Austrak Pty Ltd v John Holland Pty Ltd [2006] QSC 103

SUPREME COURT OF QUEENSLAND CITATION: Austrak Pty Ltd v John Holland Pty Ltd [2006] QSC 103 PARTIES: AUSTRAK PTY LTD (ABN 72 008 925 031) (applicant) v JOHN HOLLAND PTY LTD (TRADING AS REGIONAL RAIL LINK) (ABN 11 004 282 268) (respondent) FILE NO: S3403 of 2006 DIVISION: Trial PROCEEDING: Originating application ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 12 May 2006 DELIVERED AT: Brisbane HEARING DATE: 8 May 2006 JUDGE: Chesterman J ORDER: Upon the applicant giving the usual undertaking as to damages: 1. the respondent be restrained by itself, its officers, servants, agents or assigns until trial or earlier order from making any demand that HSBC Bank Australia Ltd convert unconditional undertaking no. 11084204 dated 30 March 2005 into money; 2. the respondent pay to the applicant the sum of $1,804,353.10 by way of bank cheque in exchange for the applicant delivering to the respondent an unconditional undertaking by HSBC Bank Australia Ltd promising to pay the respondent on demand the sum of $1,804,353.10; 3. the respondent by itself, its officers, servants, agents or assigns until trial or earlier order be restrained from making any demand on HSBC Bank Australia Ltd to convert the said undertaking into money; 4. the respondent’s cross-application to have the originating application transferred to the Supreme Court of Victoria is adjourned; and 5. the costs of both applications be reserved. -- 1 of 14 -- 2 CATCHWORDS: EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – Injunctions to preserve status quo and property pending determination of rights – Other matters – where applicant provided first unconditional undertaking to guarantee performance of contract – where respondent alleges applicant's performance was defective – where respondent's right to convert undertaking subject to implied negative stipulation in contract – where respondent intimated intention to convert undertaking – where there is a serious question to be tried as to respondent's right to convert undertaking – whether applicant is entitled to interlocutory relief restraining respondent from converting unconditional undertaking EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORY INJUNCTIONS – Balance of convenience – where applicant provided second unconditional undertaking – where terms of contract governing right to convert undertaking are in dispute – where respondent converted undertaking – where there is a serious question to be tried as to respondent's right to convert undertaking – where applicant alleges respondent's calling on undertaking will cause irreparable damage to reputation if respondent not required to reimburse applicant for amount of undertaking – where applicant seeks mandatory interlocutory injunction requiring respondent to reimburse applicant for amount of undertaking – whether the balance of convenience favours granting interlocutory relief Jurisdiction of Courts (Cross Vesting) Act 1987 (Qld), s 5(2) Abigroup Contractors Pty Ltd v Peninsula Balmain Pty Ltd (unreported, Supreme Court of New South Wales, Hunter J, 2 December 1999, No. 55034/99), followed Bachmann Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420, cited Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451, followed CS Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd (unreported, Supreme Court of New South Wales, Giles J, 26 October 1994, 55040/94), followed Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670, followed Pearson Bridge (NSW) Pty Ltd v State Rail Authority of NSW (1982) 1 AusConstrLR 81, cited Reed Construction Services Pty Ltd v Khen Seng (Australia) Pty Ltd (1999) 15 BCL 158, followed Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd (2003) 19 BCL 451, cited Walter Construction Group Ltd v Secretary, Department of Infrastructure (unreported, Supreme Court of Victoria, Byrne J, 6 June 2000, No. 4637/00), followed -- 2 of 14 -- 3 COUNSEL: J Bond SC with P Franco for the applicant D J S Jackson QC with P Roney for the respondent SOLICITORS: Clayton Utz for the applicant Deacons for the respondent [1] On 5 August 2003 the applicant and the respondent made a written contract by which the applicant was to supply 175,000 concrete railway sleepers for the ‘Regional Fast Rail Project’, the improvement of four regional railway lines in Victoria to enable them to carry trains travelling at speeds of 160 kilometres per hour. The respondent (together with another contractor) was awarded contracts by the Victorian Government to design and construct two of the regional railway lines. The contract between the applicant and the respondent has been performed but in 2004 the respondent complained that on some segments of the lines the tracks were too close together. [2] The respondent has been put to considerable expense to rectify the problem created by the gauge of the railway lines being too narrow. It asserts that the problem with the gauge was caused by the sleepers, or numbers of them, not having been constructed to the contractual dimensions. It asserts that the applicant had tentatively admitted liability. The applicant denies that its performance of the contract was defective. It also denies having made any admissions to the effect that it had not properly performed the contract. [3] The applicant procured its bank, HSBC Australia Ltd (‘HSBC’), to provide two unconditional undertakings each addressed to the respondent promising to pay, on demand, sums of money specified respectively in the undertakings. [4] By an originating application the applicant seeks: (a) an injunction restraining the respondent until trial or earlier order from making any demand upon HSBC to convert its unconditional undertaking no. 11084204, dated 30 March 2005, into money; (b) an injunction requiring the respondent to pay to the applicant the sum of $1,804,353.10 by way of bank cheque in exchange for the applicant delivering to the respondent a new guarantee in the same terms as the unconditional undertaking 11084203 dated 1 April 2005 given by HSBC; and (c) an injunction restraining the respondent until trial or earlier order from making any demand that HSBC convert the undertaking referred to in (b) into money. [5] The respondent has intimated that it intends to make demand upon HSBC for the amount of the undertaking referred to in para 4(a). It has made demand, and been paid, the amount which HSBC promised to pay pursuant to the undertaking referred to in para 4(b). The applicant insists that the respondent had no right to demand payment from HSBC and seeks repayment of the money, which it has had to reimburse HSBC, on terms that will protect the respondent’s rights until trial. [6] The two undertakings give rise to different legal considerations and should be dealt with separately. The respondent does not seriously dispute the applicant’s -- 3 of 14 -- 4 entitlement to interlocutory relief restraining it from making demand on HSBC for payment of the amount the subject of the undertaking dated 30 March 2005. [7] That undertaking, no. 11084204, provided that: ‘At the request of [the applicant] … and in consideration of [the respondent] accepting this undertaking in respect of the contract for supply of prestressed concrete railway sleepers … HSBC … unconditionally undertakes to pay on demand any sum from time to time demanded by [the respondent] to a maximum aggregate sum of … AUD[$]394,525.52 … . The undertaking is to continue until either: (a) [the respondent] notifies [HSBC] that the undertaking is no longer required …, or (b) [the respondent] returns the undertaking to [HSBC], or (c) [HSBC] pays the … sum to [the respondent] … . If [HSBC] receives a notice from [the respondent] demanding payment … then [HSBC] unconditionally agrees to pay the full amount demanded … subject to the following terms:- (a) [The respondent’s] notice … must be in writing and signed …; and (b) [HSBC] shall make payment without reference to [the applicant] and notwithstanding any contrary notice or representations by [the applicant] …’ [8] Clauses 23 and 24 of the contract for the supply of sleepers provided that: ‘23.1 Any debt due from [the applicant] to [the respondent] under this Contract may be deducted by [the respondent] from: (a) any monies which may become payable to [the applicant] by [the respondent] under this Contract; and (b) any retention monies or security held by [the respondent]. … 24.1 As security for the due and proper performance of this Contract by [the applicant], [the applicant], within … 28 … days shall … provide [the respondent] with unconditional banker’s undertakings … for the amount and for the period in Schedule 1. … -- 4 of 14 -- 5 24.3 [The respondent] may have recourse to security and may convert into money security that does not consist of money only after giving [the applicant] 5 Business Days notice in writing of its intention to do so.’ [9] The applicant’s submission is that clauses 23 and 24 together specify the respondent’s rights to have recourse to the security provided by the applicant and, by implication, limit its right to recourse to those specified contractual circumstances. In particular it is submitted that the respondent’s right to convert the unconditional undertaking given by HSBC into cash is limited to cases where there is a debt due from the applicant to the respondent. The applicant’s written submissions identify a number of circumstances in which the operation of the contract would give rise to a debt owed by the applicant to the respondent. In the present case, however, the respondent does not assert that the applicant is indebted to it, whether pursuant to particular provisions of the contract or otherwise. The respondent wishes to make a demand upon HSBC for payment of the $394,525.52 as compensation for the loss it has incurred in rectifying the consequences of what it claims are defective sleepers. It seeks to recover the money as a payment on account of unliquidated damages for breach of contract. [10] As I mentioned the applicant’s claim for an interlocutory injunction restraining the respondent from calling up this unconditional undertaking is not seriously contested. Counsel for the respondent accepts that there are cases which have treated clauses such as 23 and 24 as containing implied negative stipulations, the effect of which is that a contracting party in the respondent’s position may only demand payment pursuant to a bank guarantee or undertaking where the pre-conditions identified by the contract for the demand have been met. The courts have restrained contracting parties from demanding payment pursuant to unconditional bank undertakings where it appears that a demand would contravene the implied negative stipulation in the contract. Examples are: Bachmann Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420; Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158; Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd (2003) 19 BCL 451; Pearson Bridge (NSW) Pty Ltd v State Rail Authority of NSW (1982) 1 AusConstrLR 81. [11] There is a serious question to be tried as to whether the respondent has the right to demand payment from HSBC when it does not assert the existence of a debt owed to it by the applicant. The balance of convenience favours the grant of the injunction. It will preserve the status quo. HSBC’s undertaking will remain in force for the duration of the injunction. A delay in receiving payment until it demonstrates its right to receive payment will not prejudice the respondent. Any cost to which the delayed payment gives rise can be met by an award of interest. It is accepted that the applicant is a company of substance. There is evidence that the applicant’s business reputation would suffer should a call be made on a banker’s undertaking it provided by way of security. This has been regarded as a significant factor in favour of the injunction. Examples are Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451 at 461-462 and Reed Construction Services at 167. I will therefore make the order sought by the applicant with respect to the unconditional undertaking given by HSBC dated 30 March 2005. -- 5 of 14 -- 6 [12] The second undertaking raises different considerations. [13] It was identical in format and terms to the earlier undertaking, but differed in its recital of the consideration for HSBC’s promise to pay on demand. It was in these terms: ‘At the request of [the applicant] … and in consideration of [the respondent] … accepting this undertaking in respect of a claim by [the respondent] that there are defects in works carried out by [the applicant] under contract for supply of prestressed concrete railway sleepers dated 4th August 2003 … HSBC … unconditionally undertakes to pay on demand any sum from time to time demanded by [the respondent] to a maximum aggregate sum of … AUD[$]1,804,353.10 … .’ As I mentioned earlier this undertaking was dated 1 April 2005. [14] On 19 April 2006 the respondent made demand upon HSBC pursuant to the undertaking and received from it payment in full of the amount of $1,804,353.10. The applicant commenced its proceedings on 24 April and on 26 April orders and undertakings were given, the effect of which was, inter alia, to preserve the proceeds paid pursuant to the second guarantee in a separate account until 4.00 pm on 8 May 2006. The undertaking has been extended until judgment is given on this application. [15] In July 2004 the applicant made its last claim for a progress payment under the contract, the amount being $1,804,353.10. The official designated by the contract to certify the amount due in the claim did not do so and the respondent refused to pay any part of it. The refusal was predicated upon the respondent’s belief that the applicant was responsible for the problems with the railway gauge, the rectification of which had involved it in cost. The applicant contemplated commencing proceedings to enforce payment of its claim for a progress payment but instead engaged in discussions with the respondent in an endeavour to resolve the dispute. Conversations were between Mr Douglas, the applicant’s then general manager and Mr Chudacek, the respondent’s then project director. Both men have filed affidavits setting out their recollection of the conversations. There was little common ground. They disagree fundamentally about the terms of their conversations which resulted in the respondent paying the applicant’s disputed progress claim but the applicant providing HSBC’s unconditional undertaking for the same amount. [16] Mr Douglas’ account of the agreement is that he said to Mr Chudacek on 7 February 2005, ‘If we put up a bond, will you release the amount owing to us on [our last] claim?’ Mr Chudacek said he would ‘think about that’. In a later conversation on 4 March 2005 Mr Douglas said to Mr Chudacek, ‘Have you accepted that we can put up a bond in lieu of the final payment?’ He received an affirmative response. Mr Douglas told Mr Chudacek that he could not think of any ‘other approach to fix the problem associated with the tight gauge than the one [the respondent] was adopting’. That apparently involved grinding the rails where they were attached to the sleepers to increase the width of the gauge. Mr Douglas is adamant that he did not say anything that might give rise to an inference that the applicant was responsible for the cost of the rectification. -- 6 of 14 -- 7 [17] Mr Douglas asserts that the effect of their conversation was that the respondent would not call upon any guarantee the applicant would provide unless the applicant accepted that it was responsible for the problem with the gauge and its rectification, or there was some determination, whether arbitral or curial, that the applicant had performed the contract defectively and was liable for the cost of making the defects good. He recalls saying words, in effect, ‘If it is determined that [the applicant] is at fault you can have recourse to the bond’. The bond is, of course, a reference to the undertaking to be given by HSBC. [18] Mr Chudacek’s account of the conversations is quite different. His recollection is that he told Mr Douglas that ‘it was open’ to the respondent to value the applicant’s progress claim by deducting ‘an appropriate amount to take into account … that [the applicant’s] sleepers were not supplied in accordance with the contract requirements.’ Mr Douglas said that he had no criticism of the manner in which the respondent was trying to resolve the problem and he ‘ultimately agreed’ that the applicant would provide a bank guarantee in the amount of the final payment claim. Mr Chudacek assured Mr Douglas that it was the respondent’s ‘obligation to find the cheapest solution’. He said this ‘on the basis that costs of resolving the problem were to [the applicant’s] account.’ [19] Mr Chudacek denies that Mr Douglas said anything to suggest that the guarantee could be called upon only after a determination that the applicant was liable for the cost of rectifying the too narrow gauge. [20] There followed some correspondence concerning the terms in which the undertaking would be furnished. An early draft provided by the applicant was rejected and an undertaking in the terms I have quoted was eventually given and accepted and signed by HSBC on 1 April 2005. During the course of these discussions Messrs Douglas and Chudacek again spoke. Mr Chudacek claims he said that the respondent ‘was only prepared to release the final payment on the basis of having an unconditional bank undertaking that the costs of any … rectification would be to [the applicant’s] account.’ Mr Douglas said that the applicant ‘would comply with [its] contractual responsibility’, to which Mr Chudacek replied that the undertaking ‘was to ensure that this happened.’ Mr Chudacek understood Mr Douglas to say, or to mean, that the applicant would reimburse the respondent the costs associated with grinding the rails. Mr Douglas said that he accepted the applicant ‘had problems with the sleepers’ but ‘could not admit liability’. [21] Mr Douglas adamantly denies making any such admission and he controverts Mr Chudacek’s suggestion that the conversation proceeded on the basis of a mutual, if implicit, acceptance that the applicant was liable for the cost of rectification. [22] Following their conversations Mr Chudacek wrote to Mr Douglas on 31 March 2005: ‘We confirm that discussions and correspondence have recently taken place regarding the provision of a bank guarantee to [the respondent] … to release [the applicant’s] final payment. [The respondent] wish[es] to advise that the release of this final payment in no way alleviates [the applicant’s] obligations under the contract to correct the non-conforming sleepers. The value of the bank guarantee … $1,804,353.10 is in no way a limit … on [the -- 7 of 14 -- 8 applicant’s] obligations and liabilities … The agreement to release the final payment is taking place as a sign of goodwill by [the respondent], and on the understanding that [the applicant] will reimburse [the respondent] all cost incurred as a result of the sleepers being non-conforming.’ [23] Mr Douglas replied, about a month later, on 26 April 2005: ‘We strongly disagree that the terms of your letter … correctly set out the position … 1. We agree that the payment of $1,804,353-10 does not “alleviate” … [the applicant] from any obligation under the Contract to correct any non-conforming sleepers. 2. Any limit of liability … will be determined in accordance with the … Contract. 3. [The applicant] disagrees with the proposition that payment was a sign of good faith on the part of [the respondent]. … [U]nder the Contract … the sum of $1,804,353-10 was due and payable to [the applicant] on 4 September 2004. Accordingly, the provision of the bank guarantee … avoided the escalation of [the respondent’s] failure to make payment …’ [24] Other details are in dispute but it is pointless to recount them. There is a clear conflict of testimony and of fact as to the terms of the contract between the parties which led to the provision of the second bank undertaking. The applicant’s case is that it was a security provided in accordance with the terms of the written contract which I have set out, although that contract does not seem to have been mentioned. If this basis be made out the respondent could not make demand under the undertaking unless the applicant was indebted to it, and on giving five days’ notice. No notice at all was given and the respondent has not established that there is any debt due to it from the applicant in respect of making good the railway gauge. The respondent’s case is that the contract concerning the second guarantee was entirely oral and arose from the disputed conversations. The respondent asserts that the relevant term of the contract was that it could call upon the undertaking at any time when it was satisfied that the applicant was responsible for the cost of rectification by reason of supplying defective sleepers and that the costs had been ascertained. The applicant contends that if the agreement was entirely oral the relevant term was that the respondent could not call upon the undertaking unless the applicant’s liability for the costs of grinding the rails had been established either by its acceptance of the fact or by some objective determination. [25] There is clearly a serious question to be tried. The respondent’s right to make demand upon HSBC depends upon the terms of the agreement which are the subject of hot dispute. If the applicant’s position should be vindicated after a trial the respondent acted in breach of contract in demanding payment. [26] Where does the balance of convenience lie? -- 8 of 14 -- 9 [27] The applicant relies upon a lack of prejudice to the respondent if the injunction is granted, and damage to its reputation by reason of the bank undertaking being called upon if the status quo ante is not restored by an injunction, as showing that the balance of convenience favours the injunction. [28] As to the first point the respondent’s financial statements for the year ended 31 December 2005 show it has a surplus of assets over liabilities of about $196,000,000 including cash in excess of $113,000,000. Its net profit for the six months ending 31 December 2005 was more than $33,000,000. The respondent’s overall profitability and financial stability will not be affected by having to pay back the $1,804,353.10. As well the respondent’s position is protected by the provision of a replacement undertaking in identical terms to be provided by HSBC which will enable the respondent to recover the money immediately once it has established its right to payment. The applicant offers the usual undertakings as to damages and it is accepted that the undertaking is valuable. [29] By contrast the applicant claims it will suffer ‘irreparable damage’ to its reputation if the respondent does not have to repay the money obtained from the undertaking. [30] Mr Brogan, the applicant’s general manager, deposed: ‘Virtually all the construction contracts to which [the applicant] is a party require [it] to lodge security in favour of the other contracting party to secure [the applicant’s] performance … under the … contract. This security is normally provided in the form of bank guarantees … … A contractor’s “security” history (in the sense of whether any of its bank guarantees … have ever been cashed) is an important part of that contractor’s reputation, and … is taken into account by prospective clients of the contractor when considering “Expressions of Interest” or tenders … … [The applicant] built its business on meeting its contractual obligations. This means completing its obligations without the need for security ever being called upon. … [The applicant] has never had any of its bank guarantees … cashed. I believe that if [the applicant’s] bank guarantee … dated 1 April 2005 … is not promptly restored … irreparable damage will be done to [the applicant’s] reputation … as [its] clients may question [its] ability to meet its contractual obligations. If … [the] bank guarantee … is restored promptly, then this will minimise any damage to [the applicant’s] reputation.’ -- 9 of 14 -- 10 [31] Such evidence was regarded as important by Hunter J in Abigroup Contractors Pty Ltd v Peninsula Balmain Pty Ltd (unreported, Supreme Court of New South Wales, 2 December 1999, No. 55034/99). His Honour said: ‘… the question of commercial reputation and the effect of a demand on a large contractor, with a record to date which has been evidenced in that context, should not be underestimated and there is a strong legitimate entitlement on the part of such a contractor to protect that reputation to the hilt.’ [32] Rolfe J took the same view, which was expressed at greater length, in Barclay Mowlem. His Honour said (at 461-2): ‘… once the evidence [of damage to reputation] is admitted … it demonstrates how inadequate a remedy in damages would be. The matter, so far as the plaintiff is concerned, which is detrimentally affected upon a performance bond being called-up, is the perceived ability of the plaintiff to properly perform its obligations under a contract. If the plaintiff’s ability in this regard is called in question, even improperly, it is not difficult to infer that there will be damage to its reputation in the industry in which it operates. Nor is it difficult to infer that its competitors would be quick to utilise such information in competing with the plaintiff. Finally, particularly as matters presently stand in the commercial world, questions may be raised as to the financial viability of the plaintiff … This would be underlined if … there has not previously been any call upon a performance bond. In other words people may be tempted to ask whether the plaintiff’s business was “going downhill”.’ [33] In Reed Construction Services Austin J said (at 167): ‘As to the balance of convenience, I am content to adopt almost everything that Rolfe J said in … Barclay Mowlem … the calling-up of a performance … bond is a very serious matter for the builder, having an effect on the builder’s reputation in the industry which competitors could quickly take advantage of.’ [34] But for these expressions of opinion I would not myself have accorded particular significance to the effect on business reputation of a contractor suffering a demand on a bank undertaking. I would have thought there was much to be said for the submission made by counsel for the respondent that news of the dispute between the parties in this case, and of the respondent’s assertions that the applicant’s performance of its contract has been defective, would be at least as damaging to the applicant’s reputation as knowledge that one of its banker’s undertakings had been called on. The dispute has been in existence for about two years and the participants in the applicant’s line of business are few in number and, presumably, well aware of each other’s affairs, to the extent that these things are talked about. I might have thought it unlikely that serious businessmen would jump to the speculations described by Rolfe J because a bank guarantee, provided to answer for a number of contractual contingencies, had been called on. Nevertheless I do not feel free to disregard the strong expressions of opinion from judges experienced in this field. Accordingly I accept that the applicant may suffer damage to its -- 10 of 14 -- 11 reputation which could not be adequately recompensed by an award of damages should it turn out that the respondent wrongly demanded payment. [35] The respondent points to the unusual nature of the relief sought by the applicant and further submits that, questions of reputation apart, damages will be an adequate remedy should the applicant prove in due course that the respondent’s call upon the undertaking was a breach of the contract between it and the applicant. [36] The first point is that the order sought is of a mandatory interlocutory injunction which courts are notoriously reluctant to pronounce. The respondent has called upon the undertaking and been paid. The applicant seeks an order that the respondent reimburse it the money it had to pay HSBC consequent upon HSBC’s payment to the respondent to honour the undertaking. Because all that is involved is a payment of money, damages are said to be adequate as a remedy. [37] It is true that mandatory interlocutory injunctions are rare but I take the relevant principles to be those which appear in the judgment of Hoffmann J in Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 at 80. Having referred to a decision of the Court of Appeal in which it had been said that the court is far more reluctant to grant a mandatory interlocutory injunction than a prohibitory one and that ‘in a normal case’ the court must feel a high degree of assurance that at a trial it would appear that the injunction was rightly granted, his Lordship said: ‘But I think it is important … to distinguish between fundamental principles and … “guidelines”, ie useful generalisations about the way to deal with the normal run of cases falling within a particular category. The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the “wrong” decision, 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. A fundamental principle is therefore that 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 I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle. … … [T]he features which justify describing an injunction as “mandatory” will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld … The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. … If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a “high degree of assurance” about the plaintiff’s chances of establishing his right, there cannot be any rational basis for withholding the injunction.’ -- 11 of 14 -- 12 [38] The authors of Equity Doctrines and Remedies, 3rd ed, Meagher, Gummow and Lehane, thought that (at para 2178): ‘… a judge hearing an application for an interlocutory mandatory injunction must apply exactly the same tests as he would in a case of an application for an interlocutory prohibitory injunction, not some different or more exacting test; … but in the application of the normal test, often, but not always, the fact that the relief sought is mandatory will tilt the balance of convenience in the defendant’s favour.’ [39] Similar orders to those sought by the applicant have been made in the past. In CS Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd (unreported, Supreme Court of New South Wales, 26 October 1994, No. 55040/1994) Giles J ordered the defendant to repay to the plaintiff an amount equal to the sum it had obtained by calling upon a bank guarantee provided by the plaintiff in return for the plaintiff providing a replacement guarantee. The order was made pending trial. Giles J said (BC9403175 at 29): ‘If the orders sought … be made Baulderstone will not suffer the loss of its security, but will still hold bank guarantees … and the orders will effectively restore the status quo … The balance of convenience in these respects favours the making of the orders, and in the circumstances the fact that the interlocutory orders sought are mandatory orders is not of great consequence. Although Baulderstone would be required to act to its detriment, it would still have its security and if its position was ultimately upheld would only be delayed in calling for payment.’ [40] A similar order was made by Byrne J in Walter Construction Group Ltd v Secretary, Department of Infrastructure (unreported Supreme Court of Victoria, 6 June 2000, No. 4637/00). His Honour said (at [14] to [15]): ‘The balance of convenience is indisputably in favour of [the plaintiff]. Its construction manager … deposed as to the adverse commercial consequences of the calling up of the bank undertakings. Counsel for [the defendant] accepted that, if the undertakings were reinstated, his client’s position would not be jeopardised. It will have substitute undertakings … In the event that it should hereafter appear that [the defendant] is entitled to call upon these undertakings, any other losses can be adequately protected by an undertaking as to damages. Any concerns which I might have had as to the appropriateness of mandatory injunctions of the kind here sought were dispelled upon my reading of the judgments in New South Wales where this course had been adopted.’ [41] In my opinion the balance of convenience favours the injunction. The risk of injustice is greater if the injunction is withheld than if it were granted. If the order is made the parties will be restored to their former position in which they disputed whether the respondent could demand payment on the undertaking without first -- 12 of 14 -- 13 establishing that the applicant’s performance of its contract had been defective. Damage to the applicant’s reputation will be minimised. The respondent will be protected by the issue of a replacement undertaking which it can call upon as soon as it establishes that the applicant’s performance of the contract was defective or that, regardless of that determination, the oral contract made between Messrs Douglas and Chudacek accords with the latter’s evidence. The act required to comply with the injunction can be quickly and readily performed and will not prejudice the respondent for the reasons earlier identified. The effect of the order will be to preserve the status quo ante. [42] Another factor of significance is that the determination of the question whether the respondent was entitled to demand payment from HSBC can be resolved very quickly so that the duration of the injunction should be short. The answer depends upon the terms of the contract made in March 2005 between Messrs Douglas and Chudacek. That involves the testimony of two witnesses and the perusal of a small number of documents. The trial would last half a day and could be got ready in a week or two. It should be possible to obtain a trial very quickly. The issue for adjudication at trial would be whether the parties agreed that the respondent could call upon the guarantee at any time, or only after the applicant conceded it was liable for the supply of defective sleepers or that fact had been objectively determined. A third possibility is that the right to call upon the undertaking was governed by clauses 23 and 24 of the written contract. In that case the respondent could not have made demand until the provisions of the contract it operated so to create a debt from the applicant to the respondent. That would, practically speaking, be equivalent to a determination that the applicant had performed its contract defectively and supplied sleepers that did not comply with the contract. [43] Should the trial result in a finding that the terms of the contract accords with Mr Chudacek’s testimony the respondent can make an immediate call upon the replacement guarantee and recover the money. Any damages it has suffered by being deprived of the money for a month or two can be paid pursuant to the undertaking as to damages. Should the trial go the other way the respondent will have to commence proceedings to vindicate its claim that the applicant’s sleepers were defective and that the respondent has suffered loss as a consequence. Until it can prove those facts it was not and will not have been entitled to make a demand on HSBC’s undertaking. The undertaking will stand pending the vindication of the respondent’s claim. [44] The respondent itself applied for an order pursuant to s 5(2)(b)(iii) of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Qld) for an order that the originating application be transferred to the Supreme Court of Victoria. This application should be adjourned until it is known what further proceedings will be instituted between the parties. It is clear that the contract for the supply of sleepers has a close connection with Victoria and any action brought in respect of the contract should be heard in the courts of Victoria. It is equally clear that any action which hangs off such an action should be heard in Victoria. It is not so clear that an action of the kind I have just described, to determine what were the terms of the contract with respect to the provision of the unconditional undertaking, should itself be heard in Victoria. It may be that it could be heard with equal convenience and greater speed in Queensland. These are matters for another day. -- 13 of 14 -- 14 [45] I order that, upon the applicant giving the usual undertaking as to damages: 1. the respondent be restrained by itself, its officers, servants, agents or assigns until trial or earlier order from making any demand that HSBC convert unconditional undertaking no. 11084204 dated 30 March 2005 into money; 2. the respondent pay to the applicant the sum of $1,804,353.10 by way of bank cheque in exchange for the applicant delivering to the respondent an unconditional undertaking by HSBC Bank Australia Ltd promising to pay the respondent on demand the sum of $1,804,353.10; 3. the respondent by itself, its officers, servants, agents or assigns until trial or earlier order be restrained from making any demand on HSBC to convert the said undertaking into money; 4. the respondent’s cross-application to have the originating application transferred to the Supreme Court of Victoria is adjourned; and 5. the costs of both applications be reserved. -- 14 of 14 --