83 From the letter of 16 January 1998, the commitment associated with the foreign currency agreement was for the five seasons commencing with the 1998/1999 season. It is not clear why the five seasons did not begin with the 1997/1998 season, but in fact the currency position was not used to price the cotton crop sold to Colly from the 1997/1998 season, presumably because the only on call contract was cancelled.
84 In my opinion, not differing in substance from the finding of Bergin J, by the foreign currency agreement Colly/Colly Farms agreed to provide to Mr Simmons/the Company and Mr Simmons/the Company agreed to take (I will return to the question of parties) the sold position for $US2,500,000 and Mr Simmons/the Company committed to selling to Colly/Colly Farms the cotton crops from "Charlievale" for the next five seasons. It was anticipated that $US500,000 of the position would be closed out each season as the crop was delivered and the value in $US was calculated, but it was agreed that the currency position could be rolled over and not progressively closed out if Mr Simmons/the Company so chose. Although the Conditions would be taken up as sale contracts were entered into, they were not part of the foreign currency agreement. There was an obligation to sell to Colly, but the practical necessity to sell under on call contracts was alleviated by the ability to roll over the currency position.
85 It is appropriate now to say more of rolling over the currency position. In the present context, it did not involve closing out the position and opening another position but rather, as Professor Gray described it, cancellation of the foreign exchange contract and its replacement with a fresh foreign exchange contract. The currency position under the fresh foreign exchange contract, however, was likely to be at a different exchange rate from the original contract (that can be seen in the faxes of 5 and 6 January 1998). Because there was not a closing out no loss or profit was realised, but the loss or profit did not go away; its realisation was deferred until the position was closed out, when it would be realised (although increased or reduced depending on future exchange rate movement).
86 Rolling over if the currency position was "out of the money", in its usage in the conversation between Mr Simmons and Mr McKay meaning that there had been adverse movement in the exchange rate, involved not using for a season's cotton crop the $US500,000 of the currency position (or whatever other amount equated to the value calculated in $US) to price the crop. To agree that Mr Simmons/the Company could "always" roll out did not mean for ever, but expressed the contingency of the currency position being out of the money; the point was that the currency position did not have to be partially closed out in each season. Whether the limit of rolling over would be the end of the five seasons or some further reasonable time need not be decided, but the currency position was taken under the foreign currency agreement as part of marketing cotton, and did not have an independent and unlimited life.
87 Colly/Colly Farms submitted that the judge erred in her findings for three reasons.
88 The first reason was that Mr Simmons/the Company had not pleaded the agreement found by the judge or submitted that the agreement should be found. The case of Mr Simmons/the Company had included that as a matter of fact holding the currency position required Mr Simmons/the Company to sell the Company's crop to Colly under on call contracts. The judge was called on to find what the agreement was, not to choose between two allegations and make no finding if neither allegation was fully made out. In my opinion, the foreign currency agreement as found by the judge and as I have expressed it was within the case as fought, and there was and is no denial of procedural fairness in this respect.
89 The second reason was that Mr McKay lacked authority to bind Colly or Colly Farms to the foreign currency agreement. Mr McKay's authority was not put in issue at the trial. He spoke to his superior, Mr Cottle, who let him go ahead save as to wheat. The faxes followed, for $US reflecting the conversation about five seasons and one stating "to be rolled at your discretion". They came from Colly/Colly Farms itself, supporting Mr McKay's actions. No reason has been shown to doubt Mr McKay's actual authority, but if he lacked actual authority he had ostensible authority (see Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [36]-[38]).
90 The third reason, it seems focussed on ability to roll over the currency position, was that an agreement in that respect was "improbable" because (a) the parties entered into on call contracts dealing with the same subject matter of Colly closing out positions; and (b) the size of the transaction was such that it would be expected that the parties would reduce their agreement to writing.
91 As to (a), cl 35 of the Conditions was concerned with closing out open positions; it is set out later in these reasons in the consideration of the contract claim. It did not deal with rolling over, but with closing out at Colly's discretion. Power in Colly to close out is at first sight at odds with entitlement in Mr Simmons/the Company to roll over, but there is no reason why Colly could not specially agree to fetter the power in standard conditions to the extent that the sale contracts took them up. On the contrary, where the foreign currency agreement was an umbrella agreement for five seasons there was reason to do so. Further, the asserted improbability pales against the evidence that Mr McKay told Mr Simmons that he could always roll out if the currency was out of the money and the stark terms of the fax of 23 December 1997, not referring to a currency position maturing at a particular date but in general terms to an order for a sold position for $US2,500,000 "to be rolled at your discretion".
92 As to (b), RT & YE Falls Investments Pty Ltd v The State of New South Wales [2001] NSWSC 1027 at [53]-[57] was cited. An appeal in that case was dismissed, see State of New South Wales v RT & YE Falls Investments Pty Ltd (2003) 57 NSWLR 1. As a decision on the facts in that case, it is not of assistance in the present case. In the present case it is manifest that the parties acted with informality, and the expectation is of little if any weight. The parties were making a legally binding agreement, however informally, hence getting Mr Simmons' signatures on the faxes and Mr McKay's efforts to obtain a written commitment, and I do not think there can be excised from their agreement what Mr McKay and the fax of 23 December 1997 said about rolling over as part of the agreement about a currency position.
93 Who were the parties to the foreign currency agreement? Colly/Colly Farms pleaded that the Marketing Agreement was between Colly and Mr Simmons, and according to the judge were equivocal as to the parties in their submissions. Mr Simmons/the Company pleaded in the alternative, but submitted at the trial that the foreign exchange contract was between Mr Simmons and Colly Farms.
94 The faxes of 23 December 1997 and thereafter were from Colly Farms. As the currency positions were rolled over and partially closed out, Colly Farms continued to appear as the entity with which the replacement positions were held. How $US due for delivery to Colly Farms was used to price the cotton contracts with Colly was not explained, but there could have been internal accounting between Colly and Colly Farms and I do not think the plain and consistent appearance of Colly Farms as the party to the foreign exchange contracts can be gainsaid.
95 However, that does not mean that Colly Farms was the Colly/Colly Farms party to the foreign currency agreement. There was reciprocity in the foreign currency agreement between taking the sold position for $US2,500,000 and the commitment to sell the cotton crops from "Charlievale" for the next five seasons. It was a commitment to Colly as the merchant which had already bought the 1996/1997 cotton crop and to which the letter of 16 January 1998 was addressed. The currency position was to be used to price the cotton sold to Colly, and was so used. Mr Morison was speaking realistically when he said in his evidence that "the currency contracts … were inextricably linked to the cotton commitment contracts" and "the currency contract is part of the cotton contract". In my opinion, Colly was the party to the foreign currency agreement, agreeing to provide the currency position and doing so through Colly Farms by causing its subsidiary Colly Farms to provide it. There was an umbrella foreign currency agreement under which the currency transactions came about, and Colly was the party which promised that the currency position could be rolled over.
96 The early 1997 sale contracts were with Mr Simmons or J & D Simmons, and the faxes of January 1998 were addressed to Mr Simmons trading as J & D Simmons. However, Mr Simmons in fact conducted his farming activities through the Company, and told Mr McKay of the Company when returning the confirmation of 6 January 1998. Colly was told of the Company, and that many of its communications continued to be addressed inappropriately to J & D Simmons or in terms such as Retro Pastoral Co was due to its poor records management. The Company was thereafter the identified party to the cotton sales, and at all times it had the interest in using (and used) the currency position to price the cotton crops. At all times the Company was the grower, as Mr Simmons recognised when he corrected Mr McKay through the note on the confirmation. In my opinion, Mr Simmons was acting on behalf of the Company, as agent for an initially undisclosed principal, and the foreign currency agreement was with the Company and the currency transactions were with the Company.
97 Hereafter in these reasons I will refer as appropriate to Colly and the Company, rather than to the duality of Colly/Colly Farms and Mr Simmons/the Company.