Stewart Trading as Grasshopper Environmental Services v The Australian Steel Company (Operations) Pty Ltd

[2005] NSWSC 1371

CITATION:	Stewart Trading As Grasshopper Environmental Services v The Australian Steel Company (Operations) Pty Ltd & Anor [2005] NSWSC 1371
HEARING DATE(S):	6 December 2005
JUDGMENT DATE :	6 December 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Order for specific performance

CATCHWORDS:	CONSTRUCTIONS - general contractual principles - construction and interpretation of contracts - contract provided a minimum amount of scrap but not maximum - intention of parties - HELD - defendant intended to accept as much scrap as given - DAMAGES not adequate - specific performance granted
PARTIES:	Craig Charles Stewart t/as Grasshopper Environmental Services (First Plaintiff) Margaret Ruth Stewart t/as Grasshopper Environmental Services (Second Plaintiff) The Australian Steel Company (Operations) Pty Limited t/as Smorgon Steel Recycling (First Defendant) Metalcorp Recyclers Pty Limited t/as Smorgon Steel Recycling (Second Defendant)
FILE NUMBER(S):	SC 5954 of 2005
COUNSEL:	E White (Plaintiffs) P D Santamaria SC with him Mr F Kunch (Defendants)
SOLICITORS:	Robilliard & Robilliard (Plaintiffs) Clayton Utz (Defendants)

LOWER COURT JURISDICTION:

- 3 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

TUESDAY 6 DECEMBER 2005

5954/05 CRAIG CHARLES STEWART & ANOR trading as GRASSHOPPER ENVIRONMENTAL SERVICES v THE AUSTRALIAN STEEL COMPANY (OPERATIONS PTY LIMITED & ANOR trading as SMORGON STEEL RECYCLING

JUDGMENT

1 HIS HONOUR: The plaintiff seeks an order for specific performance of a contract dated 22 April 2005 for the supply of ferrous scrap metal to the defendant companies. The contract, on its face, is between Grasshopper Environmental Services, as the vendor of the scrap metal, and Smorgon Steel Recycling (Smorgon), as purchaser of the scrap metal. The plaintiffs are the proprietors of Grasshopper, the defendants are the proprietors of the registered business Smorgon Steel Recycling. This is a business name registered in New South Wales. The contract is expressed to be signed by Mr Best on behalf of Smorgon Steel Recycling ACN 002707262; that is the ACN number of the second defendant Metalcorp Recyclers Pty Ltd.

2 It is argued that the contract was between the plaintiffs and Metalcorp only. I do not think that is correct. The two companies were carrying on business under a firm name. One company signed on behalf of that firm. Whether their private arrangements were something other than a partnership I do not know but in ordinary circumstances parties carrying on business do so through an incorporated association or through an unincorporated association; this was an unincorporated association. Under partnership law and the Partnership Act and under general law one partner can bind the other. I find that both defendants were bound.

3 The next question is the true construction of the agreement. There is only one clause that matters, it is this:

Smorgon will accept all types of ferrous scrap metal from Grasshopper delivered into any NSW depot. Grasshopper must provide to Smorgon a minimum of 6,000 tonnes of the above product within 24 months from 22 April 2005.

4 The contract provides for a minimum price of $237.50 per tonne. It provides that the agreement will continue for a minimum of twenty-four months from 22 April 2005. There is a provision under which the price will be increased in certain circumstances. There is no provision under which the price can be reduced.

5 The plaintiff companies have already delivered 6,000 tonnes of ferrous scrap metal since the contract commenced. What has happened is that the market price for scrap metal has decreased and, therefore, the defendants do not wish to continue to purchase at the agreed price. The question is whether they are bound to do so.

6 The first matter for decision is whether the true construction of the agreement can be ascertained from its words alone and if it cannot be whether there is an ambiguity which will require the court to take into account surrounding circumstances to determine the objective intention of the parties.

7 The argument of the plaintiff is that Smorgon is required to accept any amount of ferrous scrap metal delivered into any one of its New South Wales depots of which there are a considerable number. Its obligation is to deliver at least 6,000 tonnes in a 24-month period. It has scrap metal available and it wishes to continue to deliver that to Smorgon. Smorgon does not wish to accept any more not because it cannot use it but because the price of $237.50 per tonne is in excess of the price at which it can obtain scrap metal from other people and is a price which makes it uneconomical for it to continue to purchase from the plaintiff companies.

8 If the clause which I have set out did not have the words "types of" in it, there would be in my view no doubt whatever that Smorgon was bound to take all scrap metal delivered to it by the plaintiff companies. The question is whether or not those words make a difference and whether one should assume, because the words "types of" are included, that this would indicate that it was not intended Smorgon was obligated to accept all quantities of scrap metal and pay the agreed price. When there is a clause providing for a minimum amount, one should never think that that is a maximum amount, and that much is conceded by counsel for the defendants.

9 In my view, on a proper construction of that clause, having regard to the business environment in which the parties were operating and having regard to the evidence of the defendant that it was disadvantageous to it to have the material delivered into any New South Wales depot, the objective intention of the parties was that the plaintiffs could deliver whatever quantities they could to Smorgon.

10 If there is an ambiguity - and it is always difficult in these matters to consider the question because once having decided that there is not, one must then look at the matter on the basis that there is - I consider that the same conclusion would be reached.

11 The evidence of the conversations between Mr Gavin Stewart and Mr James is that Smorgon were interested in obtaining more scrap, that they had lost some particular suppliers, and according to Mr Daley of the defendants "we would love to get hold of your scrap." Mr Daley at a subsequent meeting with Mr Stewart discussed the matter and Mr Stewart said "We are on track for 12,000 tonnes per annum and we are trying to grow the business. We will agree to minimum supply to help you justify a higher price." That does not seem to me to indicate that there was to be any limit on the amount of scrap which the company was required to take.

12 Mr Best was the manager of the second defendant's operation at Hexham. He said to Mr Stewart:

I have spoken with Peter and he wants me to negotiate a supply contract with GES. I am now running a new shredder here at Hexham. My job is to get as much bulk scrap as I can to feed this beast. Peter has come up with a price of $235 plus GST, therefore, there will need to be some further negotiations about the price.

13 On 19 April there was further conversation between Mr Best and Mr Stewart about the agreement, drafts having been forwarded and amended between the parties. Then Mr Stewart said, "Can we increase the period to two years and increase the minimum tonnes supplied to 6,000 tonnes?" Mr Best said, "Yes. Both of those are good ideas. I think we know how each other works by now." I should say that the increase in tonnage was brought about by the extension of the agreement period from one year to two years. All the surrounding circumstances indicate to me that Smorgon wanted to lock in a supply from the defendant and wished to take as much scrap metal as it could get. At that time, it was thought, as it turned out incorrectly, that the agreed price was an acceptable price. The fact that the scrap could be delivered by the plaintiff company to a number of depots in New South Wales in itself indicates an intention to take as much scrap as was available.

14 In my view the proper construction of the contract is that the defendants are required to take the scrap delivered in accordance with the contract from the plaintiffs not that they are required to take 6,000 tonnes and then whatever tonnage above that they wish to take.

15 The next question is whether or not an order should be made for specific performance; that depends on two things. First, whether damages would be a sufficient remedy and second whether or not an order for performance would require unacceptable supervision by the court. So far as damages are concerned, senior counsel for the defendant said that damages could easily be assessed, and that damages for breach of contract in this type of matter were assessed every day at common law. I do not think that is correct. It would not be possible now to calculate the proper amount before a period of 18 months expired with any certainty.

16 Such delay would be unfair to the plaintiff. Next there would be problems in assessing damages at the present time. I think that the argument of counsel for the plaintiff is correct, that this is something which would be extremely difficult if not impossible to do with any proper accuracy, because the price at which the plaintiffs would be able to sell their scrap either to the defendants or to other persons over the next 18 months is not known. Having regard to the drop in price which has taken place since the contract was entered into, it is obviously quite uncertain. Thus, I have come to the view that damages would not be an adequate remedy unless it were the only remedy available.

17 The next question is whether or not this contract is of such a nature that an order for specific performance ought not to be made because that would involve supervision by the court and might bring about numerous applications to the court to deal with the defendant by way of contempt. This is not a complicated contract. There is no argument about what ferrous scrap metal is; there is no argument about where that scrap metal can be delivered; there is no argument about the price. It is not something that requires a constant inspection and it is not something which in my view would require any constant supervision. It is not a contract which I think has the risk of the court having to deal with charges of contempt for failure to comply with an order for specific performance. I have come to the conclusion, therefore, that because the remedy of damages is not adequate, that an order for specific performance should be made and propose to make that order. It will be necessary I think to make a declaration as to the proper construction of the contract before doing so because otherwise the order for performance, on its face, may not be of much assistance.

18 (After adjournment for the parties to consider the form of orders).

19 I make the declarations orders in accordance with the short minutes of order initialled by me and dated today.

20 The defendants have asked for a stay of the operation of the order for specific performance on the basis that for any scrap metal delivered to one of their depots by the plaintiffs they would pay the market price and minimum contract price into an account either in the names of the solicitors for the parties or under some other procedure to ensure those moneys were available in the event of a successful appeal. Such an order, operating as a stay on the successful parties’ rights, would, as I understand the principles, be granted in circumstances where there was some evidence that if an appeal were successful the rights of the successful appellant may not be able to be satisfied; in other words, where there was some evidence the financial resources of the successful parties would not be such that they would be able to repay any amounts which would become repayable in the event of a successful appeal. At the present stage there is no evidence of any such risk and in those circumstances in accordance with normal principles I do not propose to make that order; that would not prevent the defendants applying to the Court of Appeal at a later stage if in the event that they decided to lodge an appeal.

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