Ewing International LP v Ausbulk Ltd (No 2)

Link copied
Case Copied 79 min read

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

EWING INTERNATIONAL LP v AUSBULK LTD (No 2)

[2009] SASC 381

Judgment of The Honourable Justice Layton

9 December 2009

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - MATTERS NOT GIVING RISE TO BINDING CONTRACT - VAGUENESS AND UNCERTAINTY

EQUITY - EQUITABLE REMEDIES - SPECIFIC PERFORMANCE

Claimant (Ausbulk) seeks orders requiring Respondent (Ewing) to procure performance guarantees – Ewing entered into two contracts with Ausbulk for construction work relating to grain silos – clause 5 of the contracts required Ewing to provide security for performance – Ewing provided bank guarantees as security – dispute arose regarding the performance of the contract in 2007 – each party alleged termination for breach and sought damages – dispute referred to arbitration – performance guarantees due to expire in February 2008 – Ausbulk sought to call on the guarantees – Ewing sought injunctions in Supreme Court – injunctions granted on 8 February 2008 conditional upon Ewing extending existing guarantees – precise form of orders to await hearing the parties – parties negotiated on the basis of Ewing providing guarantees that would not be limited in time – on 18 February 2008 Ewing advised Ausbulk that its bank refused to issue guarantees not limited in time – parties then negotiated on the basis of Ewing providing guarantees limited in time but with mechanism for rollover – Ausbulk alleges contract entered into by parties on 20 February 2008 – alleged contract included obligation of Ewing to provide rollover guarantees with a mechanism which enabled Ausbulk to call on guarantees in final month before expiry – consent orders entered on 26 February 2008. 

Contractual issues: whether correspondence and attached draft orders evidenced a contract dated 20 February 2008 – whether contract placed obligation on Ewing to roll over guarantees until determination of arbitration – whether express or implied terms – whether legal representatives had actual or ostensible authority to enter into contract on behalf of parties – whether adequate consideration – whether intention to create legal relations – whether contract void for uncertainty – whether order for specific performance of that contractual obligation appropriate when performance of obligation is contingent on bank agreeing to provide guarantees – relevance of impecuniosity of  Ewing – whether order for specific performance would be futile – whether permissible to make order requiring Ewing to do “all that is reasonably necessary” to achieve rollover obligation.

Held: contract formed at 20 February 2008 – contract not void for uncertainty – order for specific performance appropriate – order for specific performance should not be refused on the grounds of futility merely because Ewing is impecunious and the contractual obligation is contingent on approval by bank – appropriate to order that Ewing do “all that is reasonably necessary” to achieve rollover obligation.

EQUITY - GENERAL PRINCIPLES - MISTAKE - EFFECT ON CONTRACTS - MISTAKE AS TO NATURE OR CONTENTS OF DOCUMENT

Alternative claim in common mistake – whether orders provide for obligation…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Ewing International LP v Ausbulk Ltd (No 2) and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2009] SASC 381
Decision Date

CaseChat Overview and Summary

In Ewing International LP v Ausbulk Ltd (No 2), Ausbulk Ltd sought orders requiring Ewing International LP to procure performance guarantees. The parties had entered into two contracts for construction work relating to grain silos, with clause 5 requiring Ewing to provide security for performance. A dispute arose in 2007, and the parties referred the matter to arbitration. Performance guarantees were due to expire in February 2008, and Ausbulk sought to call on the guarantees. Ewing sought injunctions in the Supreme Court, which were granted on 8 February 2008, conditional upon Ewing extending existing guarantees. Ausbulk and Ewing then negotiated on the basis of Ewing providing guarantees that would not be limited in time, but on 18 February 2008, Ewing advised Ausbulk that its bank refused to issue guarantees not limited in time. Ausbulk and Ewing then negotiated on the basis of Ewing providing guarantees limited in time but with a mechanism for rollover. Ausbulk alleges a contract was entered into on 20 February 2008, including an obligation of Ewing to provide rollover guarantees with a mechanism enabling Ausbulk to call on the guarantees in the final month before expiry. Consent orders were entered on 26 February 2008.

The court held that a contract was formed on 20 February 2008, and it was not void for uncertainty. An order for specific performance was appropriate, even if the performance of the obligation was contingent on the bank agreeing to provide guarantees. It was appropriate to order Ewing to do "all that is reasonably necessary" to achieve the rollover obligation. The court found that the parties intended to include an express requirement on Ewing to roll over the guarantees in the consent orders. Ewing was estopped from denying that the orders required the rollover of the guarantees, as the parties had proceeded on the underlying assumption that Ewing was required to roll over the guarantees. Ausbulk relied on the representation to its detriment, and Ewing was estopped from denying its obligation to roll over the guarantees.

The court also held that clause 5 of the Construction Contracts required Ewing to roll over the guarantees in the case of arbitration, and both clause 5 and the arbitration clause survived the termination of the contract. However, the obligation to provide security was now governed by the 20 February 2008 contract. Ausbulk failed to call legal representatives involved in the negotiation of the consent orders as witnesses, while Ewing failed to call legal representatives or employees involved in the negotiation of the consent orders as witnesses. The court found that the Jones v Dunkel (1959) 101 CLR 298 inference was not appropriate in the circumstances.

The court ordered that Ewing must do all that is reasonably necessary to enable it to provide security in accordance with clause 5.2 of the general conditions of contract AS 2124-1992 (General Conditions) forming part of the contract OHB/02/011-003 (the Silos Contract) and OHB/02/011-007 (the Capital Structural Package Contract). Liberty to apply was granted should Ewing be unable to procure security in accordance with the orders within 21 days.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

This is an application by Ausbulk Ltd (“Ausbulk”) for an order of the Court requiring Ewing International Limited Partnership (“Ewing”) to provide security by way of bank guarantees in relation to Ewing’s performance of certain contracts between the parties.Background The present application arises out of the circumstances involving orders made by me in this matter in 2008 in relation to an application for an injunction. I will later discuss the terms of the orders giving rise to the present application, but it is first necessary to set out briefly the somewhat complicated history of this matter which has led to the precise terms of those orders. The core dispute between the parties relates to alleged breaches of two contracts for the construction of grain silos and associated structures by Ewing (“the Construction Contracts”). This dispute is not in issue before me but is currently the subject of an arbitration before Mr Stephen Walsh QC (“the Arbitration”). The following basic narration of events is common ground to the parties and I express them in a neutral way without thereby implying any legal conclusions. It was a term of the two contracts that Ewing, who was contracted to construct the silos, provide security for the performance of the Construction Contracts by way of performance guarantees in favour of Ausbulk in the amount of $496,100 (in relation to the silo contract) and $400,000 (in relation to the associated structures contract). Ewing provided such security by way of performance guarantees from ASB Bank, which were to expire on 29 February 2008. On 12 December 2007, following the allegations of breach by the parties, which ultimately led to the Arbitration, Ausbulk gave notice to Ewing of its intention to have recourse to the performance guarantees. It was at this point that the matter first came before me, in early 2008, as an application by Ewing for an interlocutory injunction preventing Ausbulk from having recourse to the performance guarantees until the determination of the issues between them. At the hearing before me, concern was raised by Ausbulk that the injunction would cause prejudice because Ausbulk would permanently lose its security unless the Arbitration was completed prior to the expiry date of the performance guarantees, namely 29 February 2008. It was common ground that completing the Arbitration by this date was highly unlikely. This prejudice occasioned upon Ausbulk may have been fatal to the application for an injunction, had Ewing not made the important concession that that the injunction could be conditional upon Ewing providing guarantees to replace the existing performance guarantees, thus extending the security. I stated the dilemma in my reasons for judgment as follows:[1]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. [Counsel for Ewing] 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… 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.[1] Ewing International LP v Ausbulk Ltd [2008] SASC 25, [125]-[126].

Evidence

Evidence Before The Court

Alternatively, if Ausbulk is successful in its claim that there remains an obligation on Ewing under the Construction Contracts to roll over guarantees then the orders sought are formulated as follows (“minutes of order version 2”):1That the Plaintiff do all that is reasonably necessary to enable it to provide security in accordance with clause 5.2 of the general conditions of contract AS 2124-1992 (General Conditions) forming part of the contract OHB/02/011-003 (the Silos Contract).2That the Plaintiff do all that is necessary to enable it to provide security in accordance with clause 5.2 of the general conditions of contract OHB/02/011-007 (the Capital Structural Package Contract).3Liberty to apply should Ewing be unable to procure security in accordance with orders 1 and 2 hereof within 21 days.Evidence The trial was mainly conducted on the documents, accompanied by detailed written and oral submissions. The documentary evidence comprised two large tender books, which themselves included a range of documents and communications. Further documents were tendered and they included a number of affidavits, namely:·Affidavit of Ashley Roff dated 4 September 2009 and exhibits;[6]·Two affidavits of James Kearney, one dated 21 August 2009 restricted to certain named paragraphs and exhibits,[7] and another dated 29 September 2009;·Two affidavits of Thomas Rice, dated 28 September 2009 and 29 September 2009; and·Affidavit of Catherine Mayfield, dated 28 September 2009.[6] Subject to certain amendments and deletions, notably deletions at [45] and [66] and amendments to dates recorded in error.[7] This affidavit was also only admitted in so far as it was relevant to the financial circumstances of Ewing and was restricted to paragraphs [1]-[2] and [26]-[38] and exhibits 22, 23 and 24 exhibited thereto. The only oral evidence called was that of Mr Ashley Sherwood Roff, who was called by Ausbulk. I had extensive written submissions and chronologies provided, notably:·Ewing’s Outline of Closing Submissions;·Reply of Ausbulk to Ewing’s written closing submissions;·Ausbulk’s Closing Address; and·Ewing’s Outline of Submissions in Reply. In relation to the evidence, when discussing the issues between the parties, I have not sought to set out all aspects of the very detailed chronology of communications between the parties which occurred over a very brief period between 8 February 2008 and 26 February 2008. I have also not set out the entire process of all of the various drafts of minutes of orders which passed between the parties before their final formulation in the terms of the orders made before me on 26 February 2008. I have instead focussed on the chronology of events and the particular drafts that are necessarily relevant to deciding the issues. I have taken this approach largely because of the limited time available to me to give my decision with reasons. Time did not permit an exhaustive narration of all events.The claim in contract In its points of claim, Ausbulk alleges that a contract was created between the parties on 14 February 2008 or, in the alternative, on 20 February 2008. Over the course of the trial, however, reliance on the 14 February 2008 contract fell away and it is now Ausbulk’s primary case that a contract was created on 20 February 2008.[8][8] Defendant’s Closing Address, [151].

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

In draft minutes of order (3) the Recital was expressed as follows:[26]A.Upon noting that the Plaintiff and the First Defendant have agreed to extend the dispute the subject of this arbitration before Mr S Walsh QC to incorporate all of the matters the subject of this action (as defined by the affidavit of Mr Michael Heard sworn 18 December 2007) insofar as this action relates to the [Silo contract] (without making any agreement concerning arbitration of matters the subject of the action insofar as it relates to the Structural Package 2 job number “OHB/02/011‑007” and work number “EWO1419193).[26] TB 94. Paragraph 3 was expressed as follows:[27]3.That the injunctions expressed in Orders 1 and 2:3.1 be conditional upon Ewing extending the Bank Guarantees in the terms of the pro forma guarantees annexed hereto and marked A and B respectively;3.2 cease to have any effect on 15 February 2008 at 5.00pm in the event such extensions of the Bank Guarantees have not been put in place and provided to the defendants’ solicitors by that time;3.3 subject thereto, such injunctions remain in place until further order of the Court(Emphasis added.)[27] TB 94. Draft minutes of order (4)[28] expressed the Recital in the same terms as draft minutes of order (3). Paragraph 3 was expressed as follows:3.That the injunctions expressed in Orders 1 and 2:3.1 be conditional upon Ewing extending the Bank Guarantees in the terms of the Bank Guarantees annexed hereto and marked A and B respectively;3.2 subject thereto, such injunctions remain in place until further order of the Court(Emphasis added.)[28] TB 97. Both of these two versions still retained the condition in paragraph 3.1 that Ewing extend the Bank Guarantees in the terms of the annexed guarantees and that they remain in place until further order, but draft minutes of order (3) additionally required that Bank Guarantees be put in place by 15 February 2008. Mr Jenner responded to Mr Blue at 9.41pm on 13 February 2008, saying:[29]I spoke to the client tonight and it seems that in a general sense the bank will be happy if there is an order of the Court and/or (he wasn’t sure) a written acknowledgement by ABB. So needing a Court order makes it something of a “chicken and egg” situation.He will speak to the client first thing (NZ time) in the morning about the matter.One way forward may be a short Deed acknowledged in the order and directing ASB to replace two sets of guarantees with two new ones in agreed terms.We have tweaked the wording a little to give ASB some certainty.14 February 2008 correspondence [29] TB 109. On 14 February 2008, four emails were exchanged between the parties in the lead up to a hearing before me on that date. First, an email was sent from Mr Jenner to Mr Blue at 12:43pm attaching minutes of order in which paragraph 3 is expressed in the same form as draft minutes of order (4), which made no mention of the requirement for Bank Guarantees to be in place by 15 February 2008. The Recitals had been varied to read:[30]A.Upon noting the intimation from counsel for both parties that the determination of the arbitration before Mr S Walsh QC should avoid the need for a trial of the matters in the within action.B.Upon noting that the Plaintiff has procured/will procure the provision of replacement Bank Guarantees in the terms annexed hereto marked A and B.C.The payments referred to in order 4 below are payments made “on account” pending a determination as to whether the defendants are entitled to access on the bank guarantees.[30] TB 145.