed to reflect the in principle agreement …

…

Discussions between the Company and the Joint Venture between 25 August and 2 September 2015 focused on the negotiation of a commercial agreement for a limited scope of work to be completed by the Company, certain defects rectified, the Company exiting the site, previously approved progress payments paid and a portion of the surety bond returned.

20    There is no evidence that any person on behalf of WDS, or its administrators or receivers and managers, has alleged that Eagle Downs was not entitled to call on the undertaking when it did. The administrators’ report does not include any such allegation.

Efforts to obtain documents

21    Assetinsure’s files do not contain a complete copy of the contract between Eagle Downs and WDS, referred to in the undertaking. However, they include:

(a)    An initialled bundle of documents including a document entitled “Major Works Construct Only Contract (Qld)” between Eagle Downs and WDS, executed by Ross Rolfe on behalf of WDS, and attachments. The bundle comprises approximately 516 pages. From the pagination of the documents, it appears that pages numbers 5 to 82 are missing. From the page numbered 83 of the bundle, it seems likely that the missing pages were or included “Australian Standard General Conditions of Contract AS2124-1992”.

(b)    A 117 page bundle comprising a draft formal instrument of agreement between Eagle Downs and an unnamed contractor and including a Schedule 2 entitled “Amended from AS2124-1992 General Conditions of Contract”.

22    By letter dated 9 September 2015 from Swiss Re’s lawyers, Crisp Legal, to Ashurst, WDS’s receivers and managers’ lawyers, Swiss Re sought copies of the following documents:

(a)    The contract between WDS and Eagle Downs;

(b)    Payment claims and schedules served pursuant to that contract; and

(c)    Documents evidencing Eagle Downs’s commitment/WDS’s agreement to the monies represented by the bond being held “in escrow”.

23    The same request was made to the administrators of WDS and Eagle Downs on 14 September 2015. The administrators replied the same day, saying that the documents were not in their control.

24    Also on 14 September 2015, Ashurst responded to Swiss Re’s request saying:

We are not able to provide the documents that you have requested due to obligations of confidentiality under the Contract between WDS and Eagle Downs…Further, [Eagle Downs] has not consented to us providing these documents to you.

25    By letter dated 16 September 2015, Minter Ellison, Eagle Downs’ lawyers, responded, stating relevantly:

1.3 Eagle Downs properly exercised rights it had to require payments of the Bond Monies.

…

1.6 The Contract, its terms and any details or information relating to the Contract is the confidential information of Eagle Downs and is governed by the terms of the Contract.

…

1.8 Your client does not have any contractual relationship (or otherwise) with Eagle Downs that would entitle it to the requested information or documents, or raise concern about the circumstances in which a call was made on the undertaking.

26    On behalf of Swiss Re, it was submitted that the claim of confidentiality “rings hollow” in the absence of any evidence that may support such a claim.

27    A more detailed request for documents was sent to WDS’s receivers by Crisp Legal on 28 September 2015.

28    By letter dated 12 October 2015, Ashurst replied to the further request as follows:

Our clients’ position remains as outlined in our earlier letter. That is, “the Documents” (as defined in your letter of 28 September 2015) are confidential and WDS is not at liberty to disclose them.

Further, [Eagle Downs] have re-iterated to us that they do not consent to WDS providing the Documents to Assetinsure.

29    On 13 October 2015, Mr Gorman spoke with a representative of the administrators who said that Eagle Downs had “let the receiver back on site so they must have reached an agreement”. The representative said that she did not know any details.

30    On 15 October 2015, Mr Gorman spoke with a representative of the receiver who said that WDS had access to the site to enable a “demobilisation” to occur. The following conversation took place:

Mr Gorman: “It’s frustrating not understanding whether there is any basis to the claim to the $14.2 million. Did your agreement include for the return of some of those monies to you?”

Receiver’s representative: “I’m unable to answer this.”

Documents in Assetinsure’s possession

31    Mr Condon SC, senior counsel for Swiss Re, sought to rely on the documents in Assetinsure’s possession as evidence of likely terms of the contract between WDS and Eagle Downs.

32    He observed that an announcement of the kind described in the administrators’ report did not fall within the meaning of “Insolvency Event” in the document entitled “Amended from AS2124-1992 General Conditions of Contract” (“General Conditions”). Nor, based on the General Conditions, did such an announcement appear to refer to a covenant breach as suggested by the WDS representative on 26 August 2015.

33    Mr Condon SC referred to clause 5.1 of the General Conditions, which provides:

5.1     Purpose

Security, retention moneys and performance undertakings are for the purpose of ensuring the due and proper performance of the Contract.

and clause 5.5 of the General Conditions, which provides:

5.5    Recourse to Retention Moneys and Conversion of Security

The Principal is entitled to convert the security into cash at any time and may utilise that cash and/or any retention monies to pay for any Costs, losses, expenses or damages which the Principal claims that it has incurred or might in the future incur as a consequence of any act or omission or negligence or default of the Contractor.

The Contractor must not take any steps to injunct or otherwise restrain:

(a)    any issuer of any unconditional undertaking provided under clause 5.3 from paying the Principal pursuant to that undertaking;

(b)    the Principal from taking any steps for the purposes of making a demand under any such undertaking or receiving payment under any such undertaking; or

(c)    the Principal using the money received under any such undertaking, retention moneys or cash security.

34    Mr Condon SC also referred to clause 42.10, which provides relevantly:

42.10    Set Offs by the Principal

Without limiting the Principal’s other rights and remedies under the Contract or otherwise, the Principal may at any time and from time to time deduct from moneys otherwise due to the Contractor (including from an amount certified in a payment certificate) any money due or claimed to be due from the Contractor to the Principal (including liquidated damages under clause 35.6) whether under the Contract or otherwise and all losses, Costs, expenses and damages suffered or incurred by the Principal in respect of which the Contractor is or may be liable and if those monies are insufficient, from security (including retention money). …

Mr Gorman’s belief

35    At paragraph 36 of his first affidavit, Mr Gorman states:

Without access to the documents and other information sought, Swiss Re is prevented from obtaining legal advice as to whether:

(a)    Eagle Downs has acted fraudulently in the sense that it has claimed a contractual entitlement which it did not bona fide believe it could exercise;

(b)    Eagle Downs has misled Assetinsure or acted unconscionably within the meaning of sections 18 and 21 of the Australian Consumer and Competition Law; and/or

(c)    Eagle Downs’ contract contained so called “negative stipulations” or other limits such that Eagle Downs has acted in breach of contractual promise/promise(s) when it called for the monies presented by the bond.

36    At paragraph 41, he states:

In the circumstances set out above, I believe that Eagle Downs has, or is likely to have, control of documents directly relevant to the question whether Swiss Re has a right to obtain relief against Eagle Downs in relation to the demand made on the bond. Inspection of such documents would assist Swiss Re in making the decision whether to commence proceedings in this Court to obtain relief from Eagle Downs.

37    In his first affidavit Mr Gorman submitted that the agreement for a lower contract sum, combined with the return of some of the surety monies and the progress payment to WDS, each or all, demonstrated that there was no contractual entitlement for Eagle Downs to access the monies represented by the bond. I do not accept that submission, which was not developed in argument. Instead, it was submitted that Mr Gorman’s belief that Eagle Downs did not have contractual claims available to it at the time it demanded the payment from Swiss Re had a reasonable basis by reference to several matters, considered below.

Case law

Preliminary discovery

38    In Sandhurst Trustees Limited v Clarke [2015] FCAFC 21; (2015) 321 ALR 1 at [10], a Full Court adopted the following summary of the principles applying to an application under r 7.23 from the judgment of Greenwood J in Clarke v Sandhurst Trustees Ltd [2014] FCA 580; (2014) ACSR 215 at [10]:

… an applicant must show, apart from any other considerations, that he or she believes that he or she may have a right against the proposed respondent to relief (deriving from an identified and contended cause of action) and the belief is, objectively, reasonably held rather than a “mere” belief or mere assertion or matter of speculation, notwithstanding that r 7.23 is to be construed beneficially so as to give the fullest scope reasonably allowed of the language of the rule (St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 at [26]) and also recognising that the notion of a “reasonable belief” reflects a threshold to be satisfied by the applicant set at “quite a low level”. The evidence must demonstrate that there is some tangible support for the belief that takes the existence of the alleged right beyond mere belief, assertion or speculation (Reeve v Aqualast Pty Ltd [[2012] FCA 679] at [65]).

39    Swiss Re emphasised that the relevant threshold is set at “quite a low level”: cf. Gull Petroleum (WA) Ltd v Tah Land Pty Ltd [2001] FCA 1531 at [59]; Bonham v Iluka Resources Ltd [2015] FCA 713; (2015) 107 ACSR 75 (“Bonham”) at [66]. A prospective applicant does not have to make out a prima facie case for relief: EBOS Group Pty Ltd v Team Medical Supplies Pty Ltd (No 3) [2012] FCA 48; (2012) 199 FCR 533 at [31]. However, the seriousness of the underlying allegation must be borne in mind when determining whether the prospective applicant has established that it holds the necessary objectively reasonable belief: Higgins v Hancock [2011] FCA 1492; (2011) 199 FCR 393 at [69].

40    A belief that a person may have a cause of action in this Court can fall short of being objectively reasonable for one of two reasons: the cause of action in contemplation itself may be too doubtful as a matter of law, or the available evidence in support of an otherwise plausible cause of action may not rise to or beyond those which justify mere suspicion or speculation: Bonham at [68].

Fact finding

41    In relation to a predecessor rule to rule 7.23, in Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 1500 at [41], Lindgren J stated that the questions posed by the rule “are to be answered in the context of an adversary system of forensic contest in which a proposed respondent is ordinarily entitled to withhold its evidence, certainly prior to the commencement of proceedings”. That proposition applies to rule 7.23: cf Ebos Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [21].

42    Swiss Re asked the Court to take into account Eagle Downs’ refusal to consent to the production of documents by the receivers and managers of WDS in its fact finding. The submission was put in relation to two discrete matters:

(a)    First, it was said that Eagle Downs’ failure to produce any notice of a dispute on WDS, in response to Swiss Re’s request, should lead the Court to conclude that no such notice or notices had been served;

(b)    Second, it was said that Swiss Re’s ability to lead evidence in support of its reasonable belief had been hampered by Eagle Downs’ conduct. It was submitted that Eagle Downs’ refusal, unjustified by evidence of its asserted contractual entitlement to refuse consent, would lead the Court more readily to conclude that Swiss Re’s belief that it may have the right to obtain relief is reasonable.

43    Mr Condon SC referred to the application of the principles set out in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 (“Jones v Dunkel”) in Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 (“Ho”). Ho concerned fact finding in a negligence action. Hodgson JA (Beazley JA agreeing) said:

13    The onus lay squarely on the appellant to prove not only that the respondent failed to take reasonable care for his own safety, but also that this contributed to the causation of the accident.

14    There is a long-standing controversy whether the civil standard of proof requires a numerical probability in excess of 50 per cent (see Davies v Taylor [1974] AC 207 at 219), or belief amounting to reasonable satisfaction (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362). My own opinion is that the resolution of the controversy involves recognition that, in deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision. I discussed this in some detail in an article published at (1995) 69 ALJ 731 (D H Hodgson, “The Scales of Justice: Probability and Proof in Legal Fact-finding”).

15    In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so: cf. 69 ALJ at 732-3, 736, 740. As stated by Lord Mansfield in Blatch v Archer (1774) 1 Cowp. 63 at 65 (98 ER 969 at 970): “… [A]ll evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”. See also Azzopardi v The Queen (2000) 75 ALJR 931 at 935 [10]; 179 ALR 349 at 353 [10].

16    The case of Jones v Dunkel (1959) 101 CLR 298 is a particular application of this principle. That case itself related to a situation where there was evidence supporting an inference against a party, and that party did not give or call evidence, which that party was plainly in a position to have given or called, in order to explain or contradict the material presented. In my opinion, a similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person’s case: cf. Commercial Union Insurance Co. of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389.

44    Mr Condon SC also referred to Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1992) 22 NSWLR 389 at 418, where Handley JA held (Kirby P agreeing) that the Court should not draw inferences favourable to a party whose counsel refrains from asking crucial questions of a witness who could have answered them.

45    In Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728 at 733, on an application for preliminary discovery, Burchett J applied the rule in Jones v Dunkel to take into account the absence of a denial in concluding that there was reasonable cause to believe the applicant may have had a cause of action against the respondents arising out of the misuse of confidential information. In that case, there was positive evidence to suggest that confidential information had been improperly taken.

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.

Asserted reasonable basis for belief that Swiss Re may have right to relief

56    Swiss Re argued that the following facts provide a reasonable basis for the belief that Swiss Re may have a right to obtain relief in this Court from Eagle Downs:

(a)    Eagle Downs has claimed the full amount of the bonds, in excess of $14 million;

(b)    The statement made at the 21 August 2015 meeting, that the bond was not at risk due to the renegotiation of the contract between Eagle Downs and WDS;

(c)    The statements made at the 21 August 2015 meeting to the effect that the negotiations between WDS and Eagle Downs contemplated the reduction of the contract price by an amended contract to be executed in the next day or two, which would have the effect of reducing the amount of the undertaking;

(d)    The statement made by a WDS officer during the 26 August 2015 teleconference that WDS was “shocked and stunned” at the suddenness of the call on the bond;

(e)    The statement made during the 26 August 2015 teleconference that Eagle Downs apparently acted on the 11 August 2015 announcement because it referred to a covenant breach;

(f)    The statement that the bond money was being held in a separate “escrow” or “imprest” bank account; and

(g)    Based on the administrators’ 28 September 2015 report, by late August 2015, previously approved payments had not been paid by Eagle Downs to WDS.

57    With one exception, I am satisfied that the evidence supports the facts contended for my Swiss Re. As to (c), the evidence set out at paragraph 14 above is of statements about a possible, rather than a certain, reduction in the amount of the undertaking.

58    Mr Condon SC contended that there is an arguable case that Eagle Downs, acting in good faith and being aware of clause 5.5, could not have made a call on the undertaking. Mr Condon SC submitted that the measure of whether the conduct, in calling on the undertaking, was unconscionable, is informed by the contractual right under clause 5.5. That is, that Eagle Downs’ entitlement to call on the undertaking was, arguably, conditioned upon the identification of “Costs, losses, expenses or damages which [Eagle Downs] claims it has incurred or might in the future incur as a consequence of any act or omission or negligence or default of” WDS.

59    An obvious difficulty with that submission is that the undertaking expressly required Swiss Re to make a payment of the whole (or any part or parts) of the amount specified in the undertaking on receipt of notice in writing “that the Principal desires payment to be made” and “without reference to [WDS] and notwithstanding any notice given by [WDS] not to pay same”. That is, the obligation to pay did not require evidence of a contractual entitlement against WDS.

“Motive”

60    In oral submissions, Mr Condon SC emphasised the evidence of “motive”, being the statement that Eagle Downs made its demand on the undertaking in response to the 11 August 2015 announcement because the announcement referred to a covenant breach. His contention was that, if the statement was truthful, that motive was unrelated to a breach of the contract between Eagle Downs and WDS because Eagle Downs was reacting to the public announcement on 11 August 2015.

61    I do not accept that the evidence of “motive” provides support for a reasonable belief that Eagle Downs may have acted fraudulently or unconscionably. Assuming that the statement accurately reflects Eagle Downs’ reasoning in relation to the call, it is equally consistent with a legitimate commercial decision to exercise a pre-existing right to call on the bond, in the light of concerns about the financial position of WDS raised or exacerbated by the announcement.

62    The absence of any assertion by any person on behalf of WDS, its administrators and receivers and managers that the evidence of “motive” reveals fraud, unconscionable conduct or even a breach of contract on the part of Eagle Downs lends weight to the conclusion that this evidence does not provide a basis for a such claim.

63    Further, on Swiss Re’s interpretation of the statement, Eagle Downs was asserting a belief that it was required to call on the bond by reason of WDS’s covenant breach. Such an assertion tends against a reasonable belief that the call was made dishonestly or that Eagle Downs did not hold a subjective belief that it was entitled (and required) to call on the bond.

State of negotiations between WDS and Eagle Downs at the time of the call

64    Mr Condon SC referred, in particular, to the evidence of a contemplated reduction in the security shortly before the call, as evidence inconsistent with a bona fide belief on the part of Eagle Downs of an entitlement by Eagle Downs to call upon the full amount of the security.

65    I accept that the evidence about the negotiations between Eagle Downs and WDS could raise questions about Eagle Downs’ contractual position vis a vis WDS.

66    In the light of the terms of the undertaking, the state of negotiations between Eagle Downs and WDS, however advanced, is not germane to whether there was a bona fide belief on the part of Eagle Downs of an entitlement by Eagle Downs to call upon the undertaking. Even if the negotiations were relevant, the evidence about the negotiations prior to the call does not reveal anything which would cast doubt on Eagle Downs’ entitlement as at 24 August 2015 to call upon the undertaking, or on Eagle Downs’ bona fide belief as to that entitlement. All that is revealed in substance is that Eagle Downs and WDS were in negotiations which could produce an outcome under which the terms of the undertaking would be altered in Swiss Re’s favour. In my view, that prospect does not provide a reasonable basis for doubting Eagle Downs’ bona fides in the manner suggested by Mr Condon SC.

67    To the extent that it was suggested that the state of negotiations revealed a belief on the part of Eagle Downs that it was not entitled to call upon the full amount of the undertaking (as opposed to some lesser amount, or not at all), that contention requires acceptance of the premise that Eagle Downs’ entitlement to call on the undertaking was restricted by the amount of any claims against WDS. Accepting that premise for the purpose of the application, the evidence of the negotiations does not shed light on the extent of Eagle Downs claims against WDS. Without evidence of the extent of those claims, in my view, the evidence of the state of negotiations is not inconsistent with a bona fide belief on the part of Eagle Downs of an entitlement by Eagle Downs to call upon the full amount of the security.

68    To the contrary, the statement that the undertaking was “not at risk due to the renegotiation of the contract” asserts a connection between the renegotiation of the contract, then being conducted, and the risk of the bond being called upon. It tends to suggest that the belief of WDS (which might reasonably be expected to have been shared by Eagle Downs) was that the bond might be called upon if the contract was not successfully renegotiated.

69    Mr Condon SC noted that, from the administrators’ report, it appears that previously approved progress payments had not been paid by Eagle Downs to WDS at the time of the demand on the undertaking. Even taking that into account as a matter that Eagle Downs would have considered as a possible set off against any claims against WDS, in my view, the evidence does not cast any doubt upon Eagle Downs’ bona fides.

Other positive evidence relied upon by Swiss Re

70    The evidence that WDS was “shocked and stunned” by the suddenness of the demand on the undertaking does not say anything material about the legality of the demand, and nor does the statement that the payment was held in a separate account.

Absence of evidence from Eagle Downs

71    Swiss Re relied upon the following matters to support a finding of the requisite reasonable belief:

(a)    The absence of evidence of any defects of substance which would justify the call on the undertaking;

(b)    The absence of evidence of the amount required to rectify the defects;

(c)    Eagle Downs’ refusal to provide any information which would corroborate the existence and extent of its claims for damages under the relevant contract; and

(d)    Eagle Downs’ refusal to provide any notices of dispute issued under the contract, or otherwise to indicate the nature of complaints it asserted against WDS as at August/September 2015.

72    It was not suggested that Eagle Downs had any contractual obligation to provide the information sought to Swiss Re.

73    In some cases, a party may be “required to explain or contradict” something: Heydon JD, Cross on Evidence (10th ed, LexisNexis Butterworths, 2015) at [1215], citing R v Burdett (1820) 4 B & Ald 95 at 161-162 and Jones v Dunkel at 321. Mr Heydon QC explains the parameters of this obligation as follows:

What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case: Nuhic v Rail and Road Excavations [1972] 1 NSWLR 204 at 221 (CA)[; Mintech Resources Pty Ltd v Russell-Taylor (2012) 113 SASR 80 at [84]]. No inference can be drawn unless evidence is given of facts “requiring an answer”: [Jones v Dunkel] at 322; Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121 at [51] (approving the last three sentences); Cubillo v Commonwealth (2000) 103 FCR 1 at [360]. If there is no issue between the parties on a matter, there is nothing to answer; and if there is an issue between them, but the party bearing the burden of proof has tendered no evidence of it, the opponent is not required to answer.

74    In this case, there is no evidence of fraud or unconscionable conduct that required Eagle Downs to justify the legality of the call on the undertaking by producing to Swiss Re, or the Court, material and information of the kind in paragraph 71 (a) to (d) above.

75    Accordingly, Eagle Downs’ failure to produce that material and information lends no weight to Swiss Re’s case.

Refusal to consent to production of documents by WDS

76    Swiss Re argued that, in assessing the reasonableness of its belief, the Court should take into account that it has been unable to obtain documents from the receivers and managers of WDS, by reason of Eagle Downs’ assertion of a duty of confidentiality owed to it by WDS.

77    In response, Mr Kidd SC observed that the evidence does not justify a conclusion that the receivers and managers’ decision not to provide documents to Swiss Re was because of Eagle Downs’ assertion of that duty. The relevant evidence is at paragraphs 24 and 28. I accept Mr Kidd SC’s observation.

78    Even so, there is a question as to whether Swiss Re’s inability to obtain documents from the receivers and managers should be taken into account in deciding whether it has satisfied the threshold of a “reasonable belief”. If it is suggested that the burden on Swiss Re is lower because of its inability to obtain documents, which might or might not have supported a reasonable belief, I do not agree that this is a legitimate process of reasoning. The question is whether the belief is “reasonably held rather than a ‘mere’ belief or mere assertion or matter of speculation”. The reasonableness of the belief depends upon the matters that support the belief. While an inability to obtain documents might, in some circumstances, be a matter that supports the reasonableness of a belief, it could not operate to transform the quality of a belief from speculative to reasonable.

79    The final question is whether Eagle Downs conduct in refusing to consent to the production of documents by the receivers and managers of WDS is a matter that supports Swiss Re’s belief. For the reasons given concerning Eagle Downs’ conduct in declining to provide documents, I do not accept that it does support that belief.

Conclusion

80    I am not satisfied that Swiss Re reasonably believes that it may have a right to obtain relief in the Court from Eagle Downs in accordance with rule 7.23(1)(a).

81    Accordingly, the application must fail.

Documents sought by Swiss Re

82    In case I am wrong in my conclusion above, I have considered whether the documents sought by Swiss Re are directly relevant to the question whether Swiss Re has a right to obtain the relief.

83    On the premise that the relevant right to obtain relief is a claim under the Australian Consumer Law based on unconscionable conduct of the kind described in JBE, I would accept that the contract between WDS and Eagle Downs is directly relevant (paragraph 1(a) of the originating application).

84    Paragraphs 1(b) to (f) of the originating application seek the following documents:

b.    all payment claims and schedules referrable to the [executed contract between WDS and Eagle Downs for the construction of mine access drifts at the Eagle Downs Coal Mine in the Bowen Basin, Queensland (“the Contract”] served between 1 March 2015 and 24 August 2015;

c.    all directions given by the person occupying the role of Superintendent to WDS pursuant to the Contract between 1 April 2015 and 24 August 2015 that would establish or identify:

i.    any allegedly defective or incomplete works undertaken by WDS;

ii.    any costs, losses, expenses or damages claimed by Eagle Downs against WDS;

iii.    any money due, or claimed to be due, from WDS to Eagle Downs; and

iv.    any amounts due and payable, or claimed to be due and payable, from WDS to Eagle Downs;

d.    any notices of claim/dispute served by Eagle Downs on WDS pursuant to the Contract between 1 April 2015 and 24 August 2015;

e.    all claims served by Eagle Downs on WDS which:

i.    identify any allegedly defective or incomplete works undertaken by WDS;

ii.    identify any costs, losses, expenses or damages claimed by Eagle Downs against WDS;

iii.    claim money due from WDS to Eagle Downs; and

iv.    claim an amount as being due and payable from WDS to Eagle Downs; and

f.    all reconciliations prepared by or on behalf of Eagle Downs in relation to payments made or money owed by WDS pursuant to the Contract, prepared from 3 August 2015 …

85    On the premise stated in paragraph 83, documents directly relevant include documents evidencing the quantum of the claims made or available to be made by Eagle Downs against WDS and the quantum of approved payment claims outstanding. Paragraphs (b) to (f) appear likely to travel beyond the scope of the documents that would be directly relevant. Put another way, I do not accept that paragraphs (b) to (f) describe documents that are directly relevant to the possible relief, although they may include documents that are directly relevant.

86    Paragraphs 1(g) to (i) of the originating application seek the following documents:

g.    all drafts of any contract between Eagle Downs and WDS coming into existence between 3 August 2015 and 2 September 2015 and any communications relating to such a draft contract from 3 August 2015;

h.    all letters, emails and file notes recording communications between Eagle Downs and WDS regarding the negotiation of any draft contract between Eagle Downs and WDS coming into existence between 3 August 2015 and 2 September 2015;

i.    all letters, emails and file notes recording communications between Eagle Downs and the Receiver to WDS regarding any agreement, arrangement or understanding, either proposed or finalised, between Eagle Downs and the Receiver to WDS; …

87    I am not satisfied that these paragraphs meet the test of “directly relevant” to the claim as articulated on behalf of Swiss Re. In particular, there is no evident connection between those classes of documents and the call on the undertaking.

Conclusion

88    The application will be dismissed with costs.

Associate:

Dated:    23 December 2015