Orrcon Operations Pty Ltd v Capital Steel & Pipe Pty Limited

• Jurisdiction: Australia Federal only
• Court: Federal Court (Australia)
• Judgment Date: 29 August 2007
• Neutral Citation: [2007] FCA 1319

FEDERAL COURT OF AUSTRALIA

Orrcon Operations Pty Ltd v Capital Steel & Pipe Pty Limited [2007] FCA 1319

TRADE PRACTICES – CONSUMER PROTECTION – UNCONSCIONABLE CONDUCT – Application for interlocutory injunctions – where contract for sale of goods – where seller beneficiary under irrevocable documentary letter of credit – where third-party bank assignee of proceeds under letter of credit – where third-party bank relied upon assignment – where goods alleged to be defective – where seller alleged knowingly to have delivered defective goods – where seller purported to draw down on letter of credit – where seller not able to repay amounts drawn down – whether serious question to be tried that goods defective – whether serious question to be tried that seller engaged in trade or commerce in conduct that is unconscionable within the meaning of the unwritten law contrary to s 51AA Trade Practices Act 1974 (Cth) – whether s 51AA an exception to the autonomy principle – whether alleged conduct capable of constituting unconscionable conduct as a matter of law – whether serious question to be tried of facts alleged – whether interest of third-party bank prevents relief from being granted – whether balance of convenience favours relief.

Held:- serious question to be tried that goods defective – no serious question to be tried that seller engaged in conduct that is unconscionable contrary to s 51AA – balance of convenience favours refusal of relief – application dismissed.

Bank of New South Wales Act 1850 (NSW)

Corporations Act 2001 (Cth)

Federal Court of Australia Act 1976 (Cth) s 23

Federal Court Rules O 25A, r 5(5)

Trade Practices Act 1974 (Cth) s 51AA, s 52

Australian Broadcasting Authority v Lenah Game Meats Pty Limited (2001) 208 CLR 199 referred to

Australian Broadcasting Corporation v O’Neill (2006) 80 ALJR 1672 referred to

Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 referred to

Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301

Boral Formwork and Scaffolding Pty Ltd v Action Makers Ltd (in administrative receivership) (2003) ATPR 41-953 referred to

Cardile v LED Builders Pty Limited (1999) 198 CLR 380 referred to

Ciavarella v Balmer (1983) 153 CLR 438 referred to

Clough Engineering Limited v Oil and Natural Gas Corporation Ltd [2007] FCA 881 referred to

Clough Engineering Limited v Oil and Natural Gas Corporation Limited (No 2) [2007] FCA 927 referred to

Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 referred to

Legione v Hateley (1983) 152 CLR 406 referred to

Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR 380 referred to

Stern v McArthur (1988) 165 CLR 489 referred to

Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 referred to

United City Merchants (Investments) Limited v Royal Bank of Canada [1983] 1 AC 168 referred to

ORRCON OPERATIONS PTY LTD v CAPITAL STEEL & PIPE PTY LTD, EDWARD STUDDY, WESTPAC BANKING CORPORATION AND COMMONWEALTH BANK OF AUSTRALIA

NSD 1346 OF 2007

BESANKO J

29 AUGUST 2007

CANBERRA (VIA VIDEO LINK TO SYDNEY AND ADELAIDE)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1346 OF 2007

BETWEEN:	ORRCON OPERATIONS PTY LTD Applicant
AND:	CAPITAL STEEL & PIPE PTY LTD First Respondent EDWARD STUDDY Second Respondent WESTPAC BANKING CORPORATION Third Respondent COMMONWEALTH BANK OF AUSTRALIA Fourth Respondent

JUDGE:	BESANKO J
DATE OF ORDER:	22 AUGUST 2007
WHERE MADE:	ADELAIDE (VIA VIDEO LINK TO SYDNEY AND ADELAIDE)

THE COURT ORDERS THAT:

1. The application for interlocutory relief be dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1346 OF 2007

BETWEEN:	ORRCON OPERATIONS PTY LTD Applicant
AND:	CAPITAL STEEL & PIPE PTY LTD First Respondent EDWARD STUDDY Second Respondent WESTPAC BANKING CORPORATION Third Respondent COMMONWEALTH BANK OF AUSTRALIA Fourth Respondent

JUDGE:	BESANKO J
DATE:	29 AUGUST 2007
PLACE:	CANBERRA (VIA VIDEO LINK TO SYDNEY AND ADELAIDE)

REASONS FOR JUDGMENT

1 On 13 July 2007 Orrcon Operations Pty Ltd (“Orrcon”) issued a proceeding in this Court against Capital Steel and Pipe Pty Ltd (“Capital Steel”), Mr Edward Studdy and Westpac Banking Corporation (“Westpac”).

2 Orrcon is a corporation duly registered under the Corporations Act 2001 (Cth) (“Corporations Act”) and at all material times traded in the name and style of “Orrcon Operations Pty Ltd” ACN 094 103 090. At all material times, Orrcon engaged in the business of, inter alia, the manufacture of steel products within Australia. Capital Steel is also a corporation duly registered under the Corporations Act. At all material times it traded in the name and style “Capital Steel and Pipe Pty Ltd” ACN 095 843 039 and engaged in the business of, inter alia, trade in steel pipe. At all material times, Mr Studdy has been the sole director and shareholder of Capital Steel. Westpac is a company incorporated under the Bank of New South Wales Act 1850 (NSW) and is a corporation duly registered under the Corporations Act. At all material times, it engaged in the business of banking, including the provision of documentary letters of credit.

3 On 31 July 2007 the Commonwealth Bank of Australia (“Commonwealth Bank”) applied to be added as a party to the proceeding. On that day, Branson J made an order that the Commonwealth Bank be joined as a fourth respondent to the application.

4 In its application Orrcon sought the following interlocutory relief against Capital Steel and Westpac:

“4. A mandatory injunction requiring the first respondent [Capital Steel] to countermand all demands made under the letter of credit.

5. An interim injunction restraining the first respondent, until further order of the court, from making any further demand under the letter of credit.

6. An interim injunction restraining the third respondent [Westpac], until further order of the court, from making any payment pursuant to the letter of credit.

7. In the alternative to paragraphs 4, 5 and 6 above, a freezing order pursuant to order 25A, rule 2 restraining the first respondent from disposing of or dealing with any proceeds received by the first respondent under the letter of credit until further order.”

5 On 31 July 2007, Branson J also made an order that Orrcon’s application for interlocutory relief be listed for hearing on 14 August 2007. The hearing proceeded before me on that day and continued on 15 and 16 August 2007. During the hearing, Orrcon reformulated its application for interlocutory relief, and it now seeks the following relief by way of interlocutory relief:

“1. The First Respondent [Capital Steel] be restrained from making any further demand under the Letter of Credit.

2. Third Respondent [Westpac] be restrained from making any payment under the Letter of Credit.

3. The Fourth Respondent [Commonwealth Bank] be restrained, by itself its servants or agents, from calling up, making demand for, or otherwise seeking repayment of, all or any part of the outstanding balance of $12,814,164.85 (together with any interest accrued thereon) of the facility provided by the Fourth Respondent to the First Respondent in the letter of approval date 4 May 2007 from the Fourth Respondent to the First Respondent described as ‘Special Project IDLC Amounts Relating to Orrcon – on temporary basis until project is completed’ of $18,590,000.00 (‘the Facility’).

4. The Fourth Respondent be restrained, by itself, its servants or agents, from exercising any of the securities held by it as security for the Facility, and in particular, the securities listed in the Schedule to the Approval letter dated 4 May 2007 as set out in page 29 to 30 of Exhibit PJG1 to the affidavit of Philip James Grainger sworn on 10 August 2007 in these proceedings.

5. Note that the above orders are not intended to restrain the Fourth Respondent from calling up, making demand for or otherwise seeking repayment of any other facility granted by the Fourth Respondent to the First Respondent, or from exercising any security in respect of any such facility.

6. Note that the Applicant gives to the Court the usual undertaking as to damages with respect to these orders.

7. Note that the usual undertaking as to damages is intended to include any loss caused to the Fourth Respondent by reason of its inability to call up, make demand for or otherwise seek repayment of the Facility or exercise its securities in relation to the Facility until the final hearing of this matter, regardless of the outcome of these proceedings upon a final hearing.

8. Note that the Applicant shall be at liberty to withdraw the undertaking provided by it to the Court as a term of obtaining interlocutory relief upon giving the First and Fourth Respondent 30 days notice in writing, in which event these interlocutory orders will be discharged upon the expiration of that 30 days.”

6 I will refer to these orders as the “reformulated orders”. The reformulated orders were opposed by Capital Steel and the Commonwealth Bank. Westpac appeared by a solicitor but did not seek to play a part in the hearing.

7 On 22 August 2007 I made an order that the application for interlocutory relief be dismissed. I said that I would deliver reasons and these are my reasons.

Letter of Credit

8 The starting point is the Letter of Credit referred to in the interlocutory orders sought in the application and the reformulated orders. It was issued by Westpac on or about 22 December 2006 and relevantly provides:

“To: COMMONWEALTH BANK OF AUSTRALIA

SYDNEY

…

Form of Doc Credit IRREVOCABLE

Doc Credit Number SD3BM872029

Date of Issue 061222

Applicable Rules UCPURR LATEST VERSION

Expiry Date 070630 Place IN THE BENEFICIARY’S...