MCVEIGH v CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS [2020] NZHC 1018 [15 May 2020]

MCVEIGH v CHIEF EXECUTIVE OF THE DEPARTMENT OF CORRECTIONS [2020] NZHC 1018 [15 May 2020]

The interlocutory injunction was refused because the applicants failed to show the high threshold required to restrain a call on performance/retention bonds: there was no allegation or evidence of fraud, no strong prima facie case that the bond did not respond to the demand, no demonstrated unconscionability, and the bond and contract terms unambiguously permitted a demand on the occurrence of an Insolvency Event irrespective of termination disputes; moreover contractual remedies and the commercial purpose of bonds weighed against injunction.

Citation
[2020] NZHC 1018
Parties
First Applicant / First Plaintiff: Dermott Joseph McVeigh; Second Applicant / Second Plaintiff: Decmil Construction NZ Limited (in liquidation); Third Applicant / Third Plaintiff: Decmil Group Limited; First Respondent / First Defendant: Her Majesty the Queen in Right of New Zealand acting by and through the Chief Executive of the Department of Corrections; Second Respondent / Second Defendant: Swiss Re International SE
Court
High Court
Jurisdiction
New Zealand
Judgment Date
15 May 2020
Procedural Posture
Contract Dispute and Injunction Application in the Context of Liquidation Under the Contract and Commercial Law Act 2017 / Interlocutory Hearing (application for Continuation of Interim Injunction)
Outcome
Application for continuation of interim injunction declined; interlocutory injunction lifted subject to a short stay
Legal Topics
Performance Bonds, On Demand Bonds, Unconscionability, Termination of Contract, Parent Company Guarantee, Remedies for Wrongful Call, Contract and Commercial Law Act 2017 S42, Confidentiality Order
Contract Law Commercial Law Construction Law Insolvency Law Civil Procedure (injunctions) Performance Bonds On Demand Bonds Unconscionability +5 more

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Parties

Dermott Joseph McVeigh

First Applicant / First Plaintiff

Decmil Construction NZ Limited (in liquidation)

Second Applicant / Second Plaintiff

Decmil Group Limited

Third Applicant / Third Plaintiff

Her Majesty the Queen in Right of New Zealand acting by and through the Chief Executive of the Department of Corrections

First Respondent / First Defendant

Swiss Re International SE

Second Respondent / Second Defendant

Procedural Posture

Contract Dispute and Injunction Application in the Context of Liquidation Under the Contract and Commercial Law Act 2017 / Interlocutory Hearing (application for Continuation of Interim Injunction)

Legal Issues

  1. 1 Whether Corrections was entitled to call on Swiss Re performance and retention bonds after termination of the underlying contract and following Decmil NZ's liquidation
  2. 2 Whether the Court should grant an interlocutory injunction restraining payment on an on‑demand/conditional performance bond absent fraud
  3. 3 Whether a call on the Bond was unconscionable or otherwise unlawful

Ratio Decidendi

The interlocutory injunction was refused because the applicants failed to show the high threshold required to restrain a call on performance/retention bonds: there was no allegation or evidence of fraud, no strong prima facie case that the bond did not respond to the demand, no demonstrated unconscionability, and the bond and contract terms unambiguously permitted a demand on the occurrence of an Insolvency Event irrespective of termination disputes; moreover contractual remedies and the commercial purpose of bonds weighed against injunction.

Court Disposition

Application for continuation of interim injunction declined; interlocutory injunction lifted subject to a short stay

Orders

  • The interim injunction granted 24 April 2020 is discharged; injunction lifted but will not take effect until 5:00 pm on Wednesday 20 May 2020 to allow applicants time to consider appeal options
  • Confidentiality order (limited): material filed and submissions addressing specific prejudice identified by applicants remain confidential and the Court file shall not be searchable in respect of that material without further order; other material not referenced need not be suppressed