Chinatex (Australia) Pty Limited v Bindaree Beef Pty Limited

[2018] NSWCA 126

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Chinatex (Australia) Pty Limited v Bindaree Beef Pty Limited [2018] NSWCA 126

Hearing dates:

9 May 2018

Decision date:

13 June 2018

Before:

McColl JA at [1];
White JA at [2];
Barrett AJA at [4]

Decision:

1.   Appeal dismissed.
2.   That the appellant pay the respondent’s costs of the appeal.

Catchwords:

CONTRACTS – fixed term “service kill agreement” between abattoir and customer – various issues of construction thereof – whether abattoir had right to terminate upon customer’s failure to perform – whether the customer’s failure to perform caused the abattoir to lose the benefit of the contract for the balance of its term.

 

CONTRACTS – frustration – whether fixed term “service kill agreement” frustrated by failure of a stranger to the contract to buy the total output from the customer.

 

FORMS OF ACTION – action in debt – action for unliquidated damages.

  DAMAGES – damages for breach of contract – assessment of loss of profit damages.

Cases Cited:

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1946] HCA 25
Bindaree Beef Pty Ltd v Chinatex (Australia) Pty Ltd [2017] NSWSC 1615
Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143; [1979] HCA 54
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54
Cort v Ambergate, Boston & Eastern Railway Co (1851) 17 QB 127 at 148; 117 ER 1229
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Krell v Henry [1903] 2 KB 740
Larrinaga v Société Franco-Americaine des Phosphates (1922) 29 Com Cas 1
oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25
Psaltis v Schultz (1948) 76 CLR 547; [1948] HCA 31
Robinson v Harman: (1848) 1 Ex 850; 154 ER 363
Scanlan’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169; [1943] HCA 43

Category:

Principal judgment

Parties:

Chinatex (Australia) Pty Limited (Appellant)
Bindaree Beef Pty Limited (Respondent)

Representation:

Counsel:
Mr MLD Einfeld QC / Mr D Krochmalik (Appellant)
Mr IM Jackman SC / Mr TW Marskell (Respondent)

  Solicitors:
Websters Solicitors (Appellant)
Hunt Partners (Respondent)

File Number(s):

2017/376608

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division, Commercial List

Citation:

[2017] NSWSC 1615

Date of Decision:

24 November 2017

Before:

Hammerschlag J

File Number(s):

2016/184465

HEADNOTE

[This headnote is not to be read as part of the decision]

On 1 May 2015, the appellant Chinatex (Australia) Pty Limited (Chinatex) entered into a contract referred to as a Service Kill Agreement (SKA) with the respondent Bindaree Beef Pty Limited (Bindaree). Bindaree conducts a substantial abattoir business in Inverell. Initial negotiations commenced between Bindaree and Shenzhen Lianhua Enterprises Development Co Ltd (SLED), a China based meat wholesaler. There was an established connection between SLED and Chinatex in the Australia-China meat trade. Chinatex Corporation, a Chinese state-owned corporation (the parent company of Chinatex) was involved in negotiations from an early stage. At a time when it was proposed that SLED be the contracting party, Bindaree said it would require Chinatex to be a guarantor of SLED’s obligations. The final contract was between Bindaree and Chinatex for a three-year term commencing on 18 August 2015.

Clause 3.1 of the SKA provided that the respondent would receive a Total Product Fee. This included a Service Kill Fee of $405 per head and the Carcass Cost, being the average price paid by Bindaree to acquire cattle as specified in the SKA. Clause 2.1 provided that Bindaree was to acquire and deliver 900 cattle per week in consideration for the payment of the Service Kill Fee. Clause 2.5 provided that the Service Kill Fee was to be provided in advance on the first business day of each Service Kill Week. Clause 2.6 provided that Bindaree was not obliged to acquire cattle unless this fee had been paid. Clause 9.1 provided that Chinatex’s failure to pay would be a breach of a fundamental term and Bindaree’s obligation to acquire Service Kill Cattle would cease.

Chinatex had entered into a sales agreement with Australia Uniwell Group Pty Ltd (Uniwell) a subsidiary of SLED. Chinatex did not make any payment to Bindaree as it was obliged to do from the commencement of the SKA. Uniwell had decamped from its agreement with Chinatex. Six weeks into the SKA, Chinatex commenced payment for several consecutive weeks, having found another company Chongqing Hondo Agricultural Group Co (Hondo) to purchase the product. Payment then ceased for a subsequent 19 weeks before Bindaree issued a notice of termination of the SKA on 31 May 2016.

Bindaree commenced proceedings against Chinatex in the Supreme Court. Bindaree claimed that Chinatex had breached the contract by failing to pay the Total Product Fee during the non-performance periods despite Bindaree having carried out the Service Kill or being ready, willing and able to do so. Bindaree alleged that Chinatex had breached a fundamental term or repudiated the contract, entitling Bindaree to terminate the SKA.

Chinatex claimed that no damages could be awarded as the respondent had not obtained Chinatex’s authorisation before proceeding with each Service Kill. It claimed that the contract was frustrated or abandoned because the parties contracted on the common fundamental assumption that SLED or a company arranged by SLED such as Uniwell would take the whole output from Chinatex. It also contended that Bindaree’s claim was truly in debt and not damages, but Bindaree was not entitled to claim in debt because it had not performed the contract.

The primary judge upheld Bindaree’s claim, finding that Bindaree was entitled to damages of $32,758,986.

Held (dismissing the appeal) (Barrett AJA, McColl and White JJA agreeing):

1   The primary judge’s findings as to the involvement of Chinatex in negotiations of the SKA were soundly based and should not be disturbed.

2.    The conclusion that the contract was not frustrated was correct. There was no common assumption that Chinatex’s ability to on-sell to SLED or its associates was a necessary element of the parties’ bargain. Bindaree had showed that it was not willing to expose itself to the risk of non-performance by SLED.

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; Scanlan’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169; [1943] HCA 43; Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143; [1979] HCA 54; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24; Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116; applied.

3.   The primary judge concluded correctly that Bindaree was at all times ready, willing and able to perform its obligations under the SKA. It was not obliged to deliver product to Chinatex when Chinatex had repudiated its obligations.

4.   The claim was properly characterised as one for unliquidated damages for breach of contract, it was not a claim in debt (White JA providing additional reasons).

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1946] HCA 25; Cort v Ambergate, Boston & Eastern Railway Co (1851) 17 QB 127; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR applied.

5.   The primary judge was right to conclude that Bindaree had validly terminated the SKA.

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12; Psaltis v Schultz (1948) 76 CLR 547; [1948] HCA 31; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25 applied.

6.   Bindaree’s loss was caused by Chinatex’s breach.

7.   The primary judge did not err in his assessment of damages for the residue period after termination of the SKA.

Robinson v Harman (1848) 1 Ex 850; 154 ER 363; Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 applied.

Judgment

1. McCOLL JA: I agree with Barrett AJA’s reasons and the orders his Honour proposes.

2. WHITE JA:   I have had the advantage of reading in draft the reasons for judgment of Barrett AJA. I agree with his Honour’s reasons and the orders his Honour proposes.

3. I would add the following reasons in relation to Chinatex’s argument that Bindaree’s claim lay only in debt and could not be brought as a claim for unliquidated damages. I agree with Barrett AJA that Chinatex’s arguments mistake the nature of the parties’ contract (at [60]) and I agree with Barrett AJA’s reasons on this issue (at [57]-[64]). There is a further reason that Bindaree’s claim did not lie in debt, but in damages. Chinatex repudiated its obligations under the contract. That repudiation was not accepted until 31 May 2016. Nonetheless, except for the period from 8 October 2015 to 17 January 2016 Chinatex refused to perform its obligations under the contract and persisted in that refusal to the times its performance was due. Irrespective of whether the nature of the parties’ contract was a contract for the rendering of service or for the sale of goods for an agreed price or both, Bindaree’s remedy was in damages for the loss of the benefit which performance of the contract would have given Bindaree (Cort v Ambergate, Boston & Eastern Railway Co (1851) 17 QB 127 at 148; 117 ER 1229, cited by Dixon CJ in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 at 247, and at 250 and 251 per Kitto J).

4. BARRETT AJA: This appeal concerns a written contract made on 1 May 2015 by the respondent, Bindaree Beef Pty Ltd (“Bindaree”) and the appellant, Chinatex (Australia) Pty Ltd (“Chinatex”). The contract is referred to as a “Service Kill Agreement” (or “SKA”).

5. Bindaree conducts a substantial abattoir business at Inverell. Chinatex is an Australian subsidiary of Chinatex Corporation, a Chinese state-owned corporation. Other companies to which it will be necessary to refer are Shenzhen Lianhua Enterprises Development Co Ltd (“SLED”), a China-based meat wholesaler; Australia Uniwell Group Pty Ltd (“Uniwell), an Australian subsidiary of SLED; and Chongqing Hondo Agriculture Group Co (“Hondo”), a Chinese corporation engaged in beef production.

6. In the latter part of 2014, negotiations commenced between representatives of Bindaree and representatives of SLED with a view to an arrangement under which Bindaree would acquire and slaughter cattle for SLED, process the carcasses and make beef products available to SLED in packaged form. As discussions progressed, Bindaree expressed reluctance to contract with SLED (an overseas company with no presence in Australia) unless an Australian guarantor was introduced. Bindaree asked whether SLED could arrange for Chinatex to guarantee SLED’s obligations. Chinatex had become known to Bindaree in the course of negotiations with SLED. In circumstances to which it will be necessary to return, it was eventually agreed that Chinatex would be the sole contracting party with Bindaree.

7. Chinatex was not an end-user of beef products. It was a trader whose objective was to on-sell the products it acquired under the SKA. It in fact entered into a contract with Uniwell, SLED’s Australian subsidiary, to that end. More will be said about that contract presently.

The Service Kill Agreement

8. The SKA, as executed, had two parties only, Bindaree (the “Processor”) and Chinatex (the “Customer”). Although the agreement was made on the date it bears (1 May 2015), the regime it created was expressed to commence on 18 August 2015 and to continue for a term of three years from that date. The relevant parts of the SKA were:

“1.   DEFINITIONS AND INTERPRETATION

1.1.   Definitions

…

AUS-MEAT Descriptors means the bovine basic end alternative categories descriptors as published in the Aus-Meat Handbook of Australian Meat 7th Edition.

…

Carcass Cost means and includes the average price paid by the Processor to acquire cattle of the same quality, price and trade descriptors referred to in clause 2.2 of this Agreement, including the Service Kill Cattle, during that Service Kill Week in which the Service Kill is carried out in accord with the provisions of this Agreement and all costs and expenses of whatsoever nature in transporting and delivering those Service Kill Cattle that are purchased at auction to the Abattoir.

…

Customer means Chinatex (Australia) Pty Ltd ACN 003400217 of Level 11, 53 Walker Street, North Sydney NSW 2060.

…

Customer’s Purchasing Representative means Mr Zhihua Liang or such other person nominated by the Customer in writing to the Processor as the Customer’s authorised representative to approve all the Customer’s proposed Service Kill Cattle purchases for the purposes of this Agreement.

…

Product means and includes all boned beef from the Service Kill Cattle and any Customer Residuals not acquired by the Processor pursuant to Clause 6, but does not include the Processor Residuals.

…

Service Kill means and includes holding feeding and watering the Service Kill Cattle at or around the abattoir prior to slaughter including, any veterinary costs incurred with respect to those Service Kill Cattle prior to the time that they are slaughtered, and the yarding, slaughtering, skinning and gutting of those Service Kill Cattle and disposal of waste material therefrom, chilling and boning carcasses, vacuum packing and packing beef into boxes by the Processor for the Customer in compliance with the Customer’s boning specifications in Schedule 1 of this Agreement, all AUS-Meat specifications and all relevant AQIS export standards, for a fee for service.

Service Kill Cattle means the mixture of Aus-Meat Descriptor cattle referred to in clause 2.2, which have been acquired by the Processor and delivered to the Abattoir by the Processor during the Service Kill Period to be slaughtered and otherwise dealt with by the Processor for the Customer in accordance with the terms of this Agreement.

…

Service Kill Fee means the sum of $405 for each head of the Service Kill Cattle that the Processor provides a Service Kill for pursuant to the terms of this Agreement.

Service Kill Period means 50 weeks during each 52 week period during the Term, and/or such other days that may be agreed between the parties.

Service Kill Week means any week during the Service Kill Period.

…

Total Product Fee means the Service Kill Fee plus the Carcass Cost.

…

2.   SERVICE KILL

2.1.   The Processor agrees, and is hereby authorised and directed by the Customer, to acquire and deliver, or cause to be delivered, in consideration of the payment of the Total Product Fee by the Customer, nine hundred (900) head (or such other number as may be agreed between the parties) of Service Kill Cattle, to the Abattoir, and carry out a Service Kill of those Service Kill Cattle for the Customer during each Service Kill Week nominated by the Processor to the Abattoir during the Service Kill Period.

2.2.   Unless otherwise agreed between the parties the Service Kill Cattle to be delivered, or caused to be delivered, to the Abattoir by the Processor for the purpose of this Agreement shall be grass fed cattle and be a mixture of Aus-Meat Descriptors PR/YG/S(Ox)/Steer SS average 300kg to 320kg dressed carcass weight, and Manufacturing Cow average 240kg dressed carcass weight, with the average dressed weight for the Service Kill Cattle for each Service Kill Day being approximately 275kg.

2.3.   Subject to clause 2.5, the Service Kill Cattle to be delivered, or caused to be delivered, by the Processor for the purposes of this Agreement will be purchased by the Processor, in accordance with clauses 2.2 and 3 of this Agreement, on behalf of the Customer with the prior authorisation of the Customer’s Purchasing Representative whose authorisation shall be final and binding on the Customer.

2.4.   In the event that the Customer’s Purchasing Representative does not authorise the Processor to purchase a mixture of Aus-Meat Descriptors for a Service Kill Week in accord with the provisions of clause 2.2 by the ordinary close of business in New South Wales of the previous Service Kill Week, then the Processor may purchase and deliver 900 head of cattle of the mixture of the Aus-Meat Descriptors in accordance with clause 2.2 chosen by the Processor for the following week’s Service Kill.

2.5.   The Service Kill Fee for the Service Kill Cattle is to be paid in advance, in full and cleared funds, by the Customer to the Processor on the first Business Day of every Service Kill Week throughout the Term for that Service Kill Week

2.5 [sic] The Processor is not obliged to acquire Service Kill Cattle unless the Service Kill Fee has been paid to the Processor in accordance with clause 2.5.

…

3.   TOTAL PRODUCT FEE

3.1.   The Total Product Fee is to be paid by the Customer to the Processor in two separate instalments, as follows:

i)   the Service Kill Fee is to be paid on the first Business Day of every Service Kill Week pursuant to clause 2.5.

ii)    the Carcass Cost is to be paid before the Product is loaded onto the Customer’s transport pursuant to clauses 3.2 and 12.

3.2.   The Customer will pay the Processor the Carcass Cost for each Service Kill Day’s production and in any event within 7 days of the Product, and any Customer Residuals not acquired by the Processor in accord with the provisions of clause 5 of this Agreement, being ready to be loaded into containers or refrigerated transport in accord with the Customer’s written specifications. If the Processor does not receive payment in full in cleared funds in accord with the terms of this Agreement, then the provisions of clause 12.1 shall apply and indefeasible title to the Product will remain with the Processor.

4.   BONING YIELD

4.1.   If meat yield does not reach 77% from beef carcass to beef cuts, the Processor must make up corresponding beef cuts of the same quality as compensation.

…

7.   PRODUCT PACKAGING AND DISPATCH

7.1.   The Processor will pack the Product into the Customers branded cartons ready for delivery and all Product produced in one week must be loaded into refrigerated transport or containers by the Customer prior to the next weeks’ Service Kill Day’s production. Any Product still on site on a subsequent weeks’ Service Kill Day, will be transported to a China Approved Cold Store in Brisbane at the Customer’s cost provided the Processor has received payment in full for those costs in advance of the transport. In the event that the Processor does not receive payment in full in advance of transport, the provisions of clause 12.1 of this Agreement will apply.

7.2   Subject to clause 12, the Customer has the unfettered right to sell the Product to anywhere in the world including Hong Kong and Taiwan

…

9.   FAILURE TO PAY

9.1.   In the event that the Customer fails to pay the Total Product Fee, or any part thereof, at the time stipulated by the provisions of this Agreement it will be a breach of a fundamental term of this Agreement and without limiting any other rights that the Processor may have at law with respect to any such breach of that fundamental term by the Customer, the Processor’s obligation to acquire Service Kill Cattle on behalf of the Customer for a following Service Kill Day or Service Kill Week pursuant to clause 2.1 of this Agreement shall cease and the provisions of clause 10.3 of this Agreement shall apply.

…

10.3   In the event that the Customer has not paid the Processor the Total Product Fee or any part thereof at the time stipulated in this Agreement or has not made any other payment for any other expense that the Customer is required to meet or pay pursuant to the terms of this Agreement then the Customer shall be in breach of a fundamental term of this Agreement and in such event, the Customer irrevocably authorises and directs the Security Fund Stakeholders to pay the Processor the amount of any outstanding Total Product Fee or part thereof, and the Processor or any other person or entity any other such outstanding amount from the joint controlled monies account referred to in clause 10.1 of this Agreement.

i.)   In the event that the provisions of 12.1 have been applied, and indefeasible title in the Product has remained with the Processor, any loss incurred by the Processor arising from any shortfall in subsequent sale price received by the Processor as against the Total Product Fee that would have otherwise been received by the Processor in accordance with this Agreement, is to be compensated for with the amount of that loss being withdrawn from the Security Bond by the Security Fund Stakeholders and paid to the Processor.

…

12.   OWNERSHIP OF PRODUCT

12.1.   Indefeasible title in the Service Kill Cattle and the Product remains with the Processor at all times until the Total Product Fee with respect to the Product has been received in full by the Processor from the Customer for the Product.

12.2.   Title in the Product passes to the Customer once the Total Product Fee has been received in full by the Processor prior to the loading of the Product onto the Customer’s loading containers or refrigerated transport at the Abattoir.

12.3.   Where the Processor has not received payment in full and therefore retains indefeasible title in the Product pursuant to clause 12.1, the Processor has the absolute right and discretion to sell that Product to any person or entity that they so wish and retain the proceeds of sale of that Product for its own beneficial use.

12.4.   Indefeasible Title in any Customers Residuals acquired by the Processor shall pass to the Processor at the time that the Customer delivers its written request to the Processor for the Processor to acquire any or all of the Customers Residuals produced during particular Service Kill Day.

13.   CUSTOMER SPECIFICATIONS

13.1.   The Customer’s Boning Specifications are set out in Schedule 1 to this Agreement.”

…

13.3   Any amendments to the Customer's Boning Specification following the boning trials referred to in clause 13.2 and any subsequent or other amendments thereto, can only be amended with the prior written approval of the Processor.

13.4   The Customer will provide the Processor with any request for any approved alterations to the Customer's Boning Specifications in writing not less than forty-eight (48) hours before a Service Kill Day on which the Customer wishes the amended Customer Boning Specification to apply.

…

17.1   In addition to and without limitation to any other condition or term of this Agreement that may by law or equity or by necessary implication be a fundamental condition or term of this Agreement, the Parties agree that the following provisions are fundamental terms and conditions of this Agreement:

(a)   the Customer's obligation to pay the Total Product Fee. or any part thereof, to the Processor in accord with the provisions of this Agreement,

(b)   the Customer's obligations to meet or pay any other amounts or expenses whether payable to the Processor or any other person or entity pursuant lo the terms of this Agreement: and,

(c)   subject to the Customer not being in breach of a fundamental term of this Agreement the Processor's obligation to carry out and conduct the Service Kill for the Customer during the Service Kill Period

17.2   In addition to any other right with respect to specific performance or damages that the [sic] a party to this Agreement may have at law or in equity with respect to a breach by the other Party of a fundamental term or condition of this Agreement, in the event of any such breach the non-breaching Party may terminate this Agreement and recover damages for any loss of profits flowing from or caused by the other Party's fundamental breach.

17.3   Without limiting the generality of the foregoing, the Customer will not be liable for, and the Processor hereby indemnifies the Customer with respect to any matter or claim of whatsoever nature by or relating to Workers' compensation, WorkCover, and any director, officer, employee, contractor, invitee, licensee or trespasser of the Processor with respect to any injury, harm, damage, disease, damage or impairment to health or property arising out of or relating to the Service Kill by the Processor of theCustomer's cattle during the Service Kill Period.

9. The scheme of the SKA was thus, in broad outline, that the following steps were to be taken in respect of each week during the term of three years commencing 18 August 2015:

1. Chinatex was to pay Bindaree the Service Kill Fee, being a fixed sum of $405 per head.

2. Bindaree was to acquire the Service Kill Cattle and perform the Service Kill.

3. Chinatex was to pay the Carcass Cost, being, in substance, an averaged cost of sourcing cattle into Bindaree’s abattoir.

4. After payment of the Carcass Cost, Chinatex was to collect the beef from Bindaree, with Bindaree (if so requested) sending any uncollected product to a cold store in Brisbane at Chinatex’s cost, provided that Chinatex had pre-paid the transport costs.

The proceedings at first instance

10. On the day after the SKA came into operation, the managing director of Chinatex (Zhihua Liang) expressed to the managing director of Bindaree (Andrew McDonald) an apprehension that “Uniwell is going to walk”. By this he meant that Uniwell, the Australian subsidiary of SLED to which Chinatex planned to sell the whole of the output acquired by it under the SKA, would not take the product. There had been a change in market conditions which, at the very beginning of the three-year term, made the SKA unattractive from the acquirer’s perspective. Mr McDonald referred to the fact that the arrangement needed to be viewed over the whole of the three-year term. He made it clear that Bindaree intended to honour the contract and expected Chinatex to do the same. Chinatex’s fear was realised. Uniwell declined to take product from the very beginning. In terminology used in the proceedings, Uniwell “decamped”.

11. Chinatex did not pay to Bindaree the Service Kill Fee or the Carcass Cost for the first Service Kill Week of the three-year term of the SKA. In fact, it did not make payment in respect of any Service Kill Week in the period 19 August 2015 to 8 October 2015, that is, the first six weeks of the term. Thereafter, the Service Kill Fee and the Carcass Cost were paid for several consecutive weeks. Non-payment then resumed and continued throughout the period of 19 weeks from 18 January 2016 to 31 May 2016, on which date Bindaree, through its solicitors, gave notice terminating the SKA with immediate effect. The two periods in which payments were not made by Chinatex (one of six weeks and the other of 19 weeks) were referred to in the course of the proceedings as “non-performance periods”. In the intervening period of 14 weeks during which the Service Kill Fee and the Carcass Cost were paid (9 October 2015 to 17 January 2016), Chinatex took beef products from Bindaree and sold the whole of each week’s output to Hondo.

12. In 2016, Bindaree commenced proceedings against Chinatex in the Supreme Court. It alleged that it had carried out a Service Kill of Service Kill Cattle in each Service Kill week since the start of the three-year term of the agreement or, alternatively, was ready, willing and able to do so; and that Chinatex, in breach of the SKA, failed to pay the Service Kill Fee and the Carcass Cost referable to each week of the two non-performance periods, thereby breaching the SKA. Bindaree also alleged that Chinatex had breached a fundamental term of the SKA (or repudiated it); that Bindaree had accordingly become entitled to terminate the agreement; that Bindaree had done so on or about 31 May 2016; and that Chinatex was liable to Bindaree in damages for breach of contract.

13. Chinatex maintained that it was not so liable because, first, Bindaree had not obtained Chinatex’s authorisation before proceeding with each weekly acquisition and processing of cattle and, second, the contract had ceased to be binding well before the purported termination by Bindaree on or about 31 May 2016. This had happened, it was said, either because the SKA had been discharged by frustration when Uniwell “decamped” in mid-August 2015 just as the three-year term of the SKA was about to begin or because the SKA had been abandoned by agreement of Bindaree and Chinatex (and replaced by some other arrangement) when Hondo entered the picture in October 2015. In relation to the issues of frustration and abandonment and the roles of Uniwell and Hondo, it is sufficient, at this stage, to record that, on Chinatex’s view of matters, it acted throughout (and was known by Bindaree to be acting) as an intermediary or facilitator for a third party, being initially SLED, then SLED’s subsidiary Uniwell and eventually Hondo.

14. The proceedings were heard over six days in October and November 2017 by Hammerschlag J sitting in the Commercial List of the Equity Division. For reasons published on 30 November 2017[1] , his Honour rejected Chinatex’s defences, upheld Bindaree’s claims and ordered judgment for Bindaree against Chinatex in the sum of $32,758,986 (inclusive of pre-judgment interest up to 24 November 2017). It was also ordered that Chinatex pay Bindaree’s costs of the proceedings, such costs to be assessed on the ordinary basis up to 25 January 2017 and on an indemnity basis thereafter.

    1. Bindaree Beef Pty Ltd v Chinatex (Australia) Pty Ltd [2017] NSWSC 1615 (“Primary judgment”).

15. Damages were awarded on the footing that Bindaree had acquired and processed cattle week by week as the agreement required, had been ready, willing and able to make finished beef products ready for collection by Chinatex and, when, in the non-performance periods, Chinatex made no attempt to perform its promises, had sold the products to other customers at prices yielding a smaller return than would have been achieved had the SKA been performed.

Issues on appeal

16. The substance of the primary judge’s decision was that, in respect of each week of the two non-performance periods, Bindaree had performed its contractual obligation with respect to the acquisition and slaughter of cattle and preparation of beef. In this Court, Chinatex challenges that finding. Its first ground of appeal is that, while Bindaree may have acquired and slaughtered certain cattle and prepared beef in each relevant week, it did not do so for Chinatex and in performance of the SKA. The obligation of Chinatex, it is said, was an obligation to make payment in return for Bindaree’s performance, with the result that, if no beef was in fact taken by Chinatex in a given week, nothing was payable by it to Bindaree. Chinatex characterises any claim by Bindaree as a claim in debt (rather than a claim for unliquidated damages for breach of contract) maintainable only if Bindaree in truth performed its contractual obligation and thereby earned the contracted reward.

17. By its second ground of appeal, Chinatex advances the proposition that the primary judge wrongly rejected Chinatex’s defence based on frustration of the contract. The substance of that defence was that the fundamental object and purpose of the contract were, in the first instance, to secure beef for SLED (or its subsidiary, Uniwell), with Chinatex sourcing beef from Bindaree only to the extent that SLED (or Uniwell) stood ready to receive it. When Uniwell “decamped” in mid-August 2015, the contract was, on Chinatex’s case, discharged by frustration.

18. Chinatex’s third ground of appeal concentrates on what it regards as Bindaree’s complete failure to perform the contract – which failure, it says, meant that Bindaree was not entitled to terminate or to recover loss of bargain damages.

19. An alternative position taken by Chinatex on appeal is that, if Bindaree did act as the contract contemplated, its loss was caused by its own decision to carry out Service Kills after its obligation to do so had ceased, rather than by any breach by Chinatex.

20. Finally, Chinatex contends that, even if one accepts the basis of liability found by the primary judge (which it considers to be erroneous), damages for the remainder of the term were incorrectly assessed.

21. Certain factual findings are also challenged on appeal.

Approach to construction of the SKA

22. The SKA is a commercial contract. The terms of such a contract are to be understood objectively, according to what a reasonable businessperson would have understood them to mean; and, in a practical sense, this requires that the reasonable businessperson be placed in the position of the parties, with the court considering, from that perspective, the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486 (at [16]); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (at [35]).

Factual issue – Chinatex’s role in negotiations

23. The primary judge made findings that Chinatex participated in the negotiation of the SKA, including with respect to the specification of cattle and the prices to be paid. Chinatex challenges that finding, maintaining, in essence, that all negotiations were conducted by SLED.

24. There is no doubt that the SKA was signed for Chinatex by its managing director, Mr Liang. The notion that Chinatex did not participate in negotiation of the agreement, taken at face value, is therefore puzzling. Chinatex’s contention is relevant to its frustration argument which depends on the proposition that, although Chinatex was the contracting party, it was in truth a conduit or facilitator for another entity – initially SLED and ultimately Uniwell – and that the negotiators with Bindaree were representatives of SLED.

25. Chinatex relies, in this connection, on evidence given by Mr Liang. That evidence must be approached with extreme caution, given the primary judge’s finding (not challenged on appeal) that Mr Liang:

“is an intelligent, articulate and thoroughly unscrupulous man, entirely lacking in any commercial moral compass, whose evidence I reject where it conflicts with that of McDonald, and in any event, where it is not supported by contemporaneous, objective material.”[2]

2. Primary judgment at [23].

26. The reference here to “McDonald” is a reference to Bindaree’s managing director. He was the chief negotiator for Bindaree. The first contacts in the course of discussions that led to the SKA were between Mr McDonald and Mr William Li who represented SLED. Other participants for SLED were Mr Qu and Mr Huang. Chinatex’s contention is that those persons acted exclusively for SLED and that the envisaged arrangements for the supply of beef were to be between Bindaree and SLED. Mr Liang gave evidence that Chinatex agreed to become the contracting party only after a request from Mr Qu of SLED that Chinatex be “involved as our agent to buy beef in Australia”. Mr Liang explained that Chinatex only did low risk commission transactions to satisfy purchase orders in China.

27. Mr Liang testified that it was Mr Li of SLED who negotiated the terms of the SKA with Mr McDonald and Bindaree’s solicitor, Mr Hunt, and that Chinatex had virtually no input. Mr Liang accepts that he was present at a meeting on 30 April 2015 to discuss the agreement but says that he spoke very little. Mr McDonald, by contrast, refers to a number of aspects of the meeting consistent with full participation by Mr Liang as an active negotiator.

28. There is, in any event, evidence of involvement of Chinatex personnel other than Mr Liang from an earlier stage. Mr McDonald deposed to discussions with four persons in the last three months of 2014, being Mr Li, Mr Qu, Mr Huang and Ms Penny Pan. On 1 December 2014, Mr McDonald sent to five addressees (including Mr Li, Mr Qu and Ms Pan) an email beginning, “Hope you all made it back to China ok, Thank you for visiting Inverell”. One matter addressed in that email was a particular inquiry (regarding letters of credit) made by Mr Qu and Ms Pan. Mr Liang’s affidavit refers to “a colleague, Penny Pan of Chinatex Corporation” as having introduced him to Mr Qu and Mr Li of SLED. He said that Ms Pan had been assisting SLED to import meat from Australia. There was thus an established connection between SLED and Chinatex in relation to the Australia-China meat trade.

29. The email of 1 December 2014 provides ample support for a finding that, even if Mr Liang was, as he was at pains to make clear, a minor and essentially supine contributor to discussions (a proposition quite at odds with Mr McDonald’s evidence), Ms Pan of Chinatex Corporation (the parent company of Chinatex) played an active part in negotiations with Bindaree. Mr McDonald knew that Ms Pan was from the Chinatex group. He referred to her in his affidavit as “Ms Penny Pan of the Chinatex Corporation in Beijing”.

30. It is noteworthy that it was in Mr McDonald’s email of 1 December 2014 to Ms Pan and others following their visit to Inverell that the issue of the identity of the contracting party was raised by Bindaree. Mr McDonald indicated that he had been advised after the Inverell meeting that the contract was to be with SLED. It may be inferred that the question of the precise contracting party had, to that point, received little attention and that the “advice” Mr McDonald received that SLED was to be the contracting party came from the Chinese side. Mr McDonald went on to say that while Bindaree was happy with this, its solicitor “would like Chinatex (Aust) to be part of the contract as well as they have an Australian based office here, thus we have suggested they go guarantor”.

31. In an email of 19 December 2014 to Mr McDonald and Mr Bennison (also of Bindaree), Mr Li wrote:

“Please make ‘CHINATEX (AUSTRALIA) PTY LTD as the formal contract signatory (PARTY A), that means no SLED, it may make the contract more easy and more directly.

Is it ok for you? Please confirm.

And for them as Australia company, it is no need to guarantee. Is it ok?”

32. Mr McDonald emailed an affirmative reply the following day.

33. It is conceivable, I suppose, that Mr Liang did not know about this correspondence between Mr McDonald and Mr Li. But Ms Pan was certainly aware of the request by Mr McDonald on 1 December 2014 for contractual commitment, by way of guarantee, on the part of Chinatex. One cannot imagine that despatch of Mr Li’s email of 19 December 2014 (or eventual execution of the SKA by Mr Liang for Chinatex) occurred otherwise than as a result of active and considered commercial decision-making within the Chinatex group, quite possibly at the Chinatex Corporation level. Nor is it conceivable that Chinatex, which had an established connection with SLED in relation to the Australia-China meat trade, did not knowingly accept sole contractual responsibility towards Bindaree, appreciating that Bindaree was entitled to expect performance by Chinatex alone.

34. Particularly in light of the part shown to have been played by Ms Pan of the Chinatex Corporation, the evidence of Mr McDonald about Mr Liang’s role and the primary judge’s damning assessment of Mr Liang’s credibility, his Honour’s findings as to involvement of Chinatex in negotiation of the SKA were soundly based and should not be disturbed.

Frustration

35. The matter just discussed leads into an assessment of the ground of appeal concerning discharge of the SKA by frustration.

36. The frustration case put at trial was summarised by the primary judge in this way:[3]

“Chinatex put that the SKA was terminated by frustration when Uniwell unilaterally withdrew (counsel for Chinatex described it as ‘decamped’) from what Chinatex characterises as “the tripartite arrangements” in August 2015, rendering performance required under the SKA radically different from that which had been agreed. It argues that Bindaree and Chinatex entered into the SKA on the common assumption that delivery to Uniwell would continue, which common assumption was mistaken with the consequence that the SKA was frustrated.”

3. Primary judgment at [81].

37. The contention of Chinatex was (and remains on appeal) that “the whole purpose and function of the SKA was the provision of beef products to be taken by Mr Li’s organisation (SLED/Uniwell) and no other end taker” (these are the words appearing in written submissions). It is said that, both before and after the identification of Chinatex as the contracting party, the email correspondence showed that the focus and emphasis of all parties were always to satisfy the requirements of Mr Li’s company, rather than Chinatex. It is further said that the terms of the agreement were specifically tailored to the requirements of Mr Li’s company alone; and that the subject matter was expressly designed to satisfy those requirements. “Mr Li’s company” is identified, for these purposes, as SLED in the lead-up to execution of the SKA and, at a later time, Uniwell.

37. Brief reference has already been made to a contract between Chinatex and Uniwell. That contract (entitled “Underwriting Contract”) is dated 27 April 2015, that is, four days before the date of the SKA. The underwriting contract provided for cooperation between Chinatex and Uniwell in relation to what was then Chinatex’s imminently proposed agreement with Bindaree. It stated that it was “based on” that agreement. It created a framework within which Chinatex “will transfer the title of beef products to” Uniwell which, in turn, “will pay [Chinatex] for products according to this contract”. [4] Mr McDonald gave evidence that he was unaware of the existence of Uniwell until about 14 May 2015 and that the first reference to it in correspondence to which he was privy occurred on 15 June 2015 when he received an email from Mr Huang who described himself as a director of “Australia Uniwell Group” and conveyed requirements for Uniwell packaging of product.

    4.    The underwriting contract was in the Mandarin language. The quoted words are taken from an English translation.

38. The contention of Chinatex is, in summary, that the availability of SLED (or some other person arranged by SLED, such as Uniwell) as a taker of the whole of the output produced by the SKA was a shared and fundamental actuating assumption of Bindaree and Chinatex in entering into the SKA; and that the absence of SLED (or some such other person) – even by unilateral and selfish choice – would make performance radically different from that which the contract contemplated. Putting this another way, the existence and participation of SLED (or someone arranged by SLED) as taker from Chinatex of the SKA output, was, on Chinatex’s case, a common assumption of Chinatex and Bindaree that represented the foundation of their contract so that, in the absence of that taker, performance would be pointless.

39. The primary judge rejected this argument. He was right to do so.

40. Cases in which a contract has been held to be frustrated because its performance has become pointless are exemplified by Krell v Henry [1903] 2 KB 740, a case to which counsel for Chinatex made particular reference. [5] That case concerned a contract for the hire of rooms overlooking Pall Mall for the days (but not the nights) in June 1902 on which the Coronation procession of Edward VII was scheduled to pass. When the procession was cancelled because of the King’s illness, it was held that the event “regarded by both contracting parties as the foundation of the contract” had been removed and that the contract had thereby been frustrated. The English Court of Appeal focussed on “the substance of the contract, being the assumption or condition or state of things which was necessary for the fulfilment of the contract” and the question whether that condition or state of things had been prevented by an event of such a character that it could not reasonably be said to have been in the contemplation of the parties; and whether the change was so unexpected that performance would be radically different from that which was contracted.

    5. As Nettle JA pointed out in oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116 at [89], Krell v Henry was criticised by Lord Findlay LC in Larrinaga v Société Franco-Americaine des Phosphates (1922) 29 Com Cas 1 but approved by the majority in the High Court in Scanlan’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169; [1943] HCA 43.

41. In Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24, members of the High Court preferred a formulation derived from the decision of the House of Lords in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 and endorsed by Stephen J in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143; [1979] HCA 54. Two particular passages in the speech of Lord Radcliffe were approved: [6]

"[F]rustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. … It was not this that I promised to do."

"There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for".

6. Codelfa at CLR 357 (Mason J).

43. In the Codelfa Construction case (at CLR 360), Mason J pointed to a conceptual similarity between frustration and mutual mistake. Each turns upon a common assumption of the parties. If the common contractual assumption is of present fact, the case is one of mutual mistake; if the assumption is of future fact, it is a case of frustration. Mason J said (at CLR 357) that, for the doctrine of frustration to operate, there must have been a common assumption that a particular thing or state of affairs essential to performance would continue to exist or to be available, with neither party undertaking any responsibility in that regard.

44. In oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116, Nettle JA (with whom Redlich and Weinberg JJA agreed) made a close examination of the authorities and provided the following summation (at [70]) which, in my respectful opinion, represents the current state of the law:

“Consistently with Codelfa, I take the law to be that a contract is not frustrated unless a supervening event:

(a)    confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and

(b)    in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”

45. Although aspects of the judgment of Latham CJ in Scanlan’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169; [1943] HCA 43 have been questioned in later cases, the following statement (at CLR 191-192) of constraints upon the doctrine of frustration remains relevant:

“Whenever a man takes a lease of premises, he and his lessor expect that he will be able to use the premises, but it is well established that he is not excused from paying rent because the premises are destroyed. When a man agrees to buy a pair of boots for himself, both parties expect that he will be able to wear them. If he has an accident, so that he can no longer wear boots, he nevertheless still has to pay for them. If a man buys or hires a motor car, both parties know that he expects to be able to drive it. The stoppage of the sale of petrol, which would make it impossible for him to drive it, does not excuse him from his obligation to pay the purchase money or the hire for the agreed period. I am unable to find in the statement of the law actually made in Krell v Henry (1903) 2 KB at p 749 (whatever may have been intended) any principle which would prevent a party to any of the contracts mentioned from successfully relying upon the defence of frustration.

It will perhaps be said that nobody would ever think of applying Krell v Henry in such cases. I agree. But why? Simply because the general rule is applied, viz that a man who makes a promise is bound to perform it or to pay damages if he fails to do so, and that he cannot excuse himself by relying upon circumstances dehors the contract for the purpose of showing that he did not mean what he clearly said, or that he should be excused from performance because the contract did not work out in the manner expected by one or even by both of the parties.”

46. When regard is had to the assumed condition or state of affairs that was necessary for the fulfilment of the SKA between Bindaree and Chinatex, it cannot, on the evidence, be said that the taking of the total output from Chinatex by SLED (or someone arranged by SLED) was in any sense at all a necessary element.

47. The SKA did not, in terms, contemplate, even indirectly, the on-sale of the meat products by Chinatex to any stranger to the contract (whether SLED, Uniwell or anyone else) or the existence of any such stranger as a person willing to take those products. It was, quite simply, a contract between two arm’s length commercial parties one of which had some kind of business connection with SLED and expected SLED to take the total output. Bindaree, for its part, knew that SLED was a major participant in the meat trade. It also knew that Chinatex was active in export-import. It may well have suspected at the time the SKA was entered into that some arrangement existed between Chinatex and SLED concerning the products (it did become aware, after the SKA was entered into, of the underwriting contract between Chinatex and Uniwell). But Bindaree’s declared unwillingness to contract with SLED unless Chinatex guaranteed SLED’s performance showed that Bindaree had no intention of exposing itself to the risk of non-performance by SLED unless Chinatex undertook to protect it from the financial consequences of that non-performance. A finding that Bindaree intended that the subject matter of the contract should be regarded as having fallen away to nothing once SLED failed to take the total output from Chinatex would impute to Bindaree a willingness to succumb to the very consequence that it had been astute to avoid by requiring that Chinatex enter into a direct contractual relationship with it.

48. At the time the SKA was made, Chinatex no doubt assumed that there would be a continuing willingness of SLED (or its associates) to purchase everything acquired by Chinatex under the agreement. The underwriting contract provided a rational basis for such an assumption by Chinatex. But Bindaree was not actuated or influenced by any corresponding assumption. It was unaware of the underwriting contract and, for the reasons stated, did not assume that an indefinitely continuing ability or opportunity for Chinatex to on-sell to SLED or its associates was a necessary element of the bargain. Any assumption that such a state of affairs was essential to the parties’ performance was a unilateral assumption of Chinatex, not a shared or common assumption. The unwillingness of SLED to take (or arrange the taking of) the product was akin to the unavailability of petrol in the third example given by Latham CJ in Scanlan’s New Neon Ltd v Toohey’s Ltd (above). Just as the buyer (or hirer) of the motor vehicle in that example could not withdraw from the contract for sale or hire because of that unexpected setback, so too here Chinatex was not excused from performance of the SKA because its expectation that some other entity would buy the product from it was not realised.

Factual issue – did Bindaree perform “for” Chinatex?

49. Mr McDonald gave evidence (which the primary judge accepted) that, if Chinatex had wanted delivery of product in any of the weeks in the non-performance periods, Bindaree would have given it; and that Bindaree was at all times ready, willing and able to perform to the extent that it could without Chinatex’s cooperation. His Honour said:[7]

“In my view, Bindaree did carry out the Service Kill ‘for’ Chinatex, albeit on the contingency that Chinatex would take delivery. It did so in the face of Chinatex’s failure in breach of the SKA to pay the Service Kill Fee. It was an eminently sensible thing to do in the face of Chinatex’s evident lack of commercial probity. However, under cl 9.1 of the SKA, Bindaree’s obligation to carry out the Service Kill ceased on Chinatex’s default in paying the Service Kill Fee. Its decision to carry out the Service Kill was therefore entirely its own. Had it resulted in some further loss, Chinatex’s submission would have some substance. But it did not. Bindaree sold the meat for prices in excess of the Carcass Cost, and has given Chinatex credit. Bindaree’s claim does not include any amount referrable to the carrying out of the Service Kill. Chinatex has benefited from what Bindaree determined to, and did, do.”

7. Primary judgment at [99].

50. Chinatex challenges these findings. In doing so, it emphasises the word “for” which the primary judge placed in quotation marks at the start of the passage just quoted. The correct interpretation of the facts, Chinatex says, is that the slaughtering and other activities undertaken by Bindaree in relevant weeks, although they occurred, were not referable to or pursuant to the SKA and therefore did not amount to performance of the SKA.

51. It is necessary, at this point, to say something more about the structure of the SKA. An examination of its terms shows the following:

1. By clause 2.1, Bindaree was authorised and directed by Chinatex:

1. to acquire and deliver 900 head of cattle to Bindaree’s abattoir each week; and

2. to deal with those cattle in the manner specified in the definition of “Service Kill”, including slaughter and preparation into packaged beef products.

2. By clause 2.5, Chinatex was required to pay the Service Kill Fee (that is, $405 per head) to Bindaree “in advance” on the first business day of each week (the Service Kill Fee was one of two components of the Total Product Fee).

3. Under clause 2.6 (incorrectly numbered as a second clause 2.5), Bindaree was not obliged to acquire cattle for a particular week unless the Service Kill Fee had been paid in accordance with clause 2.5.

4. By clauses 3.1(ii) and 3.2, Chinatex was required to pay the Carcass Cost for each day’s production (being the average price paid by Bindaree to acquire cattle of the applicable description in the relevant week and the cost of any transportation to the abattoir) before the product was loaded into containers or refrigerated transport. The Carcass Cost was the other component of the Total Product Fee.

5. Clause 3.2 also provided that, if payment of the Carcass Cost was not made in accordance with the agreement, clause 12.1 would apply and title to the product would remain with Bindaree.

6. Clause 9.1 provided that any failure by Chinatex to pay any part of the Total Product Fee (that is, the Service Kill Fee plus the Carcass Cost) was to have two consequences: first, Bindaree’s obligation to acquire cattle on behalf of Chinatex to “shall cease”; and, second, clause 10.3 would apply.

7. Clause 10.3 provided that if any part of the Total Product Fee was not duly paid, Chinatex was “in breach of a fundamental term of” the agreement [8] and the unpaid amount was to be recoverable out of a security fund of $364,500 held by the parties’ solicitors under clause 10.1 (clause 10.4 provided for replenishment of that fund by Chinatex whenever there was a drawing on the fund) [9] .

8. Clause 12.1, read in conjunction with paragraph (i) of clause 10.3 [10] , provided that property in cattle and beef products was to remain with Bindaree until the applicable Total Product Fee had been received in full; and that any loss incurred by Bindaree on a sale of such products by it (the loss being the Service Kill Fee plus the Carcass Cost less the proceeds of that sale) would be “compensated for” out of the security fund.

9. Under clause 7.1, responsibility for making product ready for delivery rested with Bindaree, while Chinatex was responsible for loading on to refrigerated transport. The clause also provided that if Chinatex did not collect product, Bindaree was to transport it to an approved cold store in Brisbane at Chinatex’s cost, provided that Chinatex had made advance payment of the transport costs.

   8.    Clause 17.1(a) also stated that the provisions concerning payment of the Total Product Fee were fundamental terms

   9.    Chinatex had in fact established the security fund in October 2015 by payment into the trust account of Bindaree’s solicitors. There is no reference in the primary judgment to recourse having been had to the security fund at any time.

   10.    Paragraph (i) of clause 10.3 appears in the agreement in the apparently disconnected way set out in the extracts from the agreement above. There is no paragraph (ii).

52. It was not in dispute that, in respect of every week in the two non-performance periods, Chinatex paid no part of the Service Kill Fee or the Carcass Cost (which together made up the Total Product Fee); also that it did not pay any sum for transport to Brisbane as referred to in clause 7.1. Bindaree accepts that it did not, at any time in the non-performance periods, deliver product to Chinatex or ask Chinatex to take product away. In each relevant week, it did, however, slaughter 900 head of cattle of the relevant description, process the meat and sell it to customers other than Chinatex.

53. The beef produced in the weeks in which Chinatex defaulted which was sold to other customers did not always conform strictly to the specifications in the SKA. Internal record keeping was, however, on a basis consistent with performance for Chinatex. Mr McDonald said, quite candidly:

“We were processing meat and I wasn’t going to sell it to Chinatex unless I knew I was getting paid for it, so it had to go elsewhere.”

54. It was put to Mr McDonald that, if he was going to honour the contract with Chinatex, it would be necessary to process 900 head per week over and above normal production for other customers and other purposes. He disagreed, saying, in effect, that had Chinatex taken what it was required to take, a combination of increased production and management of orders from other sources would have enabled Bindaree to satisfy all requirements. Bindaree’s approach is illustrated by the following internal correspondence of 15 January 2016:

“As of week commencing 18/1/6 [sic] we will be invoicing Chinatex again for their service kill as per the Chinatex contract. At this stage there is no actual requirement to bone to Chinatex spec and we will be buying back and selling on their behalf their meat until such time as we recommence real time boning.

In order to facilitate trace back and accuracy of invoicing we will process as if doing for Chinatex.”

55. If one looks at any hypothetical “Service Kill Week”, it is seen that the first event that the SKA requires is payment by Chinatex to Bindaree of the week’s Service Kill Fee of $364,500 ($405 for each of 900 cattle). By force of the express provision in clause 2.6 (ie, the second clause 2.5) and because the Service Kill Fee was to be paid “in advance”, Bindaree was not obliged to “acquire” 900 cattle for that week unless the payment of $364,500 had been made. If that condition was not satisfied, acquisition of cattle and subsequent steps became, from Bindaree’s perspective, optional rather than compulsory (see [67] below). Bindaree established that, in each relevant week, it did proceed to deal with 900 cattle of the relevant kind generally in the way the SKA contemplated. At the end of each week, product derived from 900 cattle would have been available for collection had Chinatex attended to uplift it – or, at least, Bindaree was ready, willing and able to provide such product if called upon to do so. Bindaree had no obligation to deliver product to Chinatex, in any active sense. Rather, Chinatex was entitled to collect the product from Bindaree’s abattoir (and Bindaree was required to surrender it), provided that the Carcass Cost had been paid. Non-payment of the Carcass Cost had a threefold consequence: first, Chinatex was not entitled to collect the product from Bindaree’s premises; secondly, Bindaree was neither entitled nor required to transport the product to a cold store in Brisbane (a further pre-condition to that would have been payment by Chinatex of the transport cost); and, thirdly, property in the product remained in Bindaree pursuant to clause 12.1 and paragraph (i) of clause 10.3.

56. In this context, the concept of carrying out a weekly kill “for” Chinatex is not a particularly meaningful one. It is no doubt for that reason that, when the primary judge said that “Bindaree did carry out the Service Kill ‘for’ Chinatex”, he put the word “for” in quotation marks to indicate a strained usage. His Honour’s statement is, however, accurate. While the SKA specified characteristics that cattle dealt with pursuant to it were to have, there was no concept that one could, on the first day of any given week, go into Bindaree’s holding yard or abattoir, point to a particular beast and say that that beast had or had not been acquired and delivered to the abattoir pursuant to the SKA. Nor could Chinatex say, “You are to slaughter and process this beast rather than that one pursuant to the SKA”. Bindaree would sufficiently perform by having 900 compliant beasts on hand at the start of the relevant week. The purpose of the SKA was to ensure that Bindaree undertook slaughtering and allied activities in a way that caused finished product derived from 900 head of compliant cattle to be available at Bindaree’s premises at the end of each week for collection by Chinatex. Chinatex was entitled to uplift such product, provided that it had paid both components of the Total Product Fee. If Chinatex did not so pay, property in the goods remained in Bindaree and it was free to sell them as it wished.

Debt or damages?

57. Against that background, I turn to Chinatex’s argument that the case was not one justifying any award to Bindaree of unliquidated damages for breach of contract, that any claim lay in debt and that a debt action would have failed.

58. The cause of action postulated by Chinatex in pursuing that argument is, in concept, a combination or amalgam of two common indebitatus counts: the count for work done and the count for goods bargained and sold. On Chinatex’s view, the case was one in which Bindaree had undertaken, for an agreed money consideration, to provide services (in the form of the acquisition and slaughter of beasts and the consequent preparation and packaging of meat) and to sell goods (the resultant meat products). An action in debt for work done lies where the agreed services have been rendered; and an action in debt for goods bargained and sold lies where property has passed to the buyer in fulfilment of the sale. By providing the services or transferring property in the goods, the plaintiff earns the agreed price and is entitled to maintain an action in debt for that price. The relevant concept was explained by Dixon J in Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; [1946] HCA 25 at CLR 463-464:

“In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for. The result is that, if the seller tenders goods in accordance with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the price; his remedy is for unliquidated damages for non-acceptance”

59. On the case Chinatex advances, the fact that it did not, at any time referable to the two non-performance periods, receive either the benefit of any services or property in any meat products means that the debt action that Bindaree should have brought was doomed to fail.

60. These arguments mistake the nature of the parties’ contract. This was not a case of the rendering of services and the sale of goods for an agreed price. Rather, the contract contemplated several distinct performance steps and specified the relationship between them. First, Chinatex would, in every week of the agreed term of three years, pay to Bindaree every week’s Total Product Fee by two instalments, one (a fixed sum of $364,500, being the Service Kill Fee) on the first business day of the week pursuant to clause 3.1(i); and the other (the average acquisition and transport cost of 900 live cattle of a particular description, being the Carcass Cost) before the finished product was made available for collection at the end of the week: clause 3.1(ii). Second, Bindaree would prepare and make available for collection by Chinatex at the end of the week beef products derived from 900 cattle of the relevant description.

61. The obligation of Chinatex to pay was unconditional. It subsisted for the whole of the three-year term of the SKA. The obligation of Bindaree, at inception, was a conditional and subordinate obligation to make meat derived from 900 cattle available for collection by Chinatex at week’s end. From the very first week, however, Chinatex’s failure to perform the unconditional payment obligation meant that the condition precedent to Bindaree’s obligation to make product available for collection at the end of the week was not satisfied. Chinatex’s failure to pay in the first week also brought clause 9.1 into operation so that Bindaree was not bound to perform in subsequent weeks but was entitled to do so. This matter is discussed further at [67] below.

62. Had the agreement been duly performed by Chinatex from the beginning, each week would have seen payment by Chinatex of the Service Kill Fee and the Carcass Cost in discharge of the unconditional payment obligation and the making available of meat in discharge of Bindaree’s conditional and subordinate obligation. Following Chinatex’s failure to perform its payment obligation in the first week, the situation was that its payment obligations for succeeding weeks were unaffected and undiminished but Bindaree’s obligation to acquire and process cattle for all other weeks became instead a form of option (reference may again be made to [67] below).

63. Given the unconditional nature of Chinatex’s payment obligation, it is not possible to regard the Total Product Fee or either of its components as a price payable upon the provision of, and in return for, services or goods. Bindaree did not “earn” either component by performing services or transferring property in goods. Each component was payable independently of Bindaree acquiring and slaughtering cattle and making resultant meat products available for collection. If Chinatex had paid a particular week’s Total Product Fee and Bindaree had not made meat products available for collection at the end of that week, Chinatex’s remedy would have been in damages for breach of contract. Such a breach, moreover, was recognised by the parties as breach of a fundamental term: clause 17.1(c).

64. Bindaree’s proceedings against Chinatex were correctly constituted as proceedings for unliquidated damages for breach of contract. Its claims were not debt claims.

Termination

65. The primary judge’s decision to award loss of bargain damages proceeded on the footing that Bindaree had validly terminated the SKA by its notice of 31 May 2016. Chinatex challenges that proposition.

66. Chinatex says that, even if the SKA had not been discharged by frustration, Bindaree was not entitled to terminate because it did not perform its obligations to process and make meat available to Chinatex. It submits that a party in fundamental breach of its own obligations does not have the right to terminate, whether for the other party’s breach or for repudiatory conduct.

67. It is necessary to say something more about Bindaree’s obligation. At inception, that obligation was, as I have said, a conditional and subordinate obligation to acquire and slaughter 900 compliant cattle each week and make meat derived from those cattle available for collection at the end of the week. Upon Chinatex’s failure to perform its unconditional payment obligation in respect of the Service Kill Fee for the first week of the three-year term, however, Bindaree was freed from its conditional and subordinate obligation to acquire and slaughter 900 cattle in that week. This was the effect of clause 2.6 (wrongly numbered as a second clause 2.5). Also, Chinatex’s failure to pay the Total Product Fee for that first week caused Bindaree to be freed from the corresponding obligation in respect of subsequent weeks. That was the effect of clause 9.1. It was clear, nevertheless, that Bindaree had a right to continue performing in those subsequent weeks if it chose to do so. Clause 9.1 prescribed a second consequence of Chinatex’s failure to pay, namely, that “the provisions of clause 10.3 of this Agreement shall apply”. Clause 10.3, as well as causing Chinatex’s non-payment to be a breach of a fundamental term, enabled Bindaree to resort to the security fund maintained under clause 10.1 and to recoup from that source the amount not paid. Clause 10.4 provided that, if money in the security fund was paid out in that way, Chinatex was to make a replenishing payment into the fund. The purpose of the replenishment was, clearly enough, to ensure that sufficient money was always available in the security fund to permit the same process to be undertaken on future occasions of non-payment by Chinatex. The parties thus recognised that, although clause 9.1, in terms, caused Bindaree’s conditional and subordinate obligation to “cease” when Chinatex did not pay, Bindaree might nevertheless elect to continue with the agreement and to perform as if the obligation to perform had not “ceased”. The expressly foreseen need for replenishment of the security fund on each occasion on which it was depleted because of failure by Chinatex to perform its unconditional payment obligation showed that performance of the contract by both parties in subsequent weeks was contemplated.

68. The position that a contracting party must occupy in order to be entitled to terminate for anticipatory breach was described by Stephen, Mason and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12 at CLR 433 in this way:

“A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach ...”

69. In Psaltis v Schultz (1948) 76 CLR 547; [1948] HCA 31 at CLR 560, Dixon J said:

“To be ready and willing to perform a contract a party must not only be disposed to do the act promised but also have the capacity to do it. But the tenor of the promise will show when and how the act is to be performed and it is to that time and mode of performance that the capacity and disposition to fulfil the promise are to be directed. It is enough that he is not presently incapacitated from future performance and is not indisposed to do, when the time comes, what the contract requires.”

70. Knowing that Chinatex had not paid the Service Kill Fee on the first business day of a given week (clause 3.1(i)) and that it had not paid the Carcass Cost before the due time for making the week’s products available at the abattoir (clause 3.1(ii)), Bindaree was not required to make the empty gesture of assembling products on its loading dock for collection by Chinatex. As Dixon CJ observed in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25 at CLR 246-247, a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it. The most that was required of Bindaree was that it was, as described in Psaltis v Schultz (above), “not presently incapacitated from future performance and … not indisposed to do, when the time comes, what the contract requires”.

71. The primary judge held that Bindaree had met that requirement and remained ready, willing and able to make meat available to Chinatex week by week until the SKA was terminated. The evidence referred to at [53]-[54] above supported that finding. Bindaree did, in every relevant week, assemble and slaughter the required 900 cattle and was ready, willing and able to make meat derived from them available to Chinatex. Bindaree was therefore not disqualified from relying on Chinatex’s breach as a ground for terminating the SKA by the notice given on 31 May 2016.

Causation

72. Chinatex maintains that, if none of the earlier grounds of appeal is determined favourably to it, the appeal should succeed because the loss claimed by Bindaree was not caused by Chinatex’s breach in the form of failure to pay the Total Product Fee for each week in each non-performance period.

73. In making that submission, Chinatex relies on clause 2.6 (ie, the second clause 2.5) and clause 9.1. It says that the effect of those clauses was that, if Bindaree did not immediately terminate on the ground of Chinatex’s non-payment, it was not entitled to continue to perform and to claim damages for any consequent loss. The proximate cause of Bindaree’s loss was, it is said, its deliberate decision to press on with the contract rather than acting in accordance with clause 9.1 which removed its obligation to do so.

74. This submission does not accommodate the full effect of clause 9.1. As discussed at [67] above, clause 9.1 itself contemplated continued performance by Bindaree even if its obligation to perform had ceased. It was that aspect of the clause that, in concept, gave Bindaree an option to continue with the contract or not if, as happened, Chinatex did not honour its unconditional obligation to pay the Total Product Fee.

75. The position Chinatex takes on this aspect is that the effect of non-payment by Chinatex was, via clause 9.1, to remove not only Bindaree’s duty to perform but also its entitlement to perform (and, consequently, Chinatex’s obligation to accept Bindaree’s performance). If that were so, the contract would be one that was terminable unilaterally by Chinatex at any time by the simple expedient of deliberate breach of its own unconditional obligation to pay any week’s Total Product Fee – a breach that, in clauses 9.1 and 17.1(a), the parties had designated breach of a fundamental term. It is not possible to impute to the parties an intention that one of them could, by knowing and calculated default amounting to breach of a fundamental term, cause the other (innocent) party to be entirely deprived of the future benefit of the contract. It would be inconceivable to any reasonable businessperson that the consequence of the guilty party’s fundamental breach should be that that guilty party was exonerated from future performance against the will of the innocent party (or victim of the breach) who wished the contractual relationship to continue.

Damages

76. The primary judge awarded damages for each non-performance period equivalent to the Total Product Fee for each week of that period minus the proceeds of Bindaree’s sales to other customers of the products that Chinatex should have taken in the week (by making those sales, Bindaree appropriately mitigated its loss). This component of damages is not challenged on appeal.

77. In relation to the 111 weeks of the residue of the three-year term after termination by Bindaree on 31 May 2016, the primary judge awarded the net present value of a sum calculated as the Service Kill Fees that Bindaree would have received for those 111 weeks ($40,460,000) less the costs saved by not having to perform the contract ($16,972,000). His Honour said:[11]

“Bindaree’s true loss for the post-termination period ... was $405 per head (with Chinatex taking the risk of the Carcass Cost) less cost savings which Bindaree made (McDonald gave evidence that the weekly kill was reduced as a consequence of the termination of the SKA). This is the correct comparator for the position that Bindaree would have been in had Chinatex performed.”

11. Primary judgment at [106].

78. The primary judge noted but did not prefer an alternative approach put forward by Bindaree regarding lost profit which employed a figure of $100 per beast per week, the $100 being a profit element that Bindaree had indicated, in the course of negotiating the SKA, that it expected to realise from the Service Kill Fee of $450 per head. Chinatex argues on appeal that the primary judge should have taken this alternative approach.

79. The basic rule is that derived from Robinson v Harman: (1848) 1 Ex 850; 154 ER 363 at ER 365:

“Where a party sustains a loss by reason of breach of contract, he is so far as money can do it, to be placed in the same position with respect to damages, as if the contract had been performed.”

80. A party in Bindaree’s position is therefore entitled to expectation damages compensating it for the benefit that it would have gained had the contract been performed properly. In Commonwealth v Amman Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 at CLR 81, Mason and Dawson JJ said that expectation damages are often described as damages for loss of profits; and:

“Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.”

81. Brennan J said (at CLR 99):

“The measure of damages prescribed by Robinson v. Harman ensures that the parties to the contract are kept to the benefits and the burdens of the contract they have made: the plaintiff recovers no more than the net benefit he would have received under the contract; the defendant acquires no right to profit by his breach.”

82. The criticism that Chinatex makes of the primary judge’s approach is that it implies that the loss of profit was approximately $250 per head of cattle rather than the $100 per head for which Bindaree apparently budgeted (or which it foresaw) when making its own assessment of the proposed SKA. The criticism has no substance. His Honour adopted an orthodox approach to the calculation of lost profit. Bindaree’s estimate or prediction in the course of negotiations that it would derive a profit of $100 from the per head Service Kill Fee of $405 (and that the Carcass Cost would simply be a pass-through of actual costs of acquisition) was no more than a subjective evaluation of its own position by one party and found no expression in the SKA itself. That being so, Bindaree submitted, such a statement cannot, as a matter of principle, be held against the party when it comes to the objective exercise of assessing loss of profit damages. That submission must be accepted. The method the primary judge employed for assessing loss of profit damages was a method properly open to him.

83. There is, however, a second matter concerning damages for the unexpired 111 weeks of the term of the SKA. It concerns calculation of the cost saving that accrued to Bindaree after it ceased the slaughtering and processing of 900 cattle per week referable to the SKA. The primary judge approached that aspect by reference to the reduction in the weekly kill at the abattoir in the period June to December 2016, that is, the period of seven months immediately after termination of the SKA. The average weekly kill for that period was found to be 3,146. The primary judge determined cost saving accordingly.

84. Chinatex challenges that conclusion by reference to evidence concerning the average weekly kill at times after December 2016. Mr McDonald testified to a weekly figure of 3,700 or 3,800 in the early part of 2017 and a weekly figure of 3,900 to 4,000 in September 2017. The submission made on Chinatex’s behalf is that the primary judge should have had regard to those higher figures and therefore recognised a cost saving greater than that he in fact took into account.

85. Bindaree’s response is that the primary judge considered this matter and gave cogent reasons for not adopting the approach advocated by Chinatex. His Honour said:[12]

“Chinatex’s proposed methodology with respect to the proportion the Weekly Service Kill bears to the overall reduction in Bindaree’s kill is unsound. Bindaree has applied the percentage reduction to the actual costs incurred by it over the period of the reduction. Chinatex suggests a percentage reduction derived over a longer period, but does not apply it to the actual costs incurred over that period. Notionally, at least, the costs for the additional period may have increased in accordance with inflation or otherwise. The Service Kill figures may, at the present time, be different again.”

12. Primary judgment at [101].

86. As submissions made on behalf of Bindaree point out, Chinatex did not articulate in this Court any basis for questioning or correcting the explanation the primary judge thus gave for rejecting an approach based on the longer period. There is accordingly nothing to suggest that the judge’s approach should be found to be erroneous.

87. Neither of the matters relied on by Chinatex in seeking reduction of the damages award has been shown to warrant that result.

Conclusion

88. In my opinion, orders should be made as follows:

1. Appeal dismissed.

2. That the appellant pay the respondent’s costs of the appeal.

*********

Endnotes

Amendments

15 June 2018 - [74] - second sentence [66] amended to [67].

Decision last updated: 15 June 2018