International Construction Law Review
CORRESPONDENTS’ REPORTS AUSTRALIA
RHB PRINGLE QC
UNCONDITIONAL BONDS OR GUARANTEES— RESTRICTIONS ON ENFORCEABILITY IN AUSTRALIA IF UNCONSCIONABLE CONDUCT CONTRARY TO SECTION 51AA OF THE TRADE PRACTICES ACT 1974 IS INVOLVED
Olex Focas Pty Ltd
v. Skodaexport Co Ltd
1
In this case, the Indian Oil Corporation Ltd had in 1993 engaged the first defendant, Skodaexport Co Ltd, a Czech company, to design and construct an oil pipeline. Olex Focas Pty Ltd, the first plaintiff, and the second plaintiff were Australian companies, being wholly-owned subsidiaries of an Australian listed public company. In 1993 Olex Focas entered into a preliminary subcontract with Skodaexport for the supply and installation of inter alia
telecommunications systems. A formal subcontract was entered into on 30 March 1994. On the same date, Skodaexport entered into a subcontract with the second plaintiff. The two subcontracts were referred to by Batt J as the Olex Focas and Olex contracts respectively. The second defendant was the Hong Kong Bank of Australia. The guarantees were issued by the second defendant and were procured in each case by one or other of the plaintiffs, the subcontractors.
The facts and the nature of the disputes are concisely summarised in the headnote, the relevant part whereof reads as follows:
“The first defendant was the head-contractor for a construction project in India. Both plaintiffs were subcontractors engaged by the head-contractor. The head-contractor was required to pay the subcontractors certain advances to be repaid by the subcontractors by deductions from progress payments made to them by the head-contractor. As security for the repayment of the advances, the subcontractors provided unconditional bank guarantees to the head-contractor, known as mobilisation guarantees. In addition, the subcontractors provided performance bonds by way of bank guarantees to the headcontractor. The mobilisation and performance guarantees all contained unconditional undertakings by the bank to pay the head-contractor on demand. They were issued by the Melbourne branch of the bank. Payments by the bank under the guarantees were to be made to the head-contractor’s bank account in Prague in the Czech Republic. The contracts made between the subcontractors and the head-contractor were variously expressed to be subject to the laws of India or Switzerland. The contracts also contained an arbitration clause requiring disputes to be arbitrated in Paris.
[2000
The International Construction Law Review
210