Case: Ideas Plus Investments Ltd v National Australia Bank Ltd (2006) 32 WAR 467
Outcome: discussed
the demands in this case are equivalent to the certificate provided by the National Australia Bank (NAB) to HSBC, certifying in effect that the conditions of the letter of credit had been met: Ideas Plus Investments Ltd v National Australia Bank Ltd (2006) 32 WAR 467 at [14]. The Western Australian Court of Appeal held that the certificate "amounted to no more than an implied representation that it had reasonable grounds for issuing the certificate" at [51]. The reasonable grounds were the bona fide belief by NAB that the conditions were satisfied at [55]. The written demands are also analogous to the requisite statutory declaration in Fletcher Construction v Varnsdorf at p 830 to the effect that the amount claimed represented an amount(s) remaining unpaid to the owner. This was so even where the amount was disputed by the contractor. If it were the case that, on its proper construction, ONGC could not call on the guarantees until there was an admitted or established breach of contract, the time at which an arbitral tribunal or court might determine that matter could well be after the performance guarantees had expired: cf Ideas Plus Investments at [39] per Steytler P. Such a construction does not, in my view, make commercial common sense: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at [22] and [23] per Gleeson CJ. In Ideas Plus Investments Steytler P, with whom McLure and Buss JJA agreed, concluded that the NAB was empowered to claim under a letter of credit granted by HSBC so long as it had a bona fide belief that the conditions were satisfied. The certificate by the NAB issued to HSBC certifying in effect that the conditions of the letter of credit had been met was only a representation of such a bona fide belief and perhaps that there were reasonable grounds for such a belief. [55]-[57], [105] See also Fletcher Construction v Varsdorf at p 830. Steytler P with whom McLure JA agreed held that the basis for the payment made by HSBC pursuant to its independent obligation to NAB under the letter of credit was the provision by NAB of a certificate in the required terms. It was, his Honour found, the presentation of that certificate, not the truth of the facts certified, which conditioned HSBC's obligation to pay. The provision of cll 3.2.3-3.2.5 and 8.3.5 do not, in my view, assist the construction contended for by Clough. Those concern the contractual entitlement of ONGC to withhold approval and payment of progress claims. That entitlement provides a form of security to ONGC where there is a dispute because, pending arbitration, it is not required to pay the disputed amounts to Clough. It does not inform the question of the circumstances in which the performance guarantees may be called upon. Nor do I consider that the absence of an independent certification as to the existence of a certain state of affairs to trigger the obligation to make payment advances Clough's argument on construction. That is but one type of mechanism for payment in a contract. Its absence does not assist the construction of this contract. Performance guarantees play a critical part in international commerce and in international construction contracts, in particular. So much has been recognised by the courts on many occasions: the authorities are collected by Steytler P in Ideas Plus Investments at [32]-[34]. They were, objectively viewed, of critical importance to ONGC under the Construction Contract. This is manifest in two ways. Under cl 3.2.1 of the Construction Contract, no payments become due and payable to Clough until Clough has furnished the necessary performance guarantees and the Certificate of Insurance to ONGC. This would extend to performance guarantees whose validity was required to be extended under cl 3.3.2. Furthermore, as its option, ONGC was entitled, under cl 3.3.3, where Clough failed to furnish the performance guarantee(s) to terminate the Construction Contract. Completion Date of the Works under the Construction Contract was 15 April 2006 (cll 2.2.5 and 6.3.1). The warranty period under the Construction Contract is 12 months from the date of issue of the Certificate of Completion and Acceptance (cl 6.1.1). Any performance guarantee was to be initially valid up to 14 June 2007. This was by virtue of the provisions of cl 3.3.1, which provide for the period of validity to extend from the Completion Date, plus the warranty period and a further 60 days. Each performance guarantee is expressed to be valid until 14 June 2007. In the event that completion is delayed beyond the Scheduled Completion Date, Clough was liable to extend the validity of the performance guarantees accordingly, so as to maintain the same period of validity beyond that date.