Case: Boral Formwork and Scaffolding Pty Ltd v Action Makers Ltd (in administrative receivership) (2003) ATPR 41-953
Outcome: referred to
In Boral Formwork and Scaffolding Pty Ltd v Action Makers Ltd (in administrative receivership) (2003) ATPR 41-953 (" Boral Formwork "), Austin J considered whether an order should be made restraining a bank which had issued a letter of credit from paying any amount in excess of an undisputed amount to the beneficiary under the letter of credit. The parties seeking the order alleged that the beneficiary under the letter of credit had engaged in conduct that was unconscionable within s 51AA of the TPA. Austin J noted that the principle of autonomy applicable to a standby letter of credit could not override the provisions of the TPA. He referred with approval to the observations of Batt J in Olex Focas . Austin J considered the significance of the beneficiary being insolvent when the call is made on an irrevocable instrument. He said (at [81]): "If the parties have agreed to protect the beneficiary from credit risk, there is unlikely to be anything unconscionable in the consequence that the beneficiary may (for the benefit of its creditors) call on the irrevocable instrument at the account party's expense, leaving the account party to claim in the beneficiary's insolvency if the dispute is resolved in its favour." A little later, his Honour said (at [94]): "I hope it is clear, that in deciding to grant the relief sought by Boral, I have given anxious consideration to the principle of autonomy and the dangers associated with any judicial intervention with the performance of unconditional commercial obligations. The terms of the irrevocable instrument and the underlying contract, properly construed, are highly relevant to the decision whether conduct in connection with those arrangements is unconscionable for statutory or equitable purposes. It is not normally unfair or unreasonable or otherwise unconscionable to exercise commercial rights under an autonomous commercial contract, even if (for example) for the purpose of applying pressure to resolve a dispute. Even if the conduct is unconscionable, the principle of autonomy is relevant to the exercise of the Court's discretion to grant injunctive relief or leave the plaintiff to other remedies. Here the circumstances, involving as they do a call on the letter of credit on a false basis, are sufficiently special to overcome the hesitation which the principle of autonomy generates." 69 Shortly after his Honour made these orders, the banks applied to have them set aside. Gilmour J refused to set aside the orders: Clough Engineering Ltd v Oil and Natural Gas Corporation Limited (No 2) [2007] FCA 927. His Honour said (at [43]): "I remain satisfied that there is a serious question to be tried as to whether ONGC has acted unconscionably in contravention of s 51AA of the Act in calling on or threatening to call on the performance guarantees despite there being no legal right on its part to do so. As Austin J said in Boral Formwork v Action Makers (2003) ATPR 41-953 at [14] when referring relevantly to s 51AA of the Act: 'the principle of autonomy applicable to a standby letter of credit, cannot override the statute'. I am also satisfied that upon the same factual matrix, there is a serious issue to be tried whether ONGC is in breach if [sic] the negative stipulation conditioning the right to call up the performance guarantees."