Nursery Nuts v Almond Investors Ltd

Nursery Nuts v Almond Investors Ltd - [2010] NSWDC 71 - NSWDC 2010 case summary — Zoe

[97]

67 Mr Johns did not respond to this email, claiming that he was preoccupied with other work in his affidavit and in his oral evidence also asserting that he did not want to be involved in "protracted" discussions about the matters raised in the email and making submissions about future orders. If Mr Johns had any concerns about the email he would not have delayed discussion about the matter. Nor do I accept that such discussion would have been so protracted as to divert him from his other responsibilities. The issues arising from the email, now complained of by the Defendant, were clear and capable of direct response from Mr Johns. His oral evidence conceded a lack of concern, at least "in part". What was proposed did not stand at odds with the Defendant's intention by May 2007 to 'hold over' the majority of the order until the following year. The ambitions of the original order made by the Defendant were clearly not being matched by the enthusiasm of the investor market, a trend commencing before early April 2007. In his affidavit evidence Mr Johns said that his next response to communications from Mr Warner was to contact him on 11 May 2007, he rang Mr Warner to enquire about whether Mr Warner's operation had enough water to supply requirements for any trees (the Defendant) carried over to June 2008. There was no discussion about the email of 8 April. This conversation in May was entirely consistent with the contemplation that there would not be a full delivery of trees in early June and that the proportions of varieties ordered may be subject to change. It was consistent with the email of 8 April not having contained any real surprises for Mr Johns. Mr Warner responded to this telephone call with two emails on 13 May dealing with the issue of water supply in Narrandera and Wemen, although Mr Warner's second email left open a query as to the extent to which water would be required for the "left over trees", that is the trees to be delivered in 2008, which may require some "renegotiation" for the cost of held over trees, given increased costs for water and weeding services from a third party.

[104]

74 Mr Warner sent an email on 20 July 2007 showing commitment to the Agreement in response to an email from Mr Johns of that date suggesting a substantially lower number of trees being required in total. Mr Warner wrote: "…AIC has ordered 90,000 trees and Nursery Nuts has firmly contracted to deliver 90,000 trees." The Plaintiffs were clearly indicating a willingness to perform at that time. The email from Mr Johns of this date expressed as a "Summary of Nursery Nuts order for 2007" suggests a contrary proposition as to the Defendant's requirements, calculating payment by 2008 for a total 63,660 trees, including 23,660 trees delivered in 2007, 40,000 trees to be delivered in 2008. This email had two significant features. Particularly, it asserts an assumption that there will be 40,000 delivered in 2008 (at $8.40 each), 26,340 less than ordered in October 2006, if one considers the number of trees "accepted" by the Defendant in June 2007. It reflected the reality of the situation at that time. The second feature of this document, is that the number regarded as "non plantable" from the June delivery was "5,915 (20% of 2007 order …)". This was, I am satisfied, a result of negotiation, to accommodate the percentage figure suggested by Mr Warner as a compromise to ensure prompt payment of the invoice that had been rendered. The reason that the precise number of plants had to be calculated was because the invoice that had been previously forwarded involved a calculation of the price per tree. A recalculation of what was required would involve numbering the trees acceptable and providing a price per tree. In fact this is what occurred on 21 July 2007 when a revised invoice was delivered by the Plaintiffs to the Defendant $96,296.20 (incl GST), rather that the $120,370.25 invoiced on 11 June. The subsequent correspondence and conversations that occurred to the "Summary", forwarded to Mr Warner on 20 July, would appear to focus upon the realisation by Mr Warner that the Defendant was now seeking to take delivery ultimately in 2008 only of 63,660 plants (in total), not the 90,000 that had been "ordered". Mr Warner's email of 20 July addressed this issue. His further email of 25 July 2007, which he sent after consultation with his partner (Vaughan Wellington), reiterated Nursery Nuts' commitment to the agreement to deliver 90,000 trees. Mr Warner raised the issue of a "penalty", to be paid by the Defendant, which might include the forfeiture of the deposit paid. This email prompted the intervention of the Financial Controller for the Defendant. Then on 3 August 2007 Mr Johns made a visit to the Wemen nursery to inspect the trees that were available and to discuss the situation with Mr Warner. That discussion confirmed, on Mr Johns' part, that the demand for 2008 would require less trees, than the order originally contemplated. The commercial reality was acceptable to Mr Warner, but on prompt payment. Mr Johns said he would confirm in writing the Defendant's agreement to a reorganised payments schedule. Both parties were confronted with a changing 'market' for almond trees, reflected by the Defendant's changed demands and, later, by the Plaintiffs' inability to sell but a minority of the trees it had grown for the Defendant.

[105]

75 This meeting at Wemen when the Wemen nursery was inspected, had, in my view, some curious features when one has regard to Mr Johns' assertion that he was quite 'horrified' and 'sickened' by what he saw on inspection. As I have earlier indicated I do not accept this evidence on this reaction. At the very least it is an exaggeration. His evidence described the situation as 'catastrophic'. Neither his affidavit evidence or his oral evidence of his discussions with Mr Warner on this day give any sense of 'catastrophe'. I am satisfied that this meeting elicited the information that the investment market was dropping and that the Defendant would only be prepared to take, or 'offered' to take the balance of trees that appeared to be mature, which was well short of the 66,000 trees that were to be provided in 2008 to fulfil the original agreement. Perhaps as few as 45,000 trees. I have noted what submissions have been made about this Mr Johns' evidence as to this meeting by the Defendant's counsel. However the facts are that in the relevant part of the affidavit of Mr Johns as to this meeting, even assuming that he wanted to avoid 'emotional' comments, betray any disquiet whatsoever about the quality of the plantings, the inadequacy of the crop or anything of the sort. His evidence refers to his observations that the plants he saw included trees that were below 90 cm, which Mr Warner conceded "some" were, and that he would (in June the following year) require trees to be at least 1.2 metres high by 2008. This did not indicate that, with his experience, it was not reasonable for the trees to grow to that amended height. Mr Johns said that the Defendant could, or might, pay for the trees in instalments. Mr Johns' version of the meeting is not unlike the account given by Mr Warner, as to negotiations to overcome the impasse which refers to payment for trees delivered and to instalments for payment for the balance of the trees (not in accordance with the agreement), subject to confirmation in writing. He did not convey then to Mr Warner any failure to perform the contract, claimed in his evidence, at that time, as to number, quality or ratio of varieties of trees.

[111]

81 Breach of a condition of a contract entitles the other party to terminate the contract. An essential term is, when breached, one that entitles a party to immediately terminate. It must be a "promise" of such importance to the "promisee" that the promisee "would not have entered into the contract unless (he) had been assured of a strict or substantial performance of the promise … and this was apparent to the promisee" ( Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR 632 (at 641-2) - approved on this issue though otherwise reversed in Luna Park (NSW) Ltd (1938) 61 CLR 286: Shevill v Builders Licensing Board (1982) 149 CLR 620 (at 636): DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 (at 431). "Essentiality requires 'close account' of the importance the parties have attached to the provision (or term) as evidence by the contract itself as applied to the surrounding circumstances". The Court may take into account a range of matters in determining whether a term was "essential", including the effect, or consequences, of breach, the conduct of the parties in reaction to a breach, bearing in mind the judgment of the character of the 'term' focuses upon the objectively assessed intention of the parties at the time of formation of the agreement. No term was expressly stated to be essential in the written 'contract'. The 'contract' was not expressed in sophisticated or legal terms. It had elements of practicality, flexibility and options as to delivery date(s), numbers to be delivered, acceptable proportions of varieties, in its various terms. The parties clearly anticipated 'substantial' performance, but not necessarily strict performance of all terms as to what the Plaintiffs could supply the Defendant. For example, to ultimately supply 89,000 trees could not reasonably be a breach of a requirement that was essential. An adjustment of payment could be made. The schedule for payment permitted an adjustment of payment to ensure that the instalment payments by the Defendant did not result in an overpayment. Payment for trees delivered was an essential term, requiring strict compliances as the Plaintiffs had assumed the risk of capital investment.

[126]

91 As to the issue of 'breach' of a condition of the agreement evidencing "renunciation", or inability to perform, by the Plaintiffs, as pleaded by the Defendant, the notification of the current position by the email of 8 April 2007 from the Plaintiffs, whilst reflecting the fact that they at that point could not fulfil the requirement to supply a particular number, in particular varieties, was not at that stage a breach. The Plaintiffs were clearly being transparent about progress. By this communication from Mr Warner to Mr Johns, the Plaintiffs advised the Defendant that the conditions of the agreement requiring the supply of 90,000 plants in particular proportions, could not be fulfilled at that point of time. Then the Plaintiffs were not in breach of those conditions of the agreement because the Plaintiffs had not demonstrated that they could not fulfil the terms of the agreement at the time of delivery, given there was no fixed date of delivery for all trees, and the Defendant could exercise an option as to what proportions of varieties it would accept. The delivery required by the Defendant had not occurred. The Plaintiffs' advice did not reflect a failure to perform at that time. I have considered whether the evidence of the situation revealed on 8 April constituted an 'anticipatory breach', reflecting an incapacity, or unwillingness, to perform in this regard. Certainly there was no unwillingness to perform. Given the uncertainty as to what the Defendant required delivered in June 2007 on delivery there was not an incapacity to perform at that time. The information conveyed in the email was not received by the Defendant as a repudiation of the contract (see below). The Defendant about a month later requested delivery of 27,000 trees. The contract remained at that time in existence. It left open the right of the Plaintiffs to terminate, on repudiation of the contract by the Defendant (see Cheshire and Fifoot 'Law of Contract' (9th Edition) 21.13 (fn102). The letter from Mr Warner of 13 June 2007 was merely concerned with getting advice in the future on the 'held over'; trees. It was not a recognition that the Defendant had not lost the right to terminate the Agreement.

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