Grencol Pty Ltd v Viscount Agricultural Developments Pty Ltd
[2004] VSC 204
•16 June 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5360 of 2001
| GRENCOL PTY LTD | Plaintiff |
| v | |
| VISCOUNT AGRICULTURAL DEVELOPMENTS PTY LTD AND ORS | Defendants |
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JUDGE: | KAYE J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 24 to 28 May; 31 May, 2 June 2004 | |
DATE OF JUDGMENT: | 16 June 2004 | |
CASE MAY BE CITED AS: | Grencol Pty Ltd v Viscount Agricultural Developments Pty Ltd and ors | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 204 | |
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CONTRACT – Breach of contract - Damages – Remoteness of damage – Rule in Hadley v Baxendale – Loss of profits - Misleading conduct – s.52 Trade Practices Act 1974 (Cth), s.9 Fair Trading Act 1999 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr J. Bleechmore | Engel and Parters Pty |
| For the Defendant | Mr S. Marantelli | Messrs Wisewoulds |
TABLE OF CONTENTS
Background......................................................................................................................................... 2
Liability – breach of contract........................................................................................................... 9
Liability - Trade Practices Act and Fair Trading Act................................................................. 10
Loss and damage – contract............................................................................................................ 16
Lost profit on sale of progeny........................................................................................................ 17
Loss of profit – external service fees............................................................................................ 24
Loss of profits – the Pucara and Purrumbete transaction........................................................ 28
Remoteness........................................................................................................................................ 34
Deduction of cost of acquisition of Flashman........................................................................... 42
Defendants’ written submissions................................................................................................. 44
Conclusions on claim for damages for breach of contract....................................................... 45
Damage - Trade Practices Act and Fair Trading Act.................................................................. 46
Summary of conclusions................................................................................................................ 49
HIS HONOUR:
In this matter the plaintiff, Grencol Pty Ltd (“Grencol”) claims damages against the first defendant, Viscount Agricultural Developments Pty Ltd (“Viscount" Agricultural Developments”) and the second defendant, Tulip Nominees Pty Ltd (“Tulip Nominees”) for breach of an agreement made on or about 23 December 1999 in respect of the purchase by Grencol of a grey male Suri alpaca. Grencol also claims damages against the third defendant, Mr Pasquale Viceconte (“Viceconte”) for deceit and for contravention of s.52 of the Trade Practices Act 1974 (Cth) and s.9 of the Fair Trading Act 1999 (Vic).
In essence, the plaintiff claims that the defendants breached terms of the agreement between them: that the alpaca have a fleece fibre diameter of 18.71 microns; and that the defendants would not import into Australia any other grey Suri male in the same consignment of alpacas which included the grey alpaca which was sold to the plaintiff. The first defendant, in its defence, pleaded that the plaintiff had waived the latter term, but that defence was not pursued. At trial the first defendant admitted the breaches of the agreement. In December 2001 the first defendant repaid to the plaintiff the purchase price paid for the male alpaca. The issue at trial between the plaintiff and the first defendant concerned the assessment of damages suffered by the plaintiff as a consequence of the breach of contract. The claim by the plaintiff against the third defendant, Viceconte, arose from conversations between Mr and Mrs McNeill, the directors of the plaintiff, and Viceconte in June and July 2000. The plaintiff claimed that in those conversations the third defendant made a number of misrepresentations, as a result of which the plaintiff did not then cancel the agreement between itself and the first defendant. The plaintiff claimed that it thereby suffered loss and damage by taking possession of and using the alpaca.
Background
Alpacas are a species of the camel family. They originate from Peru, Bolivia and Equador. For commercial purposes the principal feature of the alpaca is its fine fleece. Since about the early 1990s herds of alpacas have been established outside South America, principally in the United States of America and Australia.
There are two species of alpacas, the Huacaya and the Suri. The Huacayas are more numerous, and Suris constitute approximately 10% of the Australian herd. Alpacas can be either coloured or white. If they are coloured they can be black, fawn, grey, rose-grey or silver-grey. Apparently only a small percentage (approximately 10%) of Suri alpacs are coloured. The Suri was described as having a “lock‑in” style of fleece which is softer and flatter than the Huacaya, and is used, inter alia, in very elite suits.
The diameter of the fleece of the alpaca is measured in microns. Mr Jeffrey McNeill, a director and a principal witness of the plaintiff, stated that a measurement of under 19 microns would indicate a very fine fleece. A reading of 23 to 26 microns would indicate a moderate fleece, above 26 microns the fleece would be of ordinary fineness, and above 30 microns the fleece would be of poor fineness. Generally, the micron reading increases with each of the first three fleeces shorn from the alpaca. The fineness of the fleece plateaus after the third shearing, which occurs when the animal is about three years of age.
The offspring of alpacas are called cria. The normal gestation period of a female alpaca is from 11 to 12 months. Alpacas are either homozygous or heterozygous. A homozygous animal will reproduce progeny with the same trait to which the animal is homozygous. On the other hand an animal which is heterozygous to a particular trait will reproduce that trait in the majority (about 75%), but not all, of its offspring.
The importation of alpacas into Australia is controlled by the Australian Alpaca Association (“AAA”). Some alpacas are American registered (referred to as “ILR” registered). If an ILR registered male is mated with an ILR registered female, then the progeny may be exported to the United States of America.
Grencol is the trustee of the McNeill Family Trust. Its directors are Jeffrey McNeill and his wife Kaye McNeill. Jeffrey McNeill is legally blind. He has been an elite marathon athlete, and in that capacity has competed in all of the Olympics from 1976 to 2000. Kaye McNeill is a physiotherapist with her own practice in Gippsland. Mr and Mrs McNeill live on a three acre property a short distance north of Bairnsdale in East Gippsland.
In 1999 the McNeills purchased an 86 acre property, called Tambo Downs, eight kilometres north of Bairnsdale. They intended to farm alpacas at that property. Jeffrey McNeill was near the end of his career as an athlete, and indeed he retired after the Sydney Olympics on October 2000. Until that time Grencol had been used as the vehicle for share trading by the McNeills. It was intended that Grencol would be the corporate vehicle used for the alpaca enterprise.
The McNeills educated themselves in alpacas. They read material, spoke to other persons involved in the alpaca industry, and attended shows. At the national show at Tamworth in November 1999 they met Mr Alan Cousill (“Cousill”) and his wife, Ms Judith Anderson (“Anderson”), with whom they later became associated. Cousill and Anderson were well‑established in the alpaca industry, both in Australia and in the United States of America. They had their own herd of alpacas at a property on the Great Ocean Road in South Western Victoria. Anderson is a qualified alpaca judge both in Australia and the United States of America.
The McNeills initially, in late 1998 or early 1999, purchased two coloured female alpacas which they kept on their home premises. After studying the alpaca industry they decided that they would specialise in breeding Suri alpacas rather than Huacaya alpacas. They decided to breed both white and coloured Suris. Their intention was to cross white females with white males, thereby retaining pure white offspring, and to cross a coloured male over coloured females.
For that purpose the McNeills set about purchasing their alpaca herd. In November 1999 they called for tenders to purchase alpacas. As a result of that tender they agreed to purchase eight female alpacas, and a half share of a nine month old white male alpaca, named Halcyon, from Cousill and Anderson for $220,000. The eight females included three white ILR registered animals.
At about that time the McNeills learned of the possibility of purchasing a grey alpaca male, which was then in South America, and which they could use for breeding coloured offspring. Jeffrey McNeill spoke to Peter Tulip, an agent of Viscount Agricultural Developments, and wrote a letter dated 18 November 1999 expressing interest in the animal. He then spoke to Viceconte, a director of Viscount Agricultural Developments, on 23 December 1999. Viceconte told him that the fineness of the fibre, the lock structure, and the lustre of the animal were extremely good. According to Mr McNeill, Viceconte also stated that the animal would command a service fee of approximately $2,500. Viceconte denies that he made that comment. As a result of that conversation the McNeills agreed to purchase the grey male, named “Flashman” for the sum of US$45,000.
The agreement was contained in a document dated 23 December 1999 between Viscount Agricultural Developments and Jolimont Alpaca, as vendor, and Grencol as purchaser. “Jolimont Alpaca” was the business name of Viscount Agricultural Developments. The contract contained the specific microchip identification of the alpaca. It also specified that the fibre, as tested by AAA, was 18.71 microns, with a standard deviation (“S/D”) of 3.94, and therefore a co‑efficient of variation (“CV”) of 21.1%. The agreement provided that the vendor guaranteed and warranted that there would be no other grey Suri male exported to Australia in the consignment of alpacas.
In February 2000 the plaintiff also agreed to purchase 13 female Suri alpacas from the defendant for the sum of $295,000. The 13 females, together with Flashman, were all to be imported from Bolivia. They were part of a larger consignment which was bound initially for Canada. The animals arrived in Australia in May 2000. They were initially kept in quarantine at Spotswood, and were released to the first defendant’s “Jolimont” farm at Romsey in June 2000. The alpacas remained in quarantine at the first defendant’s property until August 2000.
In June 2000 Mr and Mrs McNeill visited the first defendant’s farm in order to view the animals shortly after their arrival. Mrs McNeill noticed that there were two other grey male alpacas in the same enclosure as Flashman. Viceconte told Mr and Mrs McNeill that the other two alpacas were inferior to Flashman. The McNeills also say that they were told by Viceconte that the other two grey males were younger than Flashman. It is not necessary for me to resolve the difference in the accounts of the witnesses. The first defendant did not at trial persist with its defence that the plaintiff had waived the term of the agreement that no other grey male Suri would be brought to Australia with the consignment of alpacas.
Mr and Mrs McNeill returned to the defendant’s property on 19 July 2000 in order to collect the offspring of one of the female alpacas which had been born in quarantine and which had been rejected by its mother. Mrs McNeill observed that a square sample of fleece had been removed from the side saddle of Flashman. Mrs McNeill asked Viceconte why that had occurred. In response Viceconte stated that the sample had apparently been taken by the Australian Quarantine Service (“AQIS”). When Mrs McNeill challenged that explanation, Viceconte adhered to it.
In evidence, Viceconte conceded that he had deliberately told Mr and Mrs McNeill an untruth about the sample of fleece taken from Flashman. In evidence, Viceconte stated that he had taken the sample for testing because he had become suspicious that the fleece of Flashman had “blown out”, that is, that it was greater than 18.7 microns in diameter.
After Mr and Mrs McNeill returned home to East Gippsland, they remained concerned about the explanation given to them by Viceconte. Mrs McNeill had a number of subsequent telephone conversations with Viceconte concerning the topic. In her evidence, Mrs McNeill stated that, initially, Viceconte repeated his explanation that the sample had been taken by AQIS, and told her to contact AQIS. In his evidence, Viceconte stated that he could not recall whether he had continued to persist with the lie which he had told on 19 July. I accept Mrs McNeill’s evidence that, in the initial telephone conversations after 19 July, Viceconte did continue to give her an untruthful explanation why the sample had been taken from Flashman.
Subsequently, in a further telephone conversation, Viceconte confessed to Mrs McNeill that he had not told her the truth about the sample. In her evidence, Mrs McNeill stated that Viceconte said that he took the fleece sample because he was thinking of using Flashman over his own herd. Mrs McNeill asked Viceconte what was the result of the test. Viceconte replied, “You are not going to believe this but it got lost in the mail.”
Viceconte’s version of that conversation was different. Viceconte agreed that he told Mrs McNeill that he had previously told her an untruth, and that the test had been lost in the mail. However, he denied in evidence that he told Mrs McNeill that he took the test because he was thinking of using Flashman over his own herd. Viceconte gave evidence that his own herd consisted of Huacaya females, which he would not mate with a male Suri. Viceconte, in his evidence, stated that he told Mrs McNeill that the sample had been taken from Flashman because he was interested to see what had happened to the fibre of Flashman which had seemed to “blow out”.
For reasons which I shall explain later, I prefer the evidence of Mrs McNeill concerning the telephone conversation. I therefore accept that in the telephone conversation which followed the 19 July visit by the McNeills to Viceconte’s property, Viceconte did not inform Mr and Mrs McNeill of his suspicion that the fleece diameter of Flashman had blown out, but, rather, that he asserted that he took the sample because he was thinking of using Flashman over his own herd.
When the alpacas were imported into Australia they had been shorn in compliance with quarantine requirements. A sample of the fleece, taken on the shearing of the alpacas in Canada, was forwarded to Viceconte. On 19 July 2000 Viceconte gave 14 samples of fleece to Mr and Mrs McNeill, one in respect of each of the 13 females and one in respect of Flashman. Mrs McNeill sent the sample of Flashman’s fleece for testing to the Riverina Fleece Testing Services.
In the meantime, on 15 August 2000, the plaintiff collected the 13 females and the male alpaca from the defendant’s property and transported them to the plaintiff’s property north of Bairnsdale.
In November 2000 Mr and Mrs McNeill received the result of the test conducted by Riverina Fleece Testing Services. The report of that service disclosed a mean diameter of 28.78 microns with a standard deviation of 8.95 microns, and a co‑efficient of variation of 29.8%.
Upon receipt of that report Mrs McNeill telephoned Viceconte. She told him of the result. Viceconte told Mrs McNeill that the increase in the diameter of the fleece was caused by quarantine conditions including diet and stress. That explanation was confirmed by Viceconte in a letter which he sent to the plaintiff dated 26 October 2000 in which he stated:
“As I previously tried to explain, testing of all animals prior to commencement of long quarantine periods where high protein diets are given, to ensure the health and welfare of the animals, does affect the fibre diameter.
The genetics do not change.
Your Suri male, is an excellent example of a Macho, from the Bohrt Royal Line and the only Grey Male in Australia, that we imported from this particular Line.”
In late 2000 a dispute occurred between the plaintiff and the defendants as to the actual identity of Flashman. Initially, Mr and Mrs McNeill had been unable to locate a microchip as specified in the contract. That dispute was resolved when it was learnt that a second microchip had been inserted, because the first microchip, which had been implanted, had failed. As a consequence, in February 2001, Mr and Mrs McNeill signed an entry in the farm book of Mr Viceconte acknowledging that the “letter signed by Pat Viceconte regards the male tag 23 is now at an end”. It was accepted that that notation did not constitute a release by the plaintiff of the claims which it makes in the present case.
At the same time, Mr Viceconte spoke to Mr and Mrs McNeill concerning the fact that other grey male Suri alpacas had also been imported, contrary to the terms of the agreement of 23 December 1999. Mr McNeill indicated that he was not particularly happy with that fact but that he was “copping it on the chin”.
On 19 February 2001, the plaintiff received a further test report of Riverina Fleece Testing Services relating to a further sample taken from Flashman. The test result indicated a mean diameter of 39.06 microns, with a standard deviation of 10.17 microns. Mrs McNeill telephoned Viceconte and asked for a refund. A further test report of Riverena Fleece Testing Services of 6 March 2001 produced a similar result, namely, a mean diameter of 39.08 microns. In April 2001 these proceedings were commenced by the plaintiff. On 24 April 2001, Viceconte telephoned Mr McNeill and spoke to him. Mr McNeill claims that in that telephone conversation Viceconte admitted that he knew that the result of the fleece sample, which he himself had taken and sent for testing, was 35 microns. In evidence, Mr Viceconte denied that he made that admission.
During 2001 discussions took place between the parties. The defendant offered to assist the plaintiff to find a replacement grey Suri male in South America, and offered to fund the costs of an independent person, to be agreed by both parties, to travel to South America for that purpose. The parties agreed that Anderson should go to South America for that purpose, but she was not available to do so. Ultimately, in December 2001, the defendant refunded to the plaintiff the purchase price paid by the plaintiff to the defendant in respect of the male alpaca, together with interest. On 26 January 2002 the plaintiff returned Flashman to the defendant.
Liability – breach of contract
The plaintiff’s primary claim consists of a claim for damages for breach of contract against the first defendant and the second defendant. At trial the first defendant admitted that it had breached two terms of the agreement dated 23 December 1999. Those terms were that the alpaca have a fleece fibre diameter of 18.71 microns, and that the first defendant would not import into Australia any other grey Suri male in the same consignment of alpacas. Although the first defendant pleaded defences of waiver in respect of the latter term, those defences were not persisted with at trial.
The plaintiff also pleaded a claim in contract against the second defendant, Tulip Nominees. It did so because it had paid the purchase price of $73,909.96 (the equivalent of US$45,000) to Tulip Nominees. The evidence at trial disclosed that Tulip Nominees was not a party to the contract, but that it had acted as banker for Mr Viceconte’s group of companies. On that basis, Dr Bleechmore, who appeared on behalf of the plaintiff, correctly accepted that the second defendant was not liable in contract to the plaintiff.
Liability - Trade Practices Act and Fair Trading Act
The plaintiff also made a claim against the third defendant, Mr Viceconte, for contravention of s.52 of the Trade Practices Act 1974 (Cth) and s.9 of the Fair Trading Act 1999 (Vic) in respect of representations made to the plaintiff in June or July 2000.
Shortly after the alpaca arrived at the first defendant’s property in June 2000, Viceconte formed the suspicion that the fleece of the alpaca had “blown out”, that is, that its diameter was greater than 18.7 microns. His suspicion was such that he took a sample from Flashman, and sent it to a laboratory for testing. In evidence he stated that he was unable to recall to which laboratory he had sent that sample. He stated that he did not keep any record of the laboratory to which it had been sent. Further, Mr Viceconte stated that he did not follow up, with the laboratory, the results of the test until September 2001. On that date he sought to contact four laboratories, to one of which he might have sent the sample.
The plaintiff’s case against Mr Viceconte for misleading and deceptive conduct was made on two alternative bases. First, it was maintained by the plaintiff that Viceconte had, in fact, ascertained the results of the test which he had sent to the laboratory, and that that test revealed a reading of 35 microns. It was maintained that Viceconte misrepresented to the plaintiff that he had not received those results. Alternatively, it was contended on behalf of the plaintiff that, in June and July 2000, Viceconte lied to the plaintiff, and did so in order not to reveal to the plaintiff his suspicions concerning the accuracy of the micron reading of the fleece of Flashman as recorded in the contract dated 23 December 1999.
As I have set out in paragraph 17 above, on 19 July 2000 Mr and Mrs McNeill attended at the Romsey property of the first defendant. Mrs McNeill noticed a square shaven piece out of the side saddle of Flashman. She asked Viceconte why the piece of fleece had been shaven from Flashman’s side when the other animals, which were at the property, had not had that done. Viceconte responded that he did not know anything about it and that it must be something to do with AQIS. Mrs McNeill then said to Viceconte that AQIS would be interested in blood and faeces, but they would not be interested in fleece. Viceconte responded, “Well I don’t know you would have to ask AQIS about that.”
Mr and Mrs McNeill were not satisfied with Viceconte’s response. In particular, they were curious as to why AQIS would wish to test the fleece of Flashman. Accordingly, Mrs McNeill telephoned Viceconte a few days after 19 July. Her evidence, which I accept, was that, initially, Viceconte adhered to his assertion that AQIS had taken the fleece sample, that he knew nothing, and that Mrs McNeill should contact AQIS.
Mrs McNeill stated that she still was not happy with that explanation. Therefore she made another telephone call a couple of days later. In her evidence she said that, in that conversation, Viceconte stated, “I’ll come clean with you … that I took the fleece sample.” When asked by Mrs McNeill why he did that, Viceconte responded, “We were thinking of using him over our herd.” Mrs McNeill then asked what the result of the test was. Viceconte stated, “You’re not going to believe this, it got lost in the mail.”
As I have set out earlier, Viceconte’s account of that conversation was different. Viceconte, in his evidence, agreed that he confessed to Mrs McNeill that he had previously told her an untruth, and that he told her that the result of the test had been lost in the mail. However, he denied stating to Mrs McNeill that he had had the test taken because he was interested in using Flashman over his own herd. Viceconte stated that he told Mrs McNeill that he had taken the sample because he was interested to see what had happened to the fibre as it seems as though it had “blown out”.
Thus, Mrs McNeill’s evidence is that, in the telephone conversations after 19 July, Viceconte did not reveal to her the suspicions about Flashman’s fleece fibre. On the other hand, Viceconte, in his evidence, claims that he did. I accept the evidence of Mrs McNeill and reject the evidence of Viceconte, in that respect. Mrs McNeill’s account was credible and consistent, and was not discredited when tested in cross‑examination. On the other hand I found Viceconte’s evidence not to be acceptable for the following reasons:
(1)The lie which he concedes he told Mr and Mrs McNeill on 19 July 2000 was a blatant and significant lie. The fact that he told that lie reflects adversely on his credit. In particular, as was pointed out by Dr Bleechmore in final address, the lie was told to persons who were relatively new in the industry, and one of whom was particularly vulnerable because he was blind;
(2)Mr Viceconte was unimpressive when cross-examined about why he had in fact chosen to lie to Mr and Mrs McNeill on 19 July. He could not bring himself to concede what, in my view, was obvious, namely, that he lied because he did not wish to reveal to them his suspicions about the fleece fibre of Flashman. He simply could not give any explanation why he had chosen to tell such an important lie to Mr and Mrs McNeill;
(3)On his own evidence Viceconte failed to follow up, with the laboratory to whom he sent the fleece, the result of that test for more than one year. If in fact he was telling the truth when he asserted that he did not receive, from the laboratory, the result of the test, his failure to follow up the test after speaking to the McNeills is curious, given that he was so concerned about the test that, on 19 July, he had chosen to conceal the fact of the test from the McNeills. In other words, the matter was of sufficient importance to Viceconte, at that time, to cause him to lie to the McNeills. Yet at the same time he did not seek to pursue enquiries as to what had happened to the test. Nor was he able, in evidence, to proffer any explanation as to why he had not done so;
(4)In about November 2000 the McNeills received the result of a fleece test which had been sent to Riverena Fleece Testing Service. It revealed a reading of 28.7 microns. Mrs McNeill contacted Viceconte. Viceconte told Mrs McNeill that the blowing out of the reading was caused by factors pertaining to the fact that Flashman had been in quarantine. He confirmed that explanation in a letter which he sent to Mrs McNeill dated 26 October 2000. On neither occasion did Viceconte mention his previous suspicions concerning the blow out of the fleece fibre of Flashman. Nor did he pursue the results of the tests of the sample he had taken from Flashman. Rather, his conduct was that of a vendor wishing to conceal rather than reveal his own suspicions about the fleece; and
(5)Viceconte’s credibility was also adversely affected by the fact that, contrary to the terms of the agreement with the plaintiff, he nevertheless imported two other grey male Suris, when they had been rejected by their intended purchasers in Canada. His conduct in doing so reflects poorly on the commercial probity which he brought to his dealings with Mr and Mrs McNeill.
For the above reasons I accept the case made by the plaintiff that, on a date shortly after 19 July 2000, Viceconte did not fully correct the lie which he had previously told to Mr and Mrs McNeill by telling them that he had taken the sample because of his own suspicions that the diameter of Flashman’s fleece might have increased beyond 18.7 microns. I therefore accept that, in June and July 2000, and shortly thereafter, Viceconte engaged in conduct which was misleading or deceptive and likely to mislead or deceive contrary to s.9 of the Fair Trading Act. Further, at that time Viceconte was acting as a director and agent of the first defendant in making those representations to Mr and Mrs McNeill. I therefore accept that, pursuant to s.75B of the Trade Practices Act, he was a person involved in a contravention of s.52 of the Trade Practices Act.
The plaintiff also claimed that, before August 2000, Viceconte had in fact received a report from the laboratory to which he had sent the sample, and the report revealed that the fleece sample taken from Flashman measured 35 microns in diameter. The plaintiff therefore claimed that in June and July of 2000 Viceconte also acted in contravention of s.9 of the Fair Trading Act and s.52 of the Trade Practices Act, first, by telling an untruth that AQIS had taken the sample, and, secondly, by claiming that he had not received the test result in respect of the sample which he had sent to the laboratory.
This alternative basis of the claim, under the Fair Trading Act and the Trade Practices Act, made by the plaintiff, is dependent on the contents of a telephone conversation which occurred between Mr McNeill and Viceconte at about 9.30 a.m. on 24 April 2001. The evidence was that, on that date, Viceconte telephoned Mr McNeill on his mobile telephone. The two witnesses gave conflicting versions as to what transpired in that conversation. Mr McNeill’s evidence was that he told Viceconte that he distrusted him, in particular because he took the fleece sample and told him it had got lost in the mail. Mr McNeill stated that he knew where the fleece sample had been tested and he knew what it read, but that Viceconte should tell him himself the result if Viceconte wanted Mr McNeill’s respect. Mr McNeill’s evidence was that Viceconte replied that he did take the sample, and that the result was 35 microns.
On the other hand Viceconte denied ever receiving the report from the laboratory to which he had sent the sample. He said that he thought he telephoned Mr and Mrs McNeill on their mobile telephone but could not remember the contents of the conversation. He emphatically denied telling them that he had a histogram result for Flashman and that he knew it to be 35 microns. Viceconte reiterated that he had never received any histograms relating to Flashman, other than the original one taken in Bolivia (which revealed a fleece diameter of 18.7 microns).
I regard Mr McNeill as a truthful witness. In giving evidence concerning the transaction with Viceconte, Mr McNeill did not seek to overstate his case. On the other hand Viceconte himself stated that he could not remember the contents of his telephone conversation with Mr McNeill. Further, for the reasons which I have set out above, I have reservations about Viceconte’s reliability as a witness in respect of his dealings with Mr and Mrs McNeill relating to the fleece sample which he took from Flashman.
Accordingly, I accept that a telephone conversation occurred between Viceconte and Mr McNeill to the general effect stated by Mr McNeill in his evidence. The only reservation which I have in this respect is whether Mr McNeill recollected the conversation with sufficient accuracy that I can rely on it as an admission by Viceconte that he had in fact received a test result from the laboratory to which he had sent the fleece sample. There is no other evidence that Viceconte received the result from a laboratory. Further, in September 2001, Viceconte contacted four laboratories, apparently enquiring whether they had received the sample. He received, and made discovery of, responses received from those four laboratories. Those responses were tendered in evidence. As was pointed out by Mr Marantelli, who acted for the defendants, it is unlikely that Viceconte would have made those enquiries, if in fact he had already, 12 months previously, received a test result from the laboratory.
It is difficult to resolve this issue. I accept that Mr McNeill was conscientiously endeavouring to state truthfully his recollection of the telephone conversation which he had with Viceconte. However, I am unable to be satisfied on the balance of probabilities that, on the evidence, Viceconte did admit to receiving the results of the sample which he sent to the laboratory. Accordingly, I do not find that Viceconte engaged in misleading and deceptive conduct in the alternative respect alleged by the plaintiff, namely, by falsely claiming that he had not received the test result of the sample which he had sent to the laboratory.
I have already found that Viceconte contravened s.9 of the Fair Trading Act and s.52 of the Trade Practices Act in not stating to the plaintiff that he had suspicions that the fleece fibre of Flashman was greater than 18.7 microns, and that as a result of those suspicions he had sent a sample of that fleece for testing. Both Mr and Mrs McNeill gave evidence that, if Viceconte had told them, in July or August 2000, of such suspicions, they would have taken their own fleece sample and would have waited for the results of that test, and for the samples taken by Viceconte, before accepting Flashman. I have no hesitation in accepting that evidence as truthful and probable. Further, if the McNeills had been told of Viceconte’s suspicions and had taken such a sample, the test results of that sample would have indicated that the fleece fibre of Flashman greatly exceed 18.7 microns in diameter. In those circumstances, it is clear that Mr and Mrs McNeill, on behalf of Grencol, would not have accepted Flashman. I therefore accept that the misleading and deceptive conduct of Viceconte induced the plaintiff to accept delivery of Flashman in August 2000, rather than making other arrangements for the service of the female alpacas owned by Grencol.
Loss and damage – contract
The plaintiff’s principal claim for damages for breach of contract is for consequential loss of profit. As a result of the breach by the first defendant of the contract, the plaintiff did not have the grey Suri male, which it contracted to purchase, from 15 August 2000 until April 2002, at which date its own white male Suri sire, Halcyon, became available for stud duties. The plaintiff’s damages consist of the profit which it would have derived if the first defendant had performed the contract by supplying the grey Suri male described in the contract.
The plaintiff’s claim for loss of profit has two main components. The first component comprises a claim for loss of profit which would have been derived from using the grey Suri male to service Grencol’s own herd of females. In other words, the first component of the claim for loss and damages consists of a claim for lost profit on progeny which would otherwise have been produced if the grey Suri male had been supplied in conformity with the contract. The second component of the claim for loss of profit is for service fees which would have been earned by Grencol if the grey Suri male had been available between August 2000 and April 2002. That second component, in turn, comprises two categories. First, it consists of a claim for external services which would generally have been provided by the grey Suri had it been available. Secondly, it consists of a claim for loss of service fees which would have been generated from a proposed transaction between Grencol and Cousill and Anderson. That transaction contemplated the use of the grey Suri male to service two herds owned or managed by Anderson and Cousill known respectively as the “Pucara” herd and the “Purrumbete” herd.
In addition, the plaintiff also claims against the first defendant the cost to it of procuring external services from other sources between February 2001, when Flashman was taken out of use, until April 2002, when Halcyon commenced duties. It was agreed between the parties that the quantum of that claim amounted to $21,000. The first defendant did not address any argument that the plaintiff should not be entitled to recover that element of its loss.
It is convenient to consider the plaintiff’s claim for loss of profits in three parts, namely:
(a)the claim for lost profit on progeny;
(b)the claim for loss of external service fees; and
(c)the claim for loss of service fees on the Pucara and Purrumbete transactions.
Lost profit on sale of progeny
When Grencol purchased Flashman, it intended to cross Flashman over its own coloured females. It did not intend to use Flashman over the white, or ILR registered, females in its own herd.
As I have already set out, the plaintiff, in late 1998 or early 1999, owned two coloured females. In November 1999 it purchased eight further breeding females from Anderson and Cousill. Five of those females were coloured, and three were white and ILR registered. In February 2000 the plaintiff purchased 13 further females from the first defendant. In the upshot, it received eight coloured, and five white, females in that consignment. Thus, by June 2000, the plaintiff owned 15 coloured females which it intended to use to breed from Flashman.
An assessment of the likely profit which would have been derived by Grencol from crossing the grey Suri male over those 15 females involves consideration of a large number of factors and variables. Those factors include, but are not limited to, issues such as the overall fertility rate of the females, the mortality rate of offspring, and the likely prices to be obtained for the sale of progeny. A number of witnesses, who were familiar with the alpaca industry, gave evidence, and in a number of respects expressed differing views.
The plaintiff primarily based its claim on a report of Mr Sam Patton (“Patton”), a certified practising valuer and agricultural economic analyst. Patton himself did not have significant experience with the alpaca industry. He based his report on information which he obtained from speaking to a number of successful breeders in the industry, some of whom were called to give evidence on behalf of the defendant. However, the methodology used by Patton in calculating the plaintiff’s loss and damage is useful as a basis for determining the loss and damage sustained by the plaintiff.
In essence, Patton assumed that each year there would be a mortality rate of 10% of the progeny, and two female offspring would be retained for breeding. Accordingly, there would be 11 progeny available for sale. Patton assumed (which assumption was agreed by other witnesses) that the gender split between the male progeny and female progeny would be 50% each.
Patton then assumed that there would be three categories of offspring for each gender. He assumed that both the male and female progeny would consist of 10% which would be top quality, 60% which would be middle quality, and 30% which would be lower quality. He assumed that the top female progeny would be sold for $20,000, the middle quality female progeny for $15,000, and the lower quality female progeny for $12,000. In respect of the male progeny he assumed that the top quality progeny would be sold for $16,000, the middle quality for $8,000, and the lower quality progeny for $440. Applying those figures over a two year period he produced a total loss of $235,760. From that figure was to be deducted the actual sales made by the plaintiff. That figure was a matter of some debate at the end of the trial and I shall return to it.
The assumptions made by Patton in his calculation give rise to a number of issues. The first issue, which was debated before me, was whether the plaintiff lost one or two seasons of breeding. Mr Marantelli, on behalf of the defendants, contended that the plaintiff only lost one season of breeding. However, I consider that that submission is not supported by the evidence. The first defendant imported Flashman in company with the 13 females which it had sold to the plaintiff. Flashman was crossed over some of those females while in quarantine between June and August 2000. Flashman was then crossed over a number of the remaining females in the plaintiff’s herd between August 2000 and February 2001. The evidence was that females are mated with males two weeks after giving birth. Based on that evidence, it seems clear that the plaintiff would have used the grey Suri male alpaca, which it contracted to purchase, to service its herd of females twice between August 2000 and April 2002.
The second issue concerned both the “mortality rate” and the “weaning rate” which should be applied in determining the number of offspring which would have been hypothetically produced during the period in question. Patton simply allowed for a mortality factor of 10% per annum. As I understand it, that factor encompassed miscarriages, stillbirths and mortality of progeny up to six months of age.
A factor of 10% for mortality would seem to be somewhat excessive . Cousill stated that he would allow for a 95% pregnancy rate and a 3-5% mortality rate. Anderson stated that a 5% mortality rate would be acceptable. That estimate was accepted by Mr Preuss, one of the top breeders of alpacas who was called in evidence by the defendant.
In addition to the mortality rate, evidence was also called relating to what was described as a “weaning rate”. That rate takes into account not only mortality of offspring, but also delays in impregnation of females, infertility, and the like. A second expert called by the plaintiff was Professor Marshall, a consultant actuary who also is a breeder of alpacas. Professor Marshall considered that it would be appropriate to apply a weaning rate of either 60% or 80%. That rate was drawn from a study described as the “AAA Vision 2020 Report”.
The defendant called evidence from Mr Gary Elliott (“Elliott”), a part-time alpaca breeder. Elliott had accessed the AAA database to compile statistics relating to what he described as the weaning rate of female alpacas. That weaning rate consisted of the number of live progeny produced by each female alpaca, over the first ten years of its breeding life, where the progeny had survived to six months of age. In other words, the weaning rate was an amalgam of mortality and productivity. Elliott’s research revealed an overall weaning rate of female alpacas of 53%, and an overall weaning rate of Suri female alpacas of 50.9%.
It needs to be borne in mind that Elliott’s weaning rate, and the weaning rate of the type discussed by Professor Marshall, were weaning rates applicable over a substantial period of time. They take into account delays in pregnancy and sterility, together with mortality. I am concerned with a claim for loss of productivity over a 20 month period. It was intended that the male sire be used to impregnate the females at the very commencement of that 20 month period. Females have a 12 month gestation period, and it is normal to mate them again two weeks after delivery. In those circumstances, I would consider it inappropriate to apply, in its full force, the weaning rate disclosed by Elliott’s research. On the other hand, some allowance needs to be given, over and above a mortality rate of 5%, for the other factors incorporated in the weaning rate. By allowing two “dead” progeny for each 15 females per annum, Patton in fact made an allowance of 13.3%. In my view, that allowance would be sufficient to take into account both mortality and weaning rates.
The next issue which needs to be determined in relation to the plaintiff’s claim for loss of profit on progeny concerns the prices which would have been realised on the sale of those progeny. The defendant called four witnesses who were successful and well-established breeders in the alpaca industry. They were Ms Jillian Short, Ms Wendy Jones, Mr Ian Preuss, and Ms Wendy Billington. I was impressed with the evidence given by those breeders, who each revealed a significant depth of knowledge of the alpaca industry and a very keen interest in it.
In general, the witnesses agreed with Patton’s evidence concerning the split up of female progeny as 10% top quality, 60% middle quality, and 30% lower quality. They also generally agreed with the prices which he attributed to progeny in each such category. The only exception concerned the lower category. Ms Jones considered that such progeny would only attract a price of $7,000 to $10,000, and Ms Billington considered they would attract a price of $5,000 to $6,000. On the other hand, Mr Preuss generally agreed with Patton’s figures. Taking into account that evidence, I consider it appropriate to adjust the price of the lower quality females to $8,000, particularly given the fact that, for the years in question, Grencol would have been selling the progeny as a breeder without an established reputation.
The potential prices of male progeny which would have been sold by the plaintiff during that period of time were more controversial. In particular, the four breeders called by the defendant stated that, in general, only a small percentage of male progeny (about 5%) are sold as top male stud progeny, and the rest (about 95%) are sold as wethers. I accept that evidence, with one small qualification. The defendant also called in evidence Mr Peter Kelly, who is an alpaca breeder at Rob Roy in New South Wales. Mr Kelly, in about 1999, became interested in purchasing Flashman himself in order to breed grey or black offspring. He was of the view that he would have retained a slightly higher percentage of male progeny, and attempted to sell them, before wethering those which he was unable to sell. Nevertheless, in principle it seemed to me that he agreed that only a smaller percentage of male progeny would be considered to be top quality and which would be sold as such. In those circumstances, I consider it appropriate to assess the plaintiff’s loss and damage on the basis that 10% of its male progeny would have been sold as top quality, and the remaining 90% as wethers.
There was also a difference of opinion as to the prices which would have been achieved by the plaintiff for the sale of its top male progeny. As I have stated, Patton considered a figure of $16,000 to be appropriate. Mr McNeill stated that he considered the top male progeny would have sold between $25,000 and $40,000. Professor Marshall stated that for the first year, the top male progeny would have sold for $50,000, and for the second year, $33,000. On the other hand, the breeders called by the defendant, while accepting that Patton’s price of $16,000 was generally conservative, nevertheless were of the view that the plaintiff would sell its top male progeny for a sum of around $20,000. Mr Preuss was of the view that the male progeny would be sold for between $15,000 and $20,000, with an absolute maximum of $30,000. Ms Short attributed a price of $25,000 maximum for a top quality white male progeny. Ms Jones was more conservative, and stated that the top quality male would sell for between $8,000 and $16,000, although she did accept, in cross‑examination, that Patton’s top figure for male progeny of $16,000 was conservative.
Based on the evidence, I consider that it would be appropriate to assess the plaintiff’s claim for loss and damage on the basis that its top male progeny would have sold for approximately $20,000. It seemed clear on the evidence that a number of factors operate in the market place to affect the price of alpacas. It is relevant that, at the time, the plaintiff did not have an established reputation as a breeder in the industry. Accordingly, any stud male sold by it would be purchased without the cachet of an established high profile stud name attached to it. Secondly, Flashman originated from Bolivia. The evidence was that, whether rightly or wrongly, those involved in the alpaca industry presumed or perceived that any such alpaca would be heterozygous, unless and until it was proved to the contrary. Indeed, Ms Billington stated that, for that reason, she herself would not have let the sire out to service unless and until she had proven the sire to be homozygous by breeding it over her own stock. Thus, if male progeny of Flashman were sold by the plaintiff during the period in question, potential purchasers would have taken into account the fact that they may have come from a heterozygous, rather than homozygous, Suri male sire. For all these reasons I conclude that it is appropriate to assess the plaintiff’s loss and damage on the basis that its top male progeny would have sold for the sum of $20,000.
In this context, it is relevant to note that Professor Marshall, in his computations, discounted his figures by 10% for what he described as an “unproven” factor. That factor encompassed a number of the considerations to which I have already referred. Professor Marshall accepted, in cross‑examination, that the appropriate percentage to be applied by way of discount was not calculated by any scientific process, but really called for an exercise of judgment incorporating the factors to which I have referred.
Based on the above considerations I therefore calculate the plaintiff’s loss and damages as follows. First, taking into account the weaning and mortality rate, the 15 female coloured alpacas owned by the plaintiff would have produced 26 progeny over the two year period. Those progeny would have been 13 female, and 13 male. I shall apply to those numbers the percentage used by Patton for the females, and split of 10% for top quality males and 90% lower quality males (wethers). In reality, the application of those percentages would produce fractions of progeny sold each year. It is appropriate nevertheless to use the percentages in that manner in order to achieve a fair and just result. Accordingly I assess the plaintiff’s loss and damage in respect of its lost revenue claim for progeny as follows:
(a) Females
top quality (10% at $20,000)
$26,000
middle quality (60% at $15,000)
$117,000
lower quality (30% at $8,000)
$31,200
(b) Males
top quality (10% at $20,000)
$26,000
lower quality (wethers) (90% at $500)
$5,850
Total
$206,050
Thus I calculate that, if the contract had been performed by the first defendant, the plaintiff would have derived revenue from progeny sired by the grey male alpaca calculated in the sum of $206,050.
From that figure there must be deducted an amount consisting of the sales proceeds of progeny produced by the plaintiff during the relevant period, and the value of progeny, from that period, retained by the plaintiff. The parties agreed that the value of progeny of the coloured females sold or retained for the first year was $16,850. There was a difference between the parties as to the value of progeny from coloured females for the year 2002. The plaintiff maintained that the value was $70,100. The defendant maintained that the value was $80,100. The difference in the two amounts consists of the value to be attributed to an alpaca named “Bounty” which had been retained by the plaintiff. Patton in his report ascribed a value of $30,000 to it. In final address the plaintiff disputed that amount and contended it should only be $20,000. There is a temptation to apply the wisdom of Solomon and split the difference between the two amounts. However I must act on the evidence. Although much of Patton’s report is based on hearsay material, nevertheless the trial did proceed on the basis that Patton’s evidence as to values and the like was admissible as evidence of fact. Accordingly I am bound to act on the basis that Bounty is worth $30,000. Accordingly, the value of progeny of the plaintiff’s coloured females sold and retained for the year 2002 is $80,100. Thus, from the loss calculation there must be deducted a sum of $96,950, leaving a total loss on progeny of $109,100.
Loss of profit – external service fees
The second component of the plaintiff’s claim for loss of profit consists of a claim for external service fees which would have been generated by Flashman if the alpaca had been supplied in accordance with the terms of the contract between the plaintiff and the first defendant. The plaintiff claims the loss of those fees for the period from August 2000 to April 2002. However, in all probability, the plaintiff would have required some lead time in which to settle Flashman with its own herd, market Flashman’s services, and arrange for external services for Flashman. It is therefore more likely that the appropriate period over which Flashman services were lost was 16 months, rather than 20 months. In fact the plaintiff has restricted its claim, correctly, to 16 months. It claims that during that period of time Flashman would have performed 30 external services at a fee of $1,500 per service. Thus a claim of $45,000 loss is made in respect of this component.
In support of its claim the plaintiff points out that the white male Halcyon, which commenced service in April 2002, performed 62 services in the next two year period. Mr McNeill also stated in evidence that the grey male sire would have serviced a large area from East Gippsland to Narooma, and that there was no other Suri male working in that area at that time.
In evidence there was a great deal of debate as to the relative advantages and disadvantages which Flashman would have enjoyed in the market place had he conformed with the description given to him in the contract. The plaintiff maintained that because Flashman was a grey Suri male, with a fine micron reading, he would have been a rare offering to the market. Accordingly he would not have competed with any other male, and would have attracted a substantial amount of services. On the other hand, the defendants’ witnesses, and particularly the established breeders such as Messrs Short, Jones, Preuss and Billington, were more reserved in their attitude to the marketability of Flashman. They pointed out that Flashman would have been unknown, the plaintiff had no established reputation at the time, and that the market would have presumed Flashman to have been heterozygous and not homozygous until he was proven to the contrary. Indeed, Ms Billington stated that she would not have marketed Flashman herself for a period of 12 months, in order to first prove him to be homozygous. There was also considerable debate as to whether the alpaca’s grey colour was an advantage or a disadvantage. Some of the breeders stated that the grey colour was a disadvantage because it could not be predicted what colour the progeny, produced by the grey, would be. On the other hand the plaintiff claimed that that characteristic would be an advantage. Paradoxically, other breeders called by the defendant considered that the grey would not throw offspring of a sufficient variety of colour to attract market attention. All of these differences of opinion reflected, in my view, differences of opinion which would be shared by persons to whom Flashman would have been marketed. They reflect the differing views as to the advantages and disadvantages which a breeder would have had to weigh up in determining whether to use the grey Suri male to service his own female herd if it had been available.
The four established breeders who gave evidence on behalf of the defendant were more conservative than the plaintiff in predicting both the amount of external services which would have been performed by the grey male alpaca, and the fee which he would have commanded. In essence the following is a summary of their evidence and the evidence of Mr Kelly:
(a)Ms Short considered that it would be exceptional for a grey male sire to attract 30 services at $1,500 per service. She considered that grey was not a colour in high demand. It would be difficult to market, until it was proven homozygous, unless it was marketed at a highly discounted rate such as $500 per service.
(b)Ms Jones considered that the very best male sire can attract up to 20 services per year. A well-known and respected breeder might be able to procure ten to 20 matings per year assuming that the male was proven. Further, she was of the view that the fact that the plaintiff was not a well-known breeder, and the fact that Flashman had not been proven homozygous, would depress the fee which he could command. Like Ms Short, she did not consider that a comparison could be drawn with Halcyon’s performance. Halcyon originated from the well-known Pucara breed, and was white, and would therefore be used for breeding white progeny.
(c)Mr Preuss gave evidence that a respected breeder with a proven male could expect up to ten to 15 external matings in the first year in which the male is put to market. The number of services could be increased at a greatly reduced stud service fee. Mr Preuss also considered that a comparison could not be drawn with the white sire Halcyon, since the breeding aims of the owners of the females were unknown.
(d)Ms Billington was the owner of a champion sire, Senator. She gave evidence that Senator only performed eight services per annum. However she had made a conscious decision to restrict Senator’s matings in order to preserve the exclusivity of his genetics.
(e)Mr Kelly, the New South Wales alpaca breeder, had in fact considered purchasing Flashman himself in 1999, in order to breed grey or black offspring. He had used an homozygous fawn Suri sire (“Chiapark Hamlet”) for external matings over an area covering an 800 kilometre radius from his property. From January 2000 to November 2001 the sire had performed 32 external services. During the next two years he only performed a further nine services. Mr Kelly’s asking fee for each service was $1,500. However his records show that the vast majority of services were performed at a discounted rate of $990.
In light of all the above evidence I consider that the plaintiff’s aim of 30 external services at a fee of $1,500 would be quite ambitious. The grey male Suri purchased by the plaintiff was unknown. The market would have presumed him to be heterozygous. The plaintiff did not have an established reputation in the industry. While grey is a rare colour, there would have been mixed feelings amongst the potential market as to whether that was an advantage or a disadvantage. Further, I take into account the fact that from August 2000 to February 2001 only one external service was performed by Flashman. Of course, the first few months of that period were occupied by putting Flashman over the plaintiff’s own herd. Nevertheless, that statistic cannot be ignored. Further, I do not consider the amount of services performed by Halcyon to be completely analogous with the services which would have been performed by the grey male Suri, although, on the other hand, they are a useful guide. However, I must take into account the fact that Halcyon originated from an established breeder (the Pucara herd), and that it was a different colour to the grey.
It seems clear on the evidence that, while an asking fee of $1,500 would not be unreasonable, nevertheless discounts are commonly given, particularly for new animals, and for multiple matings. Taking into account all of the factors to which I have referred above, I consider that the plaintiff’s loss should be calculated on the basis of a loss of 20 external matings. I would assess that loss on the basis that one half of the plaintiff’s matings would have been at the full fee of $1,500, and one half at a discounted rate of $1,000. I therefore assess the plaintiff’s claim for loss of external service fees in the sum of $25,000.
Loss of profits – the Pucara and Purrumbete transaction
The third component of the plaintiff’s claim for loss of profit concerns a proposed transaction by which it was intended that the grey Suri male would be used to service a herd of female alpacas owned by Cousill and Anderson called “Pucara”, and also a further herd of female alpacas which Cousill and Anderson were planning to acquire, and which was called the “Purrumbete” herd.
Cousill and Anderson are well‑established alpaca breeders. They have been involved in breeding and selling alpacas in Australia and the United States of America for 14 years. Their Australian business is known as “Pucara”. Under that name they owned, and still own, a herd of alpacas at a property on the Great Ocean Road in South Western Victoria. In addition they also conduct a business in North America in partnership with Mr Michael Safley, who is a prominent breeder in the United States and a respected author of alpaca books.
In November 2000 Cousill and Anderson entered into an agreement to purchase a herd of female Huacaya alpacas from Mr Roger Haldane. That herd is referred to as the “Purrumbete” herd. It was then located at Port Fairy. After purchasing the Purrumbete herd Anderson and Cousill transferred it to a property on the Great Ocean Road.
Mr Haldane is a long-established and well respected figure in the alpaca industry. He has been described by witnesses as the “grand old man” of the industry. During the 1990s Mr Haldane set about using the Purrumbete herd to prove a theory of Suri dominance or the homozygosity of a Suri male. For that purpose he crossed a Suri male over the Huacaya females, and was producing nearly all Suri offspring. Mr Haldane was seeking to disprove the current doctrine that Suri males should only be crossed with Suri females. Cousill stated that he and Anderson were “entranced” by Haldane’s programme. Later, when Haldane offered them the ownership of the herd at a good rate, they accepted it with alacrity. It is not clear on what date that offer was made, but Cousill in evidence stated that it was made in or around 1999. Ultimately the intended transaction culminated in an agreement between the parties in November 2000, at which time Anderson and Cousill took possession of the Purrumbete herd.
Mr McNeill gave evidence that in late January or early February 2000, his wife and he had discussions with Anderson and Cousill when they visited the McNeills at their property at Bairnsdale. He stated that on that occasion there was a general discussion about the acquisition by the McNeills of the grey Suri male. Cousill stated that he would “like to be a part of it” and that he would go away and look how he could utilise the male. Subsequently Cousill and McNeill had a conversation concerning the proposal. It was proposed that the grey male would be put over approximately 50 of the herd at Pucara. In addition, Cousill stated that he would put the grey male over 50% of the Purrumbete herd in order to achieve more colours in the progeny. At that time, there was no discussion about the fee which would be paid to the plaintiff for the services to be provided to the two herds by the Suri male.
In her evidence Mrs McNeill confirmed that in January or February 2000, when Anderson and Cousill came to their house to drop off the herd of animals which were purchased from them, they discussed the fact that the McNeills were obtaining Flashman at that time. Nothing was further discussed on that day, but a few days later Mrs McNeill spoke to Cousill on the telephone. Cousill said to her that he and Anderson had spent the entire trip back to their home at Torquay talking about how they could get involved in the plaintiff’s plans of acquiring the grey Suri male. After that conversation, Mrs McNeill was not involved in any further discussions with Cousill and Anderson concerning the potential transaction.
Cousill gave evidence that Anderson and he first discussed the matter with Mr and Mrs McNeill when they visited the McNeills at their property in Bairnsdale in late 1999. On that occasion Mr and Mrs McNeill told Anderson and Cousill that they had an opportunity to purchase a rose grey Suri male and a group of Suri females. Cousill stated that Anderson and he immediately became quite excited about the prospect because they thought they could use the Suri male and also, in some way, share in the female grey Suri alpacas which were being purchased by the McNeills.
Cousill stated that subsequently, in 2000, he and Mr McNeill had a further discussion. At that time Cousill made a proposal that Anderson and he could use Flashman over approximately one half of the Purrumbete herd and for about 45 to 50 matings over the Pucara herd on their home farm.
Anderson gave evidence that she was present at the home of Mr and Mrs McNeill in Bairnsdale on a visit when the topic of the use of Flashman arose. The substance of the conversation was that it was an exciting prospect for the McNeills, and Cousill and she encouraged the McNeills to think seriously about it because they thought it was a great opportunity for them to be involved in the industry. Anderson stated that she herself saw an opportunity for Cousill and herself to use Flashman at their own property, but she could not recall whether she mentioned that to Mr and Mrs McNeill.
Anderson stated that thereafter it was the intention of Cousill and herself to use Flashman over their female alpacas in both the Purrumbete and Pucara herds. The evidence of Cousill and Anderson was that they intended to use the grey Suri male, which was to be acquired by the plaintiff, over about 45 of their females at Pucara, and over about 48 of the females at Purrumbete. They stated that they would pay a fee of $750 per service in relation to the Purrumbete herd, and in respect of those females of the Pucara herd which they themselves owned. In fact, at the Pucara farm, Cousill and Anderson also managed a number of female alpacas on behalf of Mr Frank Age, and on behalf of agistees. They intended to charge their clients $1,500 for the service of those females, and to split the fee equally with the McNeills. Thus they intended that the McNeills would receive $750 per service in respect of both the Pucara herd and the Purrumbete herd.
In cross‑examination and in final submission Mr Marantelli attacked the credibility, in particular, of Cousill and Mr McNeill in respect of their discussions and intentions relating to the use of Flashman over the Purrumbete and Pucara herds. In particular, Mr Marantelli placed significant weight on the fact that the proposed transaction was not documented, whereas, when the McNeills purchased a consignment of alpacas from Cousill and Anderson in November 1999, the transaction had been recorded in writing. Mr Marantelli maintained that it was unrealistic to accept that Cousill and Anderson had formulated and articulated to the McNeills an intention to use Flashman, particularly since they had not, at that stage, purchased the Purrumbete herd. The evidence of Cousill and Anderson was that they had been in discussions with Mr Haldane in respect of the purchase of the Purrumbete herd for some time prior to November 2000, but that they had only entered into a contract to purchase that herd as at November 2000.
Having had the opportunity to observe Mr and Mrs McNeill, Anderson and Cousill in the witness box, I accept their evidence in relation to the discussions which they had relating to the potential use of Flashman over the female alpacas in the Pucara and Purrumbete herds. None of the witnesses attempted to overstate the extent to which any arrangement had been organised between the parties, and the extent to which the intended transaction had been formulated and agreed. The witnesses frankly conceded, for example, that no agreement had been made as to price, as to the precise numbers of females to be serviced by Flashman, nor as to the period of time over which Flashman would be available to service those females.
Accordingly, I accept the evidence of Mr and Mrs McNeill and Anderson and Cousill that, in early 2000, discussions did take place about the intended use of Flashman over the Pucara herd and over the Purrumbete herd, which was yet to be acquired by Anderson and Cousill. It is also clear that the discussions which took place between the parties fell well short of any concluded agreement enforceable at law. There was a lack of agreement as to fundamental issues which are a prerequisite to the formulation of a concluded contract, including issues relating to price. The fact that those issues had not been concluded, nor indeed discussed between the parties, would not only render any potential agreement void for uncertainty, but, more importantly, reflects the fact that, at that stage, the discussions between the parties had not progressed to a binding commitment by the parties in respect of the proposed transaction. The lack of any such commitment was further evidenced by the fact that the parties did not endeavour to document the discussions which they had held between themselves. In other words, I consider that, in the course of their discussions, neither party made to the other a binding commitment or promise, but, rather, that they expressed to each other an intention that Flashman would be used over the Pucara and Purrumbete herds.
Thus the state of the evidence is that, in the discussions which took place between the plaintiff and Anderson and Cousill in the first half of 2000, and indeed when the plaintiff took possession of Flashman in August 2000, the plaintiff had an opportunity to use Flashman to service the Pucara and Purrumbete herds. In other words, there was no binding contract between the parties that Flashman would be used for that purpose, but, rather, an opportunity that Flashman would be put to that use. Dr Bleechmore correctly accepted that, if damages were recoverable in respect of the loss by the plaintiff of the profits which might have been made from the Purrumbete and Pucara transaction, such damages should be assessed on the basis of a lost opportunity; see Malec v J.C. Hutton Pty Ltd (No. 2)[1]; Commonwealth v Amann Aviation Pty Ltd[2]; Poseidon & Sellars v Adelaide Petroleum NL[3].
[1](1990) 169 CLR 638.
[2](1991) 174 CLR 64 at 92, 102-4, 118-9.
[3](1994) 179 CLR 332.
I have no doubt that at all times Mr and Mrs McNeill would have taken advantage of the opportunity, if it arose, to use Flashman over the Purrumbete and Pucara herds. I also accept that in their dealings with the McNeills, Anderson and Cousill were sincere in their statements to them that they intended to use Flashman over their herds. However it must be borne in mind that that intention was formulated and articulated in the excitement of the potential purchase of the grey male Suri by the plaintiff. As a number of witnesses remarked in their evidence, the grey male Suri, because of its rarity, might attract considerable attention in the industry; however it is another matter whether that interest would have translated into contracts and commitments by the owners of female alpacas to use the services of the grey male Suri when it arrived in Australia.
It is necessary to bear in mind the fact that Anderson and Cousill had not had the opportunity to see and inspect the grey male Suri which was being purchased by the McNeills. Indeed at that time they had not even purchased the Purrumbete herd. The transaction which was contemplated by the parties was not committed to writing. While Anderson and Cousill struck me as being honest and sincere people, no doubt they would, as astute alpaca breeders, quite properly have given priority to their own commercial interests if they later changed their minds, or if they formed the view that it was not appropriate for them to use the grey male alpaca.
In this respect it is relevant to note the concession made by Mrs McNeill in cross‑examination that, during the period August 2000 to February 2001, Flashman was only put over two females in the Pucara herd. She did not proffer any explanation why he only serviced such a limited number of the Pucara herd. Mr and Mrs McNeill had stated in their evidence that they were keen to use Flashman as much as possible for external services in order to pay for the cost of his purchase. Further, I note that the concession was elicited reluctantly from Mrs McNeill. Mrs McNeill was an honest and candid witness. Her reluctance in making the concession reinforced to me that she could not give any explanation why Flashman was only used over two of the Pucara females. Although there was some indication that the fleece fibre of Flashman might be more than 18.7 microns as evidenced by the test results received in November 2000, nevertheless Flashman remained in use until February 2001.
In those circumstances I consider that the value of the lost opportunity to use Flashman to service both the Pucara and Purrumbete herds should be assessed by applying an appropriate discount to the amount which would have been earned by the plaintiff had it in fact been able to use Flashman over those two herds. In determining the discount to be applied to the loss of opportunity to service the Pucara herd I do take into account the fact that, in the upshot, Flashman was only used over two females of that herd for a period of six months after the plaintiff took possession of him. Of course, the first part of that period was no doubt used in mating Flashman over the plaintiff’s own female herd. Nevertheless I cannot ignore the fact that, notwithstanding the intentions of the parties, Flashman was only used over a very small number of the Pucara herd. In those circumstances it is appropriate to apply a discount of 30% to any losses to be determined in respect of the transaction concerning the Pucara herd.
In his evidence Cousill stated that if the Purrumbete transaction was to be implemented, it was not to be performed until the second half of 2001, in other words, 18 months later than the discussions between the parties. In those circumstances, and taking into account the other factors I have set out above, I consider it appropriate to apply a discount of 65% to any losses to be determined in relation to the Purrumbete transaction. Applying those discounts I would assess the loss of opportunity to the plaintiff as follows:
(a)loss of opportunity to service the Pucara herd (45 matings at $750 each, discounted by 30%) $23,625; and
(b)loss of opportunity to service the Purrumbete herd (48 matings at $750 each, discounted by 65%) $12,600.
Thus, in total, the value of the lost opportunity would be assessed in the sum of $36,225.
Remoteness
The final question is whether the loss by the plaintiff of its opportunity to earn service fees from the Pucara and Purrumbete transaction is recoverable by the plaintiff in the sense that such damages are not too remote.
The relevant principles have been restated on a number of occasions in the authorities. It is sufficient if I set them out shortly. The fundamental rule, and the starting point for consideration, is that “where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed”; per Parke B in Robinson v Harman[4]. That general principle is limited by the rule articulated by Alderson B on behalf of the Court of the Exchequer in Hadley v Baxendale[5] in terms which have been long entrenched in the law of contract:
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at that time they made the contract, as the probable result of the breach of it.”
[4](1848) 1 Exch 850 at 855; 154 ER 363 at 365.
[5](1854) 9 Exch 341 at 354; 156 ER 145 at 151.
The two “limbs” of the principle expounded by Alderson B are commonly treated as part of the one fundamental principle, which combines both imputed and actual knowledge. In Koufos v Czarnikow Limited[6] Lord Reid merged the two limbs into a single principle in the following terms:
“The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.”
[6][1969] 1 AC 350 at 385.
Lord Reid’s formulation of principle has been adopted by the High Court on a number of occasions: see Wenham v Ella[7]; Burns v MAN Automotive (Aust) Pty Ltd[8]; The Commonwealth v Amann Aviation Pty Ltd[9]; Baltic Shipping Co v Dillon[10]. In Koufos’ case, the members of the House of Lords used differing formulations to express the degree of probability of the occurrence of the loss which should have been reasonably contemplated by the parties, those formulations being that of Lord Reid (“not unlikely”)[11], of Lord Morris of Borth‑y-gest (“was liable to result or at least was not unlikely to result”)[12], Lord Hodson (“liable to be”)[13] and Lord Pearce and Lord Upjohn (“serious possibility” or “real danger”)[14]. The High Court has not selected which of those formulations ought to be preferred. However, in my view, they are simply different shades of the same underlying concept. In National Australia Bank v Nemur Varity Pty Ltd[15] Batt JA, for convenience, adopted Lord Reid’s formulation, that is, that loss of the kind sustained by the plaintiff should have been within the contemplation of the parties as “not unlikely” to ensue from a breach of contract.
[7](1972) 127 CLR 454 at 471 (per Gibbs J).
[8](1986) 161 CLR 653 at 667 (per Wilson, Deane and Dawson JJ).
[9](above) (at 92) per Mason CJ and Dawson J, 99 (per Brennan J).
[10](1993) 176 CLR 344 at 368 (per Brennan J).
[11]At pp.385-6.
[12]At 406.
[13]At 410.
[14]At 415, 426.
[15](2002) 4 VR 252 at 270.
Two further points need to be borne in mind. First, in determining whether the damages claimed by the plaintiff are recoverable, it is not necessary that the extent or quantum of damages claimed by the plaintiff be no greater than those which would have been in the reasonable contemplation of the parties. It is sufficient, in order that the damages be recoverable, that damages of the kind sought by the plaintiff would have been in reasonable contemplation of the parties; see Alexander v Cambridge Credit Corp Limited [16], Baltic Shipping Co v Dillon (above)[17] per Brennan J. Secondly, the principles stated in the authorities, and to which I have referred, are not to be treated as statutory rules of rigid and inflexible application. Rather, they are the judicial expressions of principles relevant to the particular case in hand. As observed by Batt JA in National Australia Bank Ltd v Nemur Varity Pty Ltd (above)[18]:
“ … The rules as to remoteness are not ‘rigid rules of universal application’, but rather the prima facie rules which may be displaced or modified as necessary to achieve an appropriately balanced result.”
[16](1987) 9 NSWLR 310 at 365-6 per McHugh JA.
[17]Supra, at 367-8.
[18]Supra, at 270 (para 44).
It was common ground that Mr Viceconte did not know of the Pucara and Purrumbete transactions at the time at which he entered into the contract with the plaintiff on or about 23 December 1999. Indeed it would appear that at the time the contract was concluded, the Purrumbete and Pucara transactions had not been discussed, or even considered, by the plaintiff and by Anderson and Cousill. The question which arises is whether the loss which is claimed by the plaintiff, in respect of those transactions, is loss of the kind which should have been within the reasonable contemplation of Mr Viceconte as being not unlikely to occur, should the first defendant breach its contract with the plaintiff by failing to supply a grey male sire of the description set out in the contract.
The evidence of Viceconte, and of established alpaca breeders called on behalf of the defendants, was that a prudent, established breeder would not mate a significant number of the females in the breeder’s herd with an unproven male, and particularly with a male that had not been proven to be homozygous. Ms Short, in her witness statement which formed part of her evidence‑in‑chief, stated:
“No prudent breeder would put other than a handful of females of a herd to an unproven male. The risk of adulterating the herd is too great. A male needs to be proven before being put to a significant part of one’s herd. ‘Proven’ in the case of a Suri male means being homozygous and having quality Suri progeny on the ground.”
Similar statements were made in evidence by Messrs Jones, Preuss and Billington. Indeed, Ms Billington was strong in expressing the view that if she purchased such a grey male, she would not consider letting the male out for external services without first proving the male herself.
I accept the evidence of the defendant and of Messrs Short, Jones, Preuss and Billington as set out above. I therefore accept that a prudent established breeder of alpacas would not use an unproven male over anything other than a small amount of the breeder’s female alpacas. Of course, the test in this case is not what the prudent breeder would do, but rather what the defendant ought to have contemplated what might occur should he breach his contract. However the evidence which I have outlined above is relevant, because it supports the argument on behalf of the defendants that a person in the position of Viceconte might not expect that other reputable breeders in the industry would commit large numbers of their female alpacas to the grey Suri male sold by him to the plaintiff, unless and until that male was proven in the usual way.
On the other hand, however, it must be borne in mind that what is claimed in this case by the plaintiff is the loss of an opportunity to exploit the sire, purchased by it from the first defendant, by using the sire in a breeding programme which might be somewhat unusual or innovative in the industry. It might be one thing for the defendant not to have reasonably expected that, at the time he entered into the contract, the other party had a firm binding commitment by an established breeder to use the sire over a large number of the breeder’s females. It is quite a different matter for the defendant to have reasonably anticipated that, if the contract were breached, the plaintiff might lose an opportunity to exploit the male sire in a manner which might be somewhat unusual in the industry. In other words, the case put on behalf of the plaintiff is not that the defendant ought reasonably to have anticipated that, if it breached the contract, it was not unlikely that the plaintiff would lose contracts or commitments to use the male sire in the manner contemplated by the Pucara and Purrumbete transactions. Rather, the case for the plaintiff is that the defendant should have contemplated that if it breached the contract, it was not unlikely that the plaintiff would lose the opportunity to use the alpaca, not only in the usual way in which alpacas are used in the industry, but in the manner contemplated by the Purrumbete and Pucara transactions.
In my view, the facts proven in evidence do establish that the defendant should have contemplated a loss of that kind to the plaintiff. The alpaca industry is relatively new in this country. While the established breeders do generally avoid mating females to an unknown sire, nevertheless the industry is still in an emerging phase of its evolution in Australia. It has, as in all industries, pioneers such as Mr Haldane who are prepared to experiment and to try something different in order to press ahead. It also has innovative and resourceful entrepreneurs such as Anderson and Cousill who do not rigidly adhere to the orthodox principles followed by others in the industry, but rather are prepared to experiment and implement different solutions. Indeed a number of witnesses assented to the proposition put to them by Dr Bleechmore in cross‑examination that participants in the industry often entertain strongly held and differing views on a whole range of issues. For example, there is quite evidently a real controversy as to the merits of breeding white offspring as against the merits of breeding coloured offspring, there is controversy as to what colours are actually thrown by a grey sire, and there is controversy as to how important it is that the Suri male be proven to be homozygous.
It is significant that the grey alpaca which was the subject of the contract was indeed a rare offering in the industry at that time. The evidence showed that the grey male, on acquisition by the plaintiff, would have attracted considerable interest in the industry. While, as I have already observed, it is a different matter whether that interest would have translated into commitments and contracts with other breeders, nevertheless it was within the reasonable contemplation of a person such as Mr Viceconte that, by the grey male sire attracting such interest, a more innovative entrepreneur in the industry might be persuaded to use the sire over a significant part of his female herd.
In this context the evidence of Mr Kelly has some relevance. Mr Kelly commenced his “Bellawood Alapaca Stud” in 1996. In 1999 he considered purchasing Flashman. He had in fact been interested in acquiring a black sire, but was unable to do so. Mr Kelly stated that his interest was in trying to breed grey and black progeny. If Mr Kelly had purchased the grey sire, he would have put him out for as many external services as possible. The evidence of Mr Kelly is but one example of the differing types of approaches in the industry, and of members of the industry who were and are prepared to pursue innovative paths in order to secure their position in the industry.
Based on the above evidence, I accept that a reasonable person in the position of Mr Viceconte, who himself had had a longstanding association with the alpaca industry, should have contemplated that, if the alpaca sold by him to the plaintiffs did not conform with its contractual description, the plaintiff would thereby not only be deprived of the use of the alpaca over its own herd and for the normal type of external matings, but might also lose the opportunity to use such a rare male on a more extensive mating programme of the type contemplated by the Purrumbete and Pucara transactions. I therefore consider that the lost opportunity claimed by the plaintiff in this case is a loss which is recoverable under the principles of Hadley v Baxendale.
Each case depends on its own facts. Further, as noted by Batt JA in the Nemur Varity case, it is important to avoid an excessively rigid application of principles to the individual fact situation of each case. Counsel did not draw my attention to any authority concerning a factual situation which might be said to be analogous to the present case. The case which has the closest similarity is the well-known decision of the English Court of Appeal in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd[19]. In that case the plaintiffs carried on business as launderers and dyers. In 1946, the plaintiffs entered into a contract with the defendants to purchase a boiler in order to expand their business. The defendants knew that the plaintiffs were launderers and dyers, and that wanted to use the boiler in their business. The defendants also knew that the plaintiffs wished to put the boiler into use in the shortest possible time. However, before the boiler was delivered to the plaintiff, it was damaged by an agent of the defendant. As a result, delivery of the boiler was delayed by a period of five months. The plaintiff claimed damages for breach of contract including damages for loss of business profits during that period. The trial judge gave judgment for the plaintiffs for damages under certain minor heads, but held that the plaintiffs were not entitled to damages in respect of lost profits. The plaintiffs successfully appealed to the Court of Appeal. That Court held that it was within the reasonable contemplation of the defendants that if delivery of the boiler was delayed the plaintiffs would thereby suffer loss and damage.
[19][1949] 2 KB 528.
The plaintiffs claim for loss of profits in the Victorian Laundry case was quantified under two categories in its statement of claim. First, the plaintiff claimed loss and damage consisting of loss of new customers which it had taken on in anticipation of its expanded capacity. The Court of Appeal held that the plaintiff was entitled to recover lost profits in respect of that loss of business. The second category of loss was claimed on the basis that the plaintiffs could and would have accepted a number of highly lucrative dying contracts from the Ministry of Supply. The Court of Appeal held that on the facts in that case (details of which, regrettably, are not set out in the judgment), it had not been established that the defendants would have known of the prospect and terms of such a contract with the Department of Supply. The court did observe that the plaintiffs were not, thereby, precluded from recovering some general (“and perhaps conjectural”) sum for loss of business in respect of dying contracts to be reasonably expected[20].
[20]See 543.
Of course the facts of each case are different. The report of the Victoria Laundry case does not contain any significant detail as to why the intended contracts with the Department of Supply might have been of a different kind to those which might reasonably have been expected by the defendant to form part of the plaintiff’s business. Certainly, the amount of profit claimed by the plaintiff in that case in respect of those contracts (£262 per week) was most unusual compared with the other loss of profits claimed and permitted by the court (£16 per week). The disparity in the two rates may indicate just how different the contracts with the Ministry of Supply were to the type of contract which the defendant might be expected to have anticipated the plaintiff had with its customers.
In the present case, for the reasons I have expressed above, I consider that the evidence has established that it was within the reasonable contemplation of a person such as Mr Viceconte that if the contract in question had been breached, the plaintiff might thereby have been deprived of an opportunity to enter into a transaction of the type contemplated by the Pucara and Purrumbete transactions.
Deduction of cost of acquisition of Flashman
The final issue in the calculation of the plaintiff’s damages for breach of contract concerns what credit should be allowed, as against those damages, for the cost to the plaintiff of acquiring Flashman. Mr Marantelli, on behalf of the defendants, contends that the whole of the cost of Flashman, $73,910, should be offset against the plaintiff’s claim for loss and damage for breach of contract. On the other hand, Dr Bleechmore contends that one quarter of the purchase price, amounting to $18,477, should be brought into account. For reasons which I shall set out shortly, I agree that only a proportion of the cost of Flashman should be brought into account in the calculation of the plaintiff’s claim. I have concluded that it would be appropriate to offset the plaintiff’s claim by one-third of the cost of Flashman, namely, $24,600.
The solution to the question lies in the role of damages for breach of contract, namely, in restoring the plaintiff to the position it would have been in if the contract had been performed by the defendant pursuant to its terms. In this case the plaintiff claims loss and damages on the basis that if it had received the grey male Suri which it contracted to purchase, the plaintiff would have made profits for the period August 2000 to April 2002. It follows that if the contract had been performed pursuant to its terms, the plaintiff would have paid, and the first defendant retained, the purchase price of $73,910 for the grey male Suri.
However, the claim by the plaintiff is not for lost profit over the whole of the intended working life of the grey male Suri. The plaintiff’s claim for loss was confined to the loss of his breeding services between August 2000 and April 2002, a period of 20 months. Flashman was purchased as a four year old male. At the end of the period in respect of which loss and damage was claimed, Flashman would have been approximately six years old. The plaintiff would have still had in its possession a valuable male Suri, subject, of course, to the various vicissitudes to which any working alpaca male might be subject. However, the evidence is sufficient to support the conclusion that the grey male Suri would still have had a working life after April 2002. Accordingly, the plaintiff, at April 2002, would have had in its hand a valuable six year old grey male Suri. It follows that the plaintiff would not have consumed the whole of the cost to it of the acquisition of the grey male Suri in producing profits for the limited period of August 2000 to April 2002. Accordingly, I accept the plaintiff’s submission that it is appropriate only to bring into account a proportionate share of the cost to the plaintiff of the acquisition by it of the grey male Suri.
There is little evidence as to the breeding life of a male Suri alpaca. Ms Billington imported a white male Suri, Senator, to Australia in 2002. Senator commenced service as a stud male as a five year old in 1995. He is one of Australia’s leading male alpaca sires. Senator is still in service and is now 14 years of age.
On the other hand Ms Short owned another leading male sire, Desert Dynasty, who was born in March 1994. She sold him in 2003. One month later he died, but apparently not of old age. The evidence was that generally male sires commenced service at two to three years of age. I therefore infer that Desert Dynasty was in service for a period of approximately six years.
The evidence concerning the working life of a male Suri is quite limited. I consider that I should take a fairly conservative approach, given the lack of evidence, and also taking into account various potential vicissitudes including premature death, injury, illness and the like. Accordingly, I consider it appropriate to use an estimated six year breeding life for Flashman (from August 2000) as a basis for calculation. It is therefore appropriate to attribute one‑third of that breeding life, and therefore one‑third of the cost of acquisition of Flashman (ie. $24,600), to the cost of generating the profits which are the basis of the plaintiff’s claim in this case.
At the conclusion of oral submissions I requested that both the plaintiff and defendant provide brief outline written submissions as to how the sum of $73,910, paid for Flashman, should be brought into account in respect of the claim by the plaintiff for loss and damages. In its submissions the plaintiff sought leave to tender in evidence initial reports by Professor Marshall, and the AAA breeding records relating to Senator. I do not grant that leave. It would be inappropriate to admit further evidence after the close of oral argument.
Defendants’ written submissions
In addition to requesting the parties to provide written submissions relating to the appropriate treatment of the purchase cost of Flashman, I also requested the parties to provide in writing:
(a)the arithmetic calculation of the plaintiff’s claim for reliance loss based on different figures which have now come to light; and
(b)how any judgment should deal with the overlap between the damages claim under the contractual claim and the damages claim under the trade practices claim.
The plaintiff and the defendants filed further written submissions in relation to those matters. However, the defendants’ written submissions went considerably further. In particular, in respect of the claim for damages for breach of contract, the defendants sought to submit that the methodology adopted by the plaintiff was incorrect, because it claimed a loss of revenue, rather than a loss of net profit. In written submissions in reply the plaintiff has taken exception to the defendant providing those submissions without leave. The defendants’ submissions go considerably further than the further written submissions contemplated during oral submission. They raise matters which were not addressed in cross‑examination, and which were not addressed in oral argument. For those reasons I would not grant to the defendants leave to make the further written submissions to the effect contained in paragraphs 1 to 6 of the document entitled “Defendants’ Supplementary Closing Submission”, if such leave were sought.
Further and in any event I agree with the point made by the plaintiff’s reply written submissions, namely, that the further submissions made by the defendants are misconceived. In essence, the defendants seek to argue that the plaintiff should offset, against the loss of profit claimed by it, the whole of the expenses of the plaintiff’s farming operations for each period in question. That submission only needs to be stated to be shown to be flawed. The costs which need to be brought into account in the plaintiff’s claim consist of any additional cost to the plaintiff which would have been incurred if they had had the services of Flashman available to them. The defendants did not cross‑examine, or seek to lead evidence, as to any additional costs which would have been incurred by the plaintiff in generating those notional profits.
In his report, which was tendered in evidence, Professor Marshall did allow for a notional cost of 2% of the sale value of stud male progeny, to cater for the additional costs of marketing any stud male progeny produced by Flashman. I have assessed the plaintiff’s loss and damage based on a loss of $26,000 in respect of top quality male progeny which would have been produced by Flashman if the defendant had performed the contract according to its terms. Accordingly, it is appropriate to offset against the plaintiff’s claim for damages for breach of contract a sum of $500 for such additional expenses. Patton’s report was also tendered as part of his evidence. It contained an extract of the plaintiff’s profit and loss accounts, and primary production accounts for the period 2000 to 2003. The defendants did not make any submissions as to which, if any, of those expenses would have been affected if the first defendant had performed the contract. The only possible expenses would seem to be the veterinarian expenses. The plaintiff’s expenses for the year 2000 were $374 for 22 animals. For the year 2003 veterinary expenses of $5002 were incurred for 72 animals. It is therefore appropriate to allow additional veterinary expenses of about $70 per annum. It might also be appropriate to allow additional travelling costs and sales commissions. Again, no submissions in this respect were addressed to me by the defendants. Accordingly, it is appropriate to allow additional costs in the sum of $1,000 as a notional offset against the plaintiff’s claim for contractual damages.
Conclusions on claim for damages for breach of contract
In summary, I assess the plaintiff’s damages in respect of its claim for breach of contract against the first defendant as follows:
(a) loss of profit on sale of progeny $109,100
less expenses $1,000$108,100 (b) loss of external service fees $25,000 (c) loss of opportunity to service Pucara and
Purrumbete herds$36,225 (d) Cost of external services February 2001 to
April 2002
$21,000 Total: $190,325 Less one-third of value of Flashman $24,600 Total: $165,725
It was agreed by the parties that there should be offset against any damages awarded for breach of contract a debt of $3,300 which is owed by Glencol to the first defendant in respect of the group of 13 female alpacas purchased by Glencol from the first defendant in February 2000. Accordingly, the amount of damages in respect of which judgment will be given for breach of contract is $162,425.
Damage - Trade Practices Act and Fair Trading Act
The final question concerns the assessment of damages occasioned to the plaintiff arising out of the contravention by the third defendant, Viceconte, of s.52 of the Trade Practices Act and s.9 of the Fair Trading Act.
The plaintiff claims that if the third defendant had not engaged in misleading conduct as I have found in June and July 2000, the plaintiff would not have taken possession of Flashman. I have already accepted that if the plaintiff had been told the true situation in June and July 2000, the plaintiff would have rejected Flashman. After taking possession of Flashman, the plaintiff successfully mated him to 11 females. Two of the matings were sufficiently late to enable the females to be aborted in February 2001. The other nine bore live progeny. The plaintiff’s case is that, if the plaintiff had been told the true situation, it would not have taken possession of Flashman, and would have mated the 11 females externally. It therefore claims, as loss and damage, the difference between the amount of net profit which it would have derived from mating the 11 females externally between August 2000 and February 2001, and the net profit it did derive from the sale of the nine live progeny.
In oral submissions the defendants did not impugn the validity of the methodology adopted by the plaintiff in calculating loss and damage based on reliance by the plaintiff on the misleading conduct of the third defendant. However in supplementary closing submissions filed after the conclusion of oral submissions the defendants sought to contend that the plaintiff’s methodology was incorrect. In essence, the third defendant argued that the plaintiff was not making a claim for “reliance” loss and damage which is appropriate to a claim under the Trade Practices Act and the Fair Trading Act, but, rather that it was making a claim which was a “halfway house between expectation and reliance damages.” The defendants have not sought leave to make the written submissions, and I would not grant such leave in any case. In any event, the submission by the defendants is misconceived. It is correct that the proper measure of the plaintiff’s loss and damage is determined by ascertaining what the plaintiff would have done if the misleading conduct had not occurred. The plaintiff, correctly, postulates that, in those circumstances, it would not have taken possession of Flashman, but rather would have utilised the services of another sire. Accordingly the plaintiff’s loss consists of the loss it sustained by using Flashman’s services rather than the external services. The calculation of that loss is made by postulating the profits which would have been made had the plaintiff utilised the external services, but deducting from that figure the amount of profit actually derived by the plaintiff from using Flashman’s services. Accordingly I consider that the plaintiff’s methodology is correct.
The calculation of the amount which the plaintiff would have earned from the progeny born to an external service is of course derived by utilising the sale prices which I consider would have been achieved for progeny sold by the plaintiff during the relevant period. Those figures would be then determined by applying the same split of quality as Patton applied for female progeny, namely, 10% for the top quality, 60% for the middle quality, and 30% for the lower quality. The putative sale prices for the male progeny would be determined by allocating 5% of the male progeny as being in the top bracket, and 95% as wethers. Those prices would be applied to nine progeny. Further, a putative price of a tenth progeny would be calculated on the basis that, in respect of the two females which were aborted, there was a total loss of 12 months’ breeding time. From the notional amount, which would have been earned by the plaintiff if it had utilised external services rather than Flashman for the period in question, there must be deducted the following:
(a)service fees in respect of the ten female alpacas (that is $1,500 per service);
(b)revenue actually derived by the plaintiff from the sale of the nine progeny which were born to females mated with Flashman; and
(c)the costs at $1,345, consisting of veterinary costs of $545.60, and travel costs of $800.
The plaintiff has applied the methodology, to which I have referred above, in its amended further particulars of loss. The plaintiff has calculated that, using Mr Patton’s prices, the weighted average price of male progeny would be $1,996, and the weighted average price of the female progeny would be $14,555, if those progeny had been born to an external service. Based on those figures the plaintiff has provided amended calculations of loss in the sum of $54,214. I agree with those calculations as the correct calculation of the loss, applying the methodology which I have described above. I incorporate the plaintiff’s calculations as follows:
“projected revenue from sale of five female offspring at average price $14,555
$72,775
Less service fees $1,500 x 5 = $7,500
7,500
Projected profit from sale of female progeny
65,255
Projected revenue from sale of four male offspring at average price $1,996
7,884
Less service fees
6,000
Projected profit from sale of male progeny
1,884
Total projected profit
67,139
Revenue actually derived:
Revenue from sales of females
19,045
Revenue from sales of males
2,000
Total revenue received
21,045
Less costs $545.60
Travel $800
1,345
Actual profit
19,700
Differential profit
47,439
Add loss of profit derived from 12 months breeding time – one animal
8,275
Less service fee $1,500
6,775
Total loss
$54,214”
Therefore I consider that the loss and damage sustained by the plaintiff as a result of the breach produced by the third defendant of the Trade Practices Act and the Fair Trading Act amount to the sum of $54,214.
The final question on this aspect of the case concerns the question of any overlap between the loss and damage awarded to the plaintiff for breach of contract, and the loss and damage awarded to the plaintiff under the Trade Practices Act. Having given the matter consideration, it seems that any overlap would be avoided by providing that any recovery by the plaintiff of its judgment for damages against the third defendant under the Trade Practices Act would pro tanto reduce the amount which it might recover against the first defendant in respect of its judgment for damages for breach of contract; and by providing that, in total, the plaintiff may not recover under the judgment an amount exceeding $162,425 dollars, being the amount awarded to the plaintiff for breach of contract.
Summary of conclusions
Accordingly, in summary, I have reached the following conclusions:
(a)the plaintiff is entitled to damages in the sum of $162,425 against the first defendant in respect of its claim for breach of contract; and
(b)the plaintiff has established that the third defendant contravened s.52 of the Trade Practices Act and s.9 of the Fair Trading Act. In consequence of that contravention the plaintiff suffered loss and damage in the sum of $54,214.
Accordingly, and subject to hearing from counsel on interest and costs, there will be judgment as follows:
(a)judgment for the plaintiff against the firstnamed defendant in the sum of $162,425, such damages to be reduced to the extent of any recovery of damages by the plaintiff against the third defendant under sub-paragraph (b) hereof;
(b)judgment for the plaintiff against the third defendant for damages in the sum of $54,214;
(c)order that the aggregate damages to be recovered by the plaintiff under sub-paragraph (a) and sub-paragraph (b) hereof shall not, in total, exceed the sum of $162,425; and
(d)the plaintiff’s claim against the second defendant is dismissed.
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