Case: Wood Hall Ltd v The Pipeline Authority [1979] HCA 21 ; (1979) 141 CLR 443
Outcome: considered
The cases relied upon by his Honour included Wood Hall Ltd v The Pipeline Authority [1979] HCA 21 ; (1979) 141 CLR 443 at 452-4 per Gibbs J (with whom Mason J agreed) and at 459 per Stephen J. His Honour continued: 'I do not overlook the credible distinction between the effect of the underlying contract as between the parties to it and its effect (if any) as between the holder of the security and the third person whose obligation constitutes the security. One can for brevity speak of a contractual qualification upon the owner's powers in relation to the security where the underlying agreement between the owner and the contractor or supplier contains a term which restricts the exercise of those powers in some way.' [29] 31 The Court declined to grant injunctions under the general law, they not having established a clear case of fraud by the head-contractor in making demand under the guarantees and that the bank was aware of any such fraud at the time of the post payment. There was accordingly no serious question to be tried in that respect. In so finding the Court applied Wood Hall Ltd v The Pipeline Authority [1979] HCA 21 ; (1979) 141 CLR 443. 33 In Wood Hall Ltd v The Pipeline Authority a condition in a contract for the construction of a pipeline required the contractor to provide a cash security or, alternatively, a bank guarantee as security for the contractors due and faithful performance of the work. This was in the nature of a performance guarantee. Another condition entitled the owner to retain 10% of the progress payments due to the contractor until the work had been performed and accepted in accordance with the contract. The owner, at the contractor's request, agreed to accept a bank guarantee in lieu of the monies retained. This was a so-called retention guarantee. By each of the guarantees the bank unconditionally undertook to pay the owner on demand any sum up to the limit specified in each guarantee. When the work was almost complete, the owner demanded payment from the bank under the guarantee. The contactor sought declarations and orders the purpose of which was to restrain the bank from making payment to the Authority under four instruments described on their face as bank guarantees given by the bank to the Pipeline Authority. The Court there held that the owner was entitled to demand and be paid the amount of the performance guarantee whether or not there had been a want of due and faithful performance of the work, and the monies so paid must be held by him as security for the contractors due and faithful performance of the work. 34 Gibbs J, having regard to the proper construction of the performance guarantee, said that to hold that the Banks should not pay on receiving a demand, but should be bound to inquire into the rights of the Authority and the contractor under a contract to which the bank was not a party would be to depart from the ordinary meaning of the undertaking that the Bank is to pay on demand. (p 451) However, Stephen J observed that, if the construction contract itself had contained some qualification upon the Authority's power to make a demand under a performance guarantee, the position in relation to the grant of such an injunction might well have been different (p 459). Young J in Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 550-551 made observations to like effect. 47 The Banks contend that even if ONGC has incorrectly drawn down on the performance guarantees there are remedies available between Clough and ONGC, for example, by suing the beneficiary for an account and payment of any overpayment under a performance bond: Cargill International SA v Bangladesh Sugar &amp; Food Corporation [1996] 2 Lloyd's LR 524 at 530. See also Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) [1978] HCA 45 ; (1978) 141 CLR 335 at 351 and Wood Hall Ltd v Pipeline Authority [1979] HCA 21 ; (1979) 141 CLR 443 at 454. It points also to the fact that there is no suggestion that ONGC would be unable to repay any amount owing. Accordingly damages from ONGC, it is said, would be an adequate remedy.