Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318

Summary

The Court of Appeal has found that a judge’s exercise of the discretion to construe a recourse provision on an ‘as if final’ basis on an application for an interlocutory injunction to restrain recourse to performance securities miscarried: Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2019] VSCA 318.

Background

Siemens was engaged by Bulgana to construct two large wind farms in Western Victoria. Siemens failed to achieve practical completion by the date for practical completion. Siemens provided two unconditional bank guarantees referred to in the contract as ‘performance securities’. Bulgana sought to have recourse to the performance securities in respect of unpaid delay damages as it was entitled to do pursuant to the express terms of the contract.

Siemens sought interlocutory and final injunctive relief restraining Bulgana from having recourse to the performance securities. Siemens disputed that Bulgana was entitled to delay damages and alleged that it was entitled to extensions of time and liquidated damages for delays.

Siemens submitted that there was a serious question to be tried in relation to the construction of an agreement (the 30 September agreement) which it alleged had the effect of disentitling Bulgana from having recourse to the performance securities for unpaid delay damages.

Serious Question to be Tried: Construction of the recourse provision on a final basis

In Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd[1] the Court of Appeal pointed towards the desirability of exercising the discretion to construe a recourse provision on a final (not interlocutory) basis where this was able to be undertaken entirely within the four corners of the contract. In that case, the Court of Appeal construed the recourse provision on a final basis and found that there was no serious question to be tried.

In Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd, the Court of Appeal identified that there is no absolute rule governing when a Court should exercise its discretion to construe a recourse provision on a final or interlocutory basis (at [94]).

The Court of Appeal found that the Judge’s discretion to construe the recourse provision on a final basis in that case miscarried in circumstances where (at [101]-[102]):

(a) there were facts in controversy pertaining to the operation of the recourse provision which should have been the subject of cross-examination (at [101]); and

(b) the Judge failed to give weight to material and probative evidence (at [101]).

The Court found that the question of construction only fell for decision on a prima facie basis (as opposed to the ‘as if final’ basis adopted by the trial judge) pending the determination at trial of the relevant factual matrix (at [104]) and it was conceded on behalf of Bulgana that in these circumstances there was a serious question to be tried (at [105]).

Balance of Convenience and Reputational Harm

The Court of Appeal referred to the contested evidence in relation to asserted reputational harm to Siemens in the event that recourse to the bank guarantees was not restrained as being “general in nature but plausible on both sides” and noted that it “was not tested by cross-examination and so we do not attribute any significant weight to it”. In light of evidence that Bulgana may also suffer reputational harm in the event that it was restrained from having recourse, the Court of Appeal treated this an a neutral factor in assessing the balance of convenience (at [112] – [113] and [117]).

The Court of Appeal noted that it was within the ability of Siemens to pay the outstanding delay damages and avoid the bank guarantees being called upon.[2] It found that in the circumstances Siemens would likely pay the delay damages rather than allow the bank guarantees to be called on and therefore would only suffer financial loss capable of being compensated for by repayment upon a final determination (at [119]). The Court of Appeal placed little weight on Siemens’ asserted reputational prejudice, noting that it could be avoided by Siemens’ choice to pay the delay damages rather than risk the bank guarantee being called on (at [122]).

In conclusion, the Court of Appeal also dismissed the application for an injunction but did so on an interlocutory basis having found that there was a serious question to be tried and that this course carried the lesser risk of injustice should Siemens succeed in its contentions as to the operation of the recourse provision (at [123]).