Ewing International LP v Ausbulk Limited ACN 007 556 256 - [2008] SASC 25

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
EWING INTERNATIONAL LP v AUSBULK LIMITED ACN 007 556 256 & ANOR
[2008] SASC 25
Judgment of The Honourable Justice Layton
8 February 2008
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - JURISDICTION AND GENERALLY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED - GENERALLY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - BALANCE OF CONVENIENCE
Applications for interlocutory injunctions and referral of discrete issue for judicial determination - Plaintiff and first defendant entered into two contracts to construct grain silos and supporting structural work - Two performance guarantees were provided as security for the performance of the contracts - Second defendant was named beneficiary in the performance guarantees - First defendant alleged defects in the construction work - Dispute as between the parties as to construction requirements under the contract - First defendant gave Notices of Termination of the contracts - Plaintiff claimed repudiation which it accepted - Second defendant gave notice that first defendant would call on the performance guarantees under the contracts - Plaintiff seeks to prevent both defendants from calling on the performance guarantees - Whether there is a serious question to be tried as to interpretation of underlying contract and performance guarantees, whether the contracts were validly terminated and whether the Notice from second defendant met the criteria outlined in the contract - Whether the balance of convenience is in favour of the plaintiff - Performance guarantees due to expire on 29 February 2008 - Whether damages would be an adequate remedy.
Held: There are serious questions to be tried as to the interpretation of the underlying contract and performance guarantees as well as whether the contracts were validly terminated by the first defendant and whether the Notice met the contractual criteria - Upon the plaintiff extending the termination for the performance guarantees, the balance of convenience lies in favour of granting the injunction - Damages would not be an adequate remedy - Conditional injunctions granted – Application as to determination of discrete issue dismissed.
Supreme Court Act 1935 (SA) s 66, referred to.
ACMNET Pty Ltd v Ai tel [2007] SASC 96; Australian Broadcasting Corporation v O'Neill (2006) 229 ALR 457; Pearson Bridge (NSW) Pty Limited v State Rail Authority of New South Wales (1982) 1 Aust Const LR 81, applied.
Bachmann Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420; Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451; Burleigh Forest Estate Management Pty Ltd v Cigna Insurance Australia Ltd [1992] 2 Qd R 54; Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 All ER 976; Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812; Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545; Hughes Bros Pty Ltd v Telede Pty Ltd (1989) 7 BCL 210; Matthew Hall Mechanical Electrical & Engineers Pty Ltd v Baulderstone Pty Ltd (1994) 10 BCL 148; PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd [2007] VSC 74; Washington Constructions Company Pty Ltd v Westpac Banking Corporation [1983] 1 Qd R 179; Wood Hall Ltd v The Pipeline Authority & Anor (1979) 141 CLR 443, discussed.
Derry v Peek (1889) 14 App Cas 337; Queensland Investment Corporation v Kern Corporation Ltd (in liq) (2001) 17 BCL 123, considered.

EWING INTERNATIONAL LP v AUSBULK LIMITED ACN 007 556 256 & ANOR
[2008] SASC 25
LAYTON J
Introduction

There are two interlocutory applications before me. The first dated 18 December 2007, which seeks an injunction against the defendants from having recourse to specified bank guarantees. The second, an application filed on 16 January 2008 seeks that the date for hearing of the injunction be vacated and that, instead, the court direct that declaration(s) be heard and determined as a matter of urgency in conjunction with the filing of relevant documents.
The plaintiff (“Ewing”), at the hearing before me, sought to maintain the application for the injunction as the primary relief sought and, secondly, if it was unsuccessful, to have the Court deal with a particular contractual issue to be heard and determined on limited evidence prior to the date when the guarantees expire, namely by 29 February 2008. The same argument sought to be finally determined by a court on the contractual issue, emerged as a fundamental plank proffered by Ewing in support of its submission that there was a serious issue to be tried in relation to the grant of an injunction.
Evidence
The documentary evidence tendered by the parties was considerable and was as follows:
·Affidavit and 19 exhibits of Michael Heard sworn on 18 December 2007 (“the Heard Affidavit”) (Exhibit P1);
·A document entitled Performance Guarantee (Exhibit P2);
·Notice of proceeding for the appointment of a liquidator to Ewing Construction Limited in the High Court of New Zealand with respect to alleged indebtedness (Exhibit D1);
·Correspondence between solicitors for the plaintiff and solicitors for the defendant, respectively dated 16 January 2008 and 21 January 2008 (Exhibit D2);
·Affidavit and 36 exhibits of John Joseph Gentilcore sworn on 14 January 2008 (“the Gentilcore Affidavit”) (Exhibit D3);
·Affidavit and 4 exhibits of James Brendon Kearney sworn on 11 January 2008 (“the First Kearney Affidavit”) (Exhibit D4);
·Affidavit and 9 exhibits of James Brendon Kearney sworn on 21 January 2008 (“the Second Kearney Affidavit”) (Exhibit D5); and
·Bundle of correspondence between solicitors for the parties (Exhibit D6).
In addition, Michael Heard, a partner of Ewing, gave evidence and was cross-examined by Mr Blue QC counsel for the defendant. Mr Jenner of counsel represented Ewing.
I heard oral submissions on 22 and 23 January 2008 and gave further liberty to Mr Jenner to provide supplementary reply submissions on the law. I also extended time to 29 January 2008 for the parties to indicate whether they could agree to certain orders if I was to grant the injunctions.
Facts
Ewing is a limited liability partnership registered under the Partnership Act 1958 (Vic) and was set up for the purpose of trading in Australia. Ewing Construction Ltd (“ECL”) is a corporation registered in New Zealand. There is commonality between the shareholders of ECL and the partners of Ewing such that they are significantly overlapping, but not entirely.
The business of both Ewing and ECL relates to a niche market of steel tank fabrication works both in Australia and New Zealand.
Without going into further detail at this point, the essential facts are that there were two contracts between Ewing and the first defendant, Ausbulk Limited (“Ausbulk”). Both contracts were entered into on 24 January 2006. The first contract concerned the construction of grain storage bins or silos for a contract sum of $18.4 million (“the silos contract”). This contract had a job number “OHB/02/011-003” and work number “EWO141184”. The date for Practical Completion was to be 11 January 2007.
The second contract was in relation to the structural work concerning the silos contract for a sum of $4,961,480 (“Structural Shell Package 2”). This contract had a job number “OHB/02/011-007” and work number “EWO1419193”. The Practical Completion date was to be 20 February 2007. The contract for the works agreed to between the parties included significant documentation, discussed hereafter.
Each contract required security for performance of the contract as discussed hereafter. Two Performance Guarantees were provided by the ASB Bank Ltd of Auckland, New Zealand (“ASB”), naming the second defendant ABB Grain Limited (“ABB Grain”) as the beneficiary of $400,000 and $496,100 respectively. These are the two bank guarantees which are the subject of the injunction.
ABB Grain is the holding company of Ausbulk.
The contracts and the Performance Guarantees
The documents, which comprised the contracts, are referred to in letters dated 13 December 2005.[1] The prime documents relevant to these applications are contained in various exhibits to the Heard Affidavit and the Kearney Affidavits.
[1] The Heard Affidavit, Exhibits MH1 and MH2.
The silos contract was for construction of 10 silo tanks for grain storage. The contract was for their fabrication and construction without any design component.[2] The tanks were to have a capacity of 7,500 tonnes and were to be elevated so that vehicles could drive beneath and receive the grain. The silos included the erection of wall plates (“strake plates”) which are circular structures which support the walls of the silos. The construction of the strake plates and the silo walls later became a significant matter of dispute between Ausbulk and Ewing.
[2] The Gentilcore Affidavit, [7.1].
The contract for Structural Shell Package 2 was, as the name suggests, a contract for structural works which were associated with the silos.
Each of the contracts included the Australian Standard General Conditions of Contract AS2124 (“Standard Contract”) contained in Exhibit MH5 to the Heard Affidavit.[3] This Standard Contract was included as part of the Tender Document for each contract. In these reasons for judgment, a reference to clauses in the silos contract and the Structural Shell Package 2 contract are a reference in each case to the clauses in the Standard Contract.
[3] The Standard Contract was modified as set out in Exhibit JBK 5 of the Second Kearney Affidavit and Exhibit MH5 of the Heard Affidavit.
The Standard Contract indicated in Section 2 Part A that the “Principal” was ABB Grain Storage and Handling, being the trading name of Ausbulk. The clause which is most relevant to this application is clause 5, a copy of which is contained in Annexure A to these reasons.
Clause 5.2 requires security for the performance of the contract to be given and clause 5.3 provides for the form of the security. The security given in relation to the silos contract is contained in the Heard Affidavit,[4] being a Performance Guarantee LG3-0600023 in the sum of $400,000. The second security given in relation to the Structural Shell Package 2 contract for the sum of $496,100, was Performance Guarantee LG3-0600022, a copy of which is also contained in the Heard Affidavit.[5]
[4] The Heard Affidavit, Exhibit MH13.
[5] Ibid, Exhibit MH12.
The terms of the two bank Performance Guarantees were similar. Rather than setting out each of them in full, I will set out the terms of the guarantee with respect to the silos contract:[6]
ASB BANK LIMITED AUCKLAND NEW ZEALAND, A WHOLLY OWNED SUBSIDIARY OF THE COMMONWEALTH BANK OF AUSTRALIA LTD (CBA) HEREBY ISSUES A GUARANTEE NUMBER LG3-0600023 IN FAVOUR OF ABB GRAIN LIMITED. WE HAVE BEEN INFORMED BY OUR CLIENT, EWING CONSTRUCTION LIMITED, THAT EWING INTERNATIONAL LP HEREIN CALLED THE PRINCIPAL HAS ENTERED INTO A CONTRACT NO ENG/TY2189-TY DATED 13 DECEMBER 2005 WITH YOU, FOR THE SUPPLY OF TEN GRAIN STORAGE SILOS (FABRICATION AND CONSTRUCTION). FURTHERMORE, WE UNDERSTAND THAT, ACCORDING TO THE CONDITIONS OF THE CONTRACT, THAT A PERFORMANCE GUARANTEE IS REQUIRED.
AT THE REQUEST OF THE PRINCIPAL, WE, ASB BANK LIMITED HEREBY IRREVOCABLY UNDERTAKE TO PAY YOU ANY SUM OR SUMS NOT EXCEEDING IN TOTAL AN AMOUNT OF AUD400000.00 (FOUR HUNDRED THOUSAND AUSTRALIAN DOLLARS) UPON RECEIPT BY US OF YOUR FIRST DEMAND IN WRITING AND YOUR WRITTEN STATEMENT STATING: 1. THAT THE PRINCIPAL IS IN BREACH OF HIS OBLIGATION(S) UNDER THE UNDERLYING CONTRACT AND 2. THE RESPECT IN WHICH THE PRINCIPAL IS IN BREACH. THIS GUARANTEE SHALL EXPIRE ON 28 FEBRUARY 2007 AT THE LATEST. CONSEQUENTLY, ANY DEMAND FOR PAYMENT UNDER IT MUST BE RECEIVED BY US AT THIS OFFICE ON OR BEFORE THAT DATE.
[6] The Heard Affidavit, Exhibit MH13.
+The Bank may at any time without being required so to do, pay the Beneficiary the said sum less any amount already paid, and thereupon the liability of the Bank shall immediately cease. …
The initial period for termination of the Performance Guarantees was 28 February 2007.
Before turning to a discussion of this documentation, I will deal briefly with the background which has led to this application for interlocutory relief. Inevitably this will provide only a thumbnail sketch of a much longer and complicated history.
Work on the silos contract
The work in relation to the contracts commenced in April 2006.[7] The process used by Ewing in the construction of the silos included the strake plates being constructed near ground level and then being jacked up from beneath using hydraulic cylinders. A second circle of strake plates was then constructed and again jacked up.
[7] Ibid, [19].
In September 2006, concerns arose as to distortion observed by Ausbulk in the strake plates and silo walls.[8]
[8] The Gentilcore Affidavit, [27]-[28].
On 13 October 2006, work was suspended by Ausbulk’s Superintendent.[9] This suspension arose after a consulting engineer, Dr Andrew Baigent, provided a final report of an inspection of the construction work to Ausbulk dated 12 October 2006.[10] The report included observations about lack of circularity in the silo wall at all levels and “significant areas of local deformation or distortion of the silo wall”. Dr Baigent postulated that the deformation was caused by two problems. First and most significantly, as he assessed it, the jacking method of construction being used, and secondly, and of lesser significance, was the tolerance of the plate material used in the strake plates. On the second of those concerns, Dr Baigent referred to the silo walls having been designed according to the “ECCS Manual on the Stability of Steel Structures” (“ECCS”). Dr Baigent made several recommendations concerning modification and rectification of the works and their future construction.
[9] The Gentilcore Affidavit, Exhibit JJG7.
[10] Ibid, Exhibit JJG6.
On 16 October 2006, a Field Direction instruction was issued by the Superintendent with a copy of Dr Baigent’s report enclosed.[11] On 21 October 2006, Ewing sent a letter asserting that the ECCS tolerance standard was not mentioned in the tender or contract documents.[12] Thereafter there was disputation between the parties as to the tolerance standards used by Ewing in the construction of the strake plates.
[11] Ibid, Exhibit JJG8.
[12] Ibid, Exhibit JJG10.
In short, Ausbulk contended that the specified tolerances contained in the contract document were AS4100 or agreed relaxed ECCS rules.[13] Ewing contended that the AS4100 standard, which was referred to in the contract, did not pertain to the strake plates but to other sections of the silo structure, and that the ECCS rules be they relaxed or modified, were not listed.[14] In particular, it was asserted by Ewing that deformations were a result of a design flaw of the shell walls. Ewing also indicated that it was building to the tolerance standard known as API650.[15] Mr Heard in evidence before me stated that API650 is a commonly used industry standard for silo construction.
[13] Ibid, Exhibit JJG10 (Letter dated 24 October 2006).
[14] Ibid, Exhibit JJG10 (Letter dated 25 October 2006).
[15] Ibid, [7.3].
On 27 October 2006, the Superintendent issued a written direction to Ewing to ensure that the silo bins were compliant with the ECCS rules.[16] In response, on 30 October 2006 Ewing advised Ausbulk that the implementation of construction tolerances in the ECCS rules would require a different construction methodology.[17]
[16] The Heard Affidavit, [24].
[17] Ibid, [25].
On 29 November 2006, Ausbulk issued four Notices of Show Cause alleging instances of substantial breach of contract by reason, inter alia, of failure to use the materials required by the contract and for the subsequent distortion which had occurred during the jacking process.[18] In letters dated 8, 11 and 12 December 2006, Ewing responded inter alia, by denying any breach and suggesting discussion between the parties to resolve the matters and requesting further information.[19]
[18] The Gentilcore Affidavit, Exhibit JJG11.
[19] Ibid, Exhibit JJG12.
On 6 December 2006, Ausbulk issued a Notice under clause 44.4 of the silos contract to suspend payments to Ewing, whereupon Ewing issued a Notice to Show Cause to Ausbulk.[20]
[20] The Heard Affidavit, [27]; [29].
The Agreement of 16 February 2007
On 16 February 2007, an Agreement was reached to settle some of the claims,[21] the details of which are set out in Exhibit MH6 to the Heard Affidavit. This agreement included payment to Ewing by Ausbulk of $1.2 million and an agreement to extend the Performance Guarantees, so that they would not terminate until 29 February 2008.
[21] Ibid, [30].
On 14 March 2007, ABB Grain received two letters from the Commonwealth Bank of Australia confirming the extension by ASB of the two Performance guarantees with a new expiry date of 29 February 2008.[22] These letters from the Commonwealth Bank of Australia also recommended that the terms and conditions of the guarantees be examined to determine if ABB Grain was satisfied with them. The guarantee documents were the same as before save that the date of expiry had been changed by hand in one part of the document to indicate the new date of 29 February 2008. These are the copies of the guarantees which form the exhibits.
[22] The Gentilcore Affidavit, Exhibits JJG24 and JJG25.
Thereafter correspondence occurred between the parties about the implementation of the “fix” for the silo walls by the use of stiffeners.[23] However, further disputation occurred between the parties about the implementation of the “fix”.
[23] Ibid, Exhibit JJG14.
On 20 April 2007, Ausbulk purported to terminate the February 2007 agreement by a Notice of Termination.[24] By letter dated 26 April 2007, Ewing contended that Ausbulk was not entitled to terminate and that its purported termination of the Agreement was a repudiation.[25] On 8 May 2007, Ewing accepted the repudiation.[26]
[24] The Heard Affidavit, [35]; The Gentilcore Affidavit, Exhibit JJG15.
[25] The Heard Affidavit, [36].
[26] Ibid, [37].
The silos contract continued
During the above process concerning the Agreement of 16 February 2007 and its purported termination/repudiation, the following events occurred in relation to the silos contract.
On 4 May 2007, the Superintendent issued a direction to Ewing to re‑commence the work under the silos contract, which direction included that Ewing must ensure that “all Steel Fabrication and Erection conforms to the requirements of AS4100”.[27] On 9 May 2007, Ewing responded by requesting information, pursuant to clause 33.1 of the silos contract, pertaining to the provision of a remedial design specification and drawings and the identification of “what works were to be undertaken and on which storage bins having regard to the design implications arising from the differences between API650 and ECCS”.[28] Ewing alleges that this information was not supplied, but instead on 14 May 2007 the Superintendent’s representative directed Ewing to “provide detailed particulars associated with the jacking procedure and Ewing’s quality management plan”.[29]
[27] Ibid, [38]; The Second Kearney Affidavit, Exhibit JBK10.
[28] The Heard Affidavit, [39].
[29] Ibid, [40].
In May 2007 there was an exchange between the parties of Notices to Show Cause and also a Notice of Dispute.[30] The Notices to Show Cause issued by Ausbulk alleged substantial breach of the silos contract, which allegation was disputed by Ewing.[31] The correspondence between Ewing and Ausbulk continued to emphasise the differences between them about the standards of tolerance which were required under the silos contract and whether deformations were a design flaw or a construction fault.
[30] Ibid, [41]-[43]; The Gentilcore Affidavit, [45].
[31] The Gentilcore Affidavit, Exhibits JJG16 and JJG17.

After sending a letter to Ewing requiring the remedy of the fault within 21 days, on 14 June 2007 Ausbulk purported to terminate the silos contract.[32] Thereafter, on 15 June 2007 Ewing wrote to Ausbulk advising that it considered the purported termination to be unlawful and therefore a repudiation and that Ewing accepted the repudiation.[33] No work has been done on the silos since the suspension of work in October 2006.
[32] The Heard Affidavit, [44]; The Gentilcore Affidavit, [47] and Exhibit JJG19.
[33] The Heard Affidavit, [45].
The Structural Shell Package 2 contract
In relation to the Structural Shell Package 2, on 7 June 2007 Ausbulk issued a Notice to Show Cause, to which Ewing responded.[34]
[34] The Heard Affidavit, [51].
On 10 July 2007, Ausbulk engaged the Samaras Group to do “Remedial Work (Construction Recovery) of Storage Bins” for a contract sum of $17,375,800.00.[35]
[35] The Gentilcore Affidavit, Exhibit JJG23.
On 30 August 2007, Ausbulk issued a Notice of Termination purporting to terminate the Structural Shell Package 2.[36] Ewing replied in writing on 31 August 2007 and advised that it regarded the Notice as a repudiation of the contract.[37] Subsequently, on or about January 2008 Ewing formally accepted that repudiation. The detail of that documentation is not before me.
[36] The Heard Affidavit, [52].
[37] Ibid, [52].
On 1 November 2007, Ewing served a second Notice of Dispute on Ausbulk.[38] This Notice of Dispute contained details of the history of the disputation between the parties viewed from Ewing’s perspective. The Notice concluded with assertions, inter alia, that it was appropriate for Ewing to construct the bins using API650 and that it was entitled to treat the actions of Ausbulk as repudiatory conduct entitling it to damages. Ewing also provided a copy of a report by Associate Professor Ansourian to support its contentions.[39] Associate Professor Ansourian’s report indicated, amongst other matters, that he had never seen AS4100 applied to silo wall strakes and, instead, AS4100 was a standard relevant to other structural steel sections.
[38] Ibid, [46] and Exhibit MH7.
[39] Ibid, Exhibit MH8.
Appointment of Arbitrator
By agreement, Ewing and Ausbulk appointed Mr Stephen Walsh QC as an arbitrator for the purposes of the matters arising under the Notice of Dispute. A preliminary conference was convened on 5 December 2007. In relation to that arbitration, the parties have agreed on draft minutes, but at the time of the hearing before me they have not yet been formally entered as a reference to the arbitrator.
Notices pursuant to clause 5.5
On 12 December 2007, Ewing received two letters from ABB Grain in relation to both the silo contract[40] and the Structural Shell Package 2 contract.[41] These letters purported to be Notices pursuant to clause 5.5 of the Standard Contract. The terms of both of the Notices are similar in essential points, differing as to the amounts and one further matter to which I will refer hereafter. Rather than setting out each of them in full, I will set out the terms of the Notice given under the silos contract:[42]
[40] Ibid, Exhibit MH19.
[41] Ibid, Exhibit MH18.
[42] The Heard Affidavit, Exhibit MH19.
RE: JOB NO. OHB/02/011-003
We refer to the contract between Ewing International Limited Partnership (“Ewing”) and Ausbulk Limited trading as ABB Grain Storage and Handling (“Ausbulk”), for the construction of steel bins at Outer Harbour, Adelaide, being Job Number OHB/02/011-003 (the “Ewing contract”).
General Conditions of Contract (“GCC”) Clause 5.5 sets out the circumstances in which a party may have recourse to retention moneys and/or cash security and/or may convert into money security that does not consist of money.
Ausbulk has become entitled to exercise a right under the Contract in respect of retention moneys and/or security in that:
(i)By letter and Notice of Termination both dated 14 June 2007, Ausbulk terminated the Ewing contract;
(ii)Following termination of the Ewing Contract, it has been necessary for Ausbulk to engage a contractor to complete the Works the subject of the Ewing Contract (the “Works”);
(iii)The Samaras Group was awarded the contract by Ausbulk to complete the Works;
(iv)Ausbulk has incurred an obligation to pay the Samaras Group a lump sum fixed price of $17,375,800.00 (the “Samaras contract”) for completing the Works;
(v)The fixed price of the Ewing Contract was $18,429,435.00. As at 14 June 2007, Ausbulk had paid the sum of $11,723,079.60 to Ewing against progress claims on the Ewing Contract. The amount paid to Ewing combined with the amount payable to the Samaras Group under the Samaras contract totals $29,098,879.00;
(vi)To date Ausbulk has been invoiced by the Samaras Group for the sum of $4,653,996 in progress payments;
(vii)As a consequence of Ewing’s failure to perform the Contract properly, Ausbulk has incurred, at a minimum, additional expenditure, over and above that which would have been the case had Ewing performed the Contract properly of $10,669,444.00.
Pursuant to GCC 5.5, Ausbulk hereby gives 5 days notice of its intention to have recourse to:
1.the full extent of the retention funds still held in relation to the Ewing contract being the sum of $332,940; and
2.Bank Guarantee Number LG3-0600023 issued by ASB Bank Limited, in favour of Ausbulk, for the sum of $400,000.
The letters purport to be signed by Mr John Warda, Executive Manager, Group Operations of ABB Grain Ltd and their receipt has led to the injunctions being sought.
Summary of chronological events
The history of this matter reveals substantial disputation between the parties with assertions and counter-assertions being made by each on important aspects of the contracts. The disputed matters include the tolerance standards which were contractually required, the nature and cause of the distortions, whether Ausbulk validly terminated the contracts for substantial breach of the contracts by Ewing or whether Ausbulk instead repudiated the contracts which Ewing then accepted. These issues arise as part of the background for the specific concerns raised in relation to the injunctions.
It is also apparent from this history that Ewing and Ausbulk were the parties to the contracts, but ABB Grain is the specified beneficiary under the Performance Guarantees. Further, the Notice given under clause 5.5 was given under the hand of ABB Grain when it was not a party to the contracts. I also note that at the time of the hearing before me, neither defendant had made a demand on ASB for payment of the Performance Guarantees. Before turning to those specific issues, I will first refer to the relevant legal principles relating to the granting of interlocutory injunctions.
Relevant legal principles
The legal principles to be applied in relation to an interlocutory injunction have been the subject of the High Court decision of Australian Broadcasting Corporation v O’Neill (2006) 229 ALR 457.
In the case of ACMNET Pty Ltd v Ai tel Pty Ltd,[43] I have previously indicated my understanding of the relevant legal principles to be applied. In that case, I concluded that the High Court in Australian Broadcasting Corporation v O’Neill reinforced a two-fold test:[44]
Consequently the Court reinforced the twofold test, which is:
(1) Whether there is a serious issue to be tried, namely that there is a sufficient likelihood of success of the applicant to relief at trial.
(2) Whether the inconvenience or injury the plaintiff would be likely to suffer if an injunction is refused, outweighs the injury the respondent would suffer if an injunction is granted.
In addition there is a third requirement to be satisfied, namely that damages are not an adequate remedy. The onus lies on the applicant to satisfy me of these matters.
Further, in assessing the strength of probabilities of the success of the applicant, I am not required to make findings of fact with regard to conflicting allegations of fact. Instead the focus is on the probabilities or likelihood of the success of the applicant to relief at trial, having regard to the material proffered in support of the injunction.
For convenience I will use the expression “serious issue to be tried” to mean a sufficient likelihood or probability of success of the applicant in its contentions which support relief at trial. [Footnote omitted]
[43] [2007] SASC 96.
[44] ACMNET Pty Ltd v Ai tel Pty Ltd [2007] SASC 96, [19] – [22].
Serious issue to be tried
When determining the question of whether there is a serious issue to be tried, the Court is required to consider the probability or likelihood of the applicant being successful and gaining relief at trial. The relief being sought at trial, in accordance with the proposed Statement of Claim, is:[45]
58.A declaration that ABB Grain Ltd has no entitlement to call upon either of Bank Guarantee Number LG3-0600022 or Bank Guarantee Number LG3-0600023.
59.A declaration that Ausbulk Limited has no entitlement to call upon either of Bank Guarantee Number LG3-0600022 or Bank Guarantee Number LG3-0600023.
60.That until further order, the Defendants be restrained and injuncted from having any recourse to:
60.1Bank Guarantee Number LG3-0600022 issued by ASB Bank Limited in favour of ABB Grain Ltd (being for the sum of AU$496,100);
60.2Bank Guarantee Number LG3-0600023 issued by ASB Bank Limited in favour of ABB Grain Ltd (being for the sum of AU$400,000).
[45] Affidavit of Michael Roland Hutton sworn on 16 January 2008, Exhibit MRH3.
Ewing submits that the following matters indicate that there are four serious issues to be tried:
·First, what is the correct interpretation of clause 5.5 of the contract and does it prevent both defendants from being entitled to have recourse to the Performance Guarantees;
·Second, whether the contracts were validly terminated by Ausbulk;
·Third, what is the correct interpretation of the Performance Guarantees and do they prevent both defendants from being entitled to have recourse them; and
·Fourth, whether the letters from ABB Grain of 12 December 2007 constituted valid Notices under clause 5.5 of the contracts.
Interpretation of clause 5.5
Ewing’s Argument
Ewing’s major argument is that neither defendant can validly make a demand in relation to the Performance Guarantees and thereby have recourse to the guarantees.
Clause 5.5 of the Standard Contract, set out in full in Annexure A hererto, provides that a party (referring to either Ewing or Ausbulk) may have recourse to the security where:[46]
(a)The party has become entitled to exercise a right under the Contract in respect of the … security;
(b)the party has given the other party notice in writing for the period stated in the Annexure, or if no period is stated, five days of the party’s intention to have recourse to the … security and/or to convert the security; …
[46] The Heard Affidavit, Exhibit MH5, page 9.
Ewing submits that Ausbulk does not have a right to make a demand for security under the contract under clause 5.5(a) and has not given a valid notice under clause 5.5(b), being prerequisites for a demand on ASB.
Ewing submitted that clause 5.5(a) is a negative stipulation or covenant. Thus, it submitted that on a proper construction of clause 5.5, the clause only permitted Ausbulk to demand payment of the bank guarantees, if and only if, Ausbulk became entitled to exercise all or any of its rights under the contract with respect to the security. In doing so, Ewing relied primarily on the decision of Pearson Bridge (NSW) Pty Limited v State Rail Authority of New South Wales,[47] together with other case law discussed hereafter.
[47] (1982) 1 Aust Const LR 81, 86.
Ewing further contended that the following clauses of the contracts were the only clauses which entitled Ausbulk to exercise a right under the contract with respect of security under clause 5.5, namely clauses 30.3, 37, 38, 42.10, 42.11 and 44. Rather than setting out each of these in detail, I will summarise their provisions, save for clause 44, which is set out in Annexure A hereto:
·Clause 30.3 provides that if Ewing fails to comply with a direction issued by the superintendent within the time specified, Ausbulk may, after giving notice to Ewing, have the work done by another person. The cost incurred by Ausbulk “shall be a debt due” from Ewing to Ausbulk.
·Clause 37 specifies the Defects Liability Period. The clause indicates that the Defects Liability Period commences from the “Date of Practical Completion”. The “Date of Practical Completion” is defined in clause 2 of the contract as the “Practical Completion” in the Annexure to the contracts which specified 11 January 2007 for the silos contract and 20 February 2007 for the Structural Shell Package No. 2. This clause also provides for a superintendent to issue a direction to rectify omissions or defects within 14 days of the Date of Practical Completion to be performed within a stated period. If they are not performed as specified, Ausbulk can have the rectification work carried out by others and the cost “shall be a debt due” from Ewing.
·Clause 38 outlines Ewing’s obligation to keep the site clean and tidy. If Ewing fails to comply, Ausbulk may have the work carried out by others which may be recovered from Ewing as a “debt due”.
·Clause 42.10 enabled Ausbulk to:[48]
… deduct from moneys due to the Contractor any money due from the Contractor to the Principal otherwise than under the Contract and if those moneys are insufficient, the Principal may, subject to Clause 5.5, have recourse to retention moneys and, if they are insufficient, then to security under the Contract. [emphasis added]
·Clause 42.11 provides that where a party failed to pay the other party an amount “due and payable under the contract” the other party may, subject to clause 5.5, have recourse to retention moneys and to security under the contract.
·Clause 44 was the most important clause in that it referred to the circumstances in which Ewing would be in default and the rights of Ausbulk. The reference to the Principal in clause 44 in the Annexure is a reference to Ausbulk and the Contractor is Ewing.
[48] The Heard Affidavit, Exhibit MH5, page 35.
Ewing submitted that on the facts, none of these clauses had been activated as there was no liquidated debt “due and payable under the contract”, as required by clause 42.11. Ewing submitted that the Notices given by ABB Grain pursuant to clauses 5.5 and 42.11 (ignoring for the purposes of this argument the legal entity which gave the Notices), specified the basis for recourse to the guarantees as being “termination” of the contracts on 14 June 2007 and the subsequent amount paid to the Samaras Group for rectification. However, pursuant to clause 44.10 which was the relevant clause as to entitlement on termination, this clause indicated that the entitlement was for common law damages, which was not a liquidated debt due and payable. Hence, it was submitted, the defendants could not have recourse to the Performance Guarantees under clause 5 as the negative stipulation in clause 5.5 did not permit recourse to the Performance Guarantees for unliquidated damages for termination but only a debt due under the contract.
Defendants’ Argument
In response to Mr Jenner’s argument with respect to damages and termination, Mr Blue contended that Ewing had fundamentally breached the silos contract and that clauses 30.3, 35.6, 44.10 and 44.11 gave rise to liquidated damages, being a debt or money due. Therefore the circumstance gave rise to the entitlement to exercise a right under the contract in respect of the Performance Guarantees as set out in clause 5.5. Further, it was submitted that nothing in clauses 42.10 or 42.11 excluded an unliquidated claim.
In developing these arguments, Mr Blue referred to clause 30.3 which gave rise to a debt because Ewing had failed to comply with the direction dated 4 May 2007, given by the Superintendent, as well as other directions. Mr Blue pointed out that Dr Baigent’s report and correspondence with the defendants indicated that Ewing, although claiming to have been adhering to API650, had also failed to comply with that standard. The failure to comply with the Superintendent’s direction amounted to a substantial breach as indicated in clause 44.2(e). It led to Ausbulk engaging the Samaras Group and this resulted in the $17 million paid to the Samaras Group becoming a debt due under the contract.
Further, Mr Blue submitted that clause 35.6 provided for liquidated damages for delay in reaching practical completion. The clause indicated that if Ewing failed to reach practical completion by the date specified, then it is indebted to Ausbulk for liquidated damages at the rate stated in the Annexure to the contract. The Annexure to the silos contract specifies the payment of $25,000 in liquidated damages per day up to 10 per cent of the contract sum. It was contended that the practical completion date was not met as Ewing “simply walked off the job”.
Further, with regard to clause 44.10, Mr Blue submitted that Ausbulk had two liquidated claims at common law under the silo contract, which could be set off against moneys due to Ewing. As I understood his argument, Ausbulk was entitled to repayment of all amounts that had been paid to Ewing on two bases. First, the building contract progress claims paid on account of the ultimate purchase price as the contract and work was not completed because of default by Ewing. Second, that moneys were paid to Ewing under a mistake and would be recovered as a liquidated claim under the contract.
In addition, Mr Blue submitted that clause 44.10 preserved all common law rights whether liquidated or unliquidated, although there may be some overlap between the liquidated and unliquidated amounts. It was submitted that as there were two contracts, clause 42.10 would enable Ausbulk to claim moneys due under the silos contract as a set-off in relation to the Structural Shell Package 2 contract, and vice versa, and that a set-off can be either liquidated or unliquidated. In this case, unliquidated damages for defective performance of the silos contract could be set-off against money due in relation to the Structural Shell Package 2 contract.
With regard to the Notice given in respect of the Structural Shell Package 2, the Notice referred to clause 42.10 of the Standard Contract (the set-off clause), as well as common law. This clause was not contained in the Notice given in respect of the silos contract.
Mr Blue also contended that a claim for termination of a contract did not detract from already accrued rights under the contract.[49]
[49] Queensland Investment Corporation v Kern Corporation Ltd (in liq) (2001) 17 BCL 123.
In relation to clause 42.11, Mr Blue submitted that the words used are “amount due” and there is no reason to limit this to a liquidated amount, and none of the wording of the clause excluded a liquidated claim.
Finally, Mr Blue submitted that clause 5.5(a) implies that a party has recourse to retention moneys if it has a “bona fide claim”. It does not require that the claim be established. It follows, it was submitted, that Ewing had the onus of proving that the defendants do not have a bona fide claim to exercise a right under the contract, which it had not demonstrated. In this case it is submitted that where Ewing had not duly and properly performed the contract, there was an entitlement for the defendants to have recourse to the moneys pursuant to the security under clause 5.
Ewing’s Argument in Reply
In relation to avenues available to Ausbulk for liquidated damages pursuant to clauses 30.3, 35.6 and 44.10, Mr Jenner, again drew attention to the Notice given which referred to “termination” of the contracts and in the case of the Notice given in respect of the Structural Shell Package 2, which specifically referred to clause 42.10. Therefore, even if other arguments may be used in relation to other clauses, the Notice did not make a claim for liquidated damages under other clauses. In relation to whether clause 42.10 would permit a cross set-off between the contracts for either liquidated or non-liquidated amounts, Mr Jenner submitted that each contract was entire and should not be interpreted as to indirectly provide rights which were not available in the specific contract.

In relation to clause 42.11, Mr Jenner emphasised that the words used were “amount due and payable” and that the word payable is indicative of a liquidated amount and not an unliquidated amount which requires assessment before it would crystallise as a debt.
In respect of the allegation that Ewing had failed to reach the Practical Completion Date because Ewing “simply walked off the job”, Mr Jenner contended that the chronology of events and the content of documentation revealed that it was prepared to continue on the job and was frustrated and prevented from doing so by Ausbulk’s actions.
Conclusion
In relation to these arguments, in my view there is a serious issue to be tried with regard to the interpretation of these terms of the Standard Contract and the rights of the defendants to have recourse to the Performance Guarantees, particularly in the context of the content of the Notices given under clause 5.5 (ignoring the legal entity issue). What is also obvious is that these interpretive issues cannot be decided in a vacuum as there are also, in my view, significant underlying issues of fact which are in dispute as to alleged breach and termination of contracts which would require determination other than by these interlocutory proceedings.
In concluding there is a serious issue to be tried, I consider that Ewing has sufficient likelihood of success to relief at trial in relation to the declarations sought and injunctions.
Whether contracts were validly terminated by Ausbulk
I also consider there is a serious issue to be tried with respect to whether the contracts were validly terminated for reasons which are apparent in the discussion above. The extent of disputation between the parties cannot be resolved on an interlocutory basis and I note that certain aspects of underlying facts are likely to be the subject of the arbitration before Mr Walsh QC.
Whether Notices from ABB Grain of 12 December 2007 were valid under clause 5.5 of the Contracts
As I have previously indicated, the Notices were given on ABB Grain letterhead and under the hand of the Executive Manager, Group Operations. As previously noted, ABB Grain is the holding company of Ausbulk. ABB Grain is not a party to the contracts. Clause 5.5 requires that Ausbulk give notice.
The content of the Notices, as set out in paragraph 42 herein, indicate throughout that the contract is with Ausbulk and recites that Ausbulk had terminated the contract and Ausbulk had incurred liability. I consider there is a strong argument that this is a valid Notice and was given by ABB Grain acting as agent for Ausbulk, particularly as ABB Grain is the holding company.
However, there is a further matter, namely that ABB Grain states “pursuant to GCC5.5, Ausbulk hereby gives 5 days notice of its intention to have recourse to …” the Bank Guarantee for the silo contract [emphasis added].
Two issues arise from this. First, that Ausbulk is not a party to the Performance Guarantee as discussed hereafter. Second, that recourse is being sought by Ausbulk to the silos Performance Guarantee alleging, inter alia, a set-off under clause 42.10. According to one of Mr Blue’s arguments, the set-off would need to be against the Performance Guarantee of the Structural Shell Package 2 and not the guarantee for the silos contract.
Therefore, whilst the Notices could be regarded as Notices given by Ausbulk, their content, in my view, gives rise to a serious issue to be tried as to whether they meet the criteria outlined in clause 5.5.
What is the correct interpretation of the Performance Guarantee and do they prevent both defendants from being entitled to have recourse to them?
The Performance Guarantee is directed to ABB Grain, as set out in paragraph 18 hereof. The document recites that Ewing is the client of ASB and that it has informed ASB that it (being the Principal) has entered into a contract “with you” (being ABB Grain) for the supply of grain silos. Further, that according to the contract, a performance guarantee is required. Thereafter the guarantee indicates that it “hereby irrevocably undertake [sic] to pay you” the named sum upon receipt of “your first demand in writing” stating:
1.That the Principal is in breach of his obligation(s) under the underlying contract and
2. The respect in which the Principal is in breach.
Therefore, on the face of the document, ABB Grain is the beneficiary. The document further asserts that there is a contract between Ewing and ABB Grain, which there was not. In addition, ABB Grain is required to indicate in writing that Ewing is in breach of that contract with ABB Grain and that the Guarantee would be paid to ABB Grain.
There is no reference to Ausbulk in that document. There is no evidence before this Court as to how ABB Grain was named as both the contracting party and the beneficiary. The affidavit of Mr Heard simply stated that they “were issued in favour of ABB Grain in error”.[50] Mr Heard’s evidence did not cast any further light on precisely how this error came about. It is however common ground that it was an error and that the Performance Guarantees in each case should have named Ausbulk as the beneficiary and the contracting party.
[50] The Heard Affidavit, [66].
In his submissions, Mr Jenner, on behalf of Ewing, did not seek to rely on the erroneous legal identity for the purposes of his argument. Instead he submitted that even if there was a valid estoppel claim and a proper basis for rectification of the document, Ausbulk could not have recourse to the Performance Guarantees by reason of the invalid Notices and the previous arguments given as to clause 5.5 and other clauses of the Standard Contract. The result of Mr Jenner’s submissions is that ABB Grain could not fulfil the requirements of the guarantees and Ausbulk could not have recourse under the contracts.
I agree that these are serious issues to be tried on this point and again it is dependent on underlying disputed facts.
I now turn to Mr Blue’s overriding arguments that Ewing has no cause of action and no standing to take out these applications.
Does Ewing have a cause of action?
Mr Blue submitted first that Ewing had not proved “prima facie or otherwise” that it was not in breach of both contracts and that Ausbulk was not entitled to terminate each contract. This submission, in my view, inappropriately converts the test for an interlocutory injunction by using a negative. I agree that in relation to making a demand on a Performance Agreement that it is sufficient if a bona fide claim is made out.[51] However, in the context of an application for an interlocutory injunction, the onus is on the applicant to satisfy a court that there is sufficient likelihood of success at trial for relief. In this case, Ewing is required to satisfy me that there is a serious issue as to whether the defendants are able to have recourse to the Performance Guarantees due to matters concerned with the interpretation of the contract and guarantee. I consider this requirement has been met for the reasons given.
[51] Bachmann Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420, 437.
Mr Blue’s second argument is that Ewing has no cause of action as it is not a party to the Performance Guarantees, and it cannot intervene on the question of their payment, nor seek to injunct their payment, save in a case of fraud.
Mr Blue relied on a number of authorities in support of these propositions.
Cause of action and standing
Before embarking on these authorities, I note that even if the propositions for which Mr Blue contends are correct, Ausbulk also is not a party of the guarantee, absent some argument such as to rectification of the documents.
I also note that so far as a “cause of action” is concerned, an application for a declaration with regard to legal matters in issue between the parties, can, of itself, found the jurisdiction for a court to entertain an application. Although having stated that, this in some ways begs the question as to whether there is truly a legal issue of dispute between the defendants and Ewing in relation to the ability of the defendants to have recourse to the Performance Guarantees.
Mr Blue submits that performance guarantees are autonomous from the underlying contracts and that Ewing, not being a party, cannot intervene on the question of payment, nor seek to injunct payment.
The line of authorities on which Mr Blue relies, in terms of chronology, commences with Edward Owen Engineering Ltd v Barclays Bank International Ltd.[52] In that case, the Court of Appeal was considering a performance guarantee and in the reasons provided by Lord Denning,[53] His Lordship canvasses the law as to performance bonds. His Lordship notes that performance bonds have similarities to a letter of credit and that the bank must pay “if the documents are in order and the terms of the credit are satisfied. Any dispute between the buyer and the seller must be settled between themselves”.[54] His Lordship also refers to the importance of performance bonds as part of the commercial system and that they act as a guarantee that the person supplying the goods (as it was in that case) will perform the contractual obligations and that so long as an honest demand is made of the banks, the banks are bound to pay. As he indicated, “the bank must pay according to its guarantee, on demand if so stipulated, without proof or conditions. The only exception is where there is clear fraud of which the bank has notice”.[55] The Court of Appeal was addressing the duty of a bank to pay and that it should not be involved in the dispute between a supplier and a buyer. The legal propositions so broadly stated were apposite to the factual issue before the court.
[52] [1978] 1 All ER 976.
[53] Ibid, 981(f)-(j).
[54] Ibid, 981f.
[55] Ibid, 983c.
Wood Hall Ltd v The Pipeline Authority & Anor (“Wood Hall Ltd”)[56] was a case in which the bank unconditionally undertook to pay the owner, on demand, any sum to the limit specified in the guarantee. The terms of the performance guarantee are set out at page 447 of the decision, and state that the bank expressly “unconditionally undertakes and covenants to pay on demand …”. Further, the “liability of the bank under this deed shall not be … impaired by reason of any … breach or breaches of the said contract by the contractor”. It is therefore not surprising that Barwick CJ,[57] Gibbs J,[58] and Stephen J[59] found that the bank was obliged to pay the money in accordance with the demands made on the guarantee issued to it and it was irrelevant to that obligation as to whether the giving of the demand by the owner involved a breach of contract. However, Gibbs and Stephen JJ especially reserved the situation in respect of whether it would have been possible for the contractor to obtain any relief by way of an injunction against the bank if the making of a demand by the principal was in breach of its duty to the contractor.[60]
[56] (1979) 141 CLR 443.
[57] Ibid, 445.
[58] Ibid, 451.
[59] Ibid, 456-458.
[60] Ibid, 452 (Gibbs J); 459 (Stephen J).
In particular, Stephen J expressly stated:[61]
Had the construction contract itself contained some qualification upon the authority’s power to make a demand under a performance guarantee, the position might well have been different. In fact the contract is silent on the matter.
[61] (1979) 141 CLR 443, 459.
In summary, the factual situation which existed in Wood Hall Ltd is not similar to the present case before me. In this case there is the requirement contained in clause 5.5 of the contract.
A case which is closer to the facts in the matter before me is Pearson Bridge (NSW) Pty Ltd v State Rail Authority of New South Wales (“Pearson Bridge”).[62] This case also concerned an unconditional undertaking by the bank to pay upon demand of the principal, however, the contract between the principal and the builder contained a clause 5.5 under the heading of “Conversion of security”, which provision stipulated:
If the Principal becomes entitled to exercise all or any of his rights under the Contract in respect of the security the Principal may convert into money the security that does not consist of money. The Principal shall not be liable for any loss occasioned by such a conversion. [emphasis added]
[62] (1982) 1 Aust Const LR 81.
The wording emphasised is the same as in this case. Yeldham J in the Pearson Bridge case correctly drew attention to the absence of any such contractual stipulation in the Wood Hall Ltd case. In summary His Honour concluded that clause 5.5 was a negative stipulation, a threatened breach of which would entitle the plaintiff to an injunction.[63] He further concluded that this negative stipulation defined and limited the circumstances under which the defendant may convert into money any security which does not consist of money.[64] His Honour also distinguished the circumstances in the Wood Hall Ltd case by reason of the existence of the contractual restriction upon the power of the owner to make a demand under the performance guarantee.[65] He also concluded that: [66]
It is plain that unless there is some contractual stipulation to the contrary, an owner of works is entitled in general to demand and be paid the amount of a performance guarantee, whether or not there has been a want of due and faithful performance of the work, and any moneys paid thereunder must be held as security for the contractor’s proper performance of it.
[63] Ibid, 86.
[64] Ibid, 86.
[65] Ibid, 86.
[66] Ibid, 83.
In this case, Ewing claims that the Pearson Bridge case supports its argument that clause 5.5 is a negative stipulation and that termination giving rise to unliquidated damages did not give a right of recourse to the defendants to make a demand on the bank.
Chronologically, the next case to which I was referred is Washington Constructions Company Pty Ltd v Westpac Banking Corporation.[67] In that case Thomas J was dealing with an unconditional bank bond as security in lieu of the retention fund. The builder sought an injunction against the proprietor, as well as the bank, to prevent the bank from making a payment to the proprietor. Thomas J dismissed the bank from the action on the basis that there was no cause of action against the bank on the part of the builder (impliedly reliant on the Wood HallLtd case). With regard to the injunction against the proprietor, Thomas J noted that each case would depend on the particular terms of the building contract in issue.[68] Whilst arguments were put to His Honour that the clauses of the contract implied that enforcement should not be made until certain conditions were fulfilled, the Judge concluded that there was no implied obligation which prevented the proprietor from making its present demands upon the bank. On that basis, he considered that the case of Wood Hall Ltd was applicable. In so doing, Thomas J took a similar approach with regard to an application for injunction being made against a principal, indicating that it depended on whether there was an implied or express obligation in the contract as to the conditions upon which a demand could be made for security.
[67] [1983] 1 Qd R 179.
[68] Ibid, 183.
In the case of Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (“Hortico”),[69] Young J was concerned with an application for an interlocutory injunction to restrain the bank from paying moneys to the beneficiary of a bank performance bond or, in the alternative, for a Mareva injunction to restrain the beneficiary from disposing of moneys paid to it by the bank under the bond. The applicant claimed that the beneficiary had breached an essential condition. Young J canvassed the case law in relation to whether a bank “guarantee” should be read independently of the contractual arrangement of the parties to a contract to which it is related. Young J concluded that the guarantee was unconditional upon the performance of the contract unless fraud was involved. He pertinently stated: [70]
Accordingly unless there is something in the terms of the guarantee itself which show that payment is not due, or some contractual right between the parties which prevents [the principal] from claiming on the guarantee, there is no reason why the bank should not pay the money. [emphasis added]
[69] (1985) 1 NSWLR 545.
[70] Ibid, 552-3.
His Honour also rejected the applicant’s argument that he should imply a term into the contract between it and the principal that the guarantee would only be called upon if the contract had been properly performed.
Therefore, Young J’s reasoning does not differ with the approach taken by Yeldham J in Pearson Bridge.
In the case of Hughes Bros Pty Ltd v Telede Pty Ltd (“Hughes Bros”)[71] Cole J was concerned with whether certain interlocutory injunctions should be dissolved. A declaration was sought by the contractor that notices given by the principal to the bank were invalid. Cole J specifically indicated his concurrence with the approach taken by Young J in Hortico and Yeldham J in Pearson Bridge to the effect that the parties, by a contract, could limit the terms upon which one party was entitled to call upon a performance guarantee, even if the performance guarantee itself was unconditional.[72] In the context of the facts before him, His Honour concluded upon analysis of the clauses, one of them permitted the proprietor to have recourse to the securities. There was no limitation within the contract and therefore it was appropriate for the injunctions to be dissolved.
[71] (1989) 7 BCL 210, 210.
[72] Ibid, 215.
In the case of Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd,[73] Rolfe J was concerned with an interlocutory injunction sought to restrain a supplier of materials from calling upon a performance bond. The performance bond was expressed to be unconditional, however, the standard form of contract in clause 5.6 provided that the security could be called upon if the principal became “entitled to exercise all or any of its rights under the contract in respect of the security”. This phrase is in similar terms to the current clause 5.5 in the case before bar.
[73] (1991) 23 NSWLR 451.
On the facts before him, the principal had not called upon the performance bond, but had threatened to do so. This had led to the seeking of an injunction. Rolfe J considered the relevant case law, including the decision in Pearson Bridge. After his own separate analysis, His Honour agreed with Yeldham J’s decision and approach and only differed on whether Gibbs J in Wood Hall Ltd had suggested a possible contractual restriction. Thereafter His Honour considered the particular contractual terms, ignoring the provision of clause 5.6, which it was agreed, had not yet arisen. His Honour therefore focussed on the other sub-clauses and concluded that the proper construction of clause 5 was such that the injunctions could be granted. This case is an important support for the Yeldham J’s approach in Pearson Bridge.
In the case of Burleigh Forest Estate Management Pty Ltd v Cigna Insurance Australia Ltd,[74] the Full Bench of the Supreme Court of Queensland had before it a factual situation in which three performance bonds were issued by the defendant in favour of the plaintiff, in relation to a building contract. The performance bonds were expressed to be unconditional. The lead judgment was given by Thomas J. A description of the nature of performance bonds is set out at pages 58-9 of the judgment and there is an analysis of many of the previous cases to which I have referred. In particular, there is reference to an article by Coleman entitled “Performance Guarantees”.[75]
[74] [1992] 2 Qd R 54.
[75] (1990) Lloyds Maritime and Commercial Law Quarterly, particularly at 223-4 and 228.
In his reasoning, Thomas J pointed to the fact that although the existence of an underlying contract is usually described in the recitals to a performance bond, the rights of the parties under that contract are not made a condition of the bank’s obligation to carry out its promise to the beneficiary.[76] The mere mention of the underlying contract and of the clauses therein which have led to the issuance of the guarantee by the financial institution are not enough to incorporate the contract or make the bank’s obligation to pay conditional upon the rights of the parties under that contract.[77] Thomas J also stated:[78]
… The duty of the bank to pay and the right of the beneficiary to claim are not simply opposite sides of the same coin. The duty of the bank arises only under the unconditional bond. It has the burden to pay, with no burden of inquiry, or duty to third parties. On the other hand the right of the beneficiary to claim may ultimately depend upon the terms of the underlying contract and the adverse party may have an equity to restrain him from making such a demand. [emphasis added, footnotes omitted]
[76] [1992] 2 Qd R 54, 58.
[77] Ibid, 59.
[78] Ibid, 60.

This latter statement rebuts the broadly stated propositions put to me by Mr Blue in regard to whether there is a cause of action which may be taken by Ewing in this matter.
In the case of Matthew Hall Mechanical Electrical & Engineers Pty Ltd v Baulderstone Pty Ltd,[79] Phillips J was considering whether an ex parte injunction should be discharged. The plaintiff was a building contractor which had entered into a sub-contract agreement with the defendant, a head contractor. The sub-contract required security. The bank guarantee was given in unconditional terms, however the sub-contract contained a clause 7.4. It is not necessary for me to set out clause 7.4, save that the Judge decided that it differed from clause 5.5 which was the subject of determination in the Pearson Bridge case. The clauses differed in that clause 7.4 said nothing as to the head contractor’s entitlement to demand cash of the bank, but instead dealt with the availability of funds to answer liability of the sub-contractor. Hence it was decided there was no limitation on a demand being made and there was no impediment to the defendant calling on the bank under the guarantee. Therefore, the principles applied were still the same, namely it depended on the underlying contract as to whether an injunction should or should not have been granted and the terms of the sub-contract differed from that in Pearson Bridge. The clause also differed from the clause in this case.
[79] (1994) 10 BCL 148.
In Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd, [80] the Court of Appeal of the Supreme Court of Victoria was hearing an appeal against a refusal to grant an interlocutory injunction restraining recourse by the owner to letters of credit. Charles JA, who delivered the lead judgment, did not demur from the principles that had been established in the cases of Pearson Bridge and Hortico, rather His Honour found that the case turned on the terms of the agreement and, in particular, clause 3.13. His Honour concluded that on the particular terms, the case of Pearson Bridge was distinguishable and Charles JA found that clause 3.13 did not contain any qualifications upon the right to call on the security, other than in certain procedural aspects.[81] Further, there was no qualification in clause 3.13 to the effect that resort to security under that clause was only available in the event of the owner having an undisputed entitlement to time damages.
[80] [1998] 3 VR 812.
[81] Ibid, 822.
In essence, there is no demur from the principles set forward in Pearson Bridge and other cases which have followed it.
Finally, the Court of Appeal in Bachmann Pty Ltd v BHP Power New Zealand Ltd[82] considered an application for the dismissal of a permanent injunction be dismissed and the dissolution of an interim injunction. In the lead decision delivered by Brooking JA, there was discussion concerning a standard contract clause 5.5 which was in the following terms:[83]
5.5A party shall not convert into money security that does not consist of money until the party becomes entitled to exercise a right under the Contract in respect of the security. …
[82] [1999] 1 VR 420.
[83] Ibid, 423.
Brooking JA noted, in a manner similar to Yeldham J in Pearson Bridge, that clause 5.5 was an express, albeit qualified, contractual prohibition on the conversion of a security into cash. His Honour also indicated that no principle or rule of law would deny that a promise forming part of the underlying contract was efficacious. He thereafter cited a number of authorities previously referred to in support of this proposition.[84] His Honour concluded that this contractual promise was efficacious, in the sense that relief could be afforded to the person who procured the security, in an action brought against the security holder on the promise contained in the underlying contract.[85]
[84] Ibid, 429.
[85] Ibid, 429.
His Honour also stated that he did not overlook the critical distinction between the effect of the underlying contract as between the parties, and its effect as between the holder of the security and the bank whose obligation constitutes the security.
In this factual scenario, the letter of credit was due to expire and there was no prospect that an arbitrator would be able to resolve the disputes between the parties prior to that expiration. The court was required to consider clause 5.5 in conjunction with clause 22.4, being the only relevant clause which would have entitled the purchaser to deduct moneys otherwise due to the supplier. The supplier contended that entitlement did not exist to trigger clause 5.3. The purchaser argued that it had a bona fide claim and therefore an entitlement.
The court decided, first, that there was a bona fide claim made which would become worthless, and second, it was not necessary to have a court determine that the right had been established. It decided that the refusal of the injunction was in all of the circumstances appropriate.
Conclusion
Having undertaken the above exercise with regard to the case law and applying it to the facts before me, I consider that Ewing arguably has a cause of action by way of injunction which, having regard to the clauses 5.5 in conjunction with the other matters previously referred to, casts sufficient doubt as to whether Ausbulk can in fact appropriately trigger a demand being made on ASB. On that basis I consider that I am satisfied that there is a sufficient basis upon which Ewing may have to seek to sustain the application for an injunction.
With regard to ABB Grain, the situation is different. ABB Grain is a party to the Performance Agreements, Ewing is not. In my view, the Performance Guarantees appear to be unconditional and subject only to process requirements. In no way could it be said to require the bank to investigate the matters contained in the statement. Having said that, it is obvious on the face of the document that ABB Grain would have to state that Ewing had been in breach of its obligations to it and indicate the respect in which Ewing was in breach of its contract. ABB Grain is now aware of the error. If ABB Grain sought to assert a breach(es) of contract between Ewing and itself, this would be a false representation to the bank made knowingly. This would prima facie amount to fraud.[86] Therefore, absent some process such as rectification, Ewing, which is an interested person and a party to the underlying contract, may appropriately seek to contend that recourse by ABB Grain to the Performance Guarantees would be fraudulent and in my view this would also amount to a serious issue to be tried.
[86] Derry v Peek (1889) 14 App.Cas 337, 334 (Lord Herschell).
On this basis I am satisfied that there is an appropriate basis upon which Ewing may seek to sustain an application for injunction against ABB Grain.
I now turn to the second part of the criteria for an interlocutory injunction.
Balance of convenience
This requires me to consider whether any inconvenience or injury to Ewing if the interlocutory injunction is not granted, outweighs the defendants’ injury or damage which would be sustained, if the interlocutory injunction is granted.
The combination of the affidavit of Mr Heard and his evidence is that Ewing, and its related party ECL, are likely to suffer the following harm:
·Ewing’s inability to tender for work in Australia;
·Ewing’s and ECL’s reduced inability to negotiate for and/or accept large projects which require significant Performance Guarantees. At the present time its limit on all facilities is $1.1m, although it has at times crept to $1.2m.
·The balance of available security has been utilised to hold off or “drip feed” creditors who have made claims against Ewing for monies owed in relation to the contracts. About $1.2m is owing. ECL is one of the creditors for about $400,000 and the other $800,000 is owed to arms length creditors.
·Ewing has no other assets.
·Injunctions will cause damage to the goodwill and reputation of Ewing and ECL. Sub-contractors and suppliers gossip and already ECL is having difficulties getting its usual commercial terms for supplies.
·There is a perception by Ewing’s and ECL’s clients and suppliers that the companies are unable to properly perform their contractual obligations.[87]
·ECL’s and Ewing’s ability to win tenders will be diminished if both companies are required, in the tendering process, to reveal to potential principals that performance guarantees have been called upon.[88] At the hearing, Mr Heard, in evidence acknowledged that “pre-qualification” is not the norm and generally occurs in one out of 20 tenders. Nevertheless, pre-qualification is usually a requirement when tendering for big infrastructure projects or government or navy projects.
[87] The Heard Affidavit, [81].
[88] Ibid, [82], T35.
In short, Ewing asserts that it will suffer significant detriment if the injunctions are not granted.
Before turning to the defendants’ arguments, it is important to note that the harm or injury must be a consequence of the granting or failure to grant an injunction. It must be distinguished from the harm or injury which has been caused by the termination of the contracts and the disputation between the parties. Much of the harm described by Mr Heard is likely to be the flow-on effect of the latter. However, I accept that the inability to access security would have an adverse effect on its business, particularly in trying to obtain future work and at the same time satisfy its creditors. I also accept that the calling in of the Performance Guarantees may adversely affect their goodwill reputation.[89]
[89] Compare with Barclay Mowlem Construction v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451, 461-462.
Mr Blue also submitted that calling on the Performance Guarantees would not adversely affect Ewing because it was no longer trading in Australia. In my view, the reasons given by Mr Heard explain why. Further, there is also a difference in a trading company having Performance Guarantees called in, with the associated call on personal assets of the partners, and with a trading company still having the Performance Guarantees on foot. In the latter case there is more ability to negotiate within certain limitations for future contracts and some “juggling” would still be possible.
In relation to the effect on reputation, notwithstanding that there is some force in Mr Blue’s argument that the calling in of a Performance Guarantee is a matter which only directly concerns these parties and the Bank, I consider that those in the industry would also appreciate that large contracts are frequently the subject of guarantees and security which are likely to be the subject of a call when termination of contracts occur. I consider that it is not difficult for me to infer that Ewing and ECL may suffer damage to reputation and goodwill not only as a result of the dispute between the parties but also as a result of a calling in of the guarantees.
The defendants, on the other hand, argue that the balance of convenience lies with them and does not favour the granting of an injunction because:
·The bank guarantees will expire on 29 February 2008 making the granting of an injunction akin to granting final relief in Ewing’s favour, as it is unlikely that the action will be finally determined by that date.[90]
·Ewing will be unable to honour its undertaking as to damages. Ewing has no assets in Australia.[91] Further, Ewing has a number of creditors seeking repayment of moneys owed.[92]
[90] The Defendants’ submissions, [28] – [30].
[91] The First Kearney Affidavit, [2] – [7].
[92] The Gentilcore Affidavit, [72] – [77].
In short, if the injunction is granted, the defendants will permanently lose their security on 29 February 2008, with no real prospect of recovery. In my view, this argument has force.
I also requested counsel for the parties to address me on what prejudice would be suffered, in particular by the defendants if there was an extension or rollover of the Performance Guarantees. This topic had already been the subject of a communication between the parties. Mr Jenner indicated that his client would be prepared to accept the extension of the bank guarantees as a condition for the granting of an interlocutory injunction and further that interest on the guarantees be paid in quarterly tranches. On his submission, the extension of the performance guarantees to maintain the status quo was “the lesser of two evils” from his client’s point of view.
In my view, if such a conditional order was to be made, the defendants’ claim to overwhelming greater disadvantage falls away and the plaintiff’s loss and harm outweighs the defendants’ if an injunction was not granted.
Damages and adequate remedy
The third part of the test requires the determination of whether damages are an adequate remedy in lieu of granting an injunction in Ewing’s favour.
Ewing relied on the similar arguments used to support the fact that the balance of convenience favours the granting of an injunction and also on two authorities.
In Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd, Rolfe J observed:[93]
However, once the evidence is admitted I am satisfied that it demonstrates how inadequate a remedy in damages would be. The matter, so far as the plaintiff is concerned, which is detrimentally affected upon a performance bond being called-up, is the perceived ability of the plaintiff to properly perform its obligations under a contract. If the plaintiff's ability in this regard is called in question, even improperly, it is not difficult to infer that there will be damage to its reputation in the industry in which it operates. Nor is it difficult to infer that its competitors would be quick to utilise such information in competing with the plaintiff. Finally, particularly as matters presently stand in the commercial world, questions may be raised as to the financial viability of the plaintiff if it is unable to perform contracts properly. This would be underlined if, as the uncontradicted evidence shows, there has not previously been any call upon a performance bond. In other words people may be tempted to ask whether the plaintiff's business was "going downhill". I find it difficult to see how a court could ever assess the damage occasioned to the plaintiff in these circumstances. I am of course not overlooking the fact that the court must do its best to assess damages, but it is only necessary to state the type of problems which may confront the plaintiff to demonstrate the difficulty, if not impossibility, which it would face in proving the quantum thereof.
[93] (1991) 23 NSWLR 451, 461-2.
Smith J made similar considerations in PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd,[94] with a particular emphasis on the effect of not granting an injunction on related parties:
In relation to the appellant it seems to me that there are significant prejudices and risks to which it and related companies would be exposed if the injunctions were not granted. I accept the evidence that even though the amount involved may not seem that large, nonetheless the loss of it will create significant financial pressures for the appellant and related companies. I accept the evidence that the funds securing the bank guarantees are funds accessible by the appellant and the other companies and so will affect their capacity to draw on funding available from the ANZ Bank. I also accept that this will adversely affect the capacity to tender for and negotiate for contracts, several of which are in the process of negotiation. Two projects mentioned will involve bank guarantees of over $600,000. I also accept the proposition that if loss is suffered, for example, through failure to obtain tenders, the assessment of damages will be a difficult and unsatisfactory process. Another issue raised is the risk of damage to the goodwill of the business and the reputation of the appellant and its related companies. Counsel for the first respondent submitted that this is highly speculative. It is speculative but it can be properly said, in my view, that recourse to the bank guarantees by the first respondent carries with it a real risk of damage to the reputation of the appellant and its related companies. [Footnotes omitted]
[94] [2007] VSC 74 at [14].
Given the background and the evidence before me, I am satisfied that damages would not be an adequate remedy. Further, there is a risk that if the defendants were to call on the bank guarantees, Ewing may well become insolvent and be unable to continue trading. This strongly suggests that damages are an inadequate remedy. A company’s inability to continue trading is without a doubt a matter that cannot be remedied by awarding damages.
The Order
In this case, I gave an opportunity for the parties to see if they could agree the terms of orders which could be made if I was satisfied that interlocutory injunctions should be made on the condition that the Performance Guarantees were extended. The parties were unable to agree.
The matters which I hoped may be the subject of agreement concern both the period of any extension of the guarantees and the use which may be made of the appointment by consent of Mr Walsh as the Arbitration under the contracts.
Section 66 of the Supreme Court Act 1935 (SA) enables a court to refer a civil proceeding or any issues arising in a civil proceeding for trial by an arbitrator appointed by the parties.
The issues which have arisen in this case which require determination include:
·Whether Ausbulk validly terminated the silos contract and the Structural Shell Package 2 ;
·Alternatively, whether Ausbulk wrongly repudiated the silo contract and the Structural Shell Package 2;
·The interpretation of clause 5 in the context of other clauses in the contract and whether either Ausbulk or ABB Grain is able to have recourse to the Performance Guarantees;
·Whether either defendant is able to make a valid demand under the Performance Guarantees.
Some of these issues are likely to arise in the course of arbitration proceedings before Mr Walsh. I consider it is appropriate for me to exercise s 66 of the Supreme Court Act 1935 (SA) to have such issues referred to the Arbitrator so that any interlocutory injunction should be expressed as being until such time as there is a determination by the Arbitrator of such issues. I am presently unable to make such precise orders without giving the opportunity to the parties to make submissions on this point. Hence, the current wording of my orders as set out hereafter.
The second application
Ewing’s second application seeks the vacation of the injunction and, instead, the court should make a direction that declaration(s) be heard and determined as a matter of urgency in conjunction with the filing of relevant documents. Having granted the injunction and referred the contentious matters for trial by an arbitrator, it is not appropriate to have a court give a discrete determination on the declarations sought. As indicated in my earlier reasons, these declarations cannot be decided in a vacuum and they are dependent upon facts which are contested between the parties. I therefore dismiss this application.
I therefore make the following orders:
1That Ausbulk Limited ACN 007 556 256 and ABB Grain Limited ACN 084 962 130 be restrained and injuncted from having any recourse to Bank Guarantee Number LG3-0600022 issued by ASB Bank Limited for the sum of AU$496,100.
2That Ausbulk Limited ACN 007 556 256 and ABB Grain Limited ACN 084 962 130 be restrained and injuncted from having any recourse to Bank Guarantee Number LG3-0600023 issued by ASB Bank Limited for the sum of AU$400,000.
3That the injunctions expressed in Orders 1 and 2 be conditional upon Ewing extending the Bank Guarantees and that such extensions and injunctions remain in place until further order of the Court.
4That Ewing pay interest on the amounts set out in Orders 1 and 2 hereof at the rate of 6.5 per cent per annum, such amount to be paid quarterly.
5I will hear the parties as to the entity to whom payment of interest is to be made under Order 4 hereof and the precise terms of payment.
6I will hear the parties further as to Order 3 hereof and the terms upon which a further order should be made taking into account a reference of issues pursuant to s 66 of the Supreme Court Act 1935.
7The application dated 16 January 2008 is dismissed.
ANNEXURE A
5SECURITY, RETENTION MONEYS AND PERFORMANCE UNDERTAKINGS
5.1Purpose
Security, retention moneys and performance undertakings are for the purpose of ensuring the due and proper performance of the Contract.
5.2     Provision of Security
If it is provided in the Annexure that a party shall provide security then the party shall provide security in the amount stated in the Annexure and in accordance with this Clause.
5.3     Form of Security
The security shall be in the form of cash, bonds or inscribed stock issued by the Australian Government or the Government of a State or Territory of Australia, interest bearing deposit in a trading bank carrying on business in Australia, an approved unconditional undertaking given by an approved financial institution or insurance company, or other form approved by the party having the benefit of the security.
The party having the benefit of the security shall have a discretion to approve or disapprove of the form of an unconditional undertaking and the financial institution or insurance company giving it or other form of security offered. The form of unconditional undertaking attached to these General Conditions is approved.
If the security is not transferable by delivery, it shall be accompanied by an executed transfer or such other documentation as is necessary to effect a transfer of the security. The costs (including all stamp duty or other taxes) of and incidental to the transfer and retransfer, shall be borne by the party providing the security.
5.4     Time for Lodgement of Security
Security shall be lodged within 28 days of the Date of Acceptance of Tender.
5.5     Recourse to Retention Moneys and Conversion of Security
A party may have recourse to retention moneys and/or cash security and/or may convert into money security that does not consist of money where—
(a)the party has become entitled to exercise a right under the Contract in respect of the retention moneys and/or security; and
(b)the party has given the other party notice in writing for the period stated in the Annexure, or if no period is stated, five days of the party’s intention to have recourse to the retention moneys and/or cash security and/or to convert the security; and
(c)the period stated in the Annexure or if no period is stated, five days has or have elapsed since the notice was given.
5.6Reduction of Security and Retention Moneys
The Contractor shall be at liberty at any time to provide in lieu of retention moneys, security in any of the forms permitted in Clause 5.3. To the extent that such security is provided, the Principal shall not deduct retention moneys and shall forthwith release retention moneys.
5.7     Reduction of Security and Retention Moneys
Upon issue of the Certificate of Practical Completion, the Principal’s entitlement to security and retention moneys shall be reduced to the percentage thereof stated in the Annexure or, if no percentage is stated, to 50 per cent thereof.
Subject to the first paragraph of Clause 5.7, if in the opinion of the Superintendent it is reasonable to further reduce the Principal’s entitlement to security and retention moneys, that entitlement shall be reduced to the amount which the Superintendent determines to be reasonable.
The Principal shall, within 14 days of the Superintendent making such a determination, release security and retention moneys in excess of the entitlement.
5.8     Release of Security
If the Contractor has provided additional security pursuant to Clause 42.4, the Principal shall release that additional security within 14 days of the incorporation into the Works of the unfixed plant or materials in respect of which the additional security was furnished.
If the Principal has provided security, then when the Contractor has been paid all moneys finally due to the Contractor under the Contract or a Separable Portion, the Contractor shall release the security lodged by the Principal in respect of the Contract or the Separable Portion, as the case may be.
If the Contractor has provided security, then the Principal shall release it when required by Clause 42.8.
44 DEFAULT OR INSOLVENCY
44.1   Preservation of Other Rights
If a party breaches or repudiates the Contract, nothing in Clause 44 shall prejudice the right of the other party to recover damages or exercise any other right.
44.2   Default by the Contractor
If the Contractor commits a substantial breach of contract and the Principal considers that damages may not be an adequate remedy, the Principal may give the contractor a written notice to show cause.
Substantial breaches include but are not limited to—
(a)     suspension of work, in breach of Clause 33.1;
(b)     failing to proceed with due expedition and without delay, in breach of Clause 33.1;
(c)     failing to lodge security in breach of Clause 5;
(d)failing to use the materials or standards of workmanship required by the Contract, in breach of Clause 30.1;
(e)failing to comply with a direction of the Superintendent under Clause 30.3, in breach of Clause 23;
(f)failing to provide evidence of insurance, in breach of Clause 21.1; and/or
(g)in respect of Clause 43, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue.
44.3Requirements of a Notice by the Principal to Show Cause
A notice under Clause 44.2 shall—
(a)state that it is a notice under Clause 44 of the General Conditions of Contract;
(b)specify the alleged substantial breach;
(c)require the Contractor to show cause in writing why the Principal should not exercise a right referred to in Clause 44.4;
(d)specify the time and date by which the Contractor must show cause (which time shall not be less than 7 clear days after the notice is given to the Contractor); and
(e)specify the place at which cause must be shown.
44.4Rights of the Principal
If by the time specified in a notice under Clause 44.2 the Contractor fails to show reasonable cause why the Principal should not exercise a right referred to in Clause 44.4, the Principal may by notice in writing to the Contractor—
(a)take out of the hands of the Contractor the whole or part of the work remaining to be completed; or
(b)terminate the Contract.
Upon giving a notice under Clause 44.2, the Principal may suspend payments to the Contractor until the earlier of—
(i)    the date upon which the Contractor shows reasonable cause;
(ii)    the date upon which the Principal takes action under Clause 44.4(a) or (b); or
(iii)the date which is 7 days after the last day for showing cause in the notice under Clause 44.2.
If the Principal exercises the right under Clause 44.4(a), the Contractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Contractor unless a payment becomes due to the Contractor under Clause 44.6.
44.5   Procedure when the Principal Takes Over Work
If the Principal takes work out of the hands of the Contractor under Clause 44.4(a) the Principal shall complete that work and the Principal may without payment of compensation take possession of such of the Constructional Plant and other things on or in the vicinity of the Site as are owned by the Contractor and are reasonably required by the Principal to facilitate completion of the work.
If the Principal takes possession of Constructional Plant or other things, the Principal shall maintain the Constructional Plant and, subject to Clause 44.6, on completion of the work the Principal shall return to the Contractor the Constructional Plant and any things taken under this Clause which are surplus.
44.6   Adjustment on Completion of the Work Taken Out of the Hands of the Contractor
When work taken out of the hands of the Contractor under Clause 44.4(a) is completed the Superintendent shall ascertain the cost incurred by the Principal in completing the work and shall issue a certificate to the Principal and the Contractor certifying the amount of that cost.
If the cost incurred by the Principal is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Principal. If the cost incurred by the Principal is less than the amount that would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due to the Contractor from the Principal. The Principal shall keep records of the cost in a similar manner to that prescribed in Clause 41.
If the Contractor is indebted to the Principal, the Principal may retain Constructional Plant or other things taken under Clause 44.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the Constructional Plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.
…
44.9   Rights of the Contractor
If by the time specified in a notice under clause 44.7 the Principal fails to show reasonable cause why the Contractor should not exercise a right referred to in Clause 44.9, the Contractor may by notice in writing to the Principal suspend the whole or any part of the work under the Contract.
The Contractor shall lift the suspension if the Principal remedies the breach but if within 28 days after the date of suspension under Clause 44.9, the Principal fails to remedy the breach or, if the breach is not capable of remedy, fails to make other arrangements to the reasonable satisfaction of the Contractor, the Contractor may by notice in writing to the Principal terminate the Contract.
The Contractor shall be entitled to recover from the Principal any damages incurred by the Contractor by reason of the suspension.
44.10 Rights of the Parties on Termination
If the Contract is terminated under Clause 44.4(b) or Clause 44.9 the rights and liabilities of the parties shall be the same as they would have been at common law had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages