Yara Nipro P/L v Interfert Australia P/L & Anor

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - OTHER MATTERS - where the contract provides that neither party shall be liable for failure to perform obligations under the contract "if such ... failure is caused by circumstances beyond that party's reasonable control, including ... non-supply to [the defendant] of Product" - where the third party's failure to supply the defendant with product was beyond the defendant's reasonable control - whether the defendant's failure to perform was "caused by" the third party's failure to supply

SALE OF GOODS - REMEDIES FOR BREACH OF CONTRACT - REMEDIES OF BUYER - NON-DELIVERY - WHERE THERE IS NO AVAILABLE MARKET - where the contract provides for a date for delivery of 11 February 2008 - where there was no agreed variation of the date of delivery - where the plaintiff did not terminate the contract until at least September 2008 - where the plaintiff, prior to the termination date, had bought some products from other suppliers in substitution for products to have been supplied under the contract - whether the damages should be assessed based on the market price as at termination or by reference to the extra cost incurred to acquire substitute products prior to termination

TRADE AND COMMERCE - TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS - MISLEADING OR DECEPTIVE CONDUCT GENERALLY - GENERALLY - where the defendant had represented to the plaintiff that the "worst case scenario" for delivery of the product under the contract would be 11 February 2008 - where there was a reasonable basis for that representation as at the time it was made - where the defendant remained silent and did not correct its representations - whether this constitutes a breach of s 52 of the Trade Practices Act 1974 (Cth)

Sale of Goods Act 1896 (Qld), s 14, s 30, s 31, s 52

Trade Practices Act 1974 (Cth), s 6, s 51A, s 52, s 58, s 82

Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 251 ALR 322, cited

European Bank Ltd v Citibank Ltd [2004] NSWCA 76; (2004) 60 NSWLR 153, cited

Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235, followed

Hoecheong Products Co Ltd v Cargill Hong Kong Ltd [1995] 1 WLR 404, followed

Hyundai Merchant Marine Co. Ltd v Dartbrook Coal (Sales) Pty Ltd [2006] FCA 1324; (2006) 236 ALR 115, followed

Johnson v Agnew [1980] AC 367, distinguished

Lebeaupin v Richard Crispen & Co [1920] 2 KB 714, cited

March v Stramare [1991] HCA 12; (1991) 171 CLR 506, cited

McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579, cited

Ogle v Earl Vane (1868) L.R. 3 Q.B. 272, distinguished

Ogle v Earl Vane (1867) L.R. 2 Q.B. 275, distinguished

PJ van der Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd's Rep 240, followed

Re Voss (1873) L.R. 16 Eq 155, applied

Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, cited

B D O'Donnell QC, with N H Ferrett, for the defendant

McKays as town agents for Philip Farlam Legal Consulting (Adelaide) for the defendant

[1] In December 2007 the plaintiff as the buyer and the defendant as the seller made an agreement for the sale of 4,000 metric tonnes of prilled urea. The product was to be imported by the defendant from Russia or Ukraine and was to be available for collection from the defendant's premises at Geelong from 11 February 2008. However, the defendant was unable to procure the urea from its intended supplier and nothing was sold to the plaintiff under this contract.

[2] The plaintiff sues for damages for breach of contract and alternatively under s 82 of the Trade Practices Act 1974 (Cth). The issues in its case are:

(a) Is the defendant not liable to the plaintiff because the default by the defendant's supplier engaged the force majeure clause of the plaintiff's contract?

(b) If the plaintiff is entitled to damages for breach of contract, how should they be assessed?

(c) In making any representation as to the availability of the urea, did the defendant contravene s 52 and/or s 58 of the Trade Practices Act 1974 (Cth)?

(d) What is the amount of damages, if any, recoverable under that Act?

[3] The defendant claims damages from the third party who was its intended supplier under a contract between them. The third party has not defended that claim. The defendant has proved that the third party was duly served with the proceedings and informed of this trial at which he did not appear.

[4] The plaintiff uses urea in the manufacture of liquid fertilisers from its premises in Queensland, New South Wales and Victoria. Most of the urea which is supplied in Australia is imported. The defendant is an importer and supplier of the product.

[5] The urea which is used in fertilisers is usually produced where there is an abundant source of natural gas such as the Middle East or Russia. The relatively small amount of urea produced in Australia is made in Brisbane from gas sourced from fields in western Queensland. There are two solid forms in which urea is supplied: granules and prills. The granular form is more common in Australia and usually it is delivered in bulk. Prilled urea is normally delivered in bags. Prilled urea has several applications including as a stock feed ingredient and for use in the production of some building products, as well as for the manufacture of fertilisers.

[6] The plaintiff uses about 10,000 to 12,000 tonnes of urea per year, which it acquires from the Australian manufacturer and several importers including, at least until recently, the defendant. The plaintiff's preference is for the product to be in bulk form because of the lower freight cost to transport it to one of its plants, although prilled urea has other advantages such as its being easier to use.

[7] Prior to the contract in question, the plaintiff had purchased granulated urea from the defendant from time to time. It had done so upon terms which were employed in the subject contract, whereby it would take delivery of the product as and when it chose over an agreed period of some months. Its object in this respect was to take delivery only of so much of the agreed quantity for which it had an immediate need, so that it would not have to incur the cost of storing the entire quantity sold under a contract and the interest cost of paying for it weeks or months ahead of its use. To compensate the defendant for this arrangement, the price was agreed to increase weekly to correspond with an agreed interest rate.

[8] The parties made contracts in these terms for the supply of urea in January 2006 (2,000 metric tonnes), May 2007 (1,000 metric tonnes) and June 2007 (2,000 metric ones). In each contract the product was specified as urea to be sourced from Bahrain and the urea was to be in granular form.

[9] Dealings relevant to the subject contract began in July 2007, when the defendant's Mr Evans emailed the plaintiff's Mr Hammond to say that he had met with Mr Peter James-Martin, who had proposed an importation of about 12,000 tonnes of prilled urea from Russia. Mr James-Martin was an independent broker with extensive experience of trading with Russia, and with whom the defendant had previously conducted business.

[10] On 3 October 2007, Mr James-Martin emailed Mr Hammond as follows:

"Over the past 3 years I have at last completed my negotiations to supply limited amounts of Prilled Urea into Australia.

Successful talks with Interfert will enable a consistent supply of product to be available ex Geelong.

The marketing philosophy is also simple. Interfert have asked for the product to be placed strategically with a handful of trusted Buyers who value margins [...]

By this time, the defendant had made a written agreement with Mr James-Martin and his company by which that company was appointed as an 'importing and sales consultant' of the defendant on a commission basis.

[11] On 28 November 2007 Mr Evans rang Mr Hammond. They discussed the proposed importation of prilled urea from Russia. On 3 December 2007, Mr Evans emailed to Mr Hammond a draft contract of sale, under a covering note which read:

"We are still confirming final shipping date, but this is the worst case scenario."

That was a reference to a provision in the draft contract whereby the product to be sold to the plaintiff, then proposed to be 2,000 metric tonnes, would be available for collection throughout a period of 180 days from 11 February 2008. The draft contract was in the form which the parties had used for at least the three contracts to which I have referred. Against the word "Origin" the defendant had inserted "Russia, Ukraine". The price was AUD$440 per metric tonne plus GST for that which was paid for within seven days from 11 February 2008 after which the price was to increase weekly according to an interest rate of 8.85 per cent per annum. The proposed conditions of contract were according to those used in the previous transactions. They included the force majeure provision, condition 7, upon which the defendant now relies.

[12] On 12 December 2007 the plaintiff, by its Mr Roberts, signed a contract (which was dated 11 December 2007) which was the same as the draft except that the interest rate applying to the price was 9.5 per cent and the material was to be supplied not "in bulk" but "in bulk or bags". The agreement was then signed by Mr Evans for the defendant and the plaintiff paid the required deposit of 10 per cent.

[13] Later in December 2007, Mr Hammond asked Mr Evans whether the quantity could be increased under this contract to 4,000 tonnes, and Mr Evans agreed. A further deposit was paid accordingly. This variation was confirmed by an email from Mr Evans to Mr Hammond dated 31 December 2007.

[14] By this stage the defendant had made a written contract with the third party to acquire 12,500 metric tonnes of prilled urea. That contract, which was dated 8 October 2007 but apparently signed on 17 October 2007, named "SXA Group Australia" as the seller. According to the register of this business name in Queensland, its proprietor was the third party, its principal place of business was the third party's business address at Burleigh Heads and the nature of the business was "consultancy". The defendant had been introduced to the third party by Mr James-Martin, and in the contract with the third party, the seller was described as being "in conjunction with PJM Fertilisers".

[15] The agreement with the third party required him to deliver 12,500 metric tonnes (plus or minus five per cent) with shipping to commence within 45 days from the seller's receipt of "the acceptable operative payment instrument", which was a letter of credit to be provided to the third party's nominated bank. The third party was to deliver the urea on board a vessel bound for the port of Geelong.

[16] On 30 November 2007 the third party emailed Mr Evans as follows:

"Final exact dates subject to [the letter of credit] submission to bank after which final booking dates are confirmed.

If [the letter of credit] is submitted to our bank by the 7th December, working on the 30-45 days as per contract in loading, we would be looking at a window of loading date between the 4th-25th January, with a shipping time of about 28-30 days would bring the worst case scenariono [sic] for delivery Port of Geelong around the 15th February, or as early as the 1st February.

Also after discussion last night with Europe, this particular order has been on standby since the date I came to see John Simper [of the defendant] to go over the Hard Copy Face To face in Adelaide, some six weeks ago.

What I have been told is that they will expedite as quick as they can, so maybe we may even shorten the delivery date prior to that.

But as it stands the dates above are the best I can give at present, once we can give the finite dates of loading I will let you know immediately..."

[17] On 7 December 2007, the third party again emailed Mr Evans. He wrote that he was satisfied with the terms of the proposed letter of credit and that he would be travelling to Europe in the following week to meet with his suppliers "upon which the loading date will be confirmed", adding that he was "confident that we should have an earlier than expected loading date". It is to be noted that it was a few days later that the defendant made its contract with the plaintiff.

[18] On 18 December 2007, the defendant's bank informed Mr Evans that it was holding the letter of credit because it had received no nomination of a bank from the third party. It was on or about 21 December 2007 that the third party nominated a bank.

[19] On 24 December 2007, Mr James-Martin emailed Mr Evans advising that the third party had told him that loading was expected to commence "on time in 2 weeks or so" and that "we will be advised of the dates to allow travel arrangements". Mr James-Martin was there referring to the proposal that he and someone from the defendant would travel to the port in Russia or the Ukraine to supervise the loading of their shipment. It was at about this time that the plaintiff's contract was varied to increase the quantity to 4,000 metric tonnes.

[20] During January 2008 there were complications concerning the letter of credit. It appears that it was not accepted by the third party's nominated bank until about 24 January. According to the contract with the third party, shipping was to commence within 30 to 45 days of that date. So at least by then, there was little prospect that the defendant would have the urea available for collection by the plaintiff by 11 February 2008.

[21] On 4 February 2008, Mr Evans emailed Mr Hammond saying:

"We have loading instructions now 18th-23rd Feb. John estimates it will arrive Geelong end of March with a 6 week shipping time ...

In regards to Urea to get you through, I thought we left it you were going to put a price forward. What I was thinking is our next vessel week 1 pricing comes to USD$525 week 1. How about we work on AUD$580 per tonne on the tonnes you need to get you through until the Prilled Urea arrives end of March?"

The plaintiff then made a series of purchases of urea from the defendant at that price of $580.

[22] Later in February, in a discussion with Mr Roberts from the plaintiff, Mr Evans said that the shipment date had been changed yet again so that it would leave in March and arrive in late April.

[23] At this time and through March 2008, the defendant and Mr James-Martin were endeavouring to have the third party perform his contract. On 14 March 2008, the defendant's solicitors wrote to the third party complaining that the third party had changed the proposed port of loading, prevented the defendant's Mr Simper from being able to attend at any loading and had provided no details of the proposed shipping, such as the name of the vessel, loading days, when the vessel would sail and the anticipated time of arrival at the port of destination (Geelong). The letter demanded that the third party provide that and other information within 48 hours and gave notice that if there was any further delay, the defendant would "take such action to enforce all rights and avail itself of all remedies at law as it may be advised".

[24] The third party responded to that letter by an email to the defendant's solicitors on 17 March saying that he wished to fly to Adelaide for a "face to face meeting [with the defendant's representatives]" and that it was his "strong desire to complete this first contract ASAP". Mr Evans emailed the third party saying that he looked forward to that meeting.

[25] On 18 March Mr Evans spoke to the third party who told him that the shipping details would be provided on the next day. But those details were not provided. On 26 March Mr Evans was told by the third party that the third party had been "led up the garden path" by his own supplier who was "not the end supplier". The third party said that he would provide an update with shipping details within 48 hours. On the same day Mr Evans reported this to Mr Hammond.

[26] On 3 April 2008 Mr Evans copied to Mr Hammond an email he had received from the third party, which was that he had "confirmation that the window for loading a vessel will be between 28th April - 13th May" and that "given shipping time 26-28 days, arrival approximately 2 week in June". Mr Evans commented to Mr Hammond: "I'd say more like end of June, if he is saying this". Mr Hammond's response was to thank him for the email and to advise that the plaintiffs may need some more urea for June "if the prills ship as indicated".

[27] At about this time there was a face to face meeting between Mr Evans and the third party. Mr James-Martin was present. Mr Evans was told by the third party that the shipment would proceed and that he could expect to see its arrival in Geelong between 2 and 5 July. Based upon that assurance, Mr Evans agreed to extend the letter of credit and emailed the defendant's bank accordingly on 8 April. The third party said that he would provide shipping details by 20 April. But again he failed to do so.

[28] On 28 April Mr Evans emailed the third party complaining of the delay and saying that the defendant was prejudiced having rented a shed for the purpose of storing the shipment at Geelong at a cost of $120,000 per annum which "we have committed to on the back of the contract for Prilled Urea you have with us". The third party replied by email on 29 April, saying that he would be bringing this "to a successful conclusion in the next few days".

[29] On 1 May 2008 Mr James-Martin told Mr Evans that he believed that the shipment would proceed and that loading would occur "around mid-May". At the same time Mr Hammond was told by Mr James-Martin that the shipment was imminent and that there would be vessel loading instructions within forty-eight hours. Mr Hammond emailed Mr Evans on 21 May, asking whether there was "any word on Russian urea?", to which he received no response.

[30] On about 9 May, Mr Evans spoke to Mr Hammond and told him something of the delay in the shipment. He also told him that the price of granular urea was rising. Mr Hammond said that the plaintiff could still buy that product from Incitec Pivot at $595 per metric tonne and Mr Evans said to him that that would be "his best option at this stage for him to meet his need".

[31] Mr Evans emailed the third party on 21 May saying that he was "forced to get legal opinion for costs incurred based on the contract and the verbal promises made". This was in response to the third party's email of that day, in which it had advised that the vessel was not "on water ... but is not far off".

[32] On 2 June Mr Evans emailed the third party to say that the letter of credit had now expired and to ask "where to from here?" On that day the third party replied with vague references to circumstances said to explain the delay and with an assurance that he would provide more details shortly. It seems that there was a conversation between them in the next few days but with no progress.

[33] During June 2008 Mr Hammond spoke to Mr Simper from the defendant and was told that he was very unhappy with the uncertainty of the position, but Mr Simper said nothing to the effect that the shipment would not occur.

[34] On 9 July the third party emailed Mr Evans asserting that "preparations re delivery are in place" and that he would provide an "update ... as to timing" within two days.

[35] On 10 July 2008, Mr Hammond sent a fax to Mr Evans which said:

"I tried to contact you in June without much success.

As you know, this contract (as it has been extended) is for the supply of 4,000 tonnes of Prilled Urea by 8 August 2008. You would appreciate that we have already committed our business to the on selling of this product to our customers.

Following on from our last communications, and the absence of any further news from you (positive or otherwise) I am becoming increasingly anxious that Interfert will be unable to supply the product by the agreed date.

Could you please confirm that the product has now been shipped and provide to us the usual shipping details. If there is likely to be a delay by Interfert in delivering the product within time then please let us know the details of when you expect the delivery to be made so that we can consider our position and advise our customers.

[36] On 11 July 2008 Mr Evans emailed Mr Hammond saying that the defendant had been having "difficulties as regards the supply of this product" and that the defendant was continuing to press for performance from its supplier. Mr Evans asked him to set out the plaintiff's formal position, and in particular, whether it proposed to terminate the contract. He said that:

"The matter could of course be dealt with under the force majeure provisions of our contract (clause 7) and ultimately we could terminate the contract and refund your deposit - which from our point of view is conveniently done by setting off the amount against the monies that [the plaintiff] owes [the defendant]. If that is your preference, please set that out. [The defendant's] position in this is reserved for the moment."

[37] On 14 July 2008, Mr Hammond replied, disputing the applicability of the force majeure clause. He complained that there had been no information provided to the plaintiff from which it could assess its situation. He asked whether the defendant would be able to supply the full quantity, or any quantity, under the contract by the "due date" which he said was 9 August 2008. (By that he meant the last of the 180 days from 11 February 2008.)

[38] Mr Evans replied on 17 July 2008, firstly advising that there was no "certainty of supply within the time frame - 9 August 2008" but that the defendant's supplier indicated a "probable loading between the 2nd and the last week in August with delivery into Australia between the middle to the last week of September." This was a repetition of the third party's assurance in these terms made earlier that day. Mr Evans advised Mr Hammond that the defendant would continue to press for performance and that "there is no viable alternative of supply on the same or similar terms at the moment". He again referred to cl 7 without then invoking it, but saying that if the plaintiff attempted to recover damages from the defendant, then it would "be left with no option but to either suspend performance or terminate".

[39] On 31 July 2008 (the email is dated 26 September 2008 but this is plainly incorrect), Mr Hammond emailed Mr Evans saying that the defendant's position was unacceptable and asking for advice whether the defendant could supply by 9 August and if not, whether it had an alternative proposal. On 31 July, Mr Evans replied, advising that "the latest report from our supplier is that the ship will arrive mid to late September 2008". But the email further advised that pursuant to cl 7 of the contract, the defendant "now elects to suspend performance until 30 September 2008" and continued:

"The contract allows you 180 days from 11 February 2008 to take delivery but with a weekly escalation of price ...we will allow you an escalating price as per [the contract] by substituting the week commencing 29 September 2008 as the starting date for week 1 of the contract [at a price of $440] in lieu of that price for the week commencing 11 February 2008 as per [the contract]. In view of the movement in the market price for urea, I do not see how you will be disadvantaged by the suspension of the contract."

[40] The next dealing between the plaintiff and the defendant seems to have been on 27 August 2008, when Mr Evans emailed Mr Hammond to say that, in effect, there was nothing to report on the progress of the shipment.

[41] The plaintiff had begun to withhold payments from the defendant for its supplies under other transactions, on the basis of setting off its losses from this transaction. On 2 September 2008 the defendant's solicitors wrote to Mr Hammond saying that the defendant did not accept any liability for the plaintiff's alleged losses and advising that they held instructions to recover $907,606.39 from the plaintiff, which was the total of the unpaid invoices. There is no issue that these invoices were unpaid and that the plaintiff remains liable to pay them. The plaintiff's pleading allows credit for approximately this sum, or more precisely $907,061. The defendant's pleading accepts that figure.

[42] On 9 September 2008 the plaintiff commenced these proceedings claiming damages for breach of contract and damages under s 82 of the Trade Practices Act. On 30 September 2008 the plaintiff's solicitors wrote to the defendant's solicitors giving notice of its termination of the contract for the reasons set out in the pleadings.

[43] Ultimately no urea was delivered under the defendant's contract with the plaintiff or under its contract with the third party.

[44] The defence to the claim for damages for breach of contract is that the defendant is entitled to the benefit of the force majeure clause, which is as follows:

"7. Notwithstanding anything else contained in this contract, neither party shall be liable for any delay in or failure to perform any of its obligations under this contract if such delay or failure is caused by circumstances beyond that party's reasonable control, including without limitation, fire, flood, act of God, strikes, lock outs, stoppage of work, trade disputes, loss of banking facilities, non-supply to Interfert of Product or shipping services or any act of war or terrorism. On occurrence of any such event or condition, Interfert may:

(a) elect to suspend performance for such time as may be reasonable under the circumstances;

(b) reduce the quantities of Product to be sold and purchased hereunder by the amount affected by such event or condition;

(c) elect to terminate this contract if, in Interfert's opinion, such event or condition may materially impair the benefits of this contract to either Interfert or Customer;

(d) allocate Product called for by this contract among Customer and Interfert's other contracted customers for such Product from the same shipment on any basis which Interfert may determine in good faith."

[45] The defendant argues that its failure to perform was caused by a circumstance beyond its reasonable control, the circumstance being the "non-supply to Interfert of Product" constituted by the third party's failure to supply in breach of his contract.

[46] The third party's failure to supply was a "circumstance" which I accept, was beyond the defendant's reasonable control. The plaintiff suggested that the defendant had not promptly arranged the letter of credit or made arrangements to have its representatives ready to supervise the loading. But in neither case was that criticism made out and nor could either have mattered.

[47] The question is whether the defendant's failure to perform was "caused by" that circumstance. The defendant's case is that the circumstance need not have been the only cause of its failure to perform its contract with the plaintiff, as long as the circumstance can be seen to have caused that failure in the commonsense way discussed in March v Stramare.[1] On this argument, it is not necessary for the defendant to prove that its failure to perform was beyond its reasonable control, but only that the circumstance of the third party's default was beyond its control and that there was a causal connection between that and the defendant's failure to perform.

[48] Thus on this argument for the defendant, cl 7 would be engaged even where the circumstance had not made it impossible for the defendant to perform the contract: the defendant's non-performance would still be caused by its supplier's default because but for that circumstance, the defendant would have performed its contract. That is an unlikely intention to attribute to the parties and in my view the defendant's argument adopts an incorrect meaning of causation in the context of this clause.

[49] The importance of context in assessing this element of causation was discussed by Spigelman CJ in Gardiner v Agricultural and Rural Finance Pty Ltd.[2] That case concerned an investment scheme for an agricultural enterprise, under which investors, who were the defendants, borrowed from a financier which was the plaintiff in the proceedings. The scheme was terminated after a few years and the lender sued to recover the loans. The borrowers argued that they had the benefit of what was described as an indemnity agreement releasing them from any obligation to repay amounts under the loan agreements in the circumstances which had occurred, the relevant one being that the borrower had ceased to carry on the business the subject of the scheme "as a result" of a certain event. Discussing what was meant by "as a result of" in that context, Spigelman CJ said:

"[100] In a contractual context the objective is to identify the intention of the parties, rather than to apply a common law principle of causation, even the so-called 'commonsense' concept of causation adopted in the context of tort law. In a contractual context the meaning of such words is to be determined in accordance with the reasonable person's understanding of the words in their context, in accordance with the recent High Court authority, to which I have referred. Perhaps the equivalent principle, in a contractual context, to the 'commonsense' approach to causation for tort is the proposition that commercial contracts of this character must be given a 'business like' interpretation (See e.g. McCann v Switzerland Insurance Australia Limited[3] ... at [22] and Wilkie v Gordian Runoff Ltd[4] at [15])."

[50] A similar clause to the present was considered in PJ van der Zijden Wildhandel NV v Tucker & Cross Ltd.[5] The contracts there were for the supply of a quantity of frozen Chinese rabbits. The relevant clause of that contract was as follows:

"Should the sellers fail to deliver the contracted goods or effect the shipment in time by reason of war, flood, fire, storm, heavy snow or any other causes beyond their control, the time of shipment might be extended, or alternatively a part or whole of the contract might be cancelled but the sellers have to furnish the buyers with a certificate attesting such event or events."

The sellers did not deliver the required quantity but claimed that they were not liable because their supplier had defaulted and that this was a cause beyond their control. Donaldson J held that the sellers could not rely upon the clause because they had failed to prove that it was impossible for them to fulfil their contract by another source of supply. Donaldson J said:

"[T]he burden of bringing themselves within even those wide words must lie upon the defaulting sellers. All that they have been able to show was that the imports of Chinese frozen rabbits into Holland were at all material times much smaller in quantity than the amount called for under these contracts. They have quite failed to obtain any finding from the arbitrator that they were unable to buy in Chinese frozen rabbits from some supplier other than the one with whom they have a contract. Unless they can do that, they are unable to show that they were prevented from fulfilling their contract by a cause beyond their control."[6]

[51] That judgment was cited with approval by the Privy Council in Hoecheong Products Co Ltd v Cargill Hong Kong Ltd,[7] where, under a contract to sell a quantity of cotton seed expellers originating in China, the sellers relied upon a clause which provided as follows:

"Force majeure: Should [the sellers] fail to deliver the contracted goods or effect the shipment in time by reason of war, flood, fire, storm, heavy snow or any other causes beyond their control, the time of shipment might be duly extended, or alternatively a part/whole of the contract might be cancelled, but [the sellers have] to furnish [the buyers] with a certificate issued by China Council for the Promotion of International Trade ('C.C.P.I.T.') or an independent and competent Chinese authority attesting such event or events."

The judgment was delivered by Lord Mustill, who said:

"It is convenient to start by considering first what the sellers would have had to establish, to avoid liability, if the clause had ended with the words 'a part/whole of the contract might be cancelled.' There was little, if any, conflict about this. The sellers would be required to show, first, that there had been an event of the kind stipulated by the clause operating at the relevant time; second, that this event had adversely affected the supply of the goods by the sellers; and third, that the sellers could not overcome this adverse effect by obtaining from a source other than the one which they had planned goods which matched the requirements of the contract. Authority for these propositions, if any is required, can be found in Van Der Zijden Wildhandel N.V. v Tucker & Cross Ltd [1975] 2 Lloyd's Rep. 240, a decision on a virtually identical clause. As the result of findings in the courts below, against which there is no appeal, it is no longer disputed that all three requirements were satisfied by the evidence in the present case."[8]

[52] The judgment of Donaldson J was also cited with apparent agreement by Kiefel J, sitting as a single judge of the Federal Court, in Hyundai Merchant Marine Co. Ltd v Dartbrook Coal (Sales) Pty Ltd.[9] The defendants agreed to charter a ship from the plaintiff to transport coal to the Philippines under a contract which required delivery by them to their purchaser to be effected within a certain period. When the defendants concluded that their purchaser would not perform, they purported to cancel the charter party. The plaintiff terminated the charter party for that conduct as a repudiation and sought damages. The defendants relied upon a force majeure clause under which neither party was "liable for any failure to perform ... its obligations under this charterparty ... where the party is being ... prevented from doing so by reason of any Force Majeure Event". Kiefel J said:

"[60] ... In PJ van der Zijden Wildhandel NV v Tucker & Cross Ltd [1975] 2 Lloyd's Rep 240 the sellers were entitled to cancel the contract if they did not effect shipment in time by reason of war, flood, fire or storm or "any other cause beyond their control". This was held not to protect them when their supplier let them down, since the event did not prevent them from performing by other means.

[62] In any event the submission for Dartbrook and Anglo Coal ignores the need to construe each force majeure clause by reference to its words, having due regard to the nature and general terms of the contract: Lebeaupin v Richard Crispen & Co [1920] 2 KB 714 per McCardie J. Here the objective of Dartbrook was to load the specified cargo of coal. The obligation was not dependant [sic] upon the existence of a particular purchaser, as previously discussed, and could be fulfilled without a sale to National Power. Clause 45 requires that Dartbrook be prevented from performing that obligation before it is excused. The clause itself gives examples of what may amount to prevention. It includes 'hindrances of whatsoever nature in mining production' with the rider that they not be caused by the actions of Dartbrook itself. The requirement that Dartbrook be prevented from performance, in practical terms, implies causation between the event and the inability to perform ..."[10]

[53] The defendant here argues that it might be excused under cl 7 although it was neither impossible nor impracticable for it to perform the contract by acquiring the urea from another source.

[54] Mr O'Donnell QC for the defendant argued that the judgment of Donaldson J was wrong and that I should not follow it. In my respectful opinion, it should be followed, especially as it has been relatively recently approved by the Privy Council. It accords with the approach, discussed by Kiefel J in Hyundai Merchant Marine v Dartbrook Coal, that "[i]mpracticability of performance is not generally recognised as a ground of discharge of a contracting party's obligations".[11]

[55] Alternatively, he argues that the present clause is distinguishable, because here the parties have specified the circumstance of the "non-supply to Interfert of Product". He argues that if this circumstance alone could never be enough to engage cl 7, because there would have to be the further circumstance of the unavailability of the product from other sources, then the specification of this circumstance (or others such as "loss of banking facilities") would be superfluous. I do not accept that submission. In some cases, the circumstance of non-supply to Interfert would be causative in the relevant sense, because there will have been no other available source of supply which would allow Interfert to perform the obligation in question. In other cases, it would not be causative, because there would have been an alternative source of supply. Circumstances such as the non-supply to Interfert of Product were specified as instances of circumstances which would be beyond the reasonable control of Interfert. They were not specified to excuse the defendant from performing the contract if it was able to do so.

[56] It is necessary to identify the liability for which cl 7 is said to provide a defence. The defendant is sued for damages for non-delivery. The agreed date for delivery was, at least originally, 11 February 2008, the date by which the urea was to be available for collection from the defendant's premises at Geelong. It was then a matter for the plaintiff as to the rate at which it removed the product from Geelong. However, the defendant's non-performance goes beyond a failure to have the product ready for collection on 11 February 2008. Its liability is for a failure to deliver at all. After 11 February had passed, the contract remained on foot, the plaintiff not being bound to terminate it: Sale of Goods Act 1896 (Qld), s 14(1).[12]

[57] As the defendant accepts, it bears the onus of proving that cl 7 relieves it of liability for breach of contract.[13] Apart from its argument that cl 7 was engaged simply by the third party's failure to supply, the defendant did not seek to discharge that onus. It adduced no evidence of the unavailability of an alternative supply of prilled urea. I accept that because the contract specified that the product should come from Russia or Ukraine, cl 7 might be engaged if there was no alternative product available from those places although it was available from elsewhere.[14] Nevertheless there is no evidence which I could conclude that more probably than not, the defendant was unable to supply the agreed quantity. That was the case even if the only breach to be considered, as the defendant argued, was its failure to have the urea ready for collection on 11 February 2008, rather than a failure to deliver it at all.

[58] Accordingly, the defendant has not demonstrated a defence under cl 7 and it is liable for damages for breach of contract.

[59] Section 52 of the Sale of Goods Act 1896 (Qld) provides:

(1) When the seller wrongfully neglects or refuses to deliver the goods to the buyer the buyer may maintain an action against the seller for damages for non-delivery.

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract.

(3) When there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, then at the time of the refusal to deliver."

[60] The defendant's breach was a wrongful neglect to deliver the goods. Delivery in this sense required the defendant to make them available to the plaintiff at its Geelong premises.[15]

[61] Neither side argues that there was an available market for the goods in question. And each argument accepts that the plaintiff's loss should be measured by the difference between prices under the subject contract and those paid by the plaintiff for granular urea. The issue is about the point in time at which the plaintiff suffered its loss. The plaintiff's case is that the relevant comparison is with the costs of its purchases of granular urea after 30 September 2008, on the basis that the contract remained on foot until then. The defendant's case is that the comparison should be with the costs of the plaintiff's purchases from 11 February 2008. As the dispute would indicate, the price of granular urea continued to increase throughout 2008.

[62] There was no agreed variation of the date by which the defendant was to deliver or the period during which the defendant was to take delivery. The plaintiff argues that because it remained contractually bound until its termination on 30 September 2008, ultimately its loss was the loss of a contract under which it was entitled to purchase this quantity at these prices, which was a loss it sustained only when it terminated the contract. It would liken its case to Ogle v Earl Vane,[16] in which the plaintiff agreed to buy from the defendant a quantity of iron by the end of a certain month. None of it was delivered at that time, and at the defendant's request, the plaintiff waited for more than six months, after which "he lost all patience and went into the market, and brought this action".[17] An assessment of damages based upon the market price at that point, when the plaintiff went into the market and acquired the substitute iron, was upheld. The defendant argued that the buyer could not have damages assessed by the market price at the time at which it went to the market, because that would be permissible only if that had become the new date for delivery and any variations to the contract was void under the Statute of Frauds. It was held that there was no variation, but the assessment was correct because the plaintiff had delayed in going to the market at the defendant's request.

[63] Ogle v Earl Vane was approved by the House of Lords in Johnson v Agnew,[18] where Lord Wilberforce said:

"In cases where a breach of contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost. Support for this approach is to be found in the cases. In Ogle v Earl Vane ... the date was fixed by reference to the time when the innocent party, acting reasonably, went into the market ..."

That passage was cited with apparent agreement by Gummow, Hayne and Kiefel JJ in Agricultural and Rural Finance Pty Ltd v Gardiner.[19]

[64] However, in the present case, the plaintiff was acquiring substitute urea well before 30 September 2008. I have referred to communications from Mr Hammond to the defendant's representatives in which he said that the plaintiff was doing just that. There is no evidence to suggest that the plaintiff's manufacture of liquid fertiliser was postponed or reduced because of the unavailability of the urea under this contract. The plaintiff's practice was to acquire urea as and when it needed it for its manufacturing program. And in no instance in its purchases from 11 February 2008 did it acquire urea for less than the price under this contract from which it might have been inferred that it was not purchasing what it needed immediately but was taking advantage of a temporary fall in price. In these circumstances I infer that the first 4,000 tonnes of granulated urea which the plaintiff purchased after 11 February 2008 was effectively in substitution for what it would have taken from the defendant under the subject contract. By the actual purchases which it made after 11 February, it has demonstrated the amounts which it then required. Because the price in each case was higher than under this contract, it can be inferred that it would have taken the same quantities at the same time from the defendant had the prilled urea been available. Mr Hammond did not entirely accept the suggestion that the first 4,000 tonnes purchased after 11 February were in substitution for the prilled urea.[20] But nor did he say that some of it, and if so how much, would have been purchased at that time in any case, i.e. absent the defendant's breach.

[65] The present case is distinguishable from cases such as Ogle v Earl Vane, because in those cases the buyer waited until after termination of the contract before buying substitute goods. The present case is like Re Voss,[21] in which Ogle v Earl Vane was distinguished because the buyers in that case had in fact bought substitute goods in the market when the seller failed to deliver them.[22]

[66] The damages here are to be measured according to s 52(2). The loss which has resulted from the defendant's breach is measured by the extra cost which the plaintiff had to incur to acquire 4,000 tonnes of urea from 11 February 2008. The evidence as to the plaintiff's purchases throughout 2008 is undisputed. After 11 February, the plaintiff made purchases which had totalled 4,000 tonnes by 31 July 2008 (which, it may be noted, was only some nine days short of the agreed period for delivery). Net of GST the total cost of those purchases was $2,548,053.60. Applying the prices under the subject contract to the same purchases results in an amount of $1,804,004.91 which the plaintiff would have paid had it bought the same quantities on the same dates but from the defendant under this contract. I also accept, as the defendant argues, that the assessment should allow a reduction of $20 per tonne for freight and handling, which Mr Hammond agreed would have been an additional cost to his company had it acquired prilled urea under the contract, rather than purchasing granular urea.

[67] Accordingly, I accept the defendant's argument that the damages for breach of contract should be assessed as follows:

Less what would have been paid under the contract $1,804,004.91

The Trade Practices Act claims

[68] The plaintiff pleads that prior to entering into the subject contract, Mr Evans represented to Mr Hammond that:

"(a) prilled urea in large quantities could be supplied to the plaintiff in bulk bags sourced from Russia;

(b) that the worst case scenario for the availability for the urea ex Geelong would be 11 February 2008."

These representations are said to have been made in Mr Evans' emails of 11 July and 3 December 2007. As discussed, those representations were in fact made by Mr Evans. The second of them is a representation as to a future matter.

[69] The representations are said to have involved conduct in contravention of s 52. The falsity of the first of them is not demonstrated: indeed the plaintiff did not attempt to prove it. The second representation would have contravened s 52 absent a reasonable basis for it: s 51A. However, there was a reasonable basis for that prediction at least as at 3 December 2007, which was the third party's same assurance to the defendant referred to above at [16]. The result is that neither of these representations contravened s 52.

[70] It is also alleged that by its silence in not correcting those representations prior to the variation in the contract in late December 2007, the defendant represented that it was a reliable supplier, that it was itself buying from a reliable supplier, that it had checked the capacity of its supplier and had checked and satisfied itself of the capacity, experience and trading history of its supplier. However, any implied representations from the defendant's silence, in the matter of its earlier assurance, did not go that far. Again, the question is really whether in late December there was still a reasonable basis for believing that the product would be delivered by 11 February 2008. The defendant had such a basis. As noted,[23] on 24 December Mr James-Martin had told Mr Evans that, on information from the third party, loading was to commence in two or three weeks. Mr Evans gave unchallenged evidence that that was his view. Again, a contravention is not established.

[71] The defendant is alleged to have contravened s 58 by accepting payment (the deposit) where at the time, there were reasonable grounds, of which the defendant was aware or ought reasonably to have been aware, for believing that it would not be able to supply the goods within the period specified by the contract. What I have just said in relation to s 52 applies here. There were reasonable grounds from the contract made with the third party and from his assurances, which at this time should not have been considered unreliable, as well as from the advice from Mr James-Martin.

[72] The alleged loss from these contraventions was argued to be the same as the plaintiff's loss from the defendant's breach of contract. However, as to s 52 the plaintiff has not sought to demonstrate that it was worse off for having made the contract, but only that it was worse off for the contract not being performed. As to s 58, the defendant will effectively recover its deposit as part of its damages for breach of contract. In any case it would be entitled to recover the deposit, absent an award of damages, as money paid for a consideration which has wholly failed. In summary, there is no demonstrated loss from the alleged contraventions of the Act.

[73] It follows that the Trade Practices Act case fails.

[74] There is no issue as to the counterclaim. Nor is it disputed that the defendant should have a judgment on its counterclaim which gives credit for any damages awarded in favour of the plaintiff. The net result is in favour of the defendant to the extent of $67,012.31, being its counterclaim of $907,061 less the damages assessed at $840,048.69.

[75] The defendant is entitled to interest at 12 per cent per annum according to the terms of its contracts under which it supplied the goods for which it has not been paid. The earliest of those sales was on 4 April 2008 and the last of them was on 3 July 2008. Mr O'Donnell QC accepted that interest might be allowed on the balance (i.e. after deducting the plaintiff's damages) from, say, 1 July 2008. Accordingly, the interest which will be allowed will be $10,046.34. There will be judgment for the defendant on its counterclaim in the sum of $77,058.65. It follows that the plaintiff's claim will be dismissed.

[76] The defendant seeks to recover from the third party the amount of damages allowed in favour of the plaintiff. It also seeks damages against him for its alleged loss by reason of leasing premises at Geelong for a period of two years, which the defendant says was a lease taken in expectation of the performance of the contract with the third party.

[77] The defendant has proved that the third party breached the contract between them. Further, it has established that when that contract was made, the third party was aware that it was purchasing from him in order to resell and that it would contract with him having made agreements to resell the product. Accordingly, the third party knew that failure to perform his contract could expose the defendant to liability for failure to perform the resale contract and to a loss of profit from such resales.

[78] The defendant has thereby proved that it is entitled to damages for breach of contract against the third party at least to the extent of the damages which I have assessed in favour of the plaintiff, being $664,048.69 (net of the deposit). But I have also effectively allowed interest at 12 per cent on that amount in the plaintiff's favour by reducing the interest on the defendant's unpaid invoices. Accordingly, in this assessment against the third party there should be an additional allowance for interest on that sum of $664,048.69 at 12 per cent from 1 July 2008, which is a further sum of $99,552.72.

[79] The defendant has not sought to prove the profits on resale which were lost on the third party's default. Instead the defendant has claimed for what it says is wasted expenditure on leasing premises at Geelong which were intended to store prilled urea. There is evidence from the defendant's Mr Simper, which I accept, that a lease of these premises was taken for two years commencing on 1 May 2008 for the purpose of storing "bagged product", and that but for an expectation that the third party would perform his contract, that lease would not have been taken. The defendant is not the tenant. It is an entity called Jebsens Logistics Services Pty Ltd. But I am satisfied from Mr Simper's evidence that this company took the lease on the basis that the defendant would have the use of the space and would indemnify Jebsens for the rent. There are tax invoices month by month evidencing that arrangement. I am satisfied that amounts of $19,420 per month have been paid since 1 May 2008 by the defendant. I am also satisfied that the premises have been empty during that period so that the defendant has had no use from them. The defendant claims against the third party that which it has paid in this respect and what it will pay until the end of April 2010.

[80] I accept that the defendant has incurred this liability because of its contract with the third party, in the sense that it would not have entered into this arrangement for the premises absent that contract. However, the fact that the lease was taken for a period of two years suggests that the defendant had other purposes in mind apart from the storage of this particular shipment. I infer that had the third party performed his contract, most of the shipment would have been dispatched in something like the six month period allowed for in the plaintiff's contract.

[81] Further, there is no evidence as to whether these premises are able to be relet for the balance of the term although I am prepared to infer that they have not been used for any other purpose.

[82] The defendant has an alternative claim against the third party on the basis that his conduct was misleading and deceptive in contravention of s 52 of the Trade Practices Act, which is said to be conduct which occurred in trade or commerce "among the States" and involving "the use of ... telegraphic or telephonic services" within the meaning of s 6 of that Act. The case is that the third party misrepresented that he had the capacity to perform his contract. The case put in that way is not established simply by the proof of the third party's default. An alternative way in which that case might have been pleaded was as an allegation of a misrepresentation of a future matter, namely that he would perform his contract. But that case is not pleaded. The Trade Practices Act case against the third party, as I see it, adds nothing to the defendant's claim.

[83] I infer that the defendant assessed its likely profit from reselling the bagged urea as being more than enough to cover the cost of these premises at Geelong. However, because I am unable to accept that the premises were acquired only for this shipment, I cannot infer that their cost over the two years of the lease is less than the profit from resales which has been lost. I am prepared to accept that at least 12 months of this lease is a cost largely attributable to the shipment under this contract, so that it is a expenditure which has been wasted because of the defendant's breach. I would allow an additional $233,040[24] together with interest on that sum at five per cent over one year being a further $11,652, resulting in an extra $244,692. Accordingly, the amount allowed on the third party claim will be:

[1] [1991] HCA 12; (1991) 171 CLR 506.

[2] [2007] NSWCA 235. An appeal from this decision of the Court of Appeal was allowed by the High Court, but not relevantly for the present point, in Agricultural and Rural Finance v Gardiner [2008] HCA 57; (2008) 251 ALR 322.

[3] [2000] HCA 65; (2000) 203 CLR 579.

[4] [2005] HCA 17; (2005) 221 CLR 522.

[7] [1995] 1 WLR 404.

[8] [1995] 1 WLR 404 at 409.

[9] [2006] FCA 1324; (2006) 236 ALR 115 at 130.

[10] [2006] FCA 1324; (2006) 236 ALR 115 at 130-131 (emphasis in original).

[11] [2006] FCA 1324; (2006) 236 ALR 115 at 130.

[12] See also Benjamin's Sale of Goods (1997, 5th ed) at [8-026].

[13] Benjamin's Sale of Goods (1997, 5th ed) at [8-087].

[14] European Bank Ltd v Citibank Ltd [2004] NSWCA 76; (2004) 60 NSWLR 153 at 157-8, 167.

[15] s 30, s 31(1).

[16] (1868) L.R. 3 Q.B. 272, on appeal from the Court of Queen's Bench reported at (1867) L.R. 2 Q.B. 275.

[17] (1867) L.R. 2 Q.B. 275 at 281 per Blackburn J.

[18] [1980] AC 367 at 401.

[19] [2008] HCA 57; (2008) 251 ALR 322 at 341-342.

[21] (1873) L.R. 16 Eq 155.

[22] See also Benjamin's Sale of Goods (1997, 5th ed) at [17-010].