Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd

Case •

[2015] NSWCA 1

•

05 February 2015

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1
Hearing dates:27 November 2014
Decision date: 05 February 2015
Before: Macfarlan JA at [1];
Gleeson JA at [2];
Sackville AJA at [3]
Decision:

1. Appeal allowed in part.

2. Set aside Order 3 made by McDougall J on 12 May 2014.

3. Direct the parties to bring in agreed short minutes of order giving effect to this judgment within 14 days.

4. If the parties cannot agree on short minutes of order (including as to costs) direct that:

(a) the respondent (Robertson) file and serve its proposed short minutes of order together with brief written submissions in support within 14 days;

(b) the appellant (Composters) file and serve its proposed short minutes of order together with brief written submissions in support within a further 14 days.
Catchwords:

CONTRACT – agreement – parties entered into a supply and purchase arrangement – whether parties had agreed the essential term of price for the duration of the arrangement – whether price had been fixed subject to a price review mechanism and an obligation to negotiate in good faith

EVIDENCE – admissions – admissions of law and fact – whether an admission by a party to an alleged contract on a matter of law should be given any weight
Legislation Cited: Civil Procedure Act 2005 (NSW) s 90
Trade Practices Act 1974 (Cth) s 52
Cases Cited: Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19; 190 FCR 364
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; 149 CLR 600
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153
British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317
Eastern Express Pty Limited v General Newspapers Pty Limited (1992) 35 FCR 43
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640
Forrest v Australian Securities and Investments Commission [2012] HCA 39; 247 CLR 486
G. Scammell and Nephew Ltd v H.C. and J.G. Ouston [1941] AC 251
Godecke v Kirwan [1973] HCA 38; 129 CLR 629
Grey v Australian Motorists & General Insurance Co [1976] 1 NSWLR 669
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
May and Butcher Ltd v The King [1934] 2 KB 17
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231
Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164
Mushroom Composters v Robertson (No 2) [2014] NSWSC 552
O’Brien v Dawson [1942] HCA 8; 66 CLR 18
Ormwave Pty Limited v Smith [2007] NSWCA 210
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451
Pitcher v Langford (1991) 23 NSWLR 142
Suttor v Gundowda [1950] HCA 35; 81 CLR 418
Taylor v Johnson [1983] HCA 5; 151 CLR 422
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165
Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106
United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618
Texts Cited: J W Carter, Carter on Contract (2014, LexisNexis)
NC Seddon, RA Bigwood and MP Ellinghaus, Cheshire & Fifoot Law of Contract (10th Aust ed 2012, LexisNexis Butterworths)
Category:Principal judgment
Parties: Mushroom Composters Pty Ltd (Appellant)
IS & DE Robertson Pty Ltd (Respondent)
Representation:

Counsel:
B Walker SC / S Duggan (Appellant)
BF Katekar / D Krochmalik (Respondent)

Solicitors:
HWL Ebsworth Lawyers (Appellant)
Henry Davis York (Respondent)
File Number(s):2014/158572
Publication restriction:None
 Decision under appeal 
Court or tribunal:
Supreme Court
Citation:
Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164 (4 March 2014)
Mushroom Composters v Robertson (No 2) [2014] NSWSC 552 (12 May 2014)
Date of Decision:
12 May 2014
Before:
McDougall J
File Number(s):
2011/20925

Judgment

  1. MACFARLAN JA: I agree with Sackville AJA.

  2. GLEESON JA: I agree with Sackville AJA.

  3. SACKVILLE AJA: The issue in this appeal is whether the parties reached consensus on all the essential terms of an agreement to supply and purchase wheaten straw, so as to create a binding contract for a term of four years. The appellant (Composters) says that the parties never reached final agreement on the price and thus a binding four year contract never came into existence, although it accepts that contracts for the first two years of the four period were concluded. The respondent (Robertson) says that the primary Judge correctly found that the parties had reached a consensus as to price and that the parties entered into a binding contract for a term of four years. There is no dispute that if Robertson is correct, Composters repudiated the four year contract and Robertson accepted the repudiation as terminating the contract.

The Proceedings

  1. Composters manufactures mushroom compost. The production of mushroom compost requires supplies of wheaten straw. Composters sued Robertson claiming damages for breaches of two separate contracts for the supply of straw. The first contract was alleged to have been entered into in or about September 2008 and required Robertson to supply composters with 10,000 tonnes of straw, to be harvested during the 2008/2009 season (the season for harvesting and baling straw runs from December to April). The second contract was alleged to have been entered into in or about 2009 and was for the supply of a similar quantity of straw harvested during the 2009/2010 season on the same terms.

  2. Part of Composters’ case was that Robertson had issued six invoices totalling $660,000 in respect of “pre-payment royalties” for straw in breach of the 2009/2010 contract. Composters also alleged that in issuing the invoices, Robertson engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth).

  3. Robertson denied in its defence that it had engaged in misleading or deceptive conduct or that it had entered into the agreements in the form alleged by Composters. Robertson pleaded that in October 2008, the parties had entered into an agreement for the supply and purchase of 10,000 tonnes of straw annually for a period of four years, commencing with the 2008/2009 season (Supply Agreement). Robertson alleged that the Supply Agreement provided for an agreed price per tonne of $143.60 plus GST, “with such price to be adjusted annually using a CPI [consumer price index] suitable to both parties”.

  4. Robertson cross-claimed against Composters, alleging that it had repudiated the Supply Agreement and that Robertson had accepted Composters’ repudiation on 17 January 2011. Robertson sought damages of $2,816,386, comprising the amount of unpaid invoices rendered by Robertson to Composters and damages for Composters’ breach of contract. The latter claim comprised two principal heads of damage. The first was the loss allegedly sustained by reason of Composters’ failure to collect straw harvested and baled for the 2009/2010 season. The second was the loss of the contractual bargain for the 2010/2011 and 2011/2012 seasons. Composters defended Robertson’s cross-claim on the ground that the only contracts entered into between the parties were on a year to year basis and not for a term of four years.

  5. The primary Judge (McDougall J) rejected the bulk of Composters’ claims, finding in its favour only on a subsidiary claim involving the haulage of freight: Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164 (Primary Judgment). His Honour awarded (at [337]) Composters damages of $27,815, exclusive of interest, in respect of the freight claim. He ultimately entered a verdict for Composters on this claim for $34,817, inclusive of interest: Mushroom Composters v Robertson (No 2) [2014] NSWSC 552 (Supplementary Judgment).

  6. The primary Judge upheld Robertson’s cross-claim. He found (at [203]) that the parties had entered into a contract for the supply of straw for a term of four years covering four straw harvesting seasons. His Honour also found (at [213]) that the agreed price was $140 per tonne, subject to two important qualifications:

“(1)   CPI increases in the baling component; and

(2)   review of ‘royalty’ component in the event that straw prices decreased substantially over the life of the contract.”

The price of $140 was comprised of two components. The “baling component” of the price, on his Honour’s findings (at [208]), was $80 per tonne. The “‘royalty’ component” (at [209]) was $60 per tonne.

  1. The primary Judge awarded Robertson damages (at [338]) on a provisional basis comprising the following amounts in respect of each of the following seasons:

  • 2009/2010 season: $808,328;

  • 2010/2011 season: $311,570; and

  • 2011/2012 season: $202,521.

These amounts totalled $1,322,419.

  1. In the Supplementary Judgment, the primary Judge confirmed the calculation of damages in the Primary Judgment and added interest. His Honour entered a verdict for Robertson of $1,591,023, inclusive of interest. Pursuant to s 90(2)(a) of the Civil Procedure Act 2005 (NSW), his Honour directed entry of judgment for $1,556,206 in Robertson’s favour, being the balance of the sums awarded to each party (that is, $1,591,023 less $34,817).

  2. On 17 July 2014, Gleeson JA ordered that execution of the judgment be stayed until determination of the appeal or further order, on condition that Composters provide security by way of bank guarantee of $400,000: Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231. That condition was complied with.

The Issue on Appeal

  1. Composters filed a notice of appeal challenging the award of damages to Robertson on its cross-claim. The notice of appeal contained 11 grounds, all of which were addressed in Composters’ written submissions filed in the appeal.

  2. At the outset of the hearing, Mr Walker SC, who appeared with Mr Duggan for Composters, stated that Grounds 7-11 in the notice of appeal would be abandoned. Mr Walker also said that although Grounds 1-6 remained, Composters relied on only one argument: that Robertson and Composters never entered into a binding four year agreement for the supply of straw because they never reached consensus as to the price to be paid for the straw over the whole period of four years. According to Mr Walker, in the absence of agreement as to price for the whole period, the parties were never ad idem as to an essential element of an enforceable agreement for the supply and purchase of the straw. Thus no binding contract as alleged by Robertson in its cross-claim had been concluded and no damages could be awarded to Robertson for breach or repudiation of the alleged contract.

  3. At the conclusion of the argument, Mr Katekar, who appeared with Mr Krochmalik for Robertson, pointed out that Composters had abandoned its appeal against the award of $808,328 as damages in respect of the 2009/2010 year (exclusive of interest). Mr Walker had previously indicated that Composters was not taking the point that Robertson had not expressly pleaded an alternative claim based on a year to year contract which extended to the 2009/2010 season. It therefore appears that regardless of the outcome of the appeal, Robertson is entitled to a judgment for $780,513 ($808,328 less the damages of $27,815 awarded to Composters), exclusive of interest.

The Facts

  1. There were a number of factual matters in issue before the primary Judge, but the findings of primary fact made by his Honour are not now challenged. The following account is based on those findings, but is supplemented by more detailed references to conversations recounted by Mr Robertson, whose evidence the primary Judge accepted.

  2. Wheaten straw comprises about 35 per cent to 40 per cent by weight of the finished mushroom compost product. Composters, which conducted its operations at Singleton, generally obtained its straw supply from the central western region of New South Wales.

  3. Robertson supplied straw to Composters over the years 1996 to 2004 in quantities that ranged from 2,500 to 7,200 tonnes annually. After a period during which Composters obtained supplies elsewhere, an arrangement was made for Robertson to supply 7,000 tonnes of baled straw for the 2007/2008 season.

  4. Discussions took place in January 2008 between Mr and Mrs Robertson, the directors of Robertson at the time, and Dr Martin, the General Manager of Composters. The context was a period of prolonged drought in which straw was not easy to procure and prices were relatively high. In the course of the discussions, Mr Robertson said that Robertson would like to enter into “longer term contract … of, say, four years”. Dr Martin said that if that were to happen, it would be conditional on Robertson producing different sized bales, known as “8x4x4 modified”, in place of the slightly larger bales previously used. Mr Robertson replied that in order for Robertson to purchase the necessary machinery, it would need the security of a four year contract to supply 10,000 tonnes of straw per annum.

  5. On 25 January 2008, a telephone conversation took place between Mr Robertson and Dr Martin to the following effect:

“[Mr Robertson]:   What’s going on with the long term contract we spoke about?

[Dr Martin]   We can give you a four year contract if you bale mostly modified 8x4x4 bales and some 8x4x3 bales.

[Mr Robertson]   10,000 tonnes per season over the next four straw seasons?

[Dr Martin]      Yes. That’s about 90% of our straw needs per year.

[Mr Robertson]   We’ll need to arrange finance to update our machinery and buy the 8x4x4 bales. This is a big outlay. It’s only worth it if we have a four year contract.

[Dr Martin]   I’ll send you a letter today confirming the four year contract so you can take it to the banks.

[Mr Robertson]   If we can get $140/tonne that should be enough to meet our baling costs, keep the farmers happy, and hopefully get repeat work with harvesting as well as the straw which is going to be much better now we got the stripper fronts. The new stripper fronts it’s quicker and we’re getting a better yield so I can do the straw for $140 a tonne. We’ll need about $60 a tonne to meet upfront payments to pay the finance payments, and for things like string, employee wages, fuel and to pay the farmers who we may not harvest for. The $80 we need on delivery and we can index to inflation each year if necessary.

[Dr Martin]      No problem.

[Mr Robertson]   We have different deals with all farmers so we sometimes only pay them a small fee for the straw or we do harvesting for them in exchange. They get their fields harvested so they’re happy as they don’t have the machinery we have. So most of the upfront payment is for things like paying our employees and for the finance payments we’ll be making on the new balers and other machinery.

[Dr Martin]   That’s fine with us. It’s all the same to us how you use the upfront payments, so long as you give us the straw.” (Emphasis added.)

  1. Mrs Robertson gave a similar account of this conversation. However, her recollection was that Mr Robertson said that he could bring the price down from $160 to $140 per tonne and that price would be adjusted “for CPI each year if necessary”.

  2. The primary Judge found that Mr Robertson also told Dr Martin that the so-called “royalty” or “prepayment” of $60 per tonne would mostly exceed the amounts paid by Robertson to farmers for the right to take and sell their straw. This finding resolved a factual dispute between the parties. Composters’ case, rejected by the primary Judge, was that insofar as the royalty was to be paid in advance by Composters, Robertson was to pay the whole of the pre-paid amount to farmers. Robertson’s case was that the royalty simply formed a component of the overall price for the straw and Robertson was entitled to retain for its own benefit the amount (if any) by which the royalty exceeded the price paid or allowed to farmers.

  3. On 25 January 2008, the same day as the telephone conversation, Composters sent a letter to Mr Robertson, as follows:

“RE:   CONTRACT FOR SUPPLY OF WHEATEN STRAW

Further to our telephone conversation of this morning I am able to agree in principal [sic] to your supplying 10 000 tonnes of wheaten straw per annum to our mushroom composting operation in Singleton. On the basis of current production this would amount to over 90% of our annual requirement.

The contract would in the first instance be for a period of four years to commence with the 2008/9 season. The baled price is to be $80 per tonne on field, such price to be adjusted annually after the first season using a CPI index suitable to both parties.

In terms of the farmers’ royalty payment, a cost of $60 per tonne is anticipated, but if there is an over abundance of straw in one season, then it would be reasonable to expect that a proportion of the supply could command a lower royalty.

Mushroom Composters is prepared to pay a proportion of the royalty payment at baling time and possibly the balance before the close of the financial year. Details of such pre payment arrangements are to be subject to further discussion.

Mushroom Composters is the largest supplier of Phase 1 mushroom compost in NSW, producing 1 000 tonnes of compost per week which represents 20% of the total compost requirement used for commercial mushroom growing throughout Australia.

Mushroom Composters is jointly owned by Powes’ Mushrooms in Windsor and Gromor Enterprises Pty Ltd, owned by the Marland Family in Singleton. Both families have been engaged in mushroom growing since the 1950’s and are well respected in the Australian mushroom industry. I understand that the Marlands use Westpac as their banker.

I intend to visit you in early February when we can discuss this matter further and draw up a heads of agreement for the contract.” (Emphasis added.)

Mr and Mrs Robertson used this letter in support of an application for finance to acquire the new machinery needed for baling the straw.

  1. Nothing of major significance then occurred until about September or October 2008. At about that time, Dr Martin and Mr Robertson took a road trip during which Mr Robertson showed Dr Martin the farms from which Robertson proposed to harvest and bale straw. In the course of the road trip, Dr Martin said that Composters planned to set up a depot at Gilgandra, which had the advantage of a relatively central location for the reception of straw.

  2. At about this time, it was agreed that Robertson would bear the cost of freight for straw collected north of a particular point (the “Tahrone turn-off”). It was also agreed that if Robertson hauled straw from north of that point to the Gilgandra depot, Robertson would be allowed an extra $24.20 per tonne for the freight charges.

  3. On 8 October 2008, presumably after the road trip, the Robertsons’ accountant sent a fax to them advising that the “current CPI is 4.5%”. According to Mrs Robertson’s evidence, they approached the CPI adjustment by increasing the overall price of $140 per tonne by $3.60, being half the increase of $7.20 that would have applied had the whole price of $140 been increased by 4.5 per cent. (Although the point does not seem to have been picked up in evidence, this could not have been the reasoning process. An increase of 4.5 per cent in the total price of $140 produces and increase of $6.30, not $7.20. However, an increase of 4.5 per cent on the baling cost of $80 produces the exact amount by which the baling cost was increased, namely $3.60.)

  4. A conversation between the Robertsons and Dr Martin took place at the Robertsons’ house after the road trip. The conversation was to the following effect:

“[Mrs Robertson]   The CPI adjustment for the price of straw for the first year of our four year contract is an increase of $3.60 from the 2007/2008 Contract. That’s $143.60 per tonne on field with $60 per tonne upfront to meet our finance costs employee wages and farmer payments and then $83.60 when it gets to Mushroom Composters in Singleton.

[Dr Martin]   We’ll pay the upfront payments in six monthly instalments of $100,000 at the start of each of December to May. We need about 9,000 tonnes in modified 8x4x4 bales and 1,000 tonnes in 8x4x3 bales. Can you do that?

[Mr Robertson]   Yes, we’ve got the two new Hesston 8x4x4 balers which have been modified using the instructions you gave me. We also have the 8x4x3 balers that we used last season.

…

[Dr Martin]   … [T]he drivers will have to load the 8x4x4 bales first and then stop off at another farm or another paddock to pick up the 8x4x3 bales. I’ll put this in writing and send it to you.” (Emphasis added.)

  1. On 22 October 2008, Dr Martin sent an email to Robertson as follows:

“Attached what we discussed regarding the forthcoming straw season arrangement. Have a look and see if it reflects what we agreed and if you want to add or change anything let me know. I will have the straw incorporation document typed up the [sic] end of the week, not easy to put into words, but on good irrigated crops there is almost too much straw to handle and incorporate successfully without leading some straw off or burning.” (Emphasis added.)

  1. The attached document read as follows:

“HEADS OF AGREEMENT FOR SUPPLY OF WHEATEN STRAW TO MUSHROOM COMPOSTERS FOR THE 2008/9 SEASON BY IAN ROBERTSON

1.   Price of straw to be made up of $60 per tonne royalty and $83.60 per tonne baling cost. Total of $143.60 per tonne plus GST.

2.   Contract to be for 10 000 tonnes straw, 9 000 tonnes as modified 8x4 bales and the balance as 8x3 bales.

3.   Royalty of $600 000 to be paid at the rate of $100 000 per month upfront, first payment to commence on the 1st December 2008 and on the 1st of each subsequent month until paid.

4.   Balance of $83.60 per tonne to be paid when straw is received at Mushroom Composters.

5.   Minimum bale weights to be achieved 550 Kg for 8x4 and 350 Kg for 8x3.

6.   Optimum loading of trucks, MBH 45 8x4 & 6 8x3. Gromer 51 8x4 & 3 8x3. Nominal truck weights MBH 26.85 tonne and Gromor 29.10 tonne. If the monthly average falls below these nominal weights then Ian Robertson to discount the landed straw price by the difference between the actual and nominal per tonne freight rate.

7.   For straw uplifted north of the Tahrone turn-off on the Castlereagh Highway Ian Robertson will bear the extra freight cost involved.

8.   Ian Robertson will haul straw from the Come by Chance area to a depot in Gilgandra. Straw uplifted from Gilgandra will bear an additional charge for freight from the Tahrone turn-off to Gilgandra. Straw uplifted from Gilgandra will be charged at $167.80 per tonne. Base price plus $24.20 freight.

Ian, the Directors would like me to add that you acknowledge that in pre-paying the straw royalty, that at any point in time we hold a lien on the straw to the value of the up-front royalty paid on straw which has yet to be delivered.” (Emphasis added.)

  1. After Mr and Mrs Robertson had a chance to consider the document, they telephoned Dr Martin and had a conversation to the following effect:

“[Mr Robertson]   Geoff, we’ve got the heads of agreement for the four year contract. We did not discuss anything about bale weights or discounts for freight. We can’t agree to minimum bale weights as the weight of the bales is out of our control, so I can’t agree to [paragraphs] 5 or 6. All we can do is bale the straw using the different sized balers … Also, the loading is your responsibility. We just stack the bales.

[Dr Martin]   OK. I understand, I know that bale weight is out of your control. It was only in there to please the Marlands [who had an interest in Composters]. We’ll drop the minimum bale weight requirement and discounted freight requirements of [paragraphs] 5 and 6. We need the two different sizes of bales even though they will be on different farms or in different paddocks so that bit can stay.

[Mr Robertson]   [Paragraph] 8 is OK if you set up the depot at Gilgandra. We can road train there for the agreed freight cost as long as it’s not going to cost me.

[Dr Martin]      So, we’re all agreed, let’s get baling!

[Mr Robertson]   Great, it’s a deal. I’m not signing the heads you sent through as it’s not what was agreed. Will you send me another version?

[Dr Martin]   There’s no need Robbo, we’ve worked together for many years and we know what we’ve agreed.” (Emphasis added.)

  1. During the 2008/2009 season Robertson cut and baled straw for Composters. Between 3 November 2008 and 4 March 2009, Robertson issued six invoices to Composters. Each invoice was for $110,000, inclusive of GST (that is $60 per tonne of wheat plus GST). Composters paid the invoices and Robertson used the funds to meet costs, including payments due to farmers.

  2. In late July 2009, Mr Robertson and Dr Martin discussed terms for what Dr Martin in his affidavit described as the “2009/2010 supply agreement”. Mr Robertson said that the farmer royalty payment would again be $60 per tonne and that the baling fee would be left at $83.60 per tonne. Mr Robertson also said that he would need upfront payments and Dr Martin agreed to that proposal. Dr Martin said that Composters would take another 10,000 tonnes.

  3. In the first half of 2010, Mr Robertson indicated to Dr Martin that Robertson was experiencing financial difficulties. On 22 June 2010, during what was described as the “Dunedoo meeting”, Dr Martin informed Mr Robertson that Composters could not continue to take 10,000 tonnes and for the coming season would need only 5,000 tonnes.

  4. Between October 2010 and January 2011, the parties engaged in correspondence in which each alleged that the other had breached its contractual obligations. On 17 January 2011, Robertson’s solicitors wrote to Composters’ solicitors recording that Composters denied that there was a four year contract in place or that there was a contract in respect of the 2010/2011 season. The letter stated that Robertson’s position was that Composters had repudiated the contract and that Robertson accepted the repudiation.

The Primary Judgment

  1. The primary Judge identified (at [8]) ten issues for resolution. The only issue relevant to the appeal is the first:

“What was the term of the agreement: 4 years (2008/2009 to 2011/2012) or 1 year for each of 2008/2009 and 2009/2010? In particular, was it agreed that:

(a)   10,000 tonnes of baled straw was required to be supplied for each of the 4 years?

(b)   The pricing regime of $60 plus GST pre-payment plus $83.60 per tonne plus GST, with an annual CPI increase after January 2008, applied for each of the 4 years?”

  1. His Honour said (at [32]) that the essential difference between the parties was whether the letter of 25 January 2008 “had contractual effect”. Robertson’s pleaded case (at [45]) was that the four year contract was partly written and partly oral. The written component comprised the letter of 25 January 2008 and the Heads of Agreement of 22 October 2008. The oral component consisted of the conversations between the Robertsons and Dr Martin between January and October 2008.

  2. The primary Judge summarised (at [46]) Robertson’s pleaded case as follows:

“(1)   the contract was for a period of four years commencing with the 2008/2009 season;

(2)   the price per tonne would be $143.60 for the first season, with the baling charge ($83.60 per tonne for that season) to be adjusted annually thereafter in accordance with movements in the CPI;

(3)   Composters would prepay $60.00 per tonne, at the rate of $100,000.00 per month, for each month from December to May of the relevant season; and

(4)   the balance of the price would be paid upon receipt of the straw at Composters’ premises in Singleton.”

  1. This summary is incorrect insofar as it suggests that Robertson alleged that only the “baling charge” would be subject to adjustment in accordance with movements in the CPI. Robertson’s pleaded case was that the agreed price of straw per tonne was $143.60 plus GST “with such price to be adjusted annually using a CPI suitable to both parties”.

  2. The primary Judge noted (at [125]) that Robertson relied on conduct on the part of Composters that was said to be consistent with the agreement being for a term of four years and on admissions made by Dr Martin. The admissions identified by his Honour included the following:

  • Dr Martin’s statements in an affidavit read at the trial that the 2008/2009 and 2009/2010 seasons were to be the first and second years, respectively, in the four year straw supply agreement (at [110], [148]-[150]);

  • Dr Martin’s evidence that in the telephone conversation with Mr Robertson of 25 January 2008 he intended to convey that Composters was prepared to commit to an extended term if other particulars could be negotiated (at [145]-[147]);

  • Dr Martin’s account in his affidavit of the Dunedoo meeting, where he recalled saying “when we organised this agreement we anticipated an output of 1,200 tonnes per week”, a comment that in context the primary Judge thought (at [152]) could only refer to the four year agreement; and

  • in summarising his understanding of the Dunedoo meeting, Dr Martin said in his evidence that the 2010/2011 season was to be the third year of the four year supply agreement (at [155]) and that Composters had “an arrangement for four years (at [156]).”

  1. The primary Judge found (at [159]) that Dr Martin, both at the time of the conversations with Mr Robertson and when swearing his affidavit, was of the view that there was a four year contract between Robertson and Composters. His Honour also found (at [170]) that Dr Martin had authority to make admissions on behalf of Composters and thus his admissions could be taken into account on the question of whether the parties had reached a final and concluded four year contract (at [173]).

  2. The primary Judge accepted (at [182]) that the letter of 25 January 2008 was not an offer capable of acceptance. However, it was to be read as saying that, although Composters was not then prepared to enter into a four year contract, it was negotiating to achieve “some such contract” (at [183]). The commercial context supported a finding (at [188]) that in and around January 2008 the parties were:

“negotiating to enter into a four year supply contract, for a fixed tonnage of straw, at the indicative price stated, and on other terms to be settled”.

  1. In his Honour’s view (at [189]), the ensuing negotiations had to be looked at in the light of that finding. The parties continued to negotiate on various matters, including price (at [189]). Thus when the parties had the discussion that led to the Heads of Agreement they were finalising the arrangements for the first year of supply under the proposed four year supply contract. That is why the Heads of Agreement referred to “the 2008/9 season” (at [190]). That document resolved the question of price left outstanding by the letter of 25 January 2008.

  2. The primary Judge considered that the letter of 25 January 2008 had set out the basic terms of the “deal” to which the parties had agreed in principle but to which they were not legally bound. Objectively, they intended to continue negotiations in “an attempt to convert the “in principle deal to a binding contract” (at [193]).

  3. His Honour accepted (at [197]) that a conventional offer and acceptance analysis could not be applied to the case. But that did not mean that there could be no contract. Viewing the whole of the material, the contract which came into existence was the one the parties had been negotiating since January 2008 (at [198]).

  4. The admissions or concessions made by Dr Martin, particularly in his affidavits, provided “powerful” support for this conclusion (at [199], [201]). Accordingly, his Honour concluded (at [203]) that:

“Composters and Robertsons did make a contract for the supply of straw, by the latter to the former, over four straw harvesting seasons, commencing with the 2008/2009 season”.

  1. Having reached this conclusion without addressing the question of price, his Honour considered that issue. He reasoned as follows:

“[207]   In my view, the evidence shows that, the parties agreed on a price of $140.00 per tonne, subject to two qualifications.

[208]   The first (and non-contentious) qualification is that the parties agreed that the baling cost of $80.00 per tonne would be increased according to movements in the CPI.

[209]   The second relates to the ‘royalty’ component of $60.00 per tonne. For reasons that I will indicate in dealing with the second issue, I do not regard the royalty as being payable only to the extent that Robertson paid farmers for the right to take and sell their straw. However, I do not accept – at least without qualification – the case advanced for Robertson, that the ‘royalty’ component was fixed for the four years of the contract.

[210]   Mr Robertson’s evidence was to the effect that Robertson needed a fixed four year price (leaving aside, as of no present moment, increases in the baling charge referable to movements in the CPI). He said that Robertson needed the security of a fixed price in order to justify, and repay, the financial commitment necessary to acquire new machinery.

[211]   I accept, further, that Mr Robertson said words to that effect to Dr Martin. However, Dr Martin’s response, as evidenced in the letter of 25 January 2008, was that the royalty price should be regarded as negotiable.

[212]   …[A]s a person undoubtedly familiar with the effect of weather on agriculture in general and prices for produce in particular, Dr Martin must have been aware that a shortage could become a glut, with obvious impact on prices. Further, Dr Martin was negotiating in the context of a prolonged period of drought. No doubt, he understood that, if the drought broke, straw might indeed become available (as he put it in the letter) in ‘over abundance’. He must have understood, as anyone with even a fleeting knowledge of matters agricultural would, that over-abundance of supply would drive down prices. Thus, Dr Martin reserved the expectation of a lower royalty in the event of an over-abundant supply of straw over the life of the contract.

[213]   To my mind, the contract is to be viewed as one which fixed a price of $140.00 per tonne, subject to:

(1)   CPI increases in the baling component; and

(2)   review of the ‘royalty’ component in the event that straw prices decreased substantially over the life of the contract.

[214]   The second qualification, in my view, arises by necessary implication from the paragraph of the letter that reads:

In terms of the farmers’ royalty payment, a cost of $60 per tonne is anticipated, but if there is an over abundance of straw in one season, then it would be reasonable to expect that a proportion of the supply could command a lower royalty.

[215]   As a matter of construction, or by implication from the words used, that paragraph imposed on the parties an obligation to negotiate in good faith, as to the amount of the royalty payment, in the event that conditions of over-abundance prevailed.

[216]   Strictly speaking, it is unnecessary to express a concluded view on this. Composters does not contend for such a term (nor does Robertson). Nor does Composters contend that any such term was breached. Composters did not seek to negotiate with Robertson a lower royalty component. What it sought to do (at the Dunedoo meeting) was to reduce its commitment from 10,000 tonnes to 5,000 tonnes for the 2010/2011 straw season.

[217]   Robertson does not contend for further CPI increases in the baling cost. Composters does not contend that the royalty component should be discounted or reduced in some way. The result is that, for the second, third and fourth years of the four year agreement, the price must be taken to be $143.60 per tonne, subject to any renegotiation in the event of a glut of straw on the market.”

  1. The primary Judge then dealt with other issues in the case and concluded (at [338]) that Robertson was entitled to succeed on its cross-claim.

Submissions

Composters’ Submissions

  1. Although Composters’ written submissions devoted close attention to whether “post-contractual” conduct could be used to establish that the parties had concluded an enforceable contract for a term of four years, Mr Walker did not press the argument that post-contractual conduct could not be used for this purpose. He accepted that conduct after an alleged contract has been concluded may assist in determining objectively whether the parties manifested that they had reached a consensus on all essential terms. He also accepted that conduct of this kind could include an admission by an authorised person as a material fact.

  2. Mr Walker submitted, however, that the “admissions” made by Dr Martin could not be accorded any weight in determining whether the parties had reached consensus as to the price to be paid for straw over the four year period. Dr Martin’s subjective views as to the existence of a binding contract were not relevant, since the question as to whether a binding contract had been concluded involved the application of a legal standard. In any event, so Mr Walker argued, Dr Martin’s admissions were incapable of demonstrating that the parties had reached consensus on the price for straw in years three and four of the supposed four year contract.

  3. Mr Walker submitted that the letter of 25 January 2008 plainly contemplated (as the primary Judge found) that there would be further negotiations as to a number of matters including price. Nothing that occurred thereafter constituted an agreement as to price for the four year period of the alleged contract. The Heads of Agreement did not have that effect, since both that document and the covering email plainly contemplated an arrangement only for the 2008/2009 season.

  4. Mr Walker contended that neither component of the price for straw – the so-called royalty payment and the baled price – had been agreed for the third and fourth years of the alleged contract and thus the overall price had not been agreed. The arrangement contemplated in the letter of 25 January 2008 was that the baled price would be $80 per tonne to be adjusted annually “using a CPI index suitable to both parties”. No CPI measure had ever been agreed. All that happened was that the parties agreed on an adjustment to the baled price proposed by Robertson for the 2008/2009 year and that figure remained the same for the following season. No agreement had been reached between the parties as to a suitable CPI measure or a dollar figure for the baled price in seasons three and four. Mr Walker submitted that more than one CPI measure could have been selected by the parties and that the problem was not resolved by the primary Judge’s finding (at [217]) that Robertson did not seek further increases in the baled price.

  5. Mr Walker further submitted that regardless of the position concerning the baled price, the parties had never reached agreement as to the royalty component and therefore as to the overall price of straw for years three and four of the arrangement. In the letter of 25 January 2008, the parties had “anticipated” a royalty of $60 per tonne, but expected that if there was an over-abundance of straw in one season, the royalty component could be lower. The parties had agreed on a $60 royalty for the first and second years, but the figure for the third and fourth years would depend on negotiations in the light of the abundance or otherwise of straw.

  6. Mr Walker acknowledged that the parties could have agreed on a price for the four years of the agreement, but also agreed to negotiate in good faith to vary the price in specified circumstances. In this situation, the agreed price would remain in place if the parties could not agree on a variation. But Robertson had not pleaded an agreement to this effect, nor had the primary Judge found such an agreement. Moreover, Robertson had not alleged that Composters had breached a contractual obligation to negotiate in good faith.

Robertson’s Submissions

  1. Mr Katekar objected to Composters relying on the argument that the parties had never reached final agreement as to the CPI measure to be used to adjust the baled price. He submitted that the argument had not been put to the primary Judge. Had it been put, Robertson might have sought to counter it by adducing evidence that the parties had agreed, expressly or implicitly, to a mechanism for calculating CPI increases for years three and four of the contract.

  1. In any event, so Mr Katekar submitted, the primary Judge had correctly found that the agreed price for the four years of the contract was $140 per tonne. The two qualifications identified by his Honour (CPI increases to the baled price component and the review of the royalty price component in the event of changes in straw prices) did not alter the fact that the parties had agreed on a price per tonne for straw. That price was fixed notwithstanding that the parties had set in place a price review mechanism for the two components of the price. Even if the mechanisms were too vague or uncertain to be enforced (a proposition not put by Mr Walker), they could not “bring the whole agreement down”.

  2. Mr Katekar contended that the concluded contract came into existence on or about 24 October 2008, when agreement was reached as to the matters left unresolved by the Heads of Agreement. Mr Katekar accepted that not all contracts are susceptible of an offer and acceptance analysis, but contended that the conversation of 24 October 2008 amounted to an acceptance by Composters of Robertson’s last offer. It was not necessary to rely on post-contractual conduct; the parties had reached a consensus to all essential terms.

  3. Mr Katekar interpreted the Primary Judgment as concluding that the royalty component of the price was fixed at $60 per tonne for four years, but that the parties were under an implied obligation to negotiate in good faith if the general price of straw fell during the period of the contract. Later in the argument, Mr Katekar acknowledged that on Robertson’s case the price for straw was fixed before Dr Martin prepared the Heads of Agreement. The consensus had been reached in the conversation that took place after the road trip (before Dr Martin sent the Heads of Agreement to the Robertsons), when a total price of $143.60 per tonne for straw was agreed including a fixed royalty payment of $60. The latter was to remain constant unless the parties, as a result of good faith negotiations, agreed to vary it. In other words, the default royalty price, in the absence of agreement, was $60 and the total price for the straw was $143.60 per tonne (allowing for the CPI component of $3.60 agreed to in October 2008).

Reasoning

Principles

  1. With one exception regarding the probative value of Dr Martin’s admissions, there is no significant dispute between the parties as to the principles to be applied in determining whether Robertson and Composters entered into a binding contract for the supply and purchase of straw for a period of four years. Indeed the argument largely proceeded on the basis that the principles were so basic and well understood that they needed little exposition or analysis. Nonetheless, it is helpful to restate briefly the basic propositions of law that are not in dispute and then deal with the contested issue.

Principles not in Dispute

  1. First, in Australia the “objective” theory of contract has been accepted: see, most recently, Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35]. Consequently, in determining whether a binding contract has been concluded, the law is concerned not with the parties’ subjective intentions, but with “the outward manifestations of these intentions”: Taylor v Johnson [1983] HCA 5; 151 CLR 422 at 428 (Mason ACJ, Murphy and Deane JJ). Thus what matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] (per curiam); Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at [40]-[41] (per curiam). In a case where the ordinary process of offer and acceptance has taken place, the court inquires as to what a reasonable person would infer or deduce from observing the exchanges between the parties: NC Seddon, RA Bigwood and MP Ellinghaus, Cheshire & Fifoot Law of Contract (10th Aust ed 2012, LexisNexis Butterworths) at [3.4].

  2. Secondly, it is not necessary, in determining whether a contract has been formed, to identify a precise offer or acceptance; nor is it necessary to identify a precise time at which an offer or acceptance can be identified: Ormwave Pty Limited v Smith [2007] NSWCA 210 at [68] and authorities cited at [68]-[75] (Beazley JA, Santow and Ipp JJA agreeing). The questions to be asked are:

“in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the [plaintiff] and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?”

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; 53 NSWLR 153 at [81] (Heydon JA).

  1. Thirdly, an agreement that is incomplete will not give rise to an enforceable contract. As was said in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; 149 CLR 600 at 604 (Gibbs CJ, Murphy and Wilson JJ):

“It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future.”

  1. An alleged contract will fail for incompleteness if, even though the parties have used clear language, a term which is regarded as essential as a matter of law has not been agreed: J W Carter, Carter on Contract (2014, LexisNexis) at [04-120]. The principle was stated by Viscount Dunedin in May and Butcher Ltd v The King [1934] 2 KB 17 n at 21:

“To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties.”

  1. If the parties have not agreed on all essential terms, for example because they have left one such term to be settled by future agreement, the contract is incomplete no matter what the parties themselves may think: G.Scammell and Nephew Ltd v H.C. and J.G. Ouston [1941] AC 251 at 260 (Lord Russell of Killowen); O’Brien v Dawson [1942] HCA 8; 66 CLR 18 at 37 (Willams J, Rich J agreeing); Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 170 (Tadgell J); Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19; 190 FCR 364 at [123]-[124] (Keane CJ); at [212] (Emmett J); at [223]-[227] (Finkelstein J) (an appeal to the High Court was allowed, but not on this point: Forrest v Australian Securities and Investments Commission [2012] HCA 39; 247 CLR 486). Moreover, if the parties have not reached consensus on the essential terms of the contract, there will be no binding contract notwithstanding that one of the parties has commenced work referable to the agreement: British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 at 510 (Robert Goff J). Depending on the circumstances, non-contractual remedies, for example on restitutionary principles, may be available but the contract itself is incomplete and therefore unenforceable.

  2. Fourthly, for an agreement for the supply and sale of goods to constitute an enforceable contract, the parties must agree as to price, although they may leave the price to be determined by a third person or by an agreed mechanism. Thus, if a contract for the supply or sale of goods expressly provides for the price to be agreed between the parties, there is no concluded contract: May and Butcher Ltd v The King at 21; Booker Industries v Wilson Parking at 604 (a lease providing for a rental to be agreed does not constitute an enforceable agreement); cf Godecke v Kirwan [1973] HCA 38; 129 CLR 629 at 645 (Gibbs J).

Dr Martin’s Admissions

  1. The issue of law upon which there was disagreement concerned the probative value of Dr Martin’s admissions. Robertson sought to uphold the primary Judge’s reliance on the admissions to support the holding that the parties had entered into an enforceable four year contract for the supply and purchase of straw. Composters contended that Dr Martin’s view as to whether there was an enforceable four year contract does not dispense with the need to apply the law to determine whether, objectively, that is so.

  2. There is no doubt that if a party to an alleged contract makes an assertion against his or her own interests, that assertion may be admissible insofar as it relates to facts in dispute: Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [121] (Basten JA, Gleeson JA agreeing). There has been more controversy as to whether an “admission” that involves a conclusion as to a legal standard is admissible and, in a proper case, entitled to considerable weight. Robertson submitted that the primary Judge was justified in according significance to Dr Martin’s admissions.

  3. In Pitcher v Langford (1991) 23 NSWLR 142, Handley JA (at 160) followed the view expressed by Mahoney JA in Grey v Australian Motorists & General Insurance Co [1976] 1 NSWLR 669 at 684, that an admission may provide material from which a court may reach conclusions on a question of law, a question of fact, or a question involving a mixture of fact and law. Handley JA preferred Mahoney JA’s approach over that of Glass JA in the same case (at 676) that as a matter of principle “a party cannot be asked to admit a conclusion depending upon a legal standard”. However, Glass JA’s approach was followed by Lockhart and Gummow JJ in Eastern Express Pty Limited v General Newspapers Pty Limited (1992) 35 FCR 43 at 68.

  4. In Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317, a case not referred to in Robertson’s submissions, Gummow J said (at [68]-[69]) that Mahoney JA’s observation in Grey was stated too broadly and that a distinction should be drawn between different categories of admissions. He accepted that a party can make admissions on the pleadings and can also admit facts from which conclusions can be drawn. But he considered (at [70]) that the position is different where the admission includes a conclusion which depends on the application of a legal standard. Gummow J quoted (at [70]-[71]) with approval the comments of Glass JA in Grey and the views expressed by Lockhart and Gummow JJ in Eastern Express.

  5. As Campbell JA noted in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [131], Gummow J’s statement of the law had the support of the majority in Dovuro: see at [25] (Gleeson CJ); [40] (McHugh J); [177] (Heydon J). The present position therefore seems to be as stated by Basten JA in Johnston v Brightstars at [121], [124]:

“[121]   …where [the admission] provides evidence of facts, the assertion of which is against the interests of one party, it may be admissible as an admission by that party. However, to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless.

…

[124]    …With respect to an alleged agreement not wholly reduced to writing, the post-agreement conduct of one party known to the other, and communications between the parties, which reveal a common assumption as to the existence and terms of an agreement may provide evidence of such an agreement. However, the subjective views or reservations of one party, undisclosed to the other, cannot provide a basis for inferring the terms of a pre-existing agreement.”

The CPI Issue

  1. Mr Walker’s single submission is that the parties had never reached consensus as to the price Composters was to pay for straw over the four year period of the arrangement. But insofar as the submission rests on the absence of an agreed mechanism to calculate CPI increases over the four year period, the argument was not put to the primary Judge. I do not think that Composters should be permitted to advance the argument on appeal for the first time.

  2. As I have noted, Mr Katekar said that if Composters had pleaded or submitted at trial that the baled price component of the overall price for straw had not been agreed, because the parties had not identified an appropriate measure for ascertaining CPI increases, Robertson may have adduced additional evidence on this issue. Mr Katekar indicated that Robertson would have wished to consider adducing evidence of communications between the parties evincing a common intention as to the calculation of CPI increases. Mr Katekar also pointed out that Dr Martin could have been challenged in cross-examination as to whether anything remained to be resolved between the parties concerning CPI increases, once they concluded their discussions concerning the Heads of Agreement.

  3. I have some sympathy with Composters’ position concerning the argument founded on lack of agreement as to a mechanism for adjusting the price by reference to movements in the CPI. Although the primary Judge found in Robertson’s favour, his findings as to the terms of the contract were not those pleaded by Robertson. In particular, Robertson’s defence and cross-claim each alleged that the price for straw per tonne over the four year period would be $143.60 plus GST, with annual price adjustments to that figure using a CPI measure suitable to both parties. His Honour found that the agreed price per tonne was $140, with CPI increases limited to the baled price component of the overall price. In addition, his Honour found that the parties agreed to the royalty component of the price being subject to review in the event of an over-abundance of straw. Thus the precise basis upon which the primary Judge found that the parties had reached consensus on a price may not have emerged with any clarity until judgment was delivered.

  4. Nevertheless, it was open to Composters, in answer to Robertson’s pleaded case at trial, to take the point that the parties had not reached consensus as to the mechanism for adjusting the price by reference to CPI increases, whether the increases were to apply to the overall price or merely to the baled price component. I accept Mr Katekar’s submission that if Composters had advanced the argument, Robertson might have adduced evidence to meet it and also might have cross-examined Dr Martin on the issue. I do not think that it is an answer to this submission to contend (as Mr Walker did) that further evidence could not have altered the position. On this basis, it is too late for Composters to raise the contention for the first time on appeal: Suttor v Gundowda [1950] HCA 35; 81 CLR 418 at 439 (per curiam); Coulton v Holcombe [1986] HCA 33; 162 CLR 1 at 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ).

The Royalty Component and the Price

  1. Mr Walker did not dispute that it is possible for parties to a contract for the supply and purchase of goods to agree upon a price that is to apply for the duration of the contract, but also to agree that they must negotiate in good faith to vary the price in certain circumstances. An express term to that effect is capable of imposing a valid and enforceable obligation on each party to negotiate genuinely and in good faith to vary the price: United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177; 74 NSWLR 618 at [72]-[74] (Allsop P, Ipp and Macfarlan JJA agreeing). If the parties to such a contract negotiate in good faith but fail to agree on a variation to the previously agreed price, that price will remain as the contractual price. If one of the parties refuses or fails to negotiate in good faith, the other party may be able to claim damages or other relief for breach of the term requiring good faith negotiations. But whatever remedies may be available for breach of that particular term, the contractual price will remain until the contract is terminated or varied by agreement.

  2. If the dispute concerning CPI variations is put to one side, Robertson’s argument is that the primary Judge correctly found that the parties reached consensus that the price for straw would be fixed at $140 per tonne for the four years of the agreement, subject only to a requirement that each negotiate in good faith to vary the royalty component of $60 per tonne if there should be an over-abundance of straw in any season. In my view, there are two difficulties with this argument. The first is that the primary Judge does not seem to have construed the parties’ agreement in this way. The second is that the evidence does not support Robertson’s interpretation of the dealings between the parties.

  3. The primary Judge expressly rejected (at [209]), “at least without qualification”, Robertson’s case that the royalty component of the price of the straw was fixed for the four years of the alleged contract. His Honour also found (at [212]) that Dr Martin was well aware of the likelihood that when the drought broke, there would be an over-abundance of straw that would drive down prices. It was for that reason that Dr Martin “reserved the expectation of a lower royalty in the event of an over-abundant supply of straw”. Notwithstanding these findings, his Honour then found (at [213]) that the contract provided for a fixed price of $140 per tonne, subject (relevantly) to review of the royalty component of $60 per tonne if there proved to be an over-abundance of straw. His Honour considered (at [214]) that the term requiring review of the royalty component of the price arose by necessary implication from the letter of 25 January 2008 (see at [23**] above). It is not easy to reconcile the primary Judge’s rejection of Robertson’s case concerning the fixed royalty component of the price with his finding that the contract provided for a fixed price of $140 per tonne. This is so even taking into account the two qualifications relating to CPI increases in the baled price component and adjustments to the royalty component of the price.

  4. To understand the primary Judge’s reasoning, it is also necessary to take into account his Honour’s view (at [215]) that, as a matter of construction, or by implication, the letter of 25 January 2008 obliged the parties to negotiate a variation to the royalty component in good faith if there was an over-abundance of straw. His Honour qualified this statement by observing (at [216]) that he did not need to express a concluded view on this matter since neither party had contended for the implication of any such term and Composters had not suggested that Robertson had breached any such term. The reason his Honour considered that he did not need to express a concluded view seems to be that, in his view, the parties’ agreement to review the royalty component of the price in particular circumstances was consistent with concluding that they had entered into a binding four year contract for the supply of straw. His Honour made no finding that if the parties undertook negotiations in good faith to vary the royalty component but could not reach agreement, the contract price would remain fixed at $143.60 per tonne. That issue was not addressed in the Primary Judgment.

  5. In my opinion, Robertson’s interpretation of the Primary Judgment does not accord with his Honour’s reasoning. As I construe the Primary Judgment, his Honour considered that notwithstanding the parties’ express agreement that the royalty component of the price for straw was to be reviewed if straw prices decreased, they had reached a consensus as to the price to be paid for straw over the four years of the agreement. In other words, the agreement to review the price should supplies of straw become over-abundant was consistent with the parties reaching consensus on the price for the four years of the agreement.

  6. If this is the correct interpretation of the Primary Judgment, I think his Honour was in error in concluding that the parties had reached consensus as to price. On this interpretation, the parties had not reached agreement, at the time the arrangement was made, on the price for straw in years two, three and four of the arrangement. The price was not fixed for those years at the outset, but was to vary depending on the outcome of negotiations if the general price of straw decreased.

  1. Perhaps the more important question, notwithstanding the absence of a notice of contention, is whether the facts support a conclusion that the communications between the parties, objectively assessed, constituted an agreement as to the price of straw over the four years of the alleged contract. The primary Judge placed considerable emphasis on the letter of 25 January 2008. But on any view, the letter did not constitute an agreement as to the price to be paid for straw over the four seasons covered by the arrangement. The letter did not specify an overall price for the straw, but divided the price into two components, namely the “baled price” and the “farmers’ royalty payment”. The letter merely said that a royalty payment of $60 per tonne was “anticipated”, but that if there was an over-abundance of straw it would be reasonable to expect that a proportion of the supply could command a lower royalty. As the primary Judge found, the context in which that letter was prepared included, to the knowledge of the parties, the prevailing drought conditions and the strong possibility, if not likelihood, that the price of straw would decrease over the life of the proposed four year arrangement.

  2. The conversations that took place during and after the road trip of September or October 2008, insofar as they addressed the question of price, did not amount to an agreement as to the price to apply for the whole of the four year term. The conversation at the Robertsons’ home confirmed the CPI adjustment to the price of the straw for the first year of the four year contract. The conversation also confirmed the royalty payment of $60 per tonne but this, too, was to apply for the first year of the contract. Nothing in the conversation specified the royalty component of the overall price of the straw for all four seasons covered by the parties’ arrangement.

  3. If there is any doubt about the effect of the conversation, it is dispelled by the Heads of Agreement and the covering email sent to the Robertsons by Dr Martin. The email expressly stated that the Heads of Agreement set out what had been agreed “regarding the forthcoming straw season arrangement”. The heading to the Heads of Agreement made it quite clear that the document recorded terms that were to apply for the 2008/2009 season only.

  4. The conversation following the receipt by Mr and Mrs Robertson of the Heads of Agreement resolved a number of outstanding matters, but did not carry further the discussions about the price to be paid for straw during the four years of the arrangement. Mr Katekar pointed out that on the account of the conversation accepted by his Honour, Mr Robertson said that “we’ve got the heads of agreement for the four year contract”. That, however, was an equivocal statement that cannot reasonably be understood as converting the agreement as to price for the 2008/2009 season into an agreement that fixed the price of straw for the remaining three seasons. The royalty component and therefore the overall price of the straw was left to be determined by agreement between the parties, depending upon whether there was an over-abundance of straw in any of the three seasons. Viewing the agreement at the time of the last conversation in October 2008, the price to be paid by Composters for straw in years two, three and four of the arrangement would not be known until the outcome of discussions between the parties.

  5. As events turned out, further discussions were held between the parties in July 2009. Those discussions maintained the previously agreed overall price for straw of $143.60 per tonne, comprising $83.60 for the baled cost and a royalty payment of $60 per tonne. The primary Judge made no finding that the July 2009 discussions resulted in an agreed price for the last two years of the four year arrangement and Mr Katekar did not submit that such a finding should have been made.

  6. In my opinion, the dealings between the parties cannot be construed as an agreement that the overall price to be paid for the straw for the four years of the arrangement would be a fixed sum comprising a baled price of $83.60 per tonne (as adjusted for a CPI increase) and a royalty component of $60 per tonne, subject to a term requiring the parties to negotiate in good faith for a review of the royalty component of the price should there be an over-abundance of straw in any season. The parties never discussed what would happen in the event that negotiations for review of the royalty component of the overall price failed to produce an agreement in respect of the second, third or fourth seasons. None of the conversations or documents to which I have referred purported to fix the royalty component for each of the four seasons covered by the agreement. The parties were content to leave the price for years two, three and four of the arrangement to be resolved by negotiations prior to each season. The negotiations were concluded for the second year of the agreement, but not for the third or fourth years.

  7. It follows that the parties never reached final agreement on an essential term of the alleged four year contract, namely the price to be paid by Composters to Robertson for the straw. Thus there was no binding and concluded four year contract between the parties.

Dr Martin’s Admissions

  1. The admissions relied on by the primary Judge do not assist Robertson. This is so for two reasons. The first is, as I have explained, an admission by or on behalf of the party to an alleged contract as to a matter involving the application of a legal standard to the negotiations between the parties carries little or no weight. Even if Dr Martin was purporting to express a view that the legal effect of the discussions between the parties was to create a binding and enforceable contract for a four year period, his opinion on the subject carries matters no further. The existence of an enforceable contract depends on whether, on the facts found, all the essential elements of the contract were objectively agreed between the parties. Dr Martin’s opinions on that matter were of little or no probative value.

  2. The second reason is that Dr Martin’s “admissions” did not address the critical factual question, namely whether the parties had reached agreement as to the price to be paid for straw over the four year period. For example, Dr Martin said in his evidence that the 2008/2009 and 2009/2010 seasons were the first and second years of a four year supply agreement. In one sense, it is quite true that the parties had a four year agreement. That did not necessarily mean, however, that the four year agreement referred to by Dr Martin constituted a legally enforceable contract. In context, Dr Martin was not addressing that question.

Orders

  1. For these reasons, the primary Judge’s finding that the parties entered into a binding four year contract for the supply and purchase of straw cannot stand. It follows that Composters’ appeal must be allowed in part. However, as I have explained (at [15] above), it appears to have been agreed that Robertson is still entitled to judgment on its cross-claim for $780,513 exclusive of interest. It will also be necessary for orders to be made in relation to the bank guarantees provided by Composters.

  2. My present view, subject to any written submissions that may be filed by the parties, is that no order should be made as to the costs of the appeal and the primary Judge’s costs orders should not be disturbed.

  3. I propose the following orders:

  1. Appeal allowed in part.

  2. Set aside Order 3 made by McDougall J on 12 May 2014.

  3. Direct the parties to bring in agreed short minutes of order giving effect to this judgment within 14 days.

  4. If the parties cannot agree on short minutes of order (including as to costs) direct that:

  1. the respondent (Robertson) file and serve its proposed short minutes of order together with brief written submissions in support within 14 days;

  2. the appellant (Composters) file and serve its proposed short minutes of order together with brief written submissions in support within a further 14 days.

**********

Decision last updated: 06 February 2015

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Statutory Material Cited

2

Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164
Mushroom Composters v Robertson (No.2) [2014] NSWSC 552
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231