TELLING THE TRUTH IS STILL THE BEST POLICY: Laing O’Rourke Australia Construction Pty Ltd v Samsung C&T Corporation, March 2016
Matthew Blycha and David Ulbrick
The most recent installment of the ongoing dispute between Laing O’Rourke Australian Construction Pty Ltd (LORAC) and Samsung C&T Corporation (Samsung)1 is of interest to construction lawyers as it shows that a court will need very convincing evidence before stopping a party from making a demand on a performance bond on the basis that the demand was not, in the language of the relevant contract, “bona fide” or in good faith.
Relevant facts
The action arose out of the troubled Roy Hill project. LORAC was engaged by Samsung in 2014 under a modified form of the standard form AS49022 (sub-contract) to construct structural steel and associated mechanical piping, electrical and instrumentation works in the port landside package. The subcontract sum was c AUS$200 million. LORAC was required to provide security for an amount equal to 10% of the subcontract sum. It duly did so.3
Less than a year later Samsung terminated the subcontract with LORAC for convenience4.In the aftermath of the termination LORAC and Samsung entered into an interim deed (interim deed) which imposed certain rights and obligations on the parties following the termination. Amongst other things, the interim deed provided for the performance securities under the sub-contract to be replaced and reduced in value. LORAC complied with that obligation. The replacement security was stated to expire on 20 February 20165. It is no secret that LORAC and Samsung are well advanced down the path to dispute6. During 2015 the parties engaged in some preliminary skirmishes in the Supreme Court of Western Australia7. Summed up briefly LORAC claims Samsung owes it over AUS$90 million while Samsung claims LORAC owes it AUS$55 million8. On any view it is a significant dispute and to prosecute it properly will place substantial financial pressures on the parties. On 22 January 2016 Samsung gave LORAC notice, as it was required under the clause 7.3 of the interim deed9, that it intended to call upon the replacement security10. Three days later LORAC commenced proceedings seeking an injunction to stop Samsung from taking that step11.
The issues
LORAC raised a number of grounds in support of its argument for the injunction. The most interesting of these was LORAC’s argument that the conditions in which a call on the replacement security could be made had not been satisfied.
The court did not accept that contention, nor any of the other, more spurious, grounds advanced by LORAC12, and accordingly declined to grant the injunction.
Samsung’s right to call on the replacement security was governed by clauses in both the sub-contract and the interim deed, relevantly, clause 5.2 of the sub-contract stated that Samsung could call on the replacement security where it “considers, acting bona fide, that it is or will be entitled to recover the relevant amount from [LORAC] under or in respect of the sub-contract”13. The interim deed provided (at clause 7.3) that Samsung was obliged to give LORAC 48 hours notice of an intention to call on the replacement