Bulgana Wind Farm (BWF) had entered into a engineering, construction and procurement contract (EPC Contract) with Siemens (SGRE) to build 56 wind turbine generators and a battery storage solution located in central Western Victoria, known as the Bulgana Green Power Hub.  The EPC Contract required practical completion of the wind farm by 16 August 2019.  Clause 18.3 of the EPC Contract provided that if SGRE failed to meet practical completion, it was liable to pay delay liquidated damages (DLDs) at agreed rates up to practical completion.  Under clause 25.1 of the EPC Contract, SGRE was required to give security, which it did by the provision of two unconditional bank guarantees totalling approximately $25 million (Performance Securities).  Clause 18.3(d) also set out that DLDs were due and payable immediately in on the issue of a notice of BWF to SGRE, and BWF was entitled to recover the amount of DLDs in a number of ways including a call on the Performance Securities.

In September 2019, following the failure of SGRE to meet practical completion, BWF threatened to exercise its powers under the EPC Contract and seek the DLDs by either offsetting those against payments due to SGRE under the EPC Contract or call on the Performance Securities.  SGRE resisted by arguing that BWF had no right to set off the amounts due as it would be in breach of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SoPA) and any call on the Performance Securities would also be in breach due to cause of the delays in completion.  Following discussions between the parties, BWF and SFRE entered into an agreement (30 September Agreement) whereby BWF would offset DLDs against payments due to SGRE under the EPC Contract and SGRE proposed not to object or oppose any such offset or exercise its rights under SOPA.  Relevantly, clause 3 of the 30 September Agreement provided  that BWF would not exercise its rights to draw on the Performance Securities ‘in its possession in relation to this matter’, and for the avoidance of doubt it would give SGRE 5 business days’ before it exercised its rights to draw on the Performance Securities.  In early October, BWF informed SGRE that it had offset the amounts owing for August against the DLDs and the remaining $3 million would be recovered by a call on the Performance Securities.

SGRE sought an injunction on the basis that the 30 September Agreement prevented BWF to call on them and that if BWF were to call on them, they would suffer prejudice, including damage to their commercial reputation.  At trial, the judge decided to hear the matter on a ‘as if final basis’, meaning he decided the injunction on a final basis, as opposed to interlocutory.  He construed the 30 September Agreement as only preventing BWF’s recourse to the Performance Securities for payments due in August and thus dismissed the application for an injunction.

On Appeal, the Court of Appeal held that his Honour erred in determining the matter on an ‘as if final’ basis.  The Court noted that such an approach was in error in circumstances where there was clearly a conflict on the evidence in relation to discussions between the parties prior to entering the 30 September Agreement, even where the parties did not seek to cross-examine the witnesses.  The Court of Appeal did not, however, grant the injunction on an interlocutory basis, as it placed little weight on SGRE’s claim that it would suffer reputational damage which the Court held could be avoided by SGRE paying the DLDs which would remove the possibility of BWF calling on the Performance Securities.  The matter was remitted back to a trial judge to hear the matter as to whether a permanent injunction should be granted.