Ewing International LP v Ausbulk Ltd (No 2) - [2009] SASC 381

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 to roll over guarantees – whether failure to provide for express obligation on Ewing to roll over guarantees in the consent court orders amounts to an actionable common mistake – whether rectification of orders appropriate.
Held: parties intended to include express requirement on Ewing to roll over the guarantees in the consent orders – rectification not appropriate given effect on Ewing, lack of clarity as to the formulation of orders and the success of Ausbulk on the primary claim for contract.

ESTOPPEL - ESTOPPEL BY CONVENTION
ESTOPPEL - ESTOPPEL IN PAIS - EQUITABLE ESTOPPEL
Alternative claims in estoppel – whether estoppel by convention – whether parties proceeded on underlying assumption that Ewing was required to rollover guarantees – whether unconscionable for Ewing to deny that consent orders require rollover of the guarantees – whether estoppel by representation – whether Ewing made representation to Ausbulk that it was under an obligation to roll over guarantees – whether detrimental reliance on representation.
Held: parties entered into consent orders in reliance on the underlying assumption that Ewing was required to roll over guarantees – Ewing estopped from denying that orders have that effect – Ewing represented that it was under obligation to roll over guarantees – Ausbulk relied on representation to its detriment – Ewing estopped from denying obligation to roll over guarantees.

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
Alternative claim for specific performance of clause 5 of Construction Contracts – whether clause 5 of contracts required Ewing to roll over guarantees in case of arbitration – whether clause 5 survived termination of the contracts.
Held: clause 5 is linked with clause providing for parties to submit to arbitration – both clause 5 and arbitration clause survive termination of contract – although clauses survive termination, obligation to provide security modified and now governed by 20 February 2008 contract.

EVIDENCE - BURDEN OF PROOF, PRESUMPTIONS, AND WEIGHT AND SUFFICIENCY OF EVIDENCE - GENERALLY - CREDIBILITY AND WEIGHT - PARTY'S FAILURE TO GIVE OR CALL EVIDENCE
Ausbulk failed to call legal representatives involved in negotiation of consent orders as witnesses – Ewing failed to call legal representatives or employees involved in negotiation of consent orders as witnesses – whether Jones v Dunkel (1959) 101 CLR 298 inference appropriate in the circumstances.
Held: no adverse inference appropriate in the circumstances.
Evidence Act 1929 (SA) s 45A; Supreme Court Act 1935 (SA) s 66; Supreme Court Rules 2006 (SA) Rule 242; Supreme Court Rules 1987 (SA) Rule 53.10, referred to.
Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Manufacturing Co Ltd [1971] 2 QB 23; Legione v Hateley (1983) 152 CLR 406; Reed v Sheehan (1982) 39 ALR 257; Low v Bouverie [1891] 3 Ch 82; Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193; MCI WorldCom International Inc v Primus Telecommunications Inc [2004] 2 All ER 833; Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325; Hardel Pty Ltd v Burrell & Family Pty Ltd (2009) 109 SASR 408, applied.
Ewing International LP v Ausbulk Ltd [2008] SASC 25; Davis v CGU Insurance Ltd (2009) SASR 422; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Giumelli v Giumelli (1999) 196 CLR 101; Thompson v Palmer (1933) 49 CLR 507, discussed.
Nowrani Pty Ltd v Brown [1989] 2 Qd R 582; Eccles v Bryant & Pollock [1948] Ch 93; D'Silva v Lister House Development [1971] Ch 17; CTM Nomineees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588; Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606; Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146; CIC Insurance Ltd v Bankstown Football Club Ltd (1994) 8 ANZ Insurance Cases 61-232; Strauss v Francis (1866) 1 QB 379; Across Australia Finance v Bassenger [2008] NSWSC 799; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; Waugh v H B Clifford & Sons Ltd [1982] 1 Ch 374; Polyaire Pty Ltd v K-Aire Pty Ltd (No 4) [2007] SASC 36; E I Du Pont De Nemours & Co v The Commissioner of Patents (1988) 16 FCR 423; Harvey v Phillip (1956) 95 CLR 235; Athens v Randwick City Council (2005) 64 NSWLR 58; Kaufman v McGillicuddy (1914) 19 CLR 1; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Heyman v Darwins Ltd [1942] AC 356; Moschi v Lep Air Services Ltd [1973] AC 331; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Aust) Pty Ltd (1980) 144 CLR 300; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827; Moschi v Lep Air Services [1973] AC 331; R V Ward Ltd v Bignall [1967] 1 QB 534; Re Dingjan; Ex Parte Wagner (1995) 183 CLR 323; Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227; Home Counties Dairies v Skilton [1970] 1 All ER 1227; Boucaut Bay Co Ltd (in liq) v Commonwealth (1927) 40 CLR 98; F J Bloemen Pty Ltd v Council of the City of Gold Coast [1973] AC 115; Heymon v Darwins Ltd [1942] AC 356; Port Jackson Stevedoring Pty Ltd v Salmond and Spraggon (Aust) Pty Ltd (1980) 144 CLR 300; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Reardon Smith Line Ltd v Hansen Tangen [1976] 1 WLR 989; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; Toll (FGCT) Pty Ltd v Alphapharm Pth Ltd (2004) 219 CLR 165; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Zhu v Treasurer of New South Wales (2004) 218 CLR 530; New Zealand Shipping Co Ltd v AM Satterthwaite & Co [1975] AC 154; MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR 125; Ormare Pty Ltd v Smith [2007] NSWCA 210; Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) (2001) 117 FCR 424; Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; Scammell (G) & Nephew Ltd v Ouston [1941] AC 251; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Collins v Godefroy (1831) 109 ER 1040; Harvey v Phillips (1956) 95 CLR 235; H and G Group v Pilot Developments [2002] NSWSC 257; Deputy Commissioner of Taxation v Chamberlain (1990) 26 FCR 221; MacKenzie v Coulson (1869) LR 8 Eq 368; Rogers v Wentworth (Unreported, Supreme Court of New South Wales Court of Appeal, Hope, Samuels and Mahoney JJA, 18 April 1998); R v Marong Municipal Council; ex parte Filcock (1903) 29 VLR 355; Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Australian Gypsum Ltd and Australian Plaster Co Ltd v Hume Steel Ltd (1930) 45 CLR 54; Pukallus v Cameron (1982) 180 CLR 447; Australia Hotel Co Ltd v Moore (1899) 20 NSWLR (Eq) 155; Kenny v Sholl (1905) 7 WALR 197; Chamberlain v Thornton (1892) 18 VLR 192; Bacchus Marsh Concentrated Milk Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410; Re Butlin’s Settlement Trusts [1976] Ch 251; Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365; Frontier Petroleum NL v Anzoil NL (SC(WA), Anderson J, 4 June 1997, unreported); Australian Consolidated Investments Ltd v England (1995) 183 LSJS 438; Winks v W H Heck & Sons Pty Ltd [1986] 1 QdR 226; Chartbrook Limited v Persimmon Homes Limited [2009] 3 WLR 267; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329; Conagra International Fertiliser Co v Lief Investments Pty Ltd (1997) 141 FLR 124; Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (1998) 153 ALR 529; Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2002] FCAFC 285; Oates Properties Pty Ltd v Commissioner of State Revenue [2003] NSWSC 596; Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126; Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526; Jones v Dunkel (1958) 101 CLR 298; Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364; Brandi v Mingot (1976) 12 ALR 55; Smith v Samuels (1976) 12 SASR 573; Clayton Robard Management Ltd v Siu (1987) 6 ACLC 57; Cafe v Australian Portland Cement Pty Ltd [1965] NSWR 1364; Blatch v Archer (1774) 98 ER 969; Giannarelli v Wraith (No 2) (1991) 171 CLR 592; Wentworth v Lloyd (1864) 33 LJ (Eq) NS 688; [1864] 11 ER 1154; Mocatta v Leal [1993] SASC 4041; Ewing International Limited Partnership v Ausbulk Ltd [2009] SASC 317; RHG Mortgage Securities Pty Ltd v Elektra Purchase No. 19 Ltd [2009] NSWSC 258; Ho v Powell (2001) 51 NSWLR 572; Wilson v Northhampton and Banbury Junction Railway Co [1874] 9 Ch App 279; Coulls v Baggot’s Executor and Trustee Co Ltd (1967) 119 CLR 460; Associated Portland Cement Manufacturers Ltd v Teigland Shipping A/S (the “Oakworth”) [1975] 1 Lloyd’s Rep 581; Anders Utkilens Rederi A/S v O/Y Lorisa Stevedoring Co A/B [1985] 2 All ER 669; Optus vision Pty Ltd v Rugby Football League Ltd [2004] NSWCA 61; Lawton v Campion (1854) 18 Beav 87, 52 ER 291; Dougan v Ley (1946) 71 CLR 142; Kennedy v Vercoe (1960) 105 CLR 521; Butts v O’Dwyer (1952) 87 CLR 267; Avenue (WA) Pty Ltd v Prazaline Pty Ltd [2007] WASC 173; Olsson v Dyson (1969) 120 CLR 365; Riches v Hogben [1985] 2 Qd R 292; Yaxley v Gotts [2000] Ch 162; Jennings v Rice [2002] ECWA Civ 159; Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (Unreported, Supreme Court of Western Australia, Kennedy, Franklyn and Murray JJ, 30 May 1994); Republic of India v India Steamship Co Ltd (No 2) (The Indian Grace) [1998] AC 878; Santos v Delhi Petroleum Pty Ltd [2002] SASC 272; Grundt v Great Boulder Pty Gold Mines Ltd (1938) 59 CLR 641, considered.

EWING INTERNATIONAL LP v AUSBULK LTD (No 2)
[2009] SASC 381
Background
Issues
Evidence
The claim in contract
Agency
The evidential basis for the claim in contract
Chronology of communications
8 February 2008 correspondence
13 February 2008 correspondence
14 February 2008 correspondence
18 February 2008 correspondence
Findings on the correspondence up to 18 February 2008
The third letter of 18 February 2008
19 February 2008 correspondence
20 February 2008 correspondence
Subsequent correspondence

The alleged contract of 20 February 2008
Intention
Agreement

The first term of the contract
Is this term void for uncertainty?

The second term of the contract
The third term of the contract
The fourth term of the contract
The fifth term of the contract
Implied fifth term

Conclusion on the terms of the contract
Was the contract of 20 February 2008 varied after that date?
21 February correspondence
22 February correspondence
25 February correspondence
26 February correspondence

The meaning of the orders of 26 February 2008
Consideration
Breach of the 20 February 2008 contract
Common Mistake
The claim in Estoppel
Estoppel by convention
Conclusion

Estoppel by representation
Conclusion

Survival of security provision Clause 5
Conclusion
Business records and Jones v Dunkel
Remedies
Remedy for Breach of the 20 February 2008 contract
Remedy for Estoppel
Remedy for Common Mistake
Remedy for survival of security provision clause 5
Orders of the Court
Civil
LAYTON J:

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].
I delivered judgment on that injunction application on 8 February 2008. In my reasons, I indicated that it was appropriate to make an order by way of injunction preventing Ausbulk from having recourse to the performance guarantees pending determination of the Arbitration. However, granting of the injunctions was to be conditional upon Ewing extending Bank Guarantees until determination of the Arbitration.
I reflected these reasons by making the following orders:[2]
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.
[2] Ewing International LP v Ausbulk Ltd [2008] SASC 25, [138].

In relation to the orders I also indicated the following:
132In 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.
133The 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 Arbitrator under the contracts.
…
136Some 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 injunctions were therefore expressly made conditional upon the extension of the performance guarantees and I invited the parties to address me further as to the precise mechanism and terms of the extension of the performance guarantees.
In the weeks following the 8 February 2008 judgment, the parties were engaged in negotiations. Ausbulk contends that the negotiations gave rise to a contract between the parties dated 20 February 2008 concerning the terms and conditions for the provision by Ewing of guarantees. Ewing denies any contract was entered into between the parties.
The correspondence and communications between the parties initially concerned the guarantees to be provided by Ewing for an indefinite period. However, on 18 February 2008, it was conveyed to Ausbulk that Ewing’s bank would not issue guarantees without a precise expiry date. This is an important event in the chronology of this matter, because it marks the moment that the parties shifted their correspondence and communications from discussing indefinite guarantees to discussing guarantees with a finite expiry date. Counsel for Ewing referred to this event as generating a “fresh start” between the parties as far as the negotiations were concerned.[3]
[3] T287.
At a hearing before me on 19 February 2008, during the midst of these negotiations, counsel for Ausbulk summarised the position of the parties as follows:[4]
The substantive difficulty is that the order that I handed up and the draft guarantees that I handed up were premised on the guarantees being unlimited in time. But we’ve been told today that there’s a problem about that from the perspective of ASB Bank …
[4] Transcript of SCCIV-07-1673, Ewing International LP v Ausbulk Ltd & Anor, 19 February 2008, Page 2, lines 28-33.
Counsel went on to say that:[5]
I think the parties have negotiated a mechanism which would in effect permit my clients to call the guarantee in the last month that is in March if it hasn’t been rolled over …
[5] Transcript of SCCIV-07-1673, Ewing International LP v Ausbulk Ltd & Anor, 19 February 2008, Page 3, lines 17-21.
Following further discussions between the parties and their solicitors, the parties eventually arrived at a form of replacement guarantees and the form of orders to be agreed. On 22 February 2008 two guarantees were provided by Ewing (the “Replacement Guarantees”). The agreed minutes of order were finally presented to me for my endorsement at a hearing on 26 February 2008. The consent orders made on that date were in the following terms:
Upon noting:
A.The intimation from counsel for the parties that they both believe that the determination of the arbitration before Mr S Walsh QC should in a practical sense avoid the need for a trial of the matters in the within action.
B.That the plaintiff has procured the provision to the first defendant of replacement Bank Guarantees in the form annexed hereto and marked A and B.
C.That the plaintiff’s bank’s condition precedent namely that each guarantee “has been cancelled and returned to [the first defendant’s bank’s] office” has been acknowledged by the plaintiff’s bank as having been met in respect of each guarantee.
D.That the payments referred to in order 6 below are payments made “on account” pending a determination as to whether either defendant is entitled to have recourse to the bank guarantees.
THE COURT ORDERS that:
1. Ausbulk Limited ACN 007 556 256 and ABB Grain Limited ACN 084 962 130 be restrained and an injunction is hereby granted restraining them and each of them from having any recourse to Bank Guarantee Number LG3-0600022 (or any replacement guarantee) issued by ASB Bank Limited for the sum of $496,100.
2. Ausbulk Limited ACN 007 556 256 and ABB Grain Limited ACN 084 962 130 be restrained and an injunction is hereby granted restraining them and each of them from having any recourse to Bank Guarantee Number LG3-0600023 (or any replacement guarantee) issued by ASB Bank Limited for the sum of $400,000.
3. Subject to paragraph 5 of this order, the injunction expressed in paragraph 1 of this order shall remain in place until further order of the Court or the condition set out at numbered paragraphs 1 or 2 of the replacement Guarantee, the form of which is annexed to this order and marked A, are fulfilled.
4. Subject to paragraph 5 of this order, the injunction expressed in paragraph 2 of this order shall remain in place until further order of the Court or the condition set out at numbered paragraphs 1 or 2 of the replacement Guarantee, the form of which is annexed to this order and marked B, are fulfilled.
5.Subject to further order, Ausbulk Limited ACN 007 556 256 shall be at liberty to present any replacement bank guarantees referred to in paragraphs 1 and 2 of this order (collectively “the Replacement Bank Guarantees”) for payment at any time within the last month of any period of the Replacement Bank Guarantees (including any extension or replacement thereof) in the event that Ewing has not, prior to the commencement of that last month, provided to Ausbulk Limited ACN 007 556 256 further bank guarantees in the terms of the guarantees annexed hereto and marked A and B respectively (other than as to the expiry date) which further Bank Guarantees have expiry dates not less than 12 months after the end date of the guarantees they replace.
6.Ewing pay interest on the amounts set out in paragraphs 1 and 2 of this order at the rate of 6.5 per cent per annum, such amount to be paid quarterly in partial arrears to the first defendant, the first such payment to be made on or before 1 April 2008 (in respect of the quarter ending 31 May 2008) and quarterly thereafter.
7.Further consideration of all matters in the action be adjourned, and the action be stayed, pending the determination of the arbitration before Mr S Walsh QC (or such other person who might be validly appointed pursuant to the contracts).
8.The plaintiff have its costs of and incidental to the application dated 18 December 2007 to be taxed or agreed, and that the costs be certified fit for counsel.
9.The plaintiff’s application dated 16 January 2008 is dismissed.
10.The defendants have their costs of and incidental to the application dated 16 January 2008 to be taxed or agreed, and that the costs be certified fit for senior counsel.
11. The parties may apply for further orders or directions on short notice, including to lift the stay contained in paragraph 7 of this order.
12.The plaintiff be at liberty to file within seven days a notice of discontinuance against the second defendant with no order as to costs.
………………………….
for Registrar
If either of the within named Ausbulk Limited ACN 007 556 256 or ABB Grain Limited ACN 084 962 130 do not comply with this order, their respective assets may be seized and their respective directors and other officers may be dealt with for contempt of Court.
These orders attached the Replacement Guarantees, labelled A and B, which were in the following terms:
PERFORMANCE GUARANTEE
Type:Performance Guarantee
Assignment:                Not Allowed
Expiry01 Mar 2009 AT New Zealand
Beneficiary:  Ausbulk Limited ACN 007 556 256

124-130 South Terrace

Adelaide

Adelaide SA AU
Beneficiary’s Bank:       Commonwealth Bank of Australia, ADEL CTBAAU2S500
ASB Bank Limited Auckland NEW ZEALAND, a wholly owned subsidiary of the Commonwealth Bank of Australia Ltd (CBA) hereby issues a guarantee number LG3‑0800055 in favour of Ausbulk Limited. We have been informed by our client, Ewing Construction Limited, that Ewing International Limited Partnership herein called the principal has entered into contract numbered OHB/02/011/007 dated 13 December 2005 with Ausbulk Ltd, for the supply of structural steel works (the contract). Furthermore, we understand that, according to the conditions of the contract, a performance Guarantee is required.
At the request of the principal, we, ASB Bank Limited, hereby irrevocably undertake to pay Ausbulk Limited any sum or sums not exceeding in total an amount of AUD496,100 (Four-Hundred and Ninety Six Thousand One Hundred Australian Dollars) upon receipt by us of either:
(1)Your first demand in writing for the amount fixed by an award made by Mr Walsh QC acting as an arbitrator, (or such other person who might be validly appointed pursuant to the contract) or an order of the Supreme Court of South Australia in action number 1673 of 2007, determined to be payable by Ewing International Limited Partnership to Ausbulk Limited provided such demand is accompanied by a copy of such award or order as the case may be: or
(2)Your first demand in writing to provided such demand is accompanied by an order of the Supreme Court of South Australia in action number 1673 of 2007 permitting Ausbulk Limited to make demand under this guarantee.
This guarantee shall expire on 1/03/2009 at the latest. Consequently, any demand for payment under it must be received this office on or before that date.
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. This Guarantee shall be governed by and construed in accordance with the laws of NEW ZEALAND and shall be subject to the jurisdiction of the courts of NEW ZEALAND.
This guarantee becomes effective only when we, ASB Bank Limited receives SWIFT confirmation from yourselves that our guarantee LG3-600022 dated 1^st of August 2006 has been cancelled and returned to your office.
All bank charges outside New Zealand are for the account of the Beneficiary.
This Guarantee is subject to the Uniform Rules for demand guarantees, ICC Publication No. 458.
The expiry date of the Replacement Guarantees was 1 March 2009.
Following the orders made by me on 26 February 2008, the contractual dispute between the parties proceeded by way of the Arbitration before Mr Walsh. In the Arbitration, Ewing claims damages in the range of $5,024,522 to $6,155,987 and Ausbulk has counterclaimed in the sum of approximately $20,000,000.
The Arbitration was being heard over certain periods and had not been completed when the Replacement Guarantees expired on 1 March 2009. Ewing did not provide further guarantees to replace them. Ausbulk had not sought to exercise its right, pursuant to order 5, to present the Replacement Guarantees for payment.
On 28 May 2009, Ausbulk’s solicitors sent a letter to Ewing’s solicitors noting that Ausbulk had not received further Replacement Guarantees. They requested copies to be supplied, or if guarantees had not been obtained, to remedy the situation within the next fortnight.
On 10 June 2009, Ewing’s solicitors responded to the 28 May 2009 letter by asserting that Ewing was not under any obligation to provide further guarantees. The letter stated that:
Pursuant to paragraph 5 of the Orders, your client was at liberty to present any of the replacement guarantees for payment at any time within the last month of any period of the replacement bank guarantees, in the event that our client had not, prior to the commencement of that last month, provided your client with further bank guarantees.
The Orders specifically contemplated that our client would not, or could not, provide replacement guarantees. The Orders, therefore, provided your client with a remedy, namely the ability to present the replacement guarantees for payment at any time during “the last month”. Your client, for whatever reason, elected not to exercise this remedy.
In response, Ausbulk filed the application now before me.
An application was taken out by Ausbulk in this action and came before me as a matter of urgency. The application, inter alia, sought that Ewing be required to provide Ausbulk with replacement guarantees. Ausbulk indicated that the Arbitration was drawing to a close and if there was a determination of the Arbitration that was adverse to Ewing, before this application was determined, it would mean that a primary ground of relief sought by Ausbulk would be rendered redundant. It was common ground that Ewing had little, if any, assets and would not be in a position in its own right to be able to obtain replacement guarantees if the Arbitration was decided in favour of Ausbulk.
After a series of directions hearings, I ordered an early trial. The pleadings were in the form of filed Points of Claim by Ausbulk (the Defendant in the action) and Points of Defence by Ewing (the Plaintiff in the action). This trial was finally completed on 21 October 2009 and the last of the written submissions by the parties was lodged on 4 November 2009. I was informed in the course of the hearing that the submissions for the Arbitration were due to be completed at the end of October 2009.
Issues
Ausbulk contends that Ewing is under an obligation to provide guarantees to replace the Replacement Guarantees, which lapsed on 1 March 2009. This obligation is said to arise under several different causes of action. I will briefly summarise them as these are discussed in greater detail hereafter.
Ausbulk claims:
·that a contract was formed by the parties on 20 February 2008 and express terms, or alternative implied terms included that Ewing must roll over the Replacement Guarantees until the determination of the Arbitration;
·that the orders of 26 February 2008 when read in context, impliedly require that Ewing must roll over the Replacement Guarantees until the determination of the Arbitration;
·that in the event that the orders of 26 February 2008 do not expressly or impliedly require that Ewing must roll over the Replacement Guarantees until the determination of the Arbitration, that amounted to a common mistake and ought to be rectified; and
·that Ewing is estopped from denying its obligation that it must roll over the Replacement Guarantees until the determination of the Arbitration. Such estoppel is either by representation or convention.
After several formulations of the relief sought, Ausbulk finally expressed the relief it sought as follows (“minutes of order version 1”):
1That the Plaintiff is estopped from denying that it entered into an agreement with the Defendant on 20 February 2008 (20 February 2008 Agreement) in the terms alleged in paragraph 31 of the Defendant’s second further amended points of claim.
2That the Plaintiff do all that is reasonably necessary so as to procure Bank Guarantees in accordance with the 20 February 2008 Agreement in substitution for the guarantees annexed to the Court’s order dated 26 February 2008 and marked A and B respectively, such guarantees to be rolled over or substituted from time to time pending an award in the arbitration between the Plaintiff and Defendant or further orders of this court.
3In the alternative to orders 1 and 2, that the consent orders made on 26 February 2008 be varied to include an order 4A that Ewing do all that is reasonably necessary of it to ensure that substitute bank guarantees in terms of the guarantees annexed hereto and marked A and B are procured, such guarantees to be rolled over or substituted from time to time pending an award in the arbitration between the Plaintiff and Defendant or further orders of this court.
4Liberty to apply should Ewing to be unable to procure the substitute guarantees in accordance with order 2 (or 3) hereof within 21 days.
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].

Ewing identifies several initial impediments to Ausbulk’s contention that any contract was formed. Specifically, Ewing alleges that the parties’ solicitors did not have authority to act as agent for their respective clients in order to create a contract; there was a lack of intention to create a contract; any such contract was void for uncertainty; there was no consideration; the consent orders made on 26 February 2008 contraindicated such a contract; and any such contract was fulfilled when Ewing provided the Replacement Guarantees on 22 February 2008. In addition, Ewing submits that the circumstances and negotiations which occurred prior to 18 February 2008 were not relevant to the formation of the alleged contract of 20 February 2008.
It is convenient to discuss the first of these alleged impediments prior to discussing the evidence, the alleged contract and its terms.
Agency
Ewing contends that the alleged contract of 20 February 2008 could not have come into existence because the counsel who were engaged in the correspondence said to give rise to that contract were not authorised agents of the parties. It was contended that the counsel and solicitors of the parties had neither actual nor ostensible authority to bind the respective parties to a contract of the kind now alleged.
With respect to the authority of Mr Malcolm Blue QC, counsel for Ausbulk, this can be dealt with quite simply. There is sufficient evidence proffered by Ausbulk to show that there is actual authority. Mr Roff, who was the company secretary of Ausbulk and its in-house legal counsel, gave evidence, which I accept, that he intended for Mr Blue to have authority to enter into the contract alleged.[9] Accordingly issues of ostensible authority are not necessary with respect to Mr Blue.
[9] Eg, Exhibit D5, Affidavit of Mr Roff, [50]-[65].
However, with respect to counsel for Ewing, Mr Jenner, the conclusion is not so clear. There does not appear to be sufficient evidence upon which I could make a finding that Mr Jenner had actual authority. The express and implied authority of counsel and solicitors generally derives from the scope of their retainer and instructions. These matters have not been the subject of specific evidence in the case of Ewing. In any event, Ausbulk primarily relies on the ostensible authority of Ewing’s legal team.
The doctrine of ostensible authority in agency states that a party who is alleged to be a principal to a contract, cannot deny the existence of an agency relationship to a third party if that purported principal has made a representation that the purported agent has authority in relation to the contract, and the third party has reasonably relied on that representation in entering into the contract.
The primary question for present determination is therefore whether Ewing has made a representation that Mr Jenner had authority to enter into the 20 February 2008 contract.
The representation primarily relied upon by Ausbulk is that Ewing “put Mr Jenner forward as their legal representative during the course of the injunction proceedings” and “allowed Mr Jenner to enter into and conclude negotiations with Mr Blue to reach an agreement which would dispose of Ewing's injunction proceedings”.[10]
[10] Ausbulk’s Submission in Reply, page 9.
The representation is therefore a representation by conduct. There is no problem with the representation being by conduct, however Ewing asserts that merely allowing Mr Jenner to act as its legal representative is insufficient to enliven the rules of ostensible authority. Specifically, Ewing states that “except in special circumstances, neither solicitor nor counsel has ostensible authority to conclude a contract by correspondence.”
There is no shortage of statements in the authorities that confirm this assertion by Ewing that a solicitor, or in this case counsel, does not have ostensible authority to bind his or her client to a contract.[11] For example, in Nowrani Pty Ltd v Brown,[12] McPherson J said (at 586):
The mere fact that a person is a solicitor confers no implied authority to make contracts on behalf of one who happens to be his client: Pianta v National Finance & Trustees Ltd [1964] HCA 61; (1964) 38 ALJR 232; Rymark Australia Development Consultants Pty Ltd v Draper [1977] Qd.R. 336, 344. Nor, apart from express authority, does a solicitor have authority to agree to a variation of his client’s contract: see George v Pottinger [1969] Qd.R. 101, 107.
[11] See eg, Eccles v Bryant and Pollock [1948] Ch 93; D’Silva v Lister House Development [1971] Ch 17, 28-29; CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588; Longpocket Investments Pty Ltd v Hoadley (1985) 3 BPR 9606; Pianta v National Finance & Trustees Ltd (1964) 180 CLR 146.
[12] [1989] 2 Qd R 582.
However, the cases which make such generalisations of a legal representative’s ostensible authority tend to relate to solicitors’ dealings in relation to contracts of sale (often sale of land). Courts have been less cautious about finding that a practitioner has ostensible authority to bind its client to a contract which relates to, and in particular compromises, an extant piece of litigation.[13] In CIC Insurance Ltd v Bankstown Football Club Ltd,[14] Kirby P drew a clear distinction between ostensible authority in litigious and non-litigious matters, stating (at 75,555):
It is not unreasonable for the appellant to view the conduct of the club, in apparently instructing its solicitor to pursue the subject insurance claim, as including all necessary authority to give effect to those instructions. Incidental to those instructions, it can be inferred, was the power to deal with the issue of the purported cancellation of the contract. Indeed, I should have thought that the instruction of a solicitor to pursue a matter such as a controversial insurance claim would leave a third party dealing with the solicitor with the impression that that solicitor, having been retained for his or her legal expertise, would have all necessary authority to deal with all issues which reasonably and forseeably arose in the pursuit of that claim. It is not a situation akin to the instruction of a solicitor to pursue non-litigious business where the nature and extent of the solicitor's authority is not so easily inferred to be so widely encompassing.
[13] Strauss v Francis (1866) 1 QB 379, 381; Across Australia Finance v Bassenger [2008] NSWSC 799;
[14] (1995) 8 ANZ Insurance Cases 61-232; reversed on other grounds: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384.
Of course, the ostensible authority of the legal representative does not become unlimited simply because there is litigation between the parties. The authority is restricted to a contract that actually and genuinely relates to the litigation. In Waugh v H B Clifford & Sons Ltd (“Waugh”),[15] Brightman LJ explained that there may be ostensible authority to enter into a contract that compromises an action so long as the contract does not contain terms which are “collateral to the action”. His Lordship, following a thorough survey of the case law, concluded (at 387):
It follows, in my view, that a solicitor (or counsel) may in a particular case have ostensible authority vis-à-vis the opposing litigant where he has no implied authority vis-à-vis his client. I see no objection to that. All that the opposing litigant need ask himself when testing the ostensible authority of the solicitor or counsel, is the question whether the compromise contains matter "collateral to the suit."
[15] [1982] 1 Ch 374.
The present case differs from Waugh in that it is a situation of compromise of an action in the nature of an interlocutory application rather than a finalising action, and it relates to an alleged agreement entered into after there has been a judgment substantially determining the issues between the parties, however the reasoning in my view is clearly apposite.
Another related issue arises, namely whether the alleged contract in the present case includes matters that were not included in the consequential orders on 26 February 2008. Assuming that to be the case, I do not consider, in this case, that that would amount to matters “collateral to the action”. If the argument of Ausbulk as to the alleged contract and its terms is upheld, then the other matters alleged to be agreed between the parties relate to the Arbitration, which was at the very heart of the litigious dispute. On this point I adopt the statement of Brightman LJ in Waugh that (at 387):
a compromise does not involve “collateral matter” merely because it contains terms which the court could not have ordered by way of judgment in the action.
Given that there was litigation on foot at the time of the alleged contract and given that the alleged contract did not involve “collateral matters”, I do not accept Ewing’s submission that there is an inflexible rule, or even a general rule, that prevents a finding of ostensible authority in this case.
In this case it is clear that there was indeed ostensible authority on the part of Mr Jenner. Ewing provided for its counsel to commit to a course of dealing by which Mr Jenner appeared armed with the authority to bind Ewing to a contract through a series of correspondence which included the form of orders to be presented to the Court. Ewing cannot now deny the authority of its legal representatives in relation to the alleged contract.
The evidential basis for the claim in contract
As indicated earlier, Ausbulk alleges a contract dated 20 February 2008 which was reduced to writing. It relies on three sets of written communications and their attachments as constituting that contract. The date of the first of these written communications is 18 February 2008. On that day there were three letters between the parties but Ausbulk only relies on the third of these as being a communication which sets out the terms of the contract.
The three communications relied upon by Ausbulk occurred within a complex chronology of correspondence between the parties and were conducted against a background of the orders made by me on 8 February 2008 and the imminent expiration of the performance guarantees on 29 February 2008. Specifically, the three communications were also conducted in the context of discussions which had occurred between the parties from the date of that order on 8 February up to 18 February 2008 when the first of the three communications commenced.
Ewing took objection on the basis that communications between the parties’ solicitors, which occurred prior to 18 February 2008, were not relevant to construing any contract which might have been created on 20 February 2008. The relevance of 18 February 2008 is that this is the date on which the solicitors for Ewing informed the solicitors for Ausbulk that the bank would not be willing to provide guarantees which are unlimited in time. This is the date to which counsel for Ewing referred as the “fresh start”.[16] It was submitted by counsel for Ewing that all of the previous communications between the parties were discussing the provision by Ewing of guarantees unlimited in time. After the “fresh start” however, the parties’ communications were discussing guarantees to be provided by Ewing which were limited in time. Counsel for Ewing submitted, that this meant that the parties needed to completely recalibrate their position as at 18 February 2008 and that this rendered any previous statements of intention, belief or the like, to be completely irrelevant.
[16] T285-7.
I reject this submission. It is well recognised that when construing a contract, the factual matrix in which the alleged contract takes place is relevant.[17]
[17] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 which in turn adopted the approach of Lord Wilberforce in Reardon Smith Line Ltd v Hansen‑Tangen [1976] 1 WLR 989.
I consider that the chronology of events prior to the so called “fresh start” is relevant to the context of the parties’ alleged agreement dated 20 February 2008.
I turn then to the chronology of the relevant communications between the parties. I will first set out the chief communications upon which Ausbulk relies, as being relevant to the context of the agreement of 20 February 2008. I will then set out the three documents which are said to comprise the contract, within the chronology of communications during that period.
Chronology of communications
8 February 2008 correspondence
In an email dated 8 February 2008 at 8.24am from Mr Jenner to Mr Blue, Mr Jenner stated:[18]
Malcolm the client can arrange to have the guarantees issued in Ausbulk’s name and linked to a future event (e.g. an order of the Court).
[18] TB 45.
Later that morning at the hearing before me on 8 February 2008, Mr Jenner appeared as counsel for Ewing and in the course of submissions stated:
Mr Jenner:There have been discussions with learned friends about the form of order and, subject to final instructions, the concept will be that the bank guarantees will be rolled over into the name of Oswald so that ASB Bank will effectively step out of the proceedings altogether.
Her Honour: That makes a lot of sense.
Mr Jenner:And that Mr Walsh will effectively determine all of the matters that were raised by the application over both contracts. What we’ve done is we have a form of bank guarantee that we want to run past and it’s not that the guarantee is limited in time; it’s limited to further order of the arbitration order of the court, so that there is no consideration about what happens in six months time or 12 months time. So I think the parties are heading towards the course that your Honour is inviting us to consider, and we were going to ask for a time next week. There will be a need to make some submissions to your Honour about costs.[19]
(Emphasis added.)
[19] Exhibit D4.
Thereafter negotiations occurred between the parties. Those negotiations were primarily evidenced by email exchanges between Mr Blue and Mr Jenner.[20]
[20] See TB D1.
At 10.14am on 8 February 2008, Mr Blue responded by email to Mr Jenner stating among other things:
Minters need instructions, but proceed on assumption we agree in principle to substitution of Ausbulk and bank guarantee being extended indefinitely in a way which permits you to give notice of non-continuance of the guarantee and us to call unless the court rules we cannot without extension (details of the mechanism need to be discussed).
Minters need instructions, but the lawyers agree in principle to referral of SC action to Walsh, but we want to see your points of claim in arbitration proceedings and amended SOC in SC action before any final commitment/order.[21]
(Emphasis added.)
13 February 2008 correspondence
[21] TB 47.
On 13 February 2008, by email from Mr Jenner to Mr Blue at 2:50 pm, Mr Jenner stated among other things:[22]
The agreement between the parties about the second contract could be a general agreement to refer all matters in dispute between the parties to Walsh, to amend the current points of claim to incorporate the liability allegations we wish to make about termination but to defer a hearing or any interlocutory steps about quantum until the silo’s dispute is resolved. This agreement doesn’t need to be incorporated in the Court orders per se. Liberty to apply should protect you and there would be no need for a s.66 order.
(Emphasis added.)
[22] TB 88; Affidavit of Mr Roff, Exhibit ASR 31.
The draft minutes of order attached by Mr Jenner to that email included paragraph 3, which said: [23]
That 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 in the terms of the proforma guarantees annexed hereto and marked A and B respectively.
[23] TB 90.
Subsequently on about 13 February 2008 Mr Blue drafted two versions of the minutes of order which were identified as draft minutes of order (3) and draft minutes of order (4)[24] which were sent to Minter Ellison at 3.54pm on that day. These versions were subsequently forwarded by Mr Blue to Mr Jenner at 6.53pm on 13 February 2008.[25] The email referred to these minutes but they were not attached to the email in the Tender Book.
[24] TB 93.
[25] TB 105.
By reason of subsequent emails set out hereafter I infer that both versions (3) and (4) were sent.
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.

The email stated:[31]
I have instructions to accept this form of minutes.
Highlighted in bold are matters which are controversial/not agreed – obviously 6 & 8 as well.
Item 11 is agreed but whether it is one or two counsel and senior or junior is in dispute.
If I can’t confirm the mechanics of the exchange of guarantees we can show the minutes to her honour and deal with costs today.
The recitals might also refer to the deed you have had prepared. I am easy either way.
[31] TB 143.
The second email was a response from Mr Blue to Mr Jenner sent at 1:10pm indicating that Ausbulk did not want the order to be made until the guarantees had been exchanged.[32] That email attached amended minutes of order and draft wording of the performance guarantees and a draft Deed of Acknowledgment. These draft minutes of order were in the form of minutes of order (3) with the earlier Recital (set out at paras [65]-[66] hereof) with the added sub-paragraph 3.3 requiring Bank Guarantees to be put in place prior to any Court order.[33]
[32] TB 147.
[33] TB 150.
The third email of 14 February 2008 was an email from Mr Jenner to Mr Blue sent at 1:15pm, in which Mr Jenner indicated “Okay” and that he was content to show the Judge the draft orders on the basis that the guarantees would be in place prior to the formal order being made.[34] This email therefore indicated acceptance of the draft minutes of order of Mr Blue being on those points, in the form of draft minutes of order (3).
[34] TB 163.
The fourth email of that date was sent from Mr Jenner to Mr Blue at 1:37pm. In that email Mr Jenner stated: [35]
I understand the form of the guarantees “should be okay but it has to go upstairs” (ASB’s words) and they should be in a position to exchange them in a couple of days.
The Deed can be executed and we can get that process underway and simply adjourn the court orders off for a week on the basis that Ausbulk will have the new ones in the intervening period. …
[35] TB 167.
At the hearing before me on 14 February 2008, Mr Jenner stated:[36]
The outcome of the orders that your Honour will enter by consent, but which the parties hope give practical effect to your Honour’s reasons, is that firstly, the second defendant will not have access to the guarantees that the first defendant – well, so the status quo as it existed at the time the notice was given has changed. Secondly, the guarantees aren’t limited in time – again, the status quo we would say has changed.
[36] Exhibit D4, Transcript 14 February 2008, 9-10.
And later Mr Jenner said:[37]
So there’s no formal divesting of decision making to the arbitrator but in a practical sense the parties accept that what happens in that arbitration will effectively determine the outcome of the guarantees.
[37] Exhibit D4, Transcript 14 February 2008, 4.
Summarising the draft minutes of order as they stood at that date, they were relevantly those which had been drafted by Mr Blue on about 13 February 2008 and resent by him to Mr Jenner at 1.10pm on 14 February 2008 as referred to in [73] hereof.
18 February 2008 correspondence
Then on 18 February 2008, there were three letters. As the third of these letters is one of the documents alleged to comprise the contract, it is necessary for me to discuss the first and second of the 18 February 2008 letters and then make some general findings about the state of affairs before returning to the third letter of 18 February 2008.
The first letter of 18 February 2008 was from Minter Ellison to Lynch Meyer and the relevant text is as follows:[38]
As you know, this matter has been listed for 4.30 pm Tuesday, 19 February 2008 before Her Honour Justice Layton. With regard to that timing (and the obvious urgency created by the expiry of the Bank Guarantees on 29 February 2008) I called you to request that you obtain instructions regarding the most efficient way of organising for the cancellation of the current Bank Guarantees and issue of fresh Guarantees (to date your client has not indicated the manner in which this is envisaged to occur, despite orders requiring the extension of the Guarantees being made on 8 February 2008).
We have to date proceeded on your client’s Counsel’s assurances that arrangements for issue of the Guarantees are in place and issue imminent, however given the passing of time, unless your client is able to put those guarantees in place prior to tomorrow’s hearing, it will be necessary that orders reflect the need for our client to be at liberty to call on the current Guarantees should your client fail to issue the fresh Guarantees within a very limited timeframe (we would suggest Wednesday, 20 February 2008 as the cut off date).
Please contact me as a matter of urgency regarding your instructions on the cancellation and issue of fresh Guarantees.
[38] TB 169.
The second letter of 18 February 2008 from Lynch Meyer to Minter Ellison was a response to that letter and relevantly provided as follows:[39]
As you know, at the conclusion of the hearing before Justice Layton earlier that day counsel for our client had suggested that an exchange of bank guarantees occur in New Zealand. We understand that you indicated that this would be acceptable to your clients. However, during our telephone conversation you indicated that you had changed your [mind] about this because of the “difficulty” involved in “entrusting” the exchange of bank guarantees to an agent in New Zealand. I indicated that I would take instructions with regard to an alternative process (it being your suggestion that the exchange occur in Adelaide) and that I would revert to you. Since then, my client has been making enquiries of its bank in New Zealand with regards to an alternative procedure. I have not yet received final instructions and it is clear that the exchange will not take place today, despite our client’s best endeavours to ensure that it does.
In your letter you say “we have to date proceeded on your client’s Counsel’s assurances that arrangements for issue of the Guarantees are in place and issue imminent…”. I am not sure what you mean when you refer to “Counsel’s assurances” but I can assure you that my instructions have not changed. The existing guarantees will be substituted with new ones as required however the logistics of issuing fresh guarantees in circumstances where those new guarantees and the existing guarantees are in existence at the same time requires careful attention to detail and co-operation between our client’s bank in New Zealand, its counterparts here and our respective offices.
Whilst I appreciate that your client wants to have the fresh guarantees in place as soon as possible, I suggest that some flexibility with regards to timing is required. We are hoping to receive final instructions today in relation to the manner in which the substitution of the guarantees might occur and when we have those instructions, I will advise both you and the Judge’s associate so that proper directions can be sought. It may be that tomorrow’s hearing may need to be vacated to a later time.
Your client need not be concerned that the guarantees might not be substituted by the date upon which the current guarantees expire.
Findings on the correspondence up to 18 February 2008
[39] TB 170.
Before considering the third letter of 18 February 2008, it is worthwhile first to make some findings in relation to the correspondence already discussed as that provides a context for the subsequent communications which are alleged to be contractual.
Prior to the third letter of 18 February 2008, Ewing indicated that it would provide indefinite guarantees to replace the performance guarantees which were due to expire on 29 February 2008 and that these proposed indefinite guarantees were to continue until determination of the Arbitration or by order of the Court. This much is apparent from:
·proposed order 3.1 attached to an email from Mr Jenner to Mr Blue dated 14 February 2008 at 12.43pm;
·proposed order 3.1 attached to email from Mr Blue to Mr Jenner dated 14 February 2008 at 1.10pm;
·email from Mr Jenner to Mr Blue dated 14 February 2008 at 1.15pm, together with;
·statements made by Mr Jenner on 8 February 2008 at page 3 of the transcript and 14 February 2008 at pages 4 and 9‑10 of the transcript.
I specifically do not make any finding as to whether this amounted to a contract as it is not necessary to do so. This circumstance formed the relevant background in which subsequent events occurred.
In the third letter of 18 February 2008 this circumstance changed.
The third letter of 18 February 2008
The third letter of 18 February 2008 was sent from Lynch Meyer to Minter Ellison and attached draft minutes of order. This is the first communication relied on as the basis of the written contract (the “First Communication”). The relevant text of this letter was as follows:[40]
As you know, to date the discussions between counsel regarding the wording of the new guarantees have focused primarily on the provisions which trigger payment. There are other words in current guarantees which ought not to be the subject of any controversy. Our client’s bank in New Zealand has pointed out that those words are missing from the present draft wording and they require that they be inserted. I have attached an amended form of the guarantee wording to which words have been added at the end of the document. The words that I have added are underlined. For convenience, the document is in Microsoft Word format.
I understand that the insertion of an expiry date for the guarantees is not negotiable from our client’s bank’s point of view. I suggest that we can deal with this by making provision in the orders requiring our client to tender substitute guarantees (rolled over for a certain fixed period) no less than one month before the expiry date. In this regard I suggest orders along the lines indicated in the attached amended draft minutes. For convenience, the document is in Microsoft Word format.
Once we have ironed out these issues, we will be able to get a clear indication from our client’s bank of when they will be in a position to produce the substitute guarantees.
[40] TB 172.
This letter included attached draft minutes of order in the following terms and with the following underlining:[41]
[41] TB 174-175.
Recitals:
A.Upon noting that the Plaintiff and the First Defendant agree Mr S Walsh QC should determine, as a consequence of any Award made by him, whether Ausbulk Ltd has a right of recourse to the Guarantees annexed as A and B to this order (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/02/0011-007” and work number “EWO1419193”).
THE COURT ORDERS that:
1.Ausbulk Ltd ACN 007 556 256 (“Ausbulk”) and ABB Grain Limited ACN 084 962 130 (“ABB”) be restrained and an injunction is hereby granted restraining them from having any recourse to Bank Guarantee Number LG3-0600022 issued by ASB Bank Ltd for the sum of $496,100.
2.That Ausbulk and ABB be restrained and an injunction is hereby granted restraining them from having any recourse to Bank Guarantee Number LG3-0600023 issued by ASB Bank Limited for the sum of $400,000.
3.That the injunctions expressed in Orders 1 and 2:
3.1     be conditional upon the plaintiff (“Ewing”) extended to the said 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 25 February at 5.00 pm 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.
4.That, subject to further order, Ausbulk shall be at liberty to present the extended Bank Guarantees for payment after [insert date one month prior to expiry of extended bank guarantees] in the event that Ewing has not by that date provided to Ausbulk further Bank Guarantees in the terms of the pro forma guarantees annexed hereto and marked A and B respectively which further Bank Guarantees have expiry dates no less than 12 months after the date of these orders.
5.That Ewing pay interest on the amounts set out in Orders 1 and 2 hereof at the rate or 6.5 per cent per annum, such amount to be paid quarterly in advance to the first defendant, the first such payment to be made on or before 1 March 2008 in respect of the period ending 31 May 2008.
6.That the plaintiff be at liberty to file a notice of discontinuance against the second defendant with no order as to costs.
7.That further consideration of all matters in the action be adjourned, and the action be stayed, pending the determination of the arbitration before Mr S Walsh QC.
8.Liberty to any party to apply on short notice, including to lift the stay contained in Order 7.
It can be seen that the Recital and paragraph 3 in this draft is in the same terms as the draft minutes of order (3), save minor changes as to identification of the parties and an amendment to the date by which extension Bank Guarantees were to be supplied. There is also the new clause 4 which is underlined in the document. Other features of this letter are discussed later in these reasons.
The annexure to the draft minutes of order again included a draft of a performance guarantee.[42] I will not set out the full text but the important portion which is underlined in this document is as follows:
This Guarantee shall expire on [insert date] at the latest. Consequently, any demand for payment under it must be received by us at this office on or before the date.
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. This Guarantee shall be governed by and construed in accordance with the laws of New Zealand and shall be subject to the jurisdiction of the courts of New Zealand.
This guarantee becomes effective only when we receive Society for Worldwide Interbank Financial Telecommunication confirmation from yourselves that our guarantees LG3‑600022 and LG3-600023 dated 1^st & 2^nd of August 2006 respectively have been cancelled and returned to your office.
[42] TB 176.
Returning to the relevant chronology.
19 February 2008 correspondence
On 19 February 2008, Minter Ellison responded to the First Communication expressing concern about the fundamental change of Ewing’s position and the invidious position of Ausbulk. The letter was in the following terms:[43]
[43] TB 195-196.
We refer to your letter dated 18 February 2008 (your letter).
The terms of your letter are of significant concern and stand as a fundamental departure from your client’s expressly stated position in several critical respects. This unaccountable change in conduct places our client in an invidious position when put in the context of Her Honour Judge Layton’s Judgment and the timing of the expiry of the existing Guarantees.
Your letter attaches an amended draft form of Guarantee. Your email sent at 10.50 am today proposes a further amended draft proposed Guarantee (the latest Guarantee). This is notwithstanding the fact that you have had our client’s proposed wording for the replacement Guarantees since 8 February 2008.
We are taking instructions on the amended wording of the latest Guarantee but we are forced to make the following initial observations:
1.Despite your client’s repeated indication that it would provide a Bank Guarantee without a maturity date, we are now told, for the first time, that an expiry date for the Guarantee is ‘not negotiable’.
2.It does not pick up the agreed amendment to allow for the decision of an ‘arbitrator’ (rather than specifically Stephen Walsh QC) validly appointed by the parties. The draft version provided by your letter dated 18 February 2008, reverted to the original proposal by simply referring to the decision of an arbitrator.
We will convey our client’s response shortly.
We do not consent to the terms of the letter proposed to be sent to Her Honour Justice Layton. Our client remains justifiably concerned regarding the time taken by your client to meet the conditions required for the continuation of the interim injunction. If it is necessary for the parties to attend before Her Honour today, that will be solely due to the action (or perhaps inaction) of your client.
Not only was your client ordered to extend the Guarantees on 8 February 2008, Mr Heard gave evidence that your client had been in discussions with the Bank in early January 2008, regarding the potential extension of the Guarantees (and that the Bank would allow for extension). Your client’s counsel has also raised the question of the extension well before 8 February 2008.
In all of the circumstances it is unacceptable that you do not have a ‘clear indication’ of the method for timing the Bank’s production of the extended Guarantees.
The delay occasioned by your client and the failure to provide any concrete indication of the Bank’s position requires our client to insist:
1.that you provide by 3.45pm today, Tuesday, 19 February 2008, written confirmation that your client waives any requirement for 5 days notice of intent to call the existing Guarantees (subject of course to the Supreme Court proceedings);
2.that your client provide the replacement Guarantees by no later than 4.00pm Thursday, 20 February 2008, (subject to agreement being reached on the terms of the proposed Guarantee by no later than 6.00pm today, 18 February 2008. This of course presumes that we receive your confirmation that the proposed expiry date of the Guarantees is twelve months from issue rather than the November 2008 expiry date you postulated in our telephone conversation a few moments ago).
Please indicate your client’s position on the above as a matter of urgency.
On the same day, 19 February 2008, Lynch Meyer replied to Minter Ellison with certain explanations for the provision of limited guarantees rather than unlimited. The relevant text is as follows:[44]
[44] TB 197, 198.
I refer to recent correspondence regarding the provision of replacement bank guarantees.
As you know, our client’s application for an injunction in response to your client’s notification of its intention to present the guarantees for payment was first foreshadowed to you in our letter of 13 December 2007.
After that date, your clients steadfastly refused to concede the point although initially having regard to the impending Christmas break, your client did offer undertakings to preserve the status quo until the matter could be heard in January.
As your client would understand, obtaining or extending bank guarantees requires the pledging of security to the value of each guarantee. That requires applications to the bank and the provision of supporting financial information. That is not a simple or overnight process and our client has been actively engaged in discussions with its bank concerning the rolling over of the guarantees since Justice Layton’s decision was published.
Since her Honour’s decision, discussions regarding the possible terms of those substitute guarantees occurred between counsel culminating in a discussion on 14 February 2008 at court when Mr Jenner suggested to Mr Blue QC that the exchange of the current guarantees for the substitute ones might take place in New Zealand on Monday this week. At that time, Mr Jenner was trying to make a helpful suggestion in relation to the logistics. He felt that a guarantee which did not need to be rolled over annually would be “less maintenance” and that is why suggested. His instructions at that time were based upon “indications” given by an officer of our Client’s bank to our client.
When you contacted me on the telephone on 14 February 2008 and indicated that you were not comfortable with the idea of an exchange in New Zealand, I began communicating with our client regarding that issue. Our client continued to talk to its bank and eventually, our client received an e-mail from a bank officer yesterday. That e‑mail was forwarded to me by my client. In that e‑mail (which I received at 12.52pm yesterday), for the first time, the bank stated that the provision of an open‑ended guarantee was not negotiable. This apparently was a decision made by a more senior bank officer than the one our client had been previously dealing with in relation to this issue and we assume represents bank policy.
…
My discussions via e‑mail with our client’s bank continued and it was not until later this morning that the bank provided the final wording of the proposed guarantee (which I immediately provided to you) and more information about the logistics involved in generating the substitute guarantees and transmitting them to the Commonwealth bank of Australia here in Adelaide using “SWIFT”.
At 11:15 am today you telephoned me. You mentioned that the draft wording of the guarantee that I had provided to you did not provide a specific end date and I told you that I had omitted to insert a date at the end of November 2008 which was the proposed end date for the substitute guarantees. You indicated that your client had not provided you with instructions but that you were confident that your client would not be prepared to agree to an extension of any less than 12 months. You then went on to say that your client might even insist on an open-ended guarantee. I pointed out that this was not possible in New Zealand as it was not the practice there as New Zealand banks do not wish to have open‑ended contingent liabilities on their books. You told me that your client may well insist that the New Zealand practice (which was our client’s “problem”) not be followed and that the more commonly seen in Australia form of open‑ended guarantee be required. In this regard I note that your client has never had an open‑ended guarantee from our client and has never complained about that in the past. Also, in any event you were unable to point to any prejudice that your client might suffer under the regime that I proposed in the amended draft minutes yesterday whereby your client could present the guarantee if a substituting guarantee had not been provided before one month before the expiry date on any substitute guarantee.
We, and our client are doing our very best to ensure that the substitute guarantees are provided to you at the earliest opportunity. However, we need to know what your client’s position is in relation to the revised wording. We do not understand why it is taking so long for you to take instructions in relation to that but, in any event, we can hurry the process no further until we know of your client’s position. Until then, we are unable to make any promises in relation to the date on which the substitute guarantees will be provided.
It would have been more convenient for the court if the matter had been adjourned by consent this afternoon but given your client’s position, we will attend today and advise the Court of these recent developments seeking an adjournment of the matter for a reasonable period of time in which the substitute guarantees can be arranged.
20 February 2008 correspondence

This is not an appropriate case to draw such an inference against Ewing. As I have found in relation to the submissions by Ewing, there is adequate documentary evidence to determine the issues in this case, and calling the legal representatives or employees would not be likely to aid this process. With respect to contract, regard is to be had to the intention of the parties as it is manifest in the actual communications of the parties and so it is not their actual or subjective state of mind that is relevant. In addition, I have found that there was ostensible rather than actual authority on the part of Ewing’s legal representatives and so Ausbulk’s witnesses would not be able to add very much to the documentary evidence that is before me. Finally, in relation to the financial position of Ewing, there were adequate financial statements provided in evidence that display the financial situation of Ewing. It would not be expected that Ewing would call witnesses to explain documents that are not disputed and which clearly speak for themselves.
In addition, it is possible that the evidence which Ausbulk believes should be adduced from Ewing relates, at least in part, to communications that attract legal professional privilege and in relation to which privilege has not been waived by Ewing. This was not the subject of submissions before me, but if that is so it would certainly explain the absence of those witnesses.
For all these reasons, I consider that it is not appropriate to draw a Jones v Dunkel inference in relation to Ewing or Ausbulk in the circumstances of this case. Whilst the trial only comprised of one witness, who was called by Ausbulk, the scope of the affidavit and documentary evidence that was tendered, as well as the objective nature of many of the elements of the grounds for relief, meant that the absence of further witnesses was not out of the ordinary.
Remedies
The orders sought by Ausbulk are set out at [28]-[29] above.
It is worthwhile to note in the first place that each of the orders is based on remedies which are essentially equitable in nature. That is, Ausbulk does not seek remedies that sound in common law damages, but rather seeks specific performance, rectification, estoppel and/or declarations of certain obligations that it alleges are upon Ewing. Accordingly, the remedies are discretionary and subject to equitable defences, of which futility is particularly relevant here.
It is also important to note that the articulation of each of the orders sought all include some manifestation of Ewing doing “all that is reasonably necessary so as to procure Bank Guarantees” from a third party. Ausbulk has used this language because the provision of guarantees by Ewing is necessarily contingent on the agreement of a third party. That is, if an order is made, there is no certainty that a bank will accede to a request by Ewing to proffer guarantees, and Ausbulk has no action, in personam, against any bank that would compel the bank to proffer such guarantees.
Ewing submits that these matters make it undesirable or improper to make the orders which Ausbulk seeks. I will consider the issues regarding remedies in relation to each cause of action separately, although certain issues – particularly the futility argument – are clearly relevant to more than one cause of action.
Remedy for Breach of the 20 February 2008 contract
The primary relief which has been sought by Ausbulk is for specific performance due to breach of the contract dated 20 February 2008. The specific order sought is stated as being:
That the Plaintiff do all that is reasonably necessary so as to procure Bank Guarantees in accordance with the 20 February 2008 Agreement in substitution for the guarantees annexed to the Court’s order dated 26 February 2008 and marked A and B respectively, such guarantees to be rolled over or substituted from time to time pending an award in the arbitration between the Plaintiff and Defendant or further orders of this court.
In order for a court to order specific performance, common law damages must not be an adequate remedy in the circumstances. Ausbulk contends that, in relation to the breach of contract by Ewing, damages would be an inadequate remedy. It would be inadequate because the circumstances of Ewing’s financial position are such that any remedy for damages would be insufficient relief for its breach. There seems to be no dispute between the parties that Ewing is impecunious. This can also be seen from the financial records of Ewing which were tendered at trial.
Lord Selborne in Wilson v Northhampton and Banbury Junction Railway Co[187] stated (at 184):
The court gives specific performance instead of damages only when it can by that means do more perfect and complete justice.
[187] [1874] 9 Ch App 279.
Further, as Windeyer J stated in Coulls v Baggot’s Executor and Trustee Co Ltd[188] (at 503):
There is no reason today for limiting by particular categories, rather than by general principle, the cases in which orders for specific performance will be made.
[188] (1967) 119 CLR 460.
There are differing views as to whether a remedy of damages becomes inadequate simply by reason of possible insolvency of the defendant.[189] Spry,[190] after canvassing the various cases, expresses the view that, whilst doubts have been expressed as to the case law on insolvency of the defendant (at 68):
[i]t appears to be clear that a significant risk that a legal remedy such as damages will be ineffective on the ground of inadequate resources of the defendant or otherwise, may of itself justify the conclusion that it is inadequate. Further, even a very slight risk of insolvency on the defendant may be decisive, especially in combination with other matters that tend to show that only if the plaintiff is given specific relief in equity will he be sufficiently protected.
[189] Associated Portland Cement Manufacturers Ltd v Teigland Shipping A/S (the “Oakworth”) [1975] 1 Lloyd’s Rep 581, 583; Anders Utkilens Rederi A/S v O/Y Lorisa Stevedoring Co A/B [1985] 2 All ER 669, 674.
[190] I C F Spry, Equitable Remedies (7^th ed, 2007).
This appears to be the correct approach.
In this case, I am satisfied that there is a significant risk that an award for damages would not provide any substantive relief and therefore would be an inadequate remedy for the breach of the contract. The parties are awaiting the outcome of an arbitration, which, in Ausbulk’s case, would result in a damages claim in excess of $6 million if it is fully successful. If Ausbulk is unsuccessful in the Arbitration, then the existence of bank guarantees is not an issue. If it is successful, then, given the expiration of the Replacement Guarantees, it is highly unlikely that a bank would provide further replacement guarantees. Hence damages are not an effective remedy.
Further, in considering the appropriateness and nature of the remedy which should be given in this case, it is important to recall the manner in which the contract which is sought to be specifically performed, came about. There had been an application made by Ewing to prevent Ausbulk from calling in the Bank Guarantees when Ausbulk was alleging circumstances which would permit it to do so. Injunctions were granted by the Court to prevent that call, but only on the condition that Ewing would extend or replace the current bank guarantees. It was the inability of Ewing to be able to deliver guarantees which were unlimited in time which led to the lesser form of the replacement arrangements agreed in the contract. These circumstances have led to a greater degree of prejudice to Ausbulk if specific performance is not ordered. As a consequence of the conduct of Ewing, it has lost the opportunity it previously had at the time when orders were made on 8 February 2008.
Therefore, the issue is whether there should be a declaration and an order for specific performance as sought.
As a matter of law, specific performance is enforcement in specie of any contractual obligation to perform an act, whether by settling or defining the rights of the parties, or by enforcing those rights in any way.[191]
[191] I C F Spry, Equitable Remedies (7^th ed, 2007), 51-2.
Returning then to the precise terms of the orders sought, in particular, the requirement that Ewing “do all that is reasonably necessary to procure the Bank Guarantees.” The terms of the orders sought are similar to a “best endeavours clause”, being a clause utilised in many contracts.[192] In this case what is sought is a declaration and an order of the Court to enable the contract to be specifically performed in a manner which does “perfect and complete justice” in the circumstances. This requires a court to have regard not only to the circumstances of Ausbulk but also of Ewing.[193] Such orders have been used where the consent of a third party is required in order to enforce the contract and the defendant is required to undertake certain steps to obtain that consent. This approach to relief in specific performance has been endorsed by the High Court in Dougan v Ley (“Dougan”),[194] Kennedy v Vercoe (“Kennedy”)[195] and Butts v O’Dwyer.[196] Such an approach has more recently been discussed by Jenkins J in the Supreme Court of Western Australia in Avenue (WA) Pty Ltd v Prazaline Pty Ltd (“Avenue v Prazaline”).[197]Each of these cases, in different ways, involved contracts which required consents or approvals of third parties in order to perform the contract. Sometimes there was a reference to an approval or consent in the contract,[198] in other cases there was not.[199] In some cases, the circumstances had changed and the particular requirements which needed to be fulfilled were dependant upon the exercise of discretion by a third party and also potentially required the supervision of the Court.
[192] Optus vision Pty Ltd v Rugby Football League Ltd [2004] NSWCA 61.
[193] See eg, Lawton v Campion (1854) 18 Beav 87, 52 ER 291.
[194] Dougan v Ley (1946) 71 CLR 142, 148, 149,151-152, 154-155.
[195] Kennedy v Vercoe (1960) 105 CLR 521, 526-530.
[196] Butts v O’Dwyer (1952) 87 CLR 267, 280.
[197] Avenue (WA) Pty Ltd v Prazaline Pty Ltd [2007] WASC 173, [75]-[82].
[198] Avenue (WA) Pty Ltd v Prazaline Pty Ltd [2007] WASC 173.
[199] Dougan v Ley (1946) 71 CLR 142; Kennedy v Vercoe (1960) 105 CLR 521.
In the case of Avenue v Prazaline, there was a contract for sale of land between the plaintiff and the defendant which required, as a condition for the performance of the contract, that the defendant obtain “approval” for the sale of the land from the Western Australian Land Authority (“LandCorp”). Nothing was said in the contract about what was required to be done to obtain this approval. Approval was sought by the defendant in 2006 and granted subject to certain conditions. The defendant considered that it was not satisfied with the conditions imposed by LandCorp and refused to proceed with the sale. The plaintiff sought specific performance of the sale of land, but by the time of judgment, the conditional approval by LandCorp had lapsed and so any such order would have to be subject to satisfactory approval by LandCorp. A preliminary issue was whether the meaning of the word “approval” in the context of the contract, meant conditional or unconditional approval by LandCorp. Jenkins J determined that the “approval” that was necessary in the contract must refer to “an unconditional approval or a conditional approval where the parties have met or agreed to meet the conditions of approval”.[200] Given that there had been a conditional approval in the case at hand, her Honour went on to consider what obligations the contract imposed on the defendant. Her Honour expressed the issue as follows (at [36]):
The next issue to determine is what obligations, if any, were imposed on the defendant after LandCorp gave conditional approval to the sale. Was [the defendant] obliged to comply with all lawful conditions imposed by LandCorp, as submitted by [the plaintiff]? Alternatively, did the defendant only have to do what was reasonable, indeed what it regarded as reasonable, in order to fulfil the contract, as submitted by [the defendant]?
[200] Avenue (WA) Pty Ltd v Prazaline Pty Ltd [2007] WASC 173, [35].
Her Honour considered the relevant authorities concerning construction of such clauses and concluded that (at [42]):
the defendant was under an obligation to take all reasonable steps available to it to obtain LandCorp's unconditional approval of the on sale to [the plaintiff] and to refrain from taking any step which would prevent or inhibit fulfilment of the requirement for LandCorp's unconditional approval.
In order to make an order for specific performance of such an obligation, Jenkins J considered the issue of court supervision.[201] Her Honour observed that supervision is a matter of degree and concluded that although some supervision may be required, this was not an impediment in the case to the ordering of specific performance. In addition, given that the conditional consent given by LandCorp had expired by the date of the decision, her Honour was alive to the fact that, despite the defendant taking all reasonable steps, it may be that the unconditional consent is never achieved. In relation to this matter her Honour said (at [80]):
[T]he fact that a contract is subject to the consent of a third party does not automatically mean that a contract is impossible to perform. Where the consent of a third party is required, courts have ordered the parties to take all reasonable or necessary steps to obtain such consent and, if it is obtained, to specifically perform the contract.
(Citations omitted.)
[201] Avenue (WA) Pty Ltd v Prazaline Pty Ltd [2007] WASC 173, [81].
Ultimately however, Jenkins J declined to order specific performance for a different reason. Her Honour said that there was evidence before the Court that the plaintiff was at no time ever ready and willing to complete the requirements for “approval” either at the time of entering into the contract or at the hearing. This was a clear impediment to enforcing the contract by specific performance.
The approach that can be observed from this case, and others like it, is that in respect of specific performance of contracts which require a party to obtain an approval or consent from a third party, a court, in effect, implies a condition that the defendant is required to “take all reasonable or necessary steps” to perform the obligation or “that the defendant do all things and execute all documents which are proper and necessary for him to do and execute”[202] in order to perform the obligation. This condition is often the subject of a declaration as well as being contained in the terms of the order for specific performance.
[202] Dougan v Ley (1946) 71 CLR 142.
In the present case, the fundamental basis of the contract of 20 February 2008 was that Ewing was obliged to procure guarantees from a third party. This necessarily required it to satisfy the requirements of the Bank, and in the manner discussed by the above cases, impliedly required them to do all that is reasonably necessary to procure them. In order to achieve performance of the contract of 20 February 2008, this necessarily requires Ewing to do all that is reasonably necessary to procure guarantees in the same terms as those previously obtained (i.e. those of the Replacement Guarantees which were attached to the consent orders made by the Court on 26 February 2008 and marked A and B). I therefore conclude that such a declaration and order is apposite to the circumstances in this case, subject to two further considerations. Namely, the argument of Ewing that such an order would be futile by reason of its financial circumstances and further that it should not be exposed to a risk of being in contempt of an order of the Court if it is unable to obtain further Replacement Guarantees.
In relation to the contempt argument, it is sufficient to point out that the order sought is that Ewing “do all that is necessary so as to procure Bank Guarantees”, and that this is different in quality from Ewing being required to procure those guarantees. This is recognised in the cases of Dougan[203] and Kennedy.[204] In Dougan, Williams J indicated that what was required of the defendants in that case was “to place before [the Commissioner] such evidence as he may reasonably require for this purpose”. Therefore, the form of such an order would not of itself give rise to a risk of contempt. Indeed the proposed form of the order is flexible and to the extent that matters of detail may arise, it could be the subject of some court supervision.[205]
[203] Dougan v Ley (1946) 71 CLR 142, 154.
[204] Kennedy v Vercoe (1960) 105 CLR 521, 529.
[205] I C F Spry, Equitable Remedies (7^th ed, 2007), 104-108.
Turning now to the alleged futility of making such an order. First, although Ewing adopted the language of futility and impossibility somewhat interchangeably, it must be remembered that futility is different from a case of impossibility. The Authors of Meagher, Gummow & Lehanne’s Equity Doctrines & Remedies[206] for example, draw a clear distinction between refusing specific performance on the ground of impossibility and refusing such relief on the grounds of futility, the former being a defence to a claim for specific performance and the latter being a matter that is relevant to the equitable discretion to make such an order. The Authors state (at 678[20‑145]):
[The fact that] specific performance would be futile… is different from a defence of impossibility. It may well be that it is possible for the defendant to perform his obligations, but the court may refuse specific performance if performance would be futile.
[206] R Meagher, D Heydon and M Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4^th ed, 2002).
Spry in Equitable Remedies[207] summarised the discussion on futility,[208] and says (at 138):
[A]part from such general considerations as these, the better view is that a plaintiff should not, on the ground of alleged futility, be refused the performance to which he is contractually entitled unless special discretionary matters render specific enforcement unjust.
[207] I C F Spry, Equitable Remedies (7^th ed, 2007).
[208] I C F Spry, Equitable Remedies (7^th ed, 2007), 133-8.
Ewing submits that it is insolvent, has no income, no material assets and has a negative worth and that it clearly could not provide any security for further replacement guarantees.
At the hearing before me in January and February 2008, it was acknowledged that Ewing had no assets in Australia and a number of creditors were seeking repayment of monies,[209] yet Ewing at the same time submitted that if the Bank Guarantees were called in, it would suffer harm in being unable to tender for work, in having an inability to negotiate and accept large projects and by suffering damage to goodwill and reputation.
[209] Reasons for decision [118]-[119], [123].
Since that time, Ewing was able to proffer the Replacement Guarantees. Further as Ausbulk submits:
(a)Ewing has provided substantial bank guarantees to Ausbulk to comply with orders for security for costs;
(b)the bank guarantees provided to comply with security for costs orders are from ASB bank, and are unlimited time, contrary to the assertion made by Mr Hutton in his letter dated 19 February 2008, that banks in New Zealand do not give open-ended bank guarantees;
(c)Ewing has continued to fund both the Arbitration, and its defence to these proceedings (with both senior and junior counsel being retained in these proceedings); and
(d)Ewing has always been financed by those standing behind it.
(Footnotes omitted.)
The arguments proffered by Ausbulk have merit.
I also note that in the letter of 10 June 2009, Ewing did not indicate that it was unable to fulfil the obligation, rather it stated that it was under no obligation to do so. The claim made as to futility, or rather impossibility, on the part of Ewing, is largely a matter of submissions from the bar table. Ewing appears to take different stances on the reality of its financial position depending on its interests at the time.

I am not persuaded that the declaration and order for specific performance would be of no benefit or utility.
For these reasons, I conclude that it is appropriate to order:
1a declaration that the parties entered into a contract on 20 February 2008, the terms of which are set out in paragraph [151] of these reasons; and
2that, in accordance with the contract of 20 February 2008, the plaintiff do all that is reasonably necessary so as to procure bank guarantees in substitution for the Replacement Guarantees annexed to the order of the Court dated 26 February 2008 and marked A and B respectively, such guarantees to be rolled over or substituted from time to time until determination of the Arbitration or further order of this Court.
Remedy for Estoppel
In this case the estoppel was pleaded in two forms, estoppel by convention and estoppel by representation. In both cases estoppel is pleaded as an alternative basis for relief, and so the orders stated below are orders that I would have made had Ausbulk failed in its claim in contract.
The language used to express the estoppel differed in each case. However, there was a common feature, namely either an assumption or a representation by Ewing that Ewing was obliged to tender substitute guarantees at least one month prior to the expiry of the “existing guarantees”, which were the Replacement Guarantees annexed to the order of the Court dated 26 February 2008 and marked A and B respectively.[210]
[210] See discussion of this under Estoppel of these reasons.
With regard to remedies which may flow from the finding by me of estoppel in each case, yet again this returns to the issue of whether each estoppel should be separately regarded or whether there is “a single overarching doctrine or a ‘general doctrine’ of estoppel by conduct”,[211] as expressed by Mason CJ and Deane J in Commonwealth v Verwayen.[212]A full discussion of whether or not such a common formulation has been accepted is set out in Meagher, Gummow and Lehane.[213]
[211] Conduct including both actions and words.
[212] (1990) 170 CLR 394.
[213] R Meagher, D Heydon and M Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4^th ed, 2002) [17-005]-[17-010], [17-125]-[17-135].
More recent discussion on this issue has arisen in the High Court decision of Giumelli v Giumelli.[214] This case concerned promises made to a plaintiff by his parents in relation to property, to the effect that if he continued to work on the property the land would be subdivided to create a lot for him. Without going into further details at this point, the Full Court of New South Wales on appeal gave the son pecuniary relief by reason of a promissory estoppel, and ordered a constructive trust over the property the subject of dispute. The point which is important for the overall consideration of estoppel is that it left open whether or not there was a single doctrine of estoppel. The joint judgment of Gleeson CJ, McHugh, Gummow and Callinan JJ, examined[215] the judgments in Commonwealth v Verwayen. Their Honours concluded (at [48]) that the approaches taken in Commonwealth v Verwayen did not preclude the granting of a constructive trust, as equity intervened not to enforce the contractual promise, but to relieve against the expectation induced by it. Reference was made to earlier cases of Olsson v Dyson[216] and Riches v Hogben,[217] in particular, the reference to the observation of Kitto J in Olsson, which their Honours summarised:[218]
In Olsson v Dyson, Kitto J observed that the judgment of the Lord Chancellor in Dillwyn v Llewelyn seemed to contain two concurrent lines of reasoning. One was that, assuming there was no contract, nevertheless the conduct of the father was such as to bind him in conscience to make the legal situation correspond with the implication and the encouragement given the son to lay out the money. The other was that the father’s conduct in encouraging the son to build the house on the footing that the land would be his, when acted upon by the son, created an equity which bound the father to make good the son’s expectation.
[214] (1999) 196 CLR 101.
[215] Giumelli v Giumelli (1999) 196 CLR 101, 120-5.
[216] (1969) 120 CLR 365, 378.
[217] [1985] 2 Qd R 292, 300.
[218] Giumelli v Giumelli (1999) 196 CLR 101, 122.
In Meagher, Gummow and Lehane,[219] the rationale of the approach in Giumelli was said by the authors to be:
The High Court carefully distinguished between contructive trusts and equitable estoppel in Giumelli v Giumelli (1999) 196 CLR 101 at [2]-[10]; 161 ALR 473; BC9901018; [1999] HCA 10. The equitable claim was the assumption induced by the representation upon which there had been detrimental reliance, while the constructive trust was the remedial response to that claim (a distinction which may be contrasted with the conflation in cases such as Yaxley v Gotts [2000] Ch 162 at 176-7; [2000] 1 All ER 711 at 721-2 and Jennings v Rice [2002] ECWA Civ 159 at [45]). The court further held that only if there were no appropriate equitable remedy which fell short of the imposition of a constructive trust should the latter remedy be imposed.
[219] Equity Doctrines and Remedies (4^th ed, 2002) [17-135].
Applying those principles to the present case, I consider that Ausbulk would be entitled to the following orders, in the alternative to those which I have set out under contract. The first is a declaration and the second is an order which is required to relieve against the expectation induced by that assumption or representation. I would therefore order:
1a declaration that Ewing is estopped from denying it was obliged to tender bank guarantees at least one month prior to the expiry of the Replacement Guarantees provided on 22 February 2008, in substitution of those annexed to the order of the Court dated 26 February 2008 and marked A and B respectively;
2that the plaintiff do all that is reasonably necessary so as to procure bank guarantees in substitution for the Replacement Guarantees provided on 22 February 2008, being those annexed to the order of the Court dated 26 February 2008 and marked A and B respectively, such guarantees to be rolled over or substituted from time to time until determination of the Arbitration or further orders of this Court.
Remedy for Common Mistake
The usual remedy for actionable common mistake as to the terms of a contractual document is rectification. Again this is an alternative argument to the claim in contract. Even though an order of rectification could be ordered here in addition to the order of specific performance, I do not consider it appropriate to do so. The reason for this is that an order of rectification will give Ausbulk no additional practical benefit over and above an order for specific performance but it will have the additional, undesirable effect of causing Ewing to have been effectively in contempt of the orders of 26 February 2008 since the guarantees expired at the end of February 2009.
If I were to make such orders however, I would not make orders in the terms suggested in the minutes of order. In considering the form of relief which ought to arise from the common mistake, I note that the formulation by Ausbulk of the common mistake differed from the formulation of either the relief in contract or the two forms of estoppel. The relief was said to arise from the mistaken failure of the consent orders made on 26 February 2008 to specify that Ewing was required to provide replacement guarantees until the determination of the Arbitration. Accordingly, the relief should be limited to remedy that common mistake.
I therefore do not regard it as appropriate to rectify the order to read in the same manner as formulated by Ausbulk in paragraph 3 of the minutes of order version 1. There is no other form of order proffered by Ausbulk. Orders 3 and 4 would require amendment to express that the injunctions were to remain in place until determination of the Arbitration, but there is the problematic use of the phrase “subject to order 5”. Order 5 would also have to provide that replacement guarantees continue until determination of the Arbitration. The inclusion of such requirements is difficult to insert without a rewrite of all of order 5. There is no simple solution and certainly there has been none proffered by Ausbulk. As this is an alternative remedy to others sought, notably in relation to contract and estoppel, I consider those remedies are more appropriate and I decline to make any specific order to rectify the orders.
Remedy for survival of security provision clause 5
The argument regarding the survival of clause 5 of the Construction Contracts is also an alternative to the claim for the contract of 20 February 2008. For the reasons set out in my discussion above, in the circumstance, any rights and obligations of the parties under that clause have been transformed by the contract of 20 February 2008, and therefore no order is necessary in relation to this claim. However, if Ausbulk were not successful in its claim under the contract of 20 February 2008, I would make a declaration only.
I would not order specific performance in the terms formulated in minutes of order version 2 as there is insufficient clarity to enable that order to be enforced. Specifically I would order:
1A declaration that dispute resolution clause 47 and security clause 5 of the general conditions of the contract OHB/02/011-003 (the Silos Contract), and the general conditions of contract OHB/02/011-007 (the Capital Structural Package Contract) survive the termination of the contracts which occurred in or about April/May 2007.
Orders of the Court
The final orders of the Court are as follows:
1A declaration that the parties entered into a contract on 20 February 2008, the terms of which are set out in [151] of these reasons.
2That, in accordance with the contract of 20 February 2008, the plaintiff do all that is reasonably necessary so as to procure bank guarantees in substitution for the Replacement Guarantees annexed to the order of the Court dated 26 February 2008 and marked A and B respectively, such guarantees to be rolled over or substituted from time to time until determination of the Arbitration or further order of this Court.
3Liberty to the parties to apply in the event that Ewing is unable to procure bank guarantees within a named period of time.
I will hear the parties as to the time which should be set in relation to order 3 hereof.