Tottle J considered that the effect of clause 5.2 was to create a negative stipulation on Samsung’s right to call on the replacement security, namely that Samsung must “consider, acting bona fide, that it is or will be entitled to recover the amount sought to be realised from LORAC, in this instance, AUS$7.5 million.”15
LORAC contended there were ten matters which, when considered together, gave rise to the inference that Samsung were not acting bona fide. However, the general thrust of LORAC’s submission was that:
1. The valuations of the various claims and counter-claims had changed, in some cases dramatically, as the dispute matured.
2. The basis upon which Samsung had made its assessments could not easily be divined from the correspondence16.
LORAC also attacked Samsung’s evidence arguing it was “vague and convulsionary”17 and invited the court to draw an adverse inference18 against Samsung because Samsung didn’t call evidence of the bona fides of its claims from the sub-contract manager responsible for the LORAC sub-contract but, instead, relied on evidence from a commercial manager “up the line” from the subcontract manager19.
Despite these attacks, Tottle J was not persuaded that LORAC had “established to the requisite standard that Samsung [had] not acted bona fide.”20 He examined the evidence in detail in order to come to that conclusion21. However, in coming to that judgment made two general observations which are of broader application:
[First,] a provisional conclusion as to a lack of bona fides can only be made on the basis of persuasive evidence. In assessing the allegation of a breach of bona fides, a court will look for undisputed facts and facts not surrounded by controversy from which to draw inferences. In this case, many of the matters relied upon by LORAC are so bound up in the controversies involved in the underlying dispute that it is difficult to draw the inference of a lack of bona fides for which LORAC contends.
[Second,] the effect of granting the relief sought by LORAC will be to deprive Samsung of the benefit of the bargain for which it contracted… The injunction will not preserve the status quo but will change it. … LORAC must demonstrate a prima facie case of sufficient strength to engender confidence that it would succeed if the matter went to trial. LORAC has raised a serious question but its prima facie case is not sufficiently strong. Put another way, LORAC’s case is not sufficiently strong to tilt the balance of the risk of an injustice in its favour22.
Lessons for construction industry participants
This decision is an interlocutory application meaning that it is attended by the usual procedural limitations of such decisions23. However, that is also the reason why it is interesting.
The inclusion of the negative stipulation in clause 5.2 is a departure from the standard form. The inclusion of the term “bona fide” was