New South Wales Supreme Court CITATION : Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2009] NSWSC 439 HEARING DATE(S) : 29 April 2009 JURISDICTION : Equity Division Duty Judge List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 29 April 2009 DECISION : Seriously arguable question exists – defendant restrained from exercising contractual right to convert performance bonds CATCHWORDS : INJUNCTIONS – Application to restrain conversion of performance bonds under contract – whether seriously arguable question – balance of convenience CATEGORY : Procedural and other rulings PARTIES : Lucas Stuart Pty Ltd (plaintiff) Hemmes Hermitage Pty Ltd (defendant) FILE NUMBER(S) : SC 2576/09 COUNSEL : Mr M Ashhurst SC (plaintiff) Mr S Kerr (defendant) SOLICITORS : BCP Lawyers & Consultants (plaintiff) Deacons (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST BRERETON J Wednesday, 29 April 2009 2576/09 Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: This is an application under UCPR, rule 25.2, made before the commencement of proceedings, for an injunction to restrain the defendant from exercising certain rights under a building contract which permit it, in certain events, to convert into cash the performance bonds given to it by the plaintiff in respect of the subject construction project. Although made before the commencement of proceedings, notice has been given of the application, and the defendant has been represented and made submissions during the hearing. 2 In the context of an application of this kind – for an interim injunction until, say, early next week – when the evidence, even for interlocutory purposes, is far from complete, and there will need to be a further and fuller interlocutory hearing in any event, it is preferable not to say much about the merits. I am satisfied, for present purposes, that there is a sufficiently seriously arguable question that the defendant is not entitled to exercise its rights under clause 16.3 to convert into cash the performance bonds. I reach that conclusion principally on the bases advanced by Mr Ashhurst, SC, who appears for the plaintiff, and in particular the construction he advances of clauses 13 and 16 of the Contract. Additionally, it seems to me distinctly arguable that when clause 16.2 speaks of compliance with an obligation under the contract, it does not intend to include what might be called the secondary obligation to pay damages for breach of a primary obligation: clause 16.2 is concerned to secure performance of the primary obligations, as distinct from the payment of compensation for breach of them. This view derives some support from the distinction in clause 16.3 between remedying a breach, and compensation for damages consequent upon the breach. Generally speaking, in contract law a distinction is recognised between the obligation to perform a contract, and the obligation to pay damages for non-performance. At least arguably, what clause 12.3 does is to agree the amount of damages payable as liquidated damages for breach, as distinct from creating an obligation to pay damages for a breach which arises separately. 3 It is true, as Mr Kerr for the defendant submits, that there is effectively no evidence on the balance of convenience. It might equally be said that there is no evidence of prejudice arising from the grant of an interim injunction. Neither of those propositions is unsurprising, in the context of an application made today in response to a Notice of Demand served yesterday and threatening action today, or an application for an injunction notified this morning to be made this afternoon. On any further interlocutory hearing, both parties will have the opportunity to advance appropriate evidence on the balance of convenience. But on the present application it seems to me to suffice that the calling up of substantial performance guarantees almost inevitably involves some prejudice or detriment to the party who has given the guarantee or bond, whereas – given that the bond will remain available to be called on at the expiration of any injunction – it seems improbable in the extreme that any prejudice would be occasioned to the defendant by deferring for a few days the time at which that event might happen, if a case for extension of the restraint is not sustained. 4 Upon the undertaking of Marty Perry, solicitor, to pay the appropriate filing fees I grant leave to Lucas Stuart Pty Limited to file a Summons in the form initialled by me, dated this day and placed with the papers. I direct that the Summons be returnable on Friday 1 May 2009 at 10am before the Construction & Technology List Judge. I dispense with further service of the Summons and note the undertaking of Marty Perry to file an appearance on behalf of the defendant. 5 Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, I order that until Friday 1 May 2009 the defendant be restrained from, by itself, its servants or agents, exercising any rights under clause 16.3 of the building contract between the plaintiff and defendant dated 8 November 2006 for the construction of the entertainment and lifestyle hotel known as the "Ivy" at 320-348 George Street, Sydney, for the reasons and on the bases given by the defendant in its letter to the plaintiff dated 28 April 2009. 6 I note that counsel for the defendant has indicated that on Friday 1 May a reasonable extension of the injunction on an interim basis will not be opposed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.