| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : DAKIN FARMS PTY LTD -v- ELITE GRAINS PTY LTD [No 2] [2013] WADC 160 CORAM : CURTHOYS DCJ HEARD : 15-26 JULY 2013 DELIVERED : 24 OCTOBER 2013 FILE NO/S : CIV 2787 of 2011 BETWEEN : DAKIN FARMS PTY LTD First Plaintiff
BALWYN NOMINEES PTY LTD
Second Plaintiff
AND
ELITE GRAINS PTY LTD
First Defendant
RODNEY NORMAN CULLETON
Second Defendant
IOANNA CULLETON
Third Defendant
Catchwords: Contract - Lease - Repudiation
(Page 2)
Legislation: Nil Result: Counterclaim dismissed
Representation: Counsel:
First Plaintiff : Mr G M Abbott
Second Plaintiff : Mr G M Abbott
First Defendant : Mr T O Coyle
Second Defendant : Mr T O Coyle
Third Defendant : Mr T O Coyle
Solicitors:
First Plaintiff : King and Wood Mallesons
Second Plaintiff : King and Wood Mallesons
First Defendant : Lavan Legal
Second Defendant : Lavan Legal
Third Defendant : Lavan Legal
Case(s) referred to in judgment(s):
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
BP Refinery (Westernport) Pty Ltd v Shire of Hasting (1977) 180 CLR 266
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327
Caxton Publishing Company Ltd v Sutherland Publishing Company [1939] AC 178
Dalsor Pty Ltd v Roberts [2003] NSWSC 469
Furness v Adrium Industries Pty Ltd [1996] 1 VR 668
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115
(Page 3)
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
Letizia Building Co Pty Ltd v Redglow Asset Pty Ltd [2013] WASC 171
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
Manwelland Pty Ltd v Dames & Moore Pty Ltd [2001] QCA 436
Mitchell v Schofield [2007] WASC 303
National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252; [2002] VSCA 18
Rivat Pty Ltd v B&N Elomar Engineering Pty Ltd [2007] NSWSC 638
Sullivan v Glennon (1986) 68 ALR 399
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
(Page 4)
1 This action relates to four matters: 1. a contract for the sale of oats by Dakin Farms Pty Ltd to Elite Grains Pty Ltd; 2. a lease and purchase of farm land, known as Rathgar, by Mr and Mrs Culleton from Balwyn Nominees Pty Ltd; 3. an alleged conversion of seed oats belonging to Elite Grains by Dakin Farms; and 4. a swathing and harvesting agreement between Dakin Farms and Elite Grains. 2 Balwyn Nominees was the owner of Rathgar, a large farm just outside of Williams, Western Australia. 3 Dakin Farms operated a farming business on Rathgar. Amongst other crops, Dakin Farms grew oats. 4 Richard (Dick) Lester was a director of Dakin Farms and Balwyn Nominees. The manager of Dakin Farms was Robert D'Arcy. 5 Elite Grains carried on business as a buyer and seller of grain, including oats. In simple terms, it bought grain, mixed it and sold it for horse feed. 6 Elite Grains entered into agreements to purchase oats from Dakin Farms. 7 Rodney Culleton was a director of Elite Grains. His wife, Ionna, acted on behalf of Elite Grains. There is no dispute that at all times Mr and Mrs Culleton acted on behalf of Elite Grains. 8 The Culletons also owned a farm near Rathgar. David Read was their farm manager. 9 The Culletons wished to acquire more land to expand their farming operation so as to produce more oats. They became aware that Rathgar was available for sale and sought to buy it. The Culletons sought to finance the acquisition of Rathgar using the income generated by Elite Grains. The Culletons entered into an agreement with Dakin Farms to lease and then purchase Rathgar. (Page 5)
The Oats Agreement 10 It is common ground that in or about October 2009, Mr D'Arcy, on behalf of Dakin Farms, and Mr Culleton, on behalf of Elite Grains, entered into an oral agreement for Dakin Farms to sell and deliver to Elite Grains 250 tonnes of oats at a price of $150 plus GST per tonne (the Oats Agreement). 11 I do not accept Mr Culleton's evidence that the contract incorporated the Grain Trade Association standards (exhibit M25.2). I prefer Mr D'Arcy's evidence that those standards were never referred to.
The Varied Oats Agreement 12 Dakin Farms and Elite Grains subsequently agreed orally to vary the terms of the Oats Agreement such that Dakin would sell to Elite Grains all the oats harvested by Dakin Farms in the 2009/2010 harvest (the Varied Oats Agreement). Dakin says that the agreement was made in or about December 2009 and January 2010 (statement of claim (SC) par 28). Elite Grains says that it was made in or about early November 2009, alternatively, no later than 21 December 2009 (defence (D) par 19(a)). 13 Dakin Farms pleads that the Oats Agreement was varied during discussions between Mr Lester, on behalf of Dakin Farms, and Mr Culleton, on behalf of Elite Grains, on 19 December 2009 and later during December 2009 and January 2010. 14 Dakin Farms pleads that the 19 December discussions were confirmed by letter from Dakin farms to the Culletons, on behalf of Elite Grains, dated 21 December 2009 and by letter from Dakin to Mr Culleton, on behalf of Elite Grains, dated 12 January 2010. 15 Dakin Farms pleads that the Oats Agreement was varied as follows: (a) Dakin Farms would sell its 2009/10 harvest (SC par 28); (b) it would store the oats in the silos on site to the extent of their capacity, with the balance being stored in a stack (or bunker) on the apron of its silo complex (SC par 28(c)); (c) Elite Grains would lift the oats as required and weigh each load at the public weighbridge in Williams (SC par 28(d)); (d) Elite Grains would maintain detailed log books of each load (SC par 28(e)); (Page 6)
(e) Elite Grains would forward a 'Recipient Generated Tax Invoice' on a weekly basis which detailed the amount of oats lifted during that week (SC par 28(f)); (f) Elite Grains would account and pay for all oats lifted during a calendar month on the 14th of the following month (SC par 28(g)); (g) all oats were to be lifted by 31 October 2010 (SC par 28(h)); and (h) time was of the essence in respect of the obligations set out in pars 28(f), 28(g) and 28(h). 16 Dakin pleads that the terms pleaded in pars 28(f), 28(g) and 28(h) of the statement of claim were fundamental terms of the Varied Oats Agreement (SC par 28A). Elite Grains denies par 28A of the statement of claim. 17 Essentially, Elite Grains pleads that the only variations to the Oats Agreement were that: 18 Elite Grains pleads that the agreement as to quantity was varied in telephone conversations between Mr D'Arcy and Mr Culleton in or about late October 2009 or early November 2009. It pleads that Mr Lester's letter of 21 December 2009 confirmed the quantity variation. 19 Mr Lester's evidence is that the varied terms were agreed at a meeting between he and Mr Culleton on 19 December 2009 (exhibit A pars 68 - 72). Mr Lester confirmed the terms in a letter of 21 December 2009 (exhibit 21). The Culletons did not respond to that letter (exhibit A par 73). 20 Mr Lester gave evidence that in a subsequent conversation, prior to 12 January 2010, Mr Culleton agreed that Elite Grains should account and pay for all grain lifted during a calendar month on the 14th of the following month and that a recipient generated tax invoice should be issued by Elite Grains on a weekly basis (exhibit A par 75 - 77). Mr Lester confirmed this by letter of 12 January 2010 (exhibit 29 page 2). Again, Elite Grains did not send a letter disputing these terms. (Page 7)
21 I accept the express terms of the Varied Oats Agreement as pleaded in pars 28(a) - 28(h) because I accept Mr Lester's evidence as to the terms of the Varied Oats Agreement. The letter of 21 December 2009 and the letter of 12 January 2010 are consistent with Mr Lester's evidence. In general I found Mr Lester to be a more credible witness. Objectively, it seems logical to adopt a system for payment that was less administratively burdensome on both parties. 22 I do not accept Mr Culleton's evidence that the Varied Oats Agreement was made with Mr D'Arcy (exhibit M par 30). I accept Mr D'Arcy's evidence that the Varied Oats Agreement was not made with him (exhibit D par 18). 23 There was evidence from Mr Culleton that he had sent a form of contract 'Contract 6/2009' which incorporated the Grain Trade Association Rules (exhibit 18). Mr Lester's evidence was that exhibit 18 was not received and I accept his evidence as to non-receipt (exhibit B par 27 - 30).
Fundamental terms par 28A 24 There was no express agreement that time was of the essence as pleaded in par 28(i). Therefore, it is necessary for Dakin Farms to establish that there was such an implied term. 25 The Varied Oats Agreement was to sell Dakin Farms' 2009/2010 oats harvest. The harvest quantity was not measured before it was placed in the silos and stack. The evidence established that due to spillage and uneven loads it would be very difficult to establish a definite harvest quantity. Given the harvesting method, the amount lifted by Elite Grains on each occasion was not measured until it was weighed at the public weighbridge. Accordingly, determining the quantity was entirely in Elite Grains' hands. 26 In my findings on this point I have adopted Dakin Farms' argument in substance and form. 27 To the extent that the parties rely on the existence of terms implied in fact, the critical element will be whether the term sought to be implied will give 'business efficacy' to the contract; that is, the term sought to be implied must be needed 'in order to make the agreement work or, conversely, in order to avoid an unworkable situation' (BP Refinery (Westernport) Pty Ltd v Shire of Hasting (1977) 180 CLR 266, 292). (Page 8)
28 In the absence of express agreement about the passing of property in goods an implied term may be required in order to avoid an unworkable situation. The unworkable situation in this scenario would arise if Elite Grains had property in oats which had not been accurately weighed, accounted and paid for, and the oats were being stored on property not belonging to Elite Grains. 29 The principles as to the essentiality of a term are set out in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641 – 642: The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. 30 Whether a term of a contract is an 'essential term' (otherwise known as a 'condition') is to be determined by reference to the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and the commercial purpose it served. It is this common intention that determines whether a term is 'essential', so that any breach will justify termination: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 [48]). 31 The term pleaded in par 28(f) (the Invoice Term) is the mechanism by which Dakin Farms can be assured that there is a proper accounting for the oats lifted by Elite Grains. This is particularly significant where both the precise tonnage of oats placed in the silo and the stack by Dakin Farms and the precise tonnages 'lifted' by Elite Grains on each occasion are unknown. 32 In the context of this case the exchange of possession in the goods sold and the tender of the price of those goods (Sale of Goods Act 1895 s 28 as would have been the case under the oats Agreement) had been placed into the hands of the buyer. As such, the seller does not have the inherent protection of being able to refuse to deliver except upon exchange of the payment of the price if the buyer falls into default in the payment for delivered goods. 33 Further, the Invoice Term stands as a preliminary step for Elite Grains to accurately account and pay for the oats within the (Page 9)
stipulated time, and therefore comply with the term pleaded in par 28(g) (the Account & Pay Term). 34 The receipt by Dakin Farms of the price for the lifted oats is central to the Varied Oats Agreement. Dakin Farms cannot check the accuracy of Elite Grains' calculation of the total price unless proper invoices are provided. It is also critical to provide interim calculations when the lifting of the oats is envisaged to take place over a 10-month period (i.e. from January 2010 until October 2010). Similarly, the length of the period within which the oats might be lifted shows the importance of Dakin Farms being paid in staggered monthly payments corresponding with the progressive liftings. 35 Both the Invoice Term and the Account & Pay Term worked to ensure that Dakin Farms obtained the critical contractual benefit of the staggered monthly payments. They provided the mechanism by which Dakin Farms could monitor the performance by Elite Grains and regulate the manner of working to the central objective of the contract. Thus, a breach of those terms would deprive Dakin Farms of a substantial part of the benefit of the contract and breach of those terms would entitle Dakin Farms to terminate the Varied Oats Agreement. 36 In the alternative, the Invoice Term and Account & Pay Term may be characterised as intermediate terms, the breach of which in this case justifies termination because it deprives Dakin Farms of the substantial benefit of the contract. 37 Breach of terms which regulate the manner of working to the central objective of the contract, such as monthly reporting, banking and maintaining proper books, is capable of giving rise to an entitlement to terminate because it may deprive a party of a substantial part of the benefit of the contract (Koompahtoo v Sanpine Pty Ltd [133] - [134]). 38 Generally, invoicing and payment terms do not play the important role they play in this agreement. My first reaction was that terms relating to invoicing and payment could not be conditions. However, seen in the light of the fact that Dakin Farms were entirely dependent on Elite Grains, as argued by Dakin Farms, I accept Dakin Farms argument. 39 The Culletons argue that another approach to ascertaining whether a term is a condition is to have regard to whether damages for its breach can be considered to be an inadequate or inappropriate remedy in the circumstances: Ankar Pty Ltd v National Westminster Finance (Page 10)
(Australia) Ltd (1987) 162 CLR 549, 557. They argue that in the present case damages would clearly be an adequate remedy. 40 Having regard to the operation contract as a whole I do not accept this argument. For the agreement to operate properly, correct measurement and invoicing was central to its operation. 41 I find that par 28 and par 28A have been made out by Dakin Farms. Alternatively, par 28A was an intermediate term.
The lease and purchase agreement 42 On about 16 December 2009 Balwyn Nominees entered into a lease and purchase agreement with the Culletons. 43 The Culletons agreed to lease from Balwyn Nominees an area of Rathgar on the north side of the Williams and Narrogin Highway and part of an area on the south side known as Fitts Creek. These areas amounted to the majority of Rathgar. The lease was for a fixed term of one year commencing on 1 March 2010 and ending on 28 February 2011. The total rent was $500,000 (excluding GST) payable by quarterly instalments in advance of $125,000 plus GST. 44 As part of the same agreement the Culletons agreed to purchase the majority of Rathgar by payment in two stages following the completion of the lease period on 28 February 2011. The purchase price was $13.2 million. The amount of $6.5 million was to be paid on 28 February 2011 and the balance of $6.7 million was to be paid on 28 February 2012. 45 The agreement was drafted by Mr Lester. Neither party sought advice from a lawyer. The costs of this litigation dwarf the cost of involving lawyers in late 2009. It is obviously too late for the parties to this litigation but it a salutary lessons to others. 46 The relevant terms of the agreement are set out below: AGREEMENT TO LEASE AND PURCHASE Rathgar - Williams, WA 16 December 2009 1. Rodney and Ioanna Culleton have agreed to take a lease of Rathgar (total property on north side of Williams and Narrogin Highway) excluding: …. but include six paddocks of Canola stubble (2009 crop) at Fitts Creek on south side of Williams Narrogin Highway, (Page 11)
for one year commencing on 1 March 2010 and ending on 28 February 2011 at a clear rental excluding GST of $500,000 payable quarterly in advance. Rental Payments: 1 March 2010 $125,000 plus GST 1 June 2010 $125,000 plus GST 1 September 2010 $125,000 plus GST 1 December 2010 $125,000 plus GST 2. Rodney and Ioanna Culleton have agreed to purchase Rathgar (north side of Narrogin Williams Highway only) … for a total purchase price of $13.2 million cash as follows: • For settlement on 28 February 2011 - $6.5 million, when Low Waters and Wilga Mia will be transferred to the Culletons; and • On 28 February 2012 - $6.7 million, when the balance of the property being … will be transferred. • In the event that Rodney and Ioanna have difficulty in meeting the settlement proceeds of $6.5 million on 28 February 2011 and $6.7 million on 28 February 2012, the parties have agreed: To exercise their best endeavours To be just and faithful to one another To negotiate in good faith To agree to pay and receive the maximum amount that Rodney and Ioanna can manage on that date - minimum of Half the Amount Due - with any balance remaining immediately increasing by 10%. (Capital balance remaining increases by 10%). • In the event that the above arrangements are interrupted by unforeseen events (equine influenza, palatability issues, etc), the parties agree to work together to find a solution in order to continue these sale and purchase arrangements. (Page 12)
47 The agreement was unconditional.
The amount of grain supplied to Elite Grains under the Oats Agreement and the Varied Oats Agreement until March 2010 48 Dakin Farms harvested the oats between December 2009 and January 2010 and placed them into the silos and the stack on Rathgar. 49 Dakin Farms pleads the amount of oats that it supplied to Elite Grains at par 30 of its statement of claim. 50 It is not in issue that the amount due for the oats pleaded in pars 30(a) - 30(c) was $11,415.86 and that that invoice was paid on 16 February 2010 (exhibit 27). 51 Paragraphs 30(d) - 30(g) relate to oats that Mr D'Arcy recorded as being delivered to the Culletons' farm or collected by the Culletons prior to 7 January 2010. Mr D'Arcy set out in his witness statement at pars 45 - 48 that he maintained a contemporaneous record of the deliveries of oats to Elite Grains (see also exhibits 23 and 45A). Mr D'Arcy was not challenged in cross-examination on this. I am satisfied that a total of 75.21 tonnes of oats was supplied during the dates pleaded. 52 It is not in issue that the oats pleaded in pars 30(h) - 30(t), totalling 219.36 tonnes, were lifted by Elite Grains from Rathgar on or about the dates pleaded in those paragraphs (exhibit 45). 53 Dakin Farms' claims payment for 294.57 tonnes of oats at $165 tonne (inc GST) = $48,604.55 (SC par 35). By par 28 of its defence Elite Grains denies any liability to Dakin Farms in the sum of $48,601.82 or any sum, on the grounds that it has an equitable set-off to such sum. 54 I find that Dakin has established its claim to $48,604.55. 55 Dakin Farms originally made a claim to a further amount of oats that it claimed had been lifted by Elite Grains but this amount was abandoned in closing.
The events of March 2010 56 The first payment of $125,000 plus GST under the lease and purchase was due for on 1 March 2010. On 25 January 2010 (Page 13)
Balwyn Nominees issued an invoice to the Culletons for that payment to be paid on 25 January 2010. 57 It was subsequently agreed that the first payment would be made in two instalments of approximately $67,500 (inclusive of GST). This occurred because Mr Culleton informed Mr Lester that he was having cash flow problems (exhibit A par 91 – 92). 58 The Culletons paid $67,500 to Balwyn Nominees and went into possession on 1 March 2010. 59 On 14 March Balwyn Nominees leased the balance of Fitts Creek to GR Atwell Pty Ltd for two months from 1 April 2010 to 31 March 2013, for a rent of $55,000 per annum plus GST. 60 On 15 March 2010 the Culletons sought a meeting with Richard Lester. 61 Two meetings took place on that day: one in the morning and one in the afternoon. At the second meeting Rod Culleton delivered the following letter to Dick Lester: Dear Dick, Based upon our discussions at our meeting today at our premises, we regretfully inform you that under the current agreement, at this point in time, we are unable to proceed with the leasing arrangement for Rathgar. As discussed, we are unable to attract support from the bankers over and above our east coast ventures at this point in time. This will not enable us to act to our 'best endeavours' and to activate the 'just and faithfulness to one another' as per the agreement. We do not wish to create ill feeling between us which we foresee if we continue to proceed with matters at hand as they currently stand. Again you have our sincere apologies and we are greatly disappointed with this outcome but the time for this wonderful venture is not correct at this point in time. However, we are happy to settle on the equipment that has been approved to date and we would continue on with the arrangement in place with the oats if this is still suitable to you. With regards to the $67,500 already paid we can put this down as payment of full and final payment of inv 1 000060 (balance outstanding $9,387.75), the workshop ($8,800.00) and the current oats amount due ($11,250.77 - attached). A total of $29,438.52, leaving a credit balance of $38,061.48 for oats. (Page 14)
We wish you all the very best in your endeavours in the future. 62 Balwyn Nominees alleges that this letter and the Mr Culleton's statement to Mr Lester on 15 March 2010 constituted a repudiation of the lease and purchase agreement (SC pars 22 - 23). 63 The Culletons pleaded that the lease and purchase agreement was brought to an end by mutual release or abandonment (D par 12) or alternatively that by its conduct Balwyn Nominees acquiesced in any such repudiation, or further or alternatively elected not to exercise, waived or abandoned its right, if any, to recover any damages from the Culletons (D par 15). 64 The Culletons rely on the Balwyn Nominees letter of 16 March 2010 as the basis for both the allegations as to mutual release abandonment of estoppel. 65 The Culletons also plead: 14. By way of further answer to paragraphs 22 to 24 of the Statement of Claim, the Culletons say: (c) During a meeting on 15 March 2010 between the Culletons and Mr Lester at the Culletons' home which commenced at around 11 am and concluded at around 12.30pm: (i) The Culletons informed Mr Lester that they were not able to proceed with the Lease and Purchase Agreement; (ii) Mr Lester said in substance that he was going to see Gordon Atwell to finalise the lease, he would be back in a couple of hours, and he wanted the Culletons to prepare a letter setting out their position. (d) At around 2.00pm on 15 March 2010, Mr Lester on behalf of Balwyn Nominees and Mr Gordon Atwell on behalf of GR Atwell Pty Ltd agreed the terms of a further lease (Oral Lease) which was to include the Lease Proposal Land together with adjacent land that was leased by Balwyn Nominees to the Culletons under the Lease and Purchase Agreement, namely the land referred to on the first page of the Lease and Purchase Agreement as six paddocks of canola stubble at Fitts Creek (Canola Land). (Page 15)
(e) At around 3.00pm on 15 March 2010, the Culletons handed Mr Lester their letter of that date, by which they said that they were not able to proceed with the Lease and Purchase Agreement. (f) On 16 March 2010, and pursuant to the Oral Lease or a licence granted by Balwyn Nominees to GR Atwell Pty Ltd at the meeting between Mr Lester and Mr Atwell on 15 March 2010, GR Atwell Pty Ltd shifted some of its cattle onto part of the Canola Land. (g) On 5 April 2010, Mr Lester and Mr Atwell signed a written lease proposal, recording the terms of the Oral Lease. (h) By its conduct pleaded in paragraphs (c)(ii) and (d) above, Balwyn Nominees repudiated the Lease and Purchase Agreement. (i) As a matter of law, the Culletons are entitled to rely on the repudiation by Balwyn Nominees as a basis upon which they were entitled, as of the time when they delivered their letter dated 15 March 2010 to Mr Lester, to elect to terminate the Lease and Purchase Agreement. 66 The first question that arises is whether the events of 15 March constituted a repudiation of the lease and purchase agreement by the Culletons. 67 In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, Mason CJ observed (633 - 634) that the question of whether the conduct of a contracting party amounts to a repudiation is to be assessed in light of the view that would be formed by a reasonable person in the position of the other party as to whether there was an intention not to be bound by the contract. 68 A repudiation may arise from a single act or from a combination of acts: Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, 349 - 351. 69 There is a dispute as to what happened in the morning meeting and in the afternoon meeting prior to the letter being given to Mr Lester by Rod Culleton. 70 The essence of the Culleton's plea as to Dakin Farm's alleged repudiation is the allegation that Dakin Farms and G R Atwell entered into a lease of that part of the Fitts Creek property that had been leased to the Culletons, as part of the broader Rathgar lease and therefore as part of (Page 16)
the lease and purchase agreement, between the morning meeting and the afternoon meeting of 15 March 2010. 71 I now turn to the evidence as what the parties say took place during the meetings. 72 Mr Lester's evidence appears at pars 96 - 105 of exhibit A. Mr Lester's evidence is that at the first meeting on 15 March Mr Culleton said 'we just can't do it, we don't have the support of the banks'. Mr Lester asked if he was rescinding the lease and Mr Culleton said 'yes'. Mr Lester then said words to the effect that they had a written agreement and that he wanted them to think hard about what they were doing. He asked for confirmation in writing and said he would return at 3.00 pm. 73 Mr Lester's evidence is that he did not recall telling the Culletons that he was going to visit Mr Atwell or that he did in fact visit Mr Atwell between the two meetings. He does not have a specific recollection but he thought that he went to see his horses at Rathgar. He conceded that he may have gone to see Mr Atwell but does not recollect having done so. He rejects the possibility that at that stage he would have told Mr Atwell that he could have the balance of Fitts Creek (exhibit B pars 77 - 82). 74 Mr Lester's evidence is that he returned at 3.00 pm and that Mr Culleton gave him the letter dated 15 March 2010 (exhibit 31), which he read immediately. 75 Mr Culleton also handed him Elite Grains's recipient generated tax invoice for $11,250.77. 76 Mr Lester then said that he was very disappointed and that it placed him in a difficult position. He then left. 77 Mr Culleton's evidence appears at pars 111 - 122 of exhibit M. His evidence is that the morning meeting took about an hour. He stated that early in the meeting Mr Lester asked him for a cheque for some of the farming equipment. He wrote out a cheque and gave it to him. 78 He agrees with Mr Lester that an invoice for $11,250.77 was provided to Mr Lester. He says that Mrs Culleton told Mr Lester about a truckload of oats from Rathgar that went straight into a container for rail. 79 Mr Culleton's evidence is that they then had a conversation during which: (Page 17)
114.1 I said words similar to: 'I have real concerns about your confidentiality because vital information and components of our business are coming back to us from Rob Darcy'; 114.2 Mr Lester said words similar to 'This is very unlikely'; 114.3 I said 'Dick I can tell you that it is'; 114.4 I asked him whether he had leased Fitts Creek to Gordon Atwell; 114.5 I cannot recall precisely what Mr Lester said save that he didn't say that he had or had not leased Fitts Creek; 114.6 I said that we had grave concerns about our agreement; and 114.7 Mr Lester said that he was going over to Gordon Atwell's to finalise arrangements, and that he would be back in a couple of hours. As he was walking out he said words similar to 'As far as I am concerned, I have sold the oats to you'. He also said that whilst he was away he wanted us to put what we were thinking in a letter to him. 80 Mr Culleton's evidence is that Mr Lester then left. 81 Mr Culleton's evidence is that Mr Lester returned about two hours later. Shortly after Mr Lester arrived Mr Culleton gave him his letter. Mr Lester spoke to Mr Culleton about the letter and said words similar to 'If I told you how I feel it would be inhumane'. Mr Lester spoke very loudly, was very angry and threw the letter onto the table. He then left and took the letter with him. 82 Mrs Culleton's evidence appears at pars 74 - 83 of exhibit P. Mrs Culleton's evidence of the morning meeting is that Mr Lester requested payment for the purchase of some farming equipment and oats. She confirms that an invoice was provided to Mr Lester. Mr Lester stated that he was not happy with the quantity of oats that were being lifted and the delays in payment for equipment. The equipment was being purchased under a separate agreement. 83 Mrs Culleton's evidence is that Mr Culleton then called their finance broker and put him on speaker phone so that he could explain to Mr Lester that equipment valuations were required. Her evidence is that: 76.11 Rod then said words: 76.11.1 'business was not going well for us in the Eastern States as we had expected or predicted'; (Page 18)
76.11.2 'Elite Grains was spending more capital than it had coming in'; 76.11.3 'we had been told by our bank manager that we would not be given funding and, that we ought to ask the bank again after 12 months'; 76.11.4 we respected Mr Lester and thought that if we could not buy the land it would be better not to waste his time; 84 Mrs Culleton's evidence is that Mr Lester was silent, but he looked shocked by what Rod had said to him. 85 Mrs Culleton's evidence is: 76.13 Rod then said words similar to: 76.13.1 'we thought that the sooner we brought it up the sooner you can move on'; 76.13.2 'we have looked at it long and hard'; 76.13.3 'we don't know how it can be rectified and we want to be fair to you'; and 76.13.4 'we need to call it a day, hopefully we can move on and be friendly neighbours'; 76.14 Mr Lester said something about being shocked as this was unexpected. Then he stood up from the dining room table and said: 76.15 as he was walking out, Mr Lester said words similar to 'as far as I'm concerned Rodney, I've sold the oats to you', and that he would be back in two hours. 86 Mrs Culleton's evidence is that Mr Lester came back to the house about two hours later, at around 3.00 pm, just before the time when she used to pick up her child from the front gate where she was dropped off by the school bus. 87 Her evidence is that on Mr Lester's return they gave him the letter and he appeared shocked but did not say anything. Mrs Culleton then left (Page 19)
to pick up her child. On her return she saw Mr Lester leaving the property. 88 Mrs Culleton also gave evidence that she saw cattle on Fitts Creek on 16 March 2010 and telephoned Mr Culleton to say 'Guess what, Atwell's got cows on the property already' (exhibit P pars 84 - 85). In the course of cross-examination Mrs Culleton was quite emphatic about this. The paddocks originally leased by the Culletons, and subsequently by G R Atwell, had canola stubble on them (exhibit B par 40, ts 257). Mr Atwell's evidence was that canola stubble is dangerous to cattle's eyes and that he would not have put cattle on the paddocks until the canola stubble had broken down (ts 521 - 522). He was clear that he did not put cattle on the Fitts Creek paddocks until well after 16 March. His evidence is that it took him about two weeks to sort out how to treat the canola paddocks before grazing his cattle there (ts 521). 89 I accept Mr Atwell's evidence. There is no reason for him not to tell the truth. It follows that I reject Mrs Culleton's evidence on this point. 90 Mr Lester's evidence is that Mr Culleton stated that the reason he could not proceed with the lease was because he could not obtain bank finance. Mrs Culleton confirms that not obtaining finance was the reason for not proceeding. Lack of finance is stated as the reason in the Culleton's letter of 15 March 2010 (exhibit 31). Lack of finance is the objectively obvious reason for not proceeding with the lease and purchase. On that basis I find that lack of finance was the reason the Culletons did not proceed with the lease and purchase. 91 In the light of my finding as to the reason for not proceeding, Mr Culleton's evidence that he failed to mention finance at the first meeting and that he referred to matters such as confidentiality and 'grave concerns about our agreement' as providing a basis to terminate simply do not ring true. I do not accept that Mr Culleton's evidence is reliable in relation to what happened on 15 March 2010 in so far as it does not accord with Mr Lester's evidence. 92 I do not accept that Mrs Culleton is a reliable witness. In particular I note her evidence in relation to the cattle. The suggestion in the closing that Mrs Culleton saw the cattle in transit is speculation. 93 I accept Mr Lester's evidence as to what happened at the meetings of 15 March 2010 in preference to that of both Mr and Mrs Culleton. (Page 20)
94 Dakin had an existing lease of most of Rathgar with the Culletons. Even if the Culletons maintained their intention not to proceed with the lease there was no urgency in Dakin entering into a lease with G R Atwell for the balance of the Fitts Creek property - a much smaller area of land yielding a far lesser rental income. In these circumstances it is objectively improbable that Mr Lester would have rushed off to see Mr Atwell to enter into a lease when he was urging the Culletons to re-consider their decision not to proceed. That is also Mr Lester's evidence (exhibit B par 82). 95 Mr Atwell's evidence is that on '15 March, or a day or so after that date' Mr Lester visited him and said that the lease with the Culletons was not proceeding. A varied lease was then entered into. It was clear from Mr Atwells' evidence that he was unsure as to the date on which Mr Lester visited him (ts 521). The significant aspect of Mr Atwell's evidence was that Mr Lester told him that the lease with the Culletons was not proceeding (exhibit O). For the reasons stated above in relation to objective probability, until Mr Lester was certain that the Culletons did not intend to proceed with the lease he would not have entered into a binding agreement with Mr Atwell nor told him that the lease was not proceeding. Mr Atwell's evidence does not support the Culleton's position. 96 I note the Culleton's arguments about Mr Lester's presence on 16 March 2010. However, having regard to the other evidence, Mr Lester was at Rathgar on 16 March 2010 and he was mistaken when he said that he was not at Rathgar on 16 March 2010. 97 In the light of the above, I accept Mr Lester's evidence that he did not enter into a lease of the balance of the Fitts Creek paddocks on behalf of Balwyn Nominees until after the Culleton's letter of 15 March 2010 had been handed to him. 98 A reasonable person in the position of Mr Lester, in the light of the statements made by Mr Culleton and the text of the letter of 15 March 2010, would have concluded that the Culletons did not intend to be bound by the lease and purchase agreement. The Culletons did repudiate the lease and purchase agreement on 15 March 2010. 99 On 16 March 2010 Mr Lester, on behalf of Balwyn Nominees, wrote to the Culletons (exhibit 33) stating: (Page 21)
I have no alternative but to accept you letter as rescission of our arrangements. All matters in respect to this are now at an end. … With regard to the $67,500 paid by you as rental, I advise: 1. In accordance with our Agreement to Lease and Purchase dated 16 December 2009 and signed by us all on 19 December 2009, your lease of my property actually commenced on 1 March 2010. I note that your letter of rescission is dated 15 March 2010 and therefore the lease has already been running for half a month. Part of this amount of $67,500 paid as rent will be held as rental for this period. 2. While all lease payments are at an end as of today, the balance of the amount of $67,500 will be accepted as payment in lieu of one month's notice of termination. 100 Balwyn Nominees' letter of 16 March 2010, in effect, accepted the Culleton's repudiation. The lease and purchase agreement terminated as at 16 March 2010. 101 The Culletons did not respond to the letter of 16 March till 21 March 2010 (exhibit 35). The Culletons accepted that the lease and purchase agreement had been terminated but denied that Balwyn Nominees was entitled 'to retain the whole $67,500 paid by way of rent, and not even give a credit for outstanding invoices for oats - you will appreciate that $67,500 is a lot of money for you to receive for essentially nothing'. 102 The Culletons argue that the conduct of the parties reveals that neither party intended that the lease and purchase agreement be further performed and that the parties are to be regarded as having abandoned or abrogated the contract (Letizia Building Co Pty Ltd v Redglow Asset Pty Ltd [2013] WASC 171 [115] - [123]). This is certainly not a case where delay could provide any basis for inferring abandonment or abrogation. 103 The Culletons argue that: The language and tenor of the Culleton Letter and the Balwyn Letter are in the nature of a proposal/offer, and an acceptance. The Culleton Letter does not simply state, in stark terms, that the Culletons are not proceeding with the lease. Rather, the Culletons express apologies and regret and explain why they cannot proceed with the lease, and set out a proposal as to how the $67,500 should be dealt with which would leave $38,061.48 as a credit balance for oats. (Page 22)
104 I do not accept the Culletons' argument. The letter, the statements made by Mr Culleton and the circumstances of the meeting of 15 March make it clear that the Culletons were not proceeding with the lease and purchase agreement irrespective of Mr Lester's views (e.g. ts 626 - 627). It was not a topic that was open for discussion. The fact that the Culletons might have couched the letter in an apologetic tone does not alter the essential thrust of the letter or the tone of the conversations at the meetings. 105 The Varied Oats Agreement was a separate contract, as the Culletons later emphasised, and the content of the letter in relation to that does not assist the Culletons. The Culletons were clear that they would not proceed with the lease and purchase agreement. They were prepared to proceed with the Varied Oats Agreement as Dakin Farms agreed. 106 I regard the question of Elite Grains' continued access to the silos as irrelevant in determining whether the letter was consensual. 107 I do not regard Mr Lester's use of the terms 'rescission', upon which the Culletons placed emphasis, as relevant. The Culletons argue that Mr Lester: is using the word 'rescission' as referring to the right that the Culletons had to elect to terminate. Whether Mr Lester's understanding about the strict legal question was correct or not is beside the point'. 108 I do not accept this. It is clear from Mr Lester's conduct and letters that he did not acknowledge that the Culletons had any right to terminate. 109 The failure of Balwyn Nominees to make a claim for damages until Mallesons' letter of 24 June 2010 does not amount to an admission that the Culletons had a right to terminate or that it had waived any claim for damages. 110 The exchange of letters relied upon by the Culletons does not constitute an abandonment of the lease and purchase agreement or a waiver of Balwyn Nominees' right to damage nor does it amount to an estoppel. The Culletons did not act to their detriment in reliance upon anything Mr Lester did or said. 111 Accordingly, Balwyn Nominees' plea that the Culletons repudiated the Lease (SC par 23) and that Balwyn Nominees accepted the repudiation and terminated the lease are made out. (Page 23)
Damages for breach of the lease and purchase agreement 112 A lessor who terminates a lease upon the repudiation of the lessee can recover damages for loss of bargain. 113 Balwyn Nominees argue that the term of the lease and purchase agreement would have expired on 28 February 2011 had it not been terminated. This means that the term would have expired prior to the trial if the lease had not been terminated, and in the circumstances, the appropriate measure of damages is: 1. the total of rents outstanding at the date of the termination; 2. the total rent and outgoings etc that would otherwise have been payable under the lease after the date of termination for the balance of the term; and 3. less any amount that Balwyn Nominees has obtained as profits from the use of the leased property between the date of termination and the date on which the lease would otherwise have expired (e.g. by re-letting the whole or part of the leased property or otherwise). 114 Balwyn Nominees pleads that it has suffered damages of $205,536.50 (inclusive of GST) as a result of the repudiation. The claim to damages is comprised of:
|