In a recent decision, the
- A party will not, prima facie, be precluded from calling upon a guarantee for the sole reason that arbitral proceedings have been commenced and are pending determination, under Australian law.
- The International Arbitration Act 1974 (Cth) (IA Act), which mirrors the UNCITRAL Model Law (Model Law), allows for 'interim measures' to be determined by an Australian Court, exercising 'such power in accordance with its own procedures in consideration of the specific features of international arbitration'.
- Allowing a party to call upon a guarantee where arbitral proceedings are ongoing is consistent with the IA Act and thus the Model Law.
- The judgment considered and clarified the 'apparent' divergence of Australian jurisprudence as to the treatment of guarantees where arbitral proceedings are ongoing.
Background
35.3 Demands
(a) Company may have recourse to the Bank Guarantee(s) at any time in order to recover any amounts that are payable by Contractor to Company on demand.
(b) Other than in case of an application drafted and signed by senior counsel for an injunction grounded on an allegation of fraudulent attempt to be paid under a Bank Guarantee, Contractor waives any right that it may have to obtain an injunction or any other remedy or right against any party in respect of Company having recourse to the Bank Guarantee.
In
On
- to restrain Daewoo from pursuing the claim in its summons or otherwise seeking to restrain
INPEX from having recourse to the Guarantee; - an order that this prayer for relief be determined as a separate question; and
-
final declaratory relief that
INPEX is not obliged to return the Guarantee to Daewoo.
On
Decision
Upon hearing the applications, the Court decided to discharge the interim injunction which had restrained
Referring specifically to article 17J of the Model Law, the Court emphasised that the determination of interim measures (and thus interlocutory injunctions) is to be conducted 'in accordance with its own procedures', meaning that to uphold Daewoo's interim injunction, Daewoo would be required to satisfy the Court that:
- there is a strong prima facie case justifying the Court's interference; and
- a balance of convenience analysis favours the granting of the injunction.
Prima facie case
Before addressing Daewoo's interim injunction, the Court identified the principles relevant to undertaking the first limb of its analysis, observing that:
- the Court's approach to determining interim measures is no different where the parties have agreed to arbitrate;
-
bank guarantees fall to be considered in a special category of their own in the context of interlocutory injunctive relief, a position reflected in
Australia ; - in addressing whether to injunct the calling of a bank guarantee, the Court must consider whether the performance bond was intended to allocate risk pending the final determination of the parties' rights; and
- in undertaking the above analysis, the Court may be required to interpret contractual provisions, but any such contractual analysis should not be taken as binding on the arbitral tribunal.
The Court went on to review several provisions of the Contract, and considered whether (among other things):
- 'rework' was different to 'repairs or replacements under warranties';
-
Daewoo's contractual waiver to seek injunctive relief from
INPEX calling upon the Guarantee was in breach of public policy and thus unenforceable; and - the Guarantee was a 'risk allocation agreement' between the parties.
The Court acknowledged that Daewoo's contentions were indeed arguable, but ultimately found that Daewoo did not have a sufficiently strong prima facie case to warrant the interim injunction.
Balance of convenience
Finally, the Court considered the balance of convenience, having regard to:
- Daewoo's financial difficulties;
- the effect of a call on the Guarantee (resulting in interest being charged to Daewoo by the bank, and the immediate repayment of all loans to the bank); and
-
the ability of any judgment rendered by the Court to be enforced in
Korea .
Despite acknowledging that '[w]hen agreeing to give a bank guarantee a decade ago, Daewoo could not have foreseen a global pandemic, let alone both a pandemic and a war', the Court was not satisfied that the balance of convenience favoured the extension of the interlocutory injunction. In this regard, the Court observed that '
Comment
The decision in Daewoo v
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Ms Elizabeth Macknay
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