In the recent decision of
Background facts
The Project involves the extraction of hydrocarbons from the
In
The contract included several warranties and, relevantly, a detailed provision regarding Daewoo's obligation to provide a bank guarantee to guarantee the due performance of its work, the circumstances in which
In
The dispute
A dispute arose when
Daewoo obtained urgent interlocutory relief, on an ex parte basis, restraining
Daewoo filed a motion seeking an order that the cross-summons be stayed pursuant to section 7(2) of the International Arbitration Act 1974 (Cth) (IAA), and that the parties be referred to arbitration.
The interaction between international arbitration and Court proceedings
In
Section 7(2) of the IAA provides that where an arbitration agreement exists, a Court must stay the proceedings and refer the parties to arbitration unless the Court finds the agreement null, void, or incapable of being performed.
Article 9 of the Model Law makes clear a party can resolve a dispute through arbitration and, at the same time, seek assistance from the Court for interim protection orders. Further, Article 17 of the Model Law provides that a Court has the same power in issuing interim measures as it has in relation to proceedings in Courts. As such the same general principles that apply in
A special feature of international arbitration is that a Court should respect the parties' choice to arbitrate and not take out of the hands of the arbitrators something which the parties have entrusted to the arbitrator alone to decide upon. Here the arbitration clause permitted the parties to seek "urgent relief" but did not specifically refer to interim or interlocutory relief. Similar cases have regarded the seeking of "urgent relief" as a "carve out" to the arbitration agreement, such that it falls outside of the Court's obligation to stay proceedings that were being arbitrated. The Court held there was no impediment to the Court granting interim measures and it was not obliged to stay the proceedings before doing so.
Decision
Daewoo was required to satisfy the Court that:
- there was a strong prima facie case justifying the Court's interference; and
- a balance of convenience analysis favoured the granting of the injunction.
Limb 1 - was there a strong prima facie case?
As to the first limb, the Court identified the following general principles:
- The Court's approach to determining interim measures is to be treated no differently where the parties have agreed to arbitrate.
- The Court must consider whether the bank guarantee was intended to allocate risk pending the final determination of the parties' rights.
- A prima facie case is not 'one size fits all'. It may be necessary for the Court to construe the contractual provisions. To do so is consistent with Article 17J of the Model Law. This should not be taken as binding on the arbitral tribunal, but simply what the Court needs to do to satisfy itself that it should preserve the status quo until the arbitral tribunal can finally determine the matter.
Daewoo's prima facie case was asserted on three grounds:
- The warranty period during which the bank guarantee was able to be called upon had expired;
Inpex was in breach of a negative covenant preventing it from calling upon the bank guarantee during a period when it was required to release; and- Daewoo's contractual waiver to seek injunctive relief was an attempt to oust the jurisdiction of the Court, and as such in breach of public policy and unenforceable.
Relying on an earlier judgment that had construed the exact same contractual terms, the Court held the bank guarantee acted as a "risk allocation device", providing a 'pay now, argue later' regime. The contractual bargain of the parties was that, while the contest is resolved before an arbitral tribunal,
While the Court found that Daewoo's contentions were arguable, the Court was not satisfied that Daewoo had a prima facie case of sufficient strength to warrant the continuation of the interim injunction.
Limb 2 - balance of convenience analysis
If wrong on the first limb, the Court when on to consider the second limb. This assessment focused on whether the inconvenience that Daewoo would likely suffer if an injunction were refused outweighed the injury which
Daewoo submitted that the balance of convenience favoured the grant of the injunction, where it undertook to extend and maintain the bank guarantee, together with the usual undertaking as to damages. If the injunction was not granted, it should be inferred that
Daewoo cited experiencing financial troubles in recent times, in particular, because of COVID-19 and international sanctions imposed on
Takeaways
There have been many judgments of the
The decision clarifies the 'apparent' divergence of Australian jurisprudence as to the treatment of guarantees where arbitral proceedings are ongoing. It solidifies the position that a guarantee can be called upon and retained by the party entitled to call upon it, while the parties await the final resolution of their dispute by an arbitral tribunal.
Parties considering calling upon a guarantee should carefully review the provisions of the relevant contract, to ensure that there is a sufficiently strong basis for calling upon a guarantee. A party's ability to retain the guarantee pending a final outcome will largely turn on the relevant provisions of the contract in question.
Mr
Level 9
VIC
3000
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