The 2007/2008 and 2008/2009 contracts
131 As I have said, the respondent stopped publishing an APW multi-variety cash bid in late 2006. The evidence suggests that the respondent made a decision sometime in late September 2006 to restrict the availability of a multi-variety wheat contract to Western Australia.
132 There appears then to have been an ongoing breach by the respondent of the implied term that it quote and publish on its daily bid sheet an APW multi-variety grade wheat cash bid and an APW multi-variety grade wheat basis component.
133 In order to put this breach into context, I need to describe the key events in 2007 and 2008. These events will also be relevant when I come to consider the question of the termination of the contracts.
134 In mid 2007, the respondent introduced a new financial product called a Gro-Logic Contract. A Financial Services Guide and the Gro-Logic PDS were issued by the respondent. The Gro-Logic Contract contained the same three price components which were part of the ABB Basis Contract, namely, a futures component, a basis component and a foreign exchange component. However, the Gro-Logic Contracts for wheat were multigrade contracts and used APW1 as the base grade. The Gro-Logic PDS described multigrade as meaning that the seller was able to deliver multiple bin grades and quality specifications to fulfil his or her contractual obligations. The wheat basis component and wheat futures component were described in the Gro-Logic PDS as follows:
13.1 Wheat Futures Component
The futures component for wheat is based on the Chicago Board of Trade (CBOT) wheat futures contracts in the relevant season. The futures value is deemed to have been set upon confirmation from ABB that the price level nominated by you has been achieved. Note: exchange trade at the nominated level does not guarantee a price will be achieved.
13.2 Wheat Basis Component
The basis component for wheat is based on the difference between:
a) The settlement rate for the previous trading session of the nominated CBOT wheat futures contract price in the relevant season; and
b) The ABB APW1 (APW2 in WA) multi-grade or fixed-grade, delivered port (FIS port zone in WA), cash bid as per ABB's daily bid sheet for the same delivery period as your contract.
ABB will quote basis values on the daily bid sheet in US cents per bushel based on the December and March CBOT wheat futures contracts.
135 The Gro-Logic PDS provided that the current values for futures, basis and foreign exchange were available on the respondent's daily bid sheet and that a seller could ask to be added to the respondent's daily email distribution list or weekly fax distribution list. The Gro-Logic PDS also identified four delivery options were as follows:
1. Deliver to the Gro-Logic contract.
2. Convert to an ABB purchase contract.
3. Convert to an ABB commodity pool.
4. Close out.
136 If the grower took the close out option, he or she was required to advise the respondent by 31 October of the relevant season that grain would not be delivered under the contract. One of the changes introduced by the Gro-Logic PDS was that a grower had a discretionary power to close out his or her position and did not need to show a production failure or other reason for non delivery.
137 As to quality adjustments and grade spreads, the Gro-Logic PDS provided as follows:
26.4.1 Quality Adjustments for Wheat
The relevant bulk handler will sample and analyse all wheat delivered against the contract for protein, screenings and moisture composition. Unless we agree otherwise in writing, analysis of the wheat conducted by us, or our representative, shall be final and binding.
You will receive quality adjustments to your final base contract price as per the ABB Bin-Grade Quality Scales at 1 October in the season of delivery. Adjustments will only be made to good grades with increments stipulated by ABB to apply at the time of locking in the basis component.
26.5 Grade Spreads
Gro-Logic contracts for wheat and sorghum are multi-grade contracts. A "grade spread" refers to the difference in price between the standard delivery grade on a contract and other acceptable delivery grades. The adjustment ensures that you will be paid a higher price for better grades and a lower price for poorer grades.
26.5.1 Grade Spreads for Wheat
The contract price is based on APW1 (APW2 in WA) as the standard delivery grade, which means we will adjust the contract price if you deliver other grades against your contract.
The grade spreads will be determined at the time of locking in the basis component and will be the ABB declared grade spreads of that day.
138 On 21 June 2007, the respondent wrote to the applicant in the following terms:
Dear Grower
Important changes to your ABB basis contract.
As an existing ABB basis contract holder you are no doubt aware how this type of contract helps you manage your price risk separately to your production risk in the lead up to harvest.
The feedback we have received, however, indicates that growers want even more flexibility when it comes to managing futures and foreign exchange positions, as well as a non-deliverable option on their contract. In response to this feedback we have amended the terms and conditions of the basis contract and are relaunching it as the Gro-Logic, with key features that include:
. greater flexibility to manage futures and foreign exchange by having the ability to initiate your hedge in a variety of futures contract months, we set the position and re-enter at a later date and/or roll the position from one month to another.
. the facility to close out of your position without needing to prove a failure of production.
- this means the contract is non-deliverable up until pre-determined dates provided your basis component has not been locked in.
- multiple ways to deliver your grain to ABB including converting to an ABB purchase contract or an ABB pool contract.
For a more detailed summary of how the Gro-Logic contract works, please refer to the enclosed product disclosure statement and financial services guide.
ABB is proposing to convert all growers who agree to the amended terms and conditions, including the non-payment of a harvest advance for unpriced contracts from their existing ABB Basis Contract to a new Gro-Logic contract.
The transaction-specific terms nominated by you on your existing Basis Contract, including quantity, port zone, delivery date and contract number, will remain the same and provided you have not locked in your basis component, the enhanced flexibility and extra benefits of the Gro-Logic Contract will be available to you.
To make it easy, we will automatically convert your Basis Contract to a Gro-Logic contract without you having to do anything further. If, however, you have concerns or do not want to convert your contract, please contact your local field officer by Friday 27 July 2007 to discuss your options further.
139 I need to explain the applicant's reaction to this letter, but before doing so I will explain why that topic is relevant. Later in these reasons I conclude that the implied term was not an essential term of each of the contracts, but rather an intermediate or innominate term. An innocent party will only be able to terminate for breach of such a term where, speaking generally for the moment, the breach is sufficiently serious. A contention advanced by the respondent is that the applicant decided to terminate the contracts in order to take advantage of what was undoubtedly a sharply rising market, and that it had no real concern about whether the contracts were multi-variety or multigrade bin wheat contracts. The applicant's failure to react to the letter dated 21 June 2007 is (so the respondent contends) an item of evidence which supports the latter proposition.
140 Ms Margaret Rooney's evidence as to what she did upon receiving the letter dated 21 June 2007 is not disputed.
141 Ms Margaret Rooney received the letter and Financial Services Guide and Gro-Logic PDS in late July 2007. She considered that multi-variety wheat contracts enabled the applicant to manage its production risk better than multigrade bin wheat contracts and that she did not want the contracts converted from the former to the latter.
142 In early August 2007, Ms Margaret Rooney spoke to Mr Michael Cousins who was a representative of the respondent. She explained her concerns. Mr Cousins said that he did not know much about "these types of contracts" and he suggested Ms Margaret Rooney contact the respondent's Adelaide office.
143 In late September 2007, Ms Margaret Rooney read a copy of a newsletter entitled "Callum Downs Community News Grain Report". As a result of what she read, she decided that she would not lock in a basis component until "immediately prior to the commencement of harvest, when production volumes could be determined and the final port zone would be known".
144 Ms Margaret Rooney spoke to Mr Cousins at a grain industry forum on 16 October 2007. She again advised of the applicant's position. Mr Cousins suggested that she speak to Mr Howells. On 17 October 2007, Ms Margaret Rooney had telephone conversations with Ms Jenkins and Mr Cousins respectively.
145 On 18 October 2007, Mr Howells, on behalf of the respondent, wrote to the applicant and in the letter he referred to the 2007/2008 contracts and the ninth contract as "your open 07/08 ABB Gro-Logic wheat contracts". Mr Howells said that to manage effectively the contracts the respondent needed to know the applicant's intentions regarding delivery by "the Gro-Logic declaration date of 31 October 2007". The four options referred to in the Gro-Logic PDS are identified and the letter concludes with the following statement:
To notify ABB of your decision, please complete the enclosed delivery declaration form, or call your local field officer or rural adviser, no later than 31 October 2007.
146 On or about 18 October 2007, Ms Margaret Rooney asked her sister, Helen, to consider the matter and to conduct any further discussions or dealings with the respondent.
147 On 30 October 2007, Ms Helen Rooney spoke to Mr Howells on the telephone. By letter dated 31 October 2007, Ms Helen Rooney, on behalf of the applicant, wrote to the respondent purporting to terminate at least the 2007/2008 contracts and the ninth contract. On 15 November 2007, Ms Helen Rooney again spoke to Mr Howells on the telephone. On or about 4 December 2007, she sent Mr Howells another copy of her letter dated 31 October 2007. Each of these events is important in the context of termination and I will need to expand on them in that context.
148 On 14 December 2007, Ms Sarah Graves sent an email to Ms Helen Rooney. At that time, Ms Graves was legal counsel for the respondent. Ms Graves stated that at that point in time the respondent did not accept the arrangements proposed in the letter dated 31 October 2007 and that it would provide its "reasoning" for this in a formal response.
149 By letter dated 13 December 2007, Mr Howells wrote to the applicant and advised it of its open contracts for the 2007/2008 season. The contracts referred to were the 2007/2008 contracts and the ninth contract. This letter was received by the applicant on 18 December 2007.
150 On 2 January 2008, the respondent provided a formal response to the applicant's letter dated 31 October 2007. In its letter, the respondent asserted that the applicant did not contact its local field officer by Friday 27 July 2007 as requested in the respondent's letter to the applicant dated 21 June 2007. The respondent said that it had decided to honour its contracts for the 2007/2008 season "on the original terms dated 22 February 2006". This appears to have been a reference to the February 2006 PDS. The proposal put forward by the respondent was in the following terms:
Wheat basis component
ABB will, upon application, offer Mr and Mrs Rooney an 07/08 Multi-Varietal basis up until 15 January 2008, provided the AWBIN National Pool in the Port Adelaide Zone remains open. Should the National Pool close prior to this date, ABB will continue to offer a 07/08 MultiGrade basis. By 15 January 2008, Mr and Mrs Rooney will be required to fully price and deliver on the aforementioned contracts or alternatively close out any open positions.
In light of changes to the structure of wheat marketing in Australia, Mr and Mrs Rooney's 08/09 contracts (50949 and 50950) will be subject to the terms outlined in the Gro-Logic Contract PDS.
151 As a result of receiving this letter, Ms Helen Rooney decided to contact the respondent's board to discuss the situation. She spoke to Mr Max Venning, Deputy Chair of Directors of the respondent. She met with Mr Ashley Roff on 21 January 2008 to discuss a proposal made by the respondent. On 22 January 2008, Ms Helen Rooney sent an email to Mr Roff wherein she advised him that a proposal put by the respondent had been rejected.
152 The respondent wrote to the appellant by letter dated 25 January 2008. In its letter the respondent referred to what was characterised as unfortunate confusion between Ms Helen Rooney and Mr Howells. The letter goes on to say the following:
[It is not clear whether Helen was purporting to terminate all of the above contracts, but we note that one of the contracts (53242) is a multigrade contract and two others (50949 and 50950) are not deliverable until December 2008. Termination of these contracts would certainly not be appropriate and they should not be regarded as "relevant contracts".]
We suggest that the best way to repair the misunderstanding is for ABB to provide you with daily multi-variety and multigrade prices for the relevant contracts for the period 31 October 2007 to 15 January 2008 and allow you to choose the basis most favourable for you to lock in. In this way, you will, at the very least, be restored to the position you would have been in had a multi-variety price been provided on 31 October 2007 and had you chosen to lock in the basis on that date. Furthermore, as you will see from the attached schedule, the ability to select a price from a range of prices will serve to significantly improve your position over a 31 October 2007 basis.
We are willing to allow Helen to have full information and input into how the multi-variety price is constituted so that you can have confidence that it is a market-derived price. In addition, if physical delivery of the wheat is a problem, we can discuss a cash settlement in accordance with relevant contract terms.
153 Ms Samantha Cosh is employed by the respondent in a position called a trading compliance and operations officer. She prepared the schedule of prices and values which accompanied the respondent's letter to the applicant dated 25 January 2008. I am satisfied from her evidence, the evidence of Mr Howells and the evidence of Mr Martin that Ms Cosh adopted an appropriate methodology in preparing the schedule which contains the prices and values in respect of the period from 31 October 2007 to 24 January 2008.
154 On 31 January 2008, Ms Helen Rooney, on behalf of the applicant, wrote to the respondent advising it that its offer was rejected.
155 I turn now to summarise the events leading up to the purported termination by the applicant of the 2008/2009 contracts.
156 The commencement of the 2008/2009 season wheat basis component that was to apply to the 2008/2009 contracts was 23 April 2008. Ms Margaret Rooney sent a copy of the respondent's daily bid sheet to Ms Helen Rooney on that day. The daily bid sheet did not quote a multi-variety cash bid or multi-variety wheat basis component.
157 On 2 May 2008, the respondent's solicitors wrote to the applicant advising it that it considered the 2008/2009 contracts "to still be in force and is ready, willing and able to perform". On 28 July 2008, the applicant's solicitors wrote to the respondent's solicitors asking for clarification of its assertion that it was ready, willing and able to perform the 2008/2009 contracts, bearing in mind the statement in the respondent's letter dated 2 January 2008 that the Gro-Logic PDS would apply to those contracts and the fact that the respondent had not published an APW multi-variety wheat basis in 2007 nor to date throughout 2008. On 8 September 2008, the respondent's solicitors wrote to the applicant's solicitors advising the applicant that the respondent would perform the contracts according to their terms "(ie in accordance with the February 2006 Product Disclosure Statement)".
158 On 18 September 2008, the applicant's solicitors wrote to the respondent's solicitors again raising a question as to whether the respondent was ready, willing and able to perform the contracts. On 25 September 2008, the respondent's solicitors wrote to the applicant's solicitors seeking further clarification of various statements made by the applicant's solicitors and correspondence between the solicitors for the respective parties followed.
159 On 8 October 2008, Mr Howells wrote to the applicant referring to the 2008/2009 contracts as Gro-Logic contracts, and referring to the grower's rights under the Gro-Logic PDS. On 22 October 2008, the respondent's solicitors wrote to the applicant's solicitors in the following terms:
We are instructed that a letter in the form of 8 October letter was inadvertently automatically generated electronically (including the application of Mr Howells' signature) and sent out in relation to every open contract ABB then had recorded in its system. The automatic production and despatch of that letter to your client was - as would be apparent to you from the history of this matter and more particularly, our letter of 13 October - clearly an error.
Our client's position remains set out in 13 October letter, namely that contracts 50949 and 50950 are subject to the terms and conditions of the February 2006 Product Disclosure Statement.
160 In October 2008, the applicant received a brochure from the respondent entitled:
2008
Harvest Information
The ABB Pool
The brochure contained a number of statements, including the following:
ABB Grain will run one National Pool each for wheat, barley and canola for the 2008/2009 season …
Growers who deliver to the ABB Pool for wheat will be paid on the bin grade of their wheat as determined by their bulk handler.
161 On 31 October 2008, the applicant's solicitors wrote to the respondent's solicitors purporting to terminate the 2008/2009 contracts. At no time between late 2006 and 31 October 2008 did the respondent quote and publish on its daily bid sheet an APW multi-variety grade wheat cash bid and an APW multi-variety grade wheat basis component.