Mushroom Composters v IS & DE Robertson Family Trust
[2014] NSWSC 164
•04 March 2014
Supreme Court
New South Wales
Medium Neutral Citation: Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164 Hearing dates: 10/02/2014, 11/02/2014, 12/02/2014, 13/02/2014 and 14/02/2014 Decision date: 04 March 2014 Jurisdiction: Equity Division Before: McDougall J Decision: Plaintiff succeeds in part on its claim. Defendant succeeds in part on its cross-claim. Parties to bring in draft orders. Stand over for directions.
Catchwords: CONTRACT - general contractual principles - offer and acceptance - where offer and acceptance analysis is neither necessary nor sufficient - whether contract made and if so on what terms
CONTRACT - general contractual principles - offer and acceptance - the use of post contractual conduct and admissions - whether post contractual conduct may be relevant to prove whether a contract was made - whether post contractual conduct may be relevant to prove the terms of a contract - whether post contractual conduct may be relevant to prove an admission of the existence of a contract or the terms of a contract - whether a general manager has authority to make admissions with respect to the existence or terms of a contract - whether a director has authority to make admissions with respect to the existence or terms of a contract
CONTRACT - general contractual principles - construction and interpretation of contracts - construing the terms of a contract from the whole of the material - construing terms of a contract where it is partly written and partly oral
CONTRACT - breach of contract - damages - calculating damages for loss of benefit of a contractCases Cited: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
Hendriks v McGeoch [2008] NSWCA 53
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213
Cooper v Hobbs [2013] NSWCA 70
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389Category: Principal judgment Parties: Mushroom Composters Pty Ltd (Plaintiff/Cross Defendant)
IS & DE Robertson Family Trust (Defendant/Cross Claimant)Representation: Counsel:
GA Sirtes SC / SJ Duggan (Plaintiff/Cross Defendant)
B F Katekar (Defendant/Cross Claimant)
Solicitors:
Curtis Delaney Gray (Plaintiff)
Henry Davis York (Defendant)
File Number(s): 2011/20925
Judgment
HIS HONOUR: The plaintiff (Composters) manufactures and sells mushroom compost. It needs assured supplies of substantial quantities of straw. For a time, the defendant (Robertson) was Composters' principal supplier of straw. The parties fell out. Each accuses the other of breach of what it says was the contract between them.
The "season" for harvesting and baling straw extends from about December in one calendar year to April in the next. Thus, straw seasons are referred to as, for example, "the 2008/2009 season".
Composters says that it entered into a straw supply contract with Robertson for the 2008/2009 season, and another for the 2009/2010 season. Robertson says that the contract was a 4 year contract, to embrace both those seasons and the two following seasons.
Composters says that it was not contractually obliged to take straw from Robertson after the 2009/2010 season. Further, it says, Robertson breached the contracts made (on Composters' case) for the 2008/2009 and 2009/2010 seasons in various ways. By contrast, Robertson says that Composters repudiated what Robertson says was the four year contract and its obligations thereunder, and that Robertson accepted that repudiation as discharging the contract.
Composters says that the price per tonne payable by it to Robertson comprised two elements. The first was what Composters calls a "royalty", of $60.00 per tonne. The second was a "baling fee", initially of $80.00 per tonne for the 2008/2009 season, and [to be increased according to movements in the consumer price index (CPI) thereafter.] On Composters' case, the royalty payment represented the amount payable by Robertson to farmers to secure the right to harvest and bale their straw, and to sell the baled straw on its own account.
Robertson says that the price was simply the overall amount per tonne. It accepts that the price was calculated by reference to the two elements of royalty (I use this form for convenience) and baling fee. The difference between its position and Composters' is as to whether Robertson is entitled to keep, for its own benefit, the amount (if any) by which the royalty exceeds the amount actually paid or allowed to farmers.
The parties agreed that, at least for the 2008/2009 and 2009/2010 seasons, the royalty figure of $60.00 per tonne was payable in advance by six monthly instalments each of $100,000.00 (from which it will be seen that each contract was for the supply of 10,000 tonnes of straw overall).
The real issues in dispute
The parties agreed that, on the facts that I have briefly summarised them, the real issues were as stated by Mr Katekar of Counsel, who appeared for Robertson. I set out those issues, excluding one relating to misleading or deceptive conduct (which was abandoned late in the hearing):
1. 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?
2. Was the $60 per tonne pre-payment repayable by the defendant to the extent that the defendant did not make cash payments to farmers for that full amount?
3. Did the plaintiff repudiate the agreement (as alleged by the defendant)?
4. If questions 1 to 3 are resolved in favour of the defendant, what is the quantum of the defendant's loss (under the cross claim)?
5. If there was no 4-year agreement but there was an agreement for the 2009/2010 season only, was that agreement breached by Mushroom Composters and if so, what damages has Robertson suffered?
6. If questions 1 to 3 are resolved in favour of the plaintiff, what is the quantum of the plaintiff's loss (in addition to 7 to 10 below)?
7. Whose obligation was it to set up the Gilgandra Depot (the alleged "Gilgandra Depot Term")? In this regard:
(a) if it was the plaintiff's obligation, what, if any, liability does the defendant have to the plaintiff for freight from north of the Tahrone turnoff on the Castlereagh Highway (the alleged "Additional Freight Term")?
(b) if it was the defendant's obligation, what, if any, liability does the defendant have to the plaintiff under the Additional Freight Term, or for weather damage to straw which otherwise would have been deposited at that depot?
8. Was there any obligation on the defendant to bear the cost of freight further than 430 kilometres from the plaintiff's premises at Singleton (the alleged "Long Distance Freight Term")? If so, what, if any, liability does the defendant have to the plaintiff in this regard?
9. Was there any obligation on the defendant to meet particular average bale weights (the alleged "Baling Term")? If so, what, if any, liability does the defendant have to the plaintiff for its alleged failure to meet those average bale weights.
10. Was there any obligation on the defendant to load the trucks in a particular configuration to maximise loading capacity (the alleged "Trucking Term")? If so, what, if any, liability does the defendant have to the plaintiff in this regard?
The witnesses in the case
The principal witness called by Composters was its General Manager, Dr Geoffrey Martin. Composters also called a director, Mr Derek Marland, who had been involved, although to a lesser extent than Dr Martin, in some of the relevant events and meetings, and two less significant witnesses, Mr Michael McCulloch (a haulage contractor) and Mr Rod Brines (a driver employed by Mr McCulloch's company).
The principal witnesses called by Robertson were its directors and principals, Mr Ian Robertson and Mrs Donna Robertson. Robertson, too, called some less significant witnesses. They included farmers who supplied straw (such as Mr James Davidson) and others who had peripheral involvement in the relevant events (including a Mr Norman Moeris, whose property outside Gilgandra was suggested to be an appropriate location for a depot at which straw baled for Composters could be stored).
There were significant conflicts in the evidence, in particular relating to conversations which were said to be relevant, one way or another, to the contractual arrangements into which the parties entered, and on breach. In particular, there was a conflict between the evidence of Dr Martin on the one hand and Mr and Mrs Robertson on the other.
In general, to the extent that there is a conflict, I prefer the evidence given by Mr and Mrs Robertson to that given by Dr Martin. I say that for a number of reasons.
I start by observing that I do not think that either Dr Martin (with a few limited exceptions) or Mr and Mrs Robertson sought to mislead the Court, or to give evidence that was knowingly untrue. However, each could be seen to have a significant interest in the outcome of the proceedings.
Dr Martin was responsible for the conduct of all aspects of Composters' operations, subject to the overall supervision of the Board. (I interpolate that if the attitude evinced by Mr Marland in the witness box is any guide, the Board's oversight could best be described as light; non-existent might be another way of putting it.) An essential part of Composters' business, and one for which Dr Martin took personal responsibility, was the procurement of reliable supplies of straw. If Robertson is right in the case it seeks to make out, the contractual arrangements into which Dr Martin caused Composters to enter became disadvantageous to Composters in a substantial way.
So far as Mr and Mrs Robertson are concerned, the financial consequences of their dealings with Composters have been disastrous. They have lost their contracting and baling business. Their equipment has been sold. Mr Robertson has been forced to seek work as a truck driver in the mining industry in Western Australia.
Thus, I accept, the evidence of each of the principal witnesses must be assessed with care.
Although I acknowledge that demeanour is, at best, an unsure guide to truth, there were aspects of Dr Martin's demeanour in the witness box that were not impressive. He was, in general, slow to make concessions where (as subsequent evidence showed) concessions should properly have been made. For example, although it was Composters' case (and Dr Martin's evidence) that it (and he) believed at all times that the royalty figure of $60.00 per tonne was in fact demanded by and paid in cash to farmers, it became clear that (as Mr Robertson in particular said), the practice was for Mr Robertson to do a deal with farmers - for example, harvesting their crop at no cost to them, in exchange for the right to cut and bale straw. Dr Martin conceded, not without some reluctance, that he had become aware of these "barter" arrangements during the course of performance of the contracts. In my view, he was aware of them at all material times, including when the, or the first relevant, contract was made.
Again, there was a question as to whether the different kinds of bales that Robertson was to provide were to be available at all farms, or only at selected farms, in particular areas. Dr Martin said that he expected that Robertson would provide (and he thought that Robertson was required to provide) bales of both dimensions at each farm, to facilitate loading. That would require Robertson to use two different kinds of baler on each farm since (as Dr Martin was well aware) one baler could not produce two different sizes of bale. That would have been totally impractical, as in my view Dr Martin was well aware.
It is unrealistic to think that a contractor in the position of Robertson would have agreed to such a requirement, particularly where, as was the case at least for the 2008/2009 contract, the circumstances in which the contract was made gave the contractor the upper hand in negotiations. South Eastern Australia was still in the grip of a very severe drought at that time; the demand for straw was high; supplies were short; and prices were at record high levels. Further, in this respect, Dr Martin's evidence was critically undermined both by the evidence given by Mr McCulloch and by the failure of Composters to lead evidence on the same topic from Mr Brines, who on any view had been a party to a subsequent discussion in which the relevant arrangements were discussed.
Mr and Mrs Robertson impressed me as witnesses who sought to tell the truth, notwithstanding their real and evident sense of grievance at the way (in their view of things) their company had been treated by Composters. Further, in a number of respects, there was significant corroboration for Mr Robertson's evidence: including that Mrs Robertson was a party to, and gave evidence corroborative of, many of the conversations that were in dispute; and from contemporaneous notes that she made.
I should note that Mr Sirtes of Senior Counsel, who appeared with Mr Duggan of Counsel for Composters, sought to impugn the evidence of Mrs Robertson by pointing out what he said were very significant similarities between her principal affidavit and that of her husband. There is no doubt that those similarities exist. They extend not only to matters of form and structure but also, in at least one case, to their accounts of conversations.
Mr Sirtes started to cross-examine Mrs Robertson on one such similarity. It turned out that the conversation was one which had taken place by telephone, in which Mr and Mrs Robertson had each participated, using different extensions within their house. Mrs Robertson had made notes of the conversation. I have no doubt that both she and Mr Robertson had relied on those notes for the purposes of refreshing their recollections before swearing their affidavits.
In circumstances where there was an innocent explanation for the similarity, and in particular taking into account that no challenge had been put to Mr Robertson based on the asserted similarities between his affidavit and that of his wife, I took the view that the cross-examination of Mrs Robertson on the particular paragraph was prejudicial and would be likely to result in an undue waste of time, and thus stopped it.
I made it clear that my ruling was not of universal application. However, although Mr Sirtes asserted that there were other conversations where the same innocent explanation was not available (and in a table to his written closing submissions, Mr Sirtes identified the suggested correspondences between the two affidavits), no further attempt was made to cross-examine Mrs Robertson on those similarities. Nor was any application made to recall Mr Robertson to put the relevant matters to him.
In those circumstances, I do not take into account, in a way adverse to the credibility of Mr or Mrs Robertson, the correspondences between their principal affidavits to which Mr Sirtes pointed.
Further, in at least some instances, the evidence given by Mr and Mrs Robertson was supported either by contemporaneous notes or by other contemporaneous records.
Again, in important respects, the evidence given by Mr and Mrs Robertson seems to me to coincide more closely with the probabilities, viewed objectively, than does that of Dr Martin. As I have observed already in relation to the location of the different sizes of bale, Dr Martin's evidence is commercially and objectively implausible, whereas that given by Mr and Mrs Robertson is, commercially and objectively, entirely plausible.
Finally, for present purposes, the evidence given by Mr and Mrs Robertson received some support, although for the most part on peripheral rather than central matters, from the evidence given by other witnesses called on their company's behalf. There is no such support for Dr Martin's evidence. On the contrary, as I have noticed, in respect of one important conversation, his evidence received no support from those called to corroborate it.
Mr Marland might have been expected to provide some support for the evidence of Dr Martin. However, Mr Marland was not an impressive witness. His evidence in chief was non-specific to the point of blandness. In the witness box, Mr Marland professed non-recollection of almost everything that was put to him, including some things that, one might think, he should have recalled. For example, he was questioned on a number of board meetings, and on reports from Dr Martin that had been provided to board members before the meeting. Mr Marland said (and I can accept) that he had no particular recollection of the meetings or of the contents of Dr Martin's reports. However, that memory did not improve even when Mr Marland was shown the relevant documents. Further, Mr Marland was unable to recall even as a matter of general practice whether (for example) he would normally read Dr Martin's reports before the board meetings, in anticipation of which they were submitted.
In general, I do not give any substantial weight to Mr Marland's evidence.
There is no need to deal with the other witnesses of fact who were called. To the extent that it is relevant, I shall discuss their evidence in the context of the issues to which it is relevant.
First issue: the contract or contracts
The pleaded cases
To understand the way in which the arguments developed, it is necessary to look at the way in which each of the parties pleaded its case. The essential difference between the parties on this issue is whether a letter of 25 January 2008 sent by Composters to Robertson, under which Composters agreed "in principal [sic]" to the supply of 10,000 tonnes of wheaten straw per annum for a period of four years (i.e., four seasons), had contractual effect.
The case pleaded by Composters was that, before the start of the 2008/2009 season, it made a contract for that season with Robertson, which contract was partly written and partly oral. The written part of the contract was a "heads of agreement" sent by Composters to Robertson as an attachment to an email dated 22 October 2008. The sending of that document followed, and it purported to summarise, conversations between Dr Martin and Mr and Mrs Robertson in the preceding weeks.
Composters pleads that the terms of the heads of agreement were accepted by conduct when Robertson issued invoices for the royalty prepayments for which it provided (that is to say, six prepayments of $100,000.00 per month, commencing in December 2008), and accepted payment of those invoices.
The oral terms of the agreement are said to have been agreed in the preceding discussions. As a matter of background: those discussions started when Dr Martin and Mr Robertson went on a road trip, in which Mr Robertson showed Dr Martin various farms from which he proposed to harvest and bale straw. Following that road trip, Dr Martin stayed with the Robertsons overnight and they continued their discussions.
Thus, even on Composters' pleaded case, the heads of agreement supplemented, rather than superseded, the preceding discussions. And on that pleaded case, the letter of 25 January 2008 formed no part of the contract that was made.
Composters pleads that the 2009/2010 contract arose from conduct. The particularised conduct is Robertson's issuing of invoices for the monthly prepayments of royalties (again, $100,000.00 per month, commencing in December, although of 2009) and the payment of those invoices. Composters pleads that there were implied terms of the 2009/2010 contract that the oral and written terms of the 2008/2009 contract would apply to it.
It is convenient to note at this point three particular pleaded terms of the two agreements on which Composters relied. The first was called "the additional freight term". It derives from numbered paragraph 7 of the heads of agreement, which states:
For straw uplifted north of the Tahrone turn-off on the Castlereagh Highway Ian Robertson will bear the extra freight cost involved.
It is not necessary at this stage to do more than note that Robertson accepts that this term had been agreed.
The second alleged term was called "the long distance freight term". That is said to be either something agreed orally in the discussions that preceded the sending of the heads of agreement or, alternatively, to be an implied term. It is to the effect that Robertson would bear the additional freight cost of any straw that was located more than 430km from Composters' premises at Singleton. Robertson denies that this was a term of the (or any) contract.
The third alleged term was called "the Gilgandra depot term". That derives from numbered paragraph 8 of the heads of agreement, which states:
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.
Robertson accepts that this term, so worded, was discussed and agreed.
Composters pleads that the Gilgandra depot term, either on its proper construction or by necessary implication, required Robertson to construct or make available a depot in the Gilgandra area at which straw hauled by it for Composters could be stored. Alternatively, Composters says that the term (including the obligation on Robertson to construct or make available a depot) was agreed in the discussions that preceded the sending of the heads of agreement.
Robertson agrees that a depot at Gilgandra was discussed. However, it denies that it was required to establish the depot. It says that the discussions were to the effect that Composters would establish the depot. Robertson accepts that, if a depot were made available and if it did haul straw there, it would be entitled to an extra payment. That extra payment would reflect the cost saving to Composters of having the straw available at Gilgandra rather than from a point further distant from Singleton.
Robertson pleads (in its defence and in its cross-claim) that there was one contract (the four year supply contract), for a term of four years. The contract is pleaded as one that was partly written and partly oral. The written component comprises the letter of 25 January 2008 and the heads of agreement. The oral component comprises conversations between Dr Martin and Mr and Mrs Robertson in January 2008 and from there through to October 2008.
Robertson pleads various terms of the contract that it alleges. Of particular relevance, it pleads that:
(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.
Although no express or implied term to this effect is pleaded, Robertson conducted its case on the additional basis that there were (presumably implied) terms of the contract that:
(1) Composters would collect straw baled for it either during the currency of the straw season or thereafter, and before the commencement of the next season; and
(2) once straw had been harvested and baled for Composters, and Composters had been informed that the straw was ready for collection (with Robertson giving Composters details of the places at which and quantities in which baled straw was located), the baled straw was at Composters' risk.
Mr Sirtes submitted that it was not open to Robertson to conduct its case this way: in particular, as to the first of the suggested implied terms. However, it does not seem to me that there is any prejudice to Composters in dealing with the case on the basis that these implied terms were in issue, as though they had been pleaded.
Mr Sirtes suggested, somewhat faintly, that it might have been open to his client to lead evidence on the point. Whilst I accept that at the level of principle, the reality seems to me to be that the case for implication stands or falls upon a consideration of all relevant matters of context and dealings, and of the relevant documents. The parties have had ample opportunity to put on such evidence as they wished in relation to those matters, and have taken full advantage of that opportunity.
Having regard to the mass of the evidence, I am confident that the Court is as fully informed as ever it is likely to be, in the context of adversary litigation, as to the facts and circumstances against which the question of implication is to be decided.
Chronology of events
In what follows, I deal with the events leading up to the formation of the contract that each party contends was made prior to the commencement of the 2008/2009 season, and with some significant events thereafter. To the extent that it is necessary, I set out my findings where the evidence differs in any marked and material way.
As I have said, straw is an important element in the manufacture of mushroom compost. Wheaten straw, which was the subject of the parties' dealings, is the particular kind of straw with which I am concerned. The evidence suggests that straw comprises between 35% and 40% by weight of the finished mushroom compost product.
Composters' operations were conducted at Singleton. Straw is generally available in the central western region of New South Wales. The areas from which straw was harvested for supply to Composters ranged from Walgett in the north to around Canowindra or Cowra in the south. Gilgandra is approximately at the centre of that region. (It seems that Composters also procured straw from supplies at, or who obtained it from, the Griffith region, but that can be put to one side.)
Freight costs were substantial. For obvious reasons, Dr Martin wished to minimise them. Where straw was available from what might be called the central area (in broad terms, the area bounded by Dunedoo, Gilgandra, Narromine and Peak Hill), haulage costs would be lower. The further north that straw was procured, the greater the haulage costs would be. At all material times, the price charged to Composters for straw was "ex farm". In general, transport of the straw from the farm to Singleton was arranged by Composters, at its own expense.
Robertson had supplied straw to Composters over the years 1996 to 2004, in quantities that varied (leaving aside the first year) from 2500 tonnes to 7200 tonnes annually. For a while after 2004, Composters procured its straw from a Mr Steve Keir. Apparently, Mr Keir supplied the straw ex farm, and Composters arranged for its collection and transport to Singleton. On 10 October 2007, Mr Keir advised Dr Martin (according to a board report of November 2007) "that unless he could transport our straw he would not supply". That occurred at a time when the State was in the grip of a drought. Straw was in short supply. There were numerous competing users, including graziers who were desperate to feed their remaining livestock.
Dr Martin contacted the Robertsons and arranged for their company to supply 7000 tonnes of baled straw for the 2007/2008 season.
According to the Robertsons, it was while straw was being cut and baled for Composters that they began to discuss, with Dr Martin and Mr Marland, the possibility of entering into a longer-term contract for the supply of straw. The records of Composters show that, given the drought, the shortage of straw, and its pressing need for continuity of supply (in excess of 12,000 tonnes per annum), it was extremely anxious to find a reliable source of supply.
There is a practical matter that requires a little explanation. Straw was baled in two different sizes, which are described by their imperial measurements in feet: 8x4x4, and 8x4x3. It was common ground, and everyone knew at all material times, that the same baler could not produce both 8x4x4 and 8x4x3 bales. Obviously, assuming that the straw is of the same density and is compacted in the same way, an 8x4x4 bale will weigh more than an 8x4x3 bale.
In or at some time before 2007, the then Roads and Traffic Authority (RTA) amended the regulations relating to the carriage of goods. As a result, it was not permissible for (among other things) baled straw to overhang the sides of the vehicle in or on which it was transported.
To achieve optimum loading (that is to say, to fit as much straw as possible onto a truck or trailer, to maximise its carrying capacity), a slightly different kind of bale, known as "8x4x4 modified", began to be used. As I understand it, one of the 4 foot sides was reduced by about 3 inches. The result was that the 8x4x4 modified bales could be stacked wholly within the confines of the carrying vehicle. To do that, it was necessary that existing 8x4x4 balers be modified.
It also appeared to be common ground that, for a truck or trailer to be loaded to maximum capacity, it was necessary to use a combination of 8x4x4 (it is generally unnecessary to continue to repeat "modified") and 8x4x3 bales.
Mr and Mrs Robertson had discussions with Dr Martin in January 2008, before Composters sent Robertson the letter of 25 January 2008. In the course of those discussions, they talked about entering into a longer term agreement. Mrs Robertson listened in by telephone to one of those discussions, using another extension in the Robertsons' house. Mr Robertson said in effect that Robertson would like to enter into a "longer term contract... of say four years". The Robertsons say, and I find, that Dr Martin said that if that were to happen, it would "be conditional on you baling mostly modified 8x4x4 bales and some 8x4x3 bales so we can comply with the RTA regulations and keep freight to a minimum".
The Robertsons say, and again I find, that Mr Robertson replied in effect that to make it worthwhile for Robertson to do so, and to enable it to go out and buy the necessary machinery, Robertson would need a four year contract to supply 10,000 tonnes per year.
Dr Martin denied that there was discussion of purchasing specific items of machinery. Nonetheless, I find, he was told, and knew as a result, that to comply with Composters' requirements for 10,000 tonnes comprising mainly 8x4x4 modified bales, Robertson would need to acquire new machinery. I find, further, that Dr Martin was told, and thus understood, that Robertson said that his company would need a four year contract to justify the outlay on new machinery.
Mr and Mrs Robertson each say that, in the course of a further conversation on 25 January 2008, Dr Martin said works to the effect:
I'll send you a letter today confirming that four year contract so you can take it to the banks.
I find that Dr Martin did say words to this effect. I find that he was aware not only that Robertson (or Mr and Mrs Robertson personally) needed to acquire new machinery, but also that they needed finance to enable it (or them) to do so. That, in my view, is the reason why Dr Martin caused Composters to send Robertson the letter of 25 January 2008.
Mr Robertson said, further, that he told Dr Martin that the prepayment would mostly exceed the amount payable to farmers for the right to take and sell their straw, and was used more generally to fund the harvesting and baling operations. Mrs Robertson corroborated this evidence. Although Dr Marin denied that he was told these things, I find that he was. I prefer the evidence of Mr and Mrs Robertson to his on this point also.
I should note that this is one area where it cannot be said that Mr and Mrs Robertson give evidence of the conversation in exactly corresponding terms. They differ to some extent, but are clear as to the central themes, as I have outlined them. To the extent that Dr Martin suggests that the conversation in essence was otherwise, I prefer the core or thrust of the Robertsons' version.
Dr Martin then sent Robertson the letter of 25 January 2008. Since that letter is crucial to the case put by Robertson, I set it out in full (omitting only formal parts):
RE: CONTRACT FOR SUPPLY OF WHEATEN STRAW
Further to our telephone conversation of this morning I am able to agree in principal 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.
Before moving on, I note that Mr Marland, through his family's company Gromor Enterprises, was both a half owner and a major customer of Composters. In addition, through the same company, Mr Marland supplied haulage services to Composters. His company, Gromor, and Mr McCulloch's company, McCulloch Bulk Haulage (MBH) were the entities that carted straw from the locations where Robertson had baled it to Composters' premises at Singleton.
Mr and Mrs Robertson bought the new machinery in their own names, and in effect leased it to Robertson for use in its harvesting and baling business. They say, and I accept, that they used the letter of 25 January 2008 in support of their application for finance.
There is a dispute between Dr Martin and Mr Robertson as to whether they discussed that part of the letter that referred to "the farmers' royalty payment". Mr Robertson says that he told Dr Martin that the payment was used not only to satisfy Robertson's obligations to farmers but also, in effect, to fund the operation of harvesting and baling the straw. That (Mr and Mrs Robertson say in their evidence) was necessary because Robertson incurred very substantial costs in that activity, but would not receive the baling fee until the straw was actually collected on behalf of Composters and delivered to its premises at Singleton.
Taking into account not just this aspect of Mr Robertson's evidence but the material as a whole and the realities, objectively viewed, I find that Dr Martin was well aware, before the commencement of the 2008/2009 straw season, that Robertson did in fact need, and would use, the prepayment of $60.00 per tonne both to enable it to meet its obligations to farmers and to fund its harvesting and baling operation.
Nothing much appears to have happened thereafter until about September or October 2008. Dr Martin expressed some concern at the high nitrogen levels in straw that was being delivered from the 2007/2008 season. Mr Robertson said, in effect, that he could supply straw from further north, in the area from Coonamble to Walgett. He and Dr Martin undertook the road trip to which I have referred at [35] above.
Dr Martin was, understandably, concerned at the greater freight cost of hauling straw from that area to Singleton (compared, for example, to the cost of hauling straw from Narromine or Peak Hill). According to Mr Robertson, he and Dr Martin discussed this question during the road trip. One of the things they discussed was that a depot might be established at Gilgandra. Mr Robertson's evidence is that he said that, if Composters did this, he could haul straw from the Walgett area to Gilgandra by road train, thus minimising the cost of haulage for Composters. (Apparently, road trains are a more efficient way of hauling straw then the B Double vehicles used by Gromor and MBH, but the road trains could not operate all the way to Singleton.)
Dr Martin agrees that there was discussion of setting up a depot at Gilgandra. However, he says, it was Mr Robertson who agreed to do this.
I prefer Mr Robertson's account of this aspect of conversation, to the extent that it differs from Dr Martin's. There are three reasons.
The first is that, in my view, Mr Robertson's account accords with the probabilities, regarded objectively. Robertson did not need a depot at Gilgandra, although, for the reasons given at [83] below, such a depot would be to Robertson's advantage. Its obligation was to cut and bale the straw, and to stack it on the farms for Composters' haulage contractors to collect. That exposed the straw to the risk of deterioration. Setting up a depot (under cover) at some central location such as Gilgandra would minimise the risk of deterioration, if (as Mr Robertson said he would do), Robertson hauled the straw from the farms to that depot.
Conversely, it would be to Composters' advantage to have a relatively central depot where other suppliers could deliver straw. Although it was envisaged that Robertson would be Composters' principal supplier of straw, there can be no doubt that the parties contemplated that Robertson would obtain some straw from other suppliers.
Thirdly, Mr Robertson's account is corroborated by Mrs Robertson's evidence of a discussion between the three of them at the Robertson's house when Dr Martin was staying there after the roadtrip.
Mr Sirtes referred to Mr Robertson's conduct in searching for appropriate locations in and around Gilgandra where a depot might be established. Mr Sirtes submitted that it was inherently implausible that Mr Robertson would have so acted unless, as he submitted was the case, Robertson was obliged to establish the depot.
I do not accept that submission. There is no doubt that Mr Robertson spent some time in looking at possible sites for a depot. He located what appears to have been a suitable site: a shed on Mr Moeris' farm. Mr Robertson reported this to Dr Martin.
However, if a depot were established at Gilgandra, Robertson would also benefit. It would not be liable for freight costs incurred by Composters for straw hauled from north of the Tahrone turn-off. On the contrary, Robertson would derive extra income by hauling that straw to the depot. That having been said, there is no reason to think that these benefits would have outweighed the cost of establishing and maintaining the depot.
In substance, I accept Mr Robertson's evidence on this point. I accept that he was looking for appropriate sites for Composters to establish a depot, and that he reported on those sites to Dr Martin. This aspect of Mr Robertson's evidence is corroborated by Mr Moeris, who said in substance that Mr Robertson told him the decision was up to Composters, and that it was likely that he (Mr Moeris) would hear from Composters in relation to the proposed depot.
Dr Martin gives a somewhat different account of those discussions to Mr Robertson's or Mrs Robertson's. However, it is common ground that Dr Martin pointed out that the trucks used by Gromor were of different capacities and had different loading requirements, compared to those used by MBH. It is common ground also that Dr Martin pointed out the need for Robertson to make available both 8x4x4 bales and 8x4x3 bales.
According to Mr and Mrs Robertson, Mr Robertson pointed out that he could not provide both bales at the one farm, because it was not economical to take two balers to one property. I find that Mr Robertson did say words to that effect. It was a matter of plain common sense. Dr Martin accepted that he knew at the time that different balers were needed to produce the different sized bales. It was manifestly impracticable (and uneconomic) for Robertson to transport two balers to every farm, and to produce 90% 8x4x4 bales and 10% 8x4x3 bales on each farm.
There were two matters that were agreed. One was that Robertson would bear the cost of freight of straw "uplifted north of the Tahrone turn-off". Another was that, if Robertson hauled straw from north of the Tahrone turn-off to Gilgandra, it would be allowed an extra $24.20 for the freight charges. Both are found in the heads of agreement.
Dr Martin appears to have been concerned not to bear any freight costs for straw that was collected more than 430 kms (by road) from Composters' premises at Singleton. Come by Chance and Walgett fall outside that distance. The Tahrone turn-off is located (by very rough scaling) about 20 kms north of Coonamble, on the way on Come by Chance and Walgett. It appears to be accepted that the Tahrone turn-off was 430 kms, by road, from Singleton.
Mr Robertson accepts that his company agreed to bear that cost. He says that he did so because he thought that Composters would establish a depot at Gilgandra, and that he would haul the straw by road train to that depot, and be paid $24.20 per tonne for doing so. Thus, I do not see Mr Robertson's acceptance of the term as detracting from his insistence on the base price to be paid.
Dr Martin said that it was discussed, and agreed, that if the bales were of such weight that the trucks (properly stacked) could not achieve the nominal weights set out in paragraph 6 of the heads of agreement (see at [100] below), Robertson would allow some discount. Mr and Mrs Robertson say that they did not do so. I prefer their evidence. There are a number of reasons for doing so.
First, bale weights were beyond Robertson's control to a large extent, assuming that the straw was baled correctly. One variable was the quality of the straw. Another was its moisture content.
Secondly, the baled weights would vary according to the length of time between the baling of the straw and its collection. If the straw dried out, or deteriorated, the bale weight would drop. Collection was a matter for Composters, not for Robertson.
Thirdly, and obviously, the weight of any truck's load would depend on the ability of the driver to stack it effectively. Provided that Robertson made reasonably available, and in the correct ratio, both 8x4x4 and 8x4x3 bales, it was up to the truck driver to achieve the optimum loading.
Fourthly, and to the extent that it is relevant, other contracts that Composters made with other straw suppliers provided for a target bale weight, but did not make it a term that the target should be achieved. I acknowledge, however, that the relevance of this particular matter may relate more to Composters' alternative submission that a term as to bale weights, or loading capacity, should be implied to give business efficacy to the contract.
Fifthly, Robertson was to use new equipment to be purchased by Mr and Mrs Robertson. So far as Robertson was concerned, that equipment was untried. Mr Robertson (who appears to have done much of the work of harvesting and baling) did not know how the new machines would operate or how effective, or efficient, they would be. In those circumstances, it is inherently implausible that he would have agreed to a minimum weight condition without having some rational basis on which to be satisfied that (assuming the straw were of appropriate quality) his new and as yet unproven machinery could satisfy it.
Finally, as the contract for the 2008/2009 season worked out (and also as the contract for the 2009/2010 worked out), Composters, through Dr Martin, was well aware that the Gromor and McCulloch Bulk trucks were not achieving their optimum, or "nominal" loading weights. At no time, however, did Composters suggest, let alone require, that Robertson should allow some discount.
I shall return to the debate between the parties as to the extent to which post-contractual conduct is relevant in considering what were the terms of the contract actually made. For present purposes, it is sufficient to say that, in my view, there is an available inference, from the sustained failure of Composters to seek a discount in respect of trucks that to its knowledge at the time were loaded to less than their optimum or nominal capacity, that Composters through Dr Martin well knew there was no contractual term requiring Robertson to provide bales of sufficient weight to enable this to be done.
Relatively soon after the discussions to which I have referred, Dr Martin sent the email of 22 October 2008, attaching the draft heads of agreement, to Robertson. The email read as follows (omitting formal parts):
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 end of the week [sic], not easy to put into words, but on good irrigated crops there is almost too much straw to handle and incorporate successfully without leading [sic] some straw off or burning.
No "straw incorporation document" was ever provided.
The attached document reads 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 550kg for 8x4 and 350 Kg for 8x3.
6. Optimum loading of trucks, MBH 45 8x4 & 6 8x3. Gromor 51 8x4 & 3 8 x3. 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.
According to Dr Martin, the Robertsons did not raise any objection to the draft heads of agreement. The Robertsons say otherwise. They give evidence of another conversation which occurred by telephone, between Mr Robertson and Dr Martin, to which Mrs Robertson listened in.
Mr and Mrs Robertson say that Mr Robertson pointed out to Dr Martin that he had not agreed to paragraphs 5 and 6 - minimum bale weights and discount for underweight trucks. They say that Mr Robertson said that Robertson could not agree to this, and pointed out (as in my view was factually correct) that bale weights were largely out of their control. They say that Dr Martin acknowledged this point, and said "it was only in there to please the Marlands".
Mr and Mrs Robertson say, further, that Mr Robertson said that Robertson would agree to paragraph 8 - Haulage to Gilgandra - on the basis that Composters would set up a depot there.
Dr Martin denies that there was a discussion to the effect alleged by Mr and Mrs Robertson. I do not accept his denial. I find that there was a conversation, in substance as Mr and Mrs Robertson say it took place.
It is common ground that Robertson did not ask for a revised version of the heads of agreement, and that none was sent.
Starting with 1 December 2009, Robertson issued six monthly invoices to Composters, each for $110,000.00 (including GST), on account of the royalty prepayments. Composters paid each of those invoices. To the extent that it is relevant, Mr and Mrs Robertson say, and I accept, that they used the payments to meet various costs including their obligations to farmers, wages, fuel and other consumables, and the finance costs on their new equipment.
Thereafter, and over the 2008/2009 season, Robertson cut and baled straw for Composters, and left it stacked at various farms. Mr Robertson says, and I accept, that frequently his arrangements with farmers were that he would harvest their crop at no charge to them, using a particular kind of header which, although it was efficient at removing the grain, left the stalks in good condition to be harvested for straw. I accept also, again, as Mr Robertson said, that in many cases his obligations to farmers included a mixture of cash and kind: including, in one case (for example), using a bulldozer to grub out a tree for a farmer.
As I have noted, it is Composters' case that what it characterises as a separate contract for the 2009/2010 season arose by conduct, from the sending and payment of invoices for the upfront royalty figure. On Robertson's case, the 2009/2010 season was the second season of the four year supply contract. On neither case, therefore, are there any relevant conversations (because, in respect of the 2009/2010 season, no one alleges a separate oral contract).
Nonetheless, Dr Martin gave evidence of discussions with Mr and Mrs Robertson in about July 2009. Mr and Mrs Robertson did not respond directly to all of this evidence. They do however dispute the substance of part of it, relating to a Krone bailer.
According to Dr Martin (affidavit sworn 5 March 2012, para 47):
The 2009/10 season was to be the second season in the four year straw supply agreement. Ian and I first began discussing the terms for the 2009/2010 straw supply agreement in around late July 2009 when Ian, Donna, Derek and I met at Dunedoo to discuss issues relating to the quality of and the additional straw [sic] costs associated with the straw in the Come by Chance area.
Dr Martin said that he and Mr Robertson had a conversation to the following effect. Mr Robertson wanted to "talk about the coming season". He said that the farmer royalty payment was $60.00 per tonne again and that he would leave his baling fee at $83.60. According to Dr Martin, Mr Robertson also said that, given the amount of the royalty payment, he would need some upfront payment. Dr Martin replied that Composters would take another 10,000 tonnes, and would accept the royalty payment "if that is what the farmers are commanding", and the baling fee. Dr Martin said that Composters would pay the royalty upfront.
There was then discussion of freight and straw quality. According to Dr Martin, Mr Robertson offered to store straw in "my shed at Trewilga".
According to Dr Martin, there was then discussion about a new baler. Mr Robertson said that he was intending to buy a Krone baler. Dr Martin inquired why Mr Robertson would be doing this, having just bought and modified two new balers.
Mr and Mrs Robertson gave evidence of conversations with Dr Martin concerning balers generally, and the purchase of a Krone baler. Bale weights had been a cause of concern. Mr and Mrs Robertson had caused their balers to be checked by the dealer. The dealer had gone so far as to update the software package. The dealer had confirmed, they said (and they told Dr Martin), that the balers were operating satisfactorily.
According to Mr and Mrs Robertson, it was Dr Martin who raised the question of buying a Krone baler. They said, in effect, that Dr Martin said that another straw supplier who used a Krone baler had been getting average bale weights of 485 kg, and that the Robertson's would "have to get one of these if you want to keep your contract". Dr Martin denied that he had said any such thing.
Mr and Mrs Robertson produced and referred to a copy of an invoice from the other supplier, Driftway Pastoral Company (a business operated by Mr Barry Keir, the brother of Mr Steve Keir). They said that Dr Martin had given them this invoice in the course of the discussion. Dr Martin accepted that he had given the invoice to Mr and Mrs Robertson and that, before he did so, he had written on its reverse the words:
KRONE
1290HDP
8X4X3
Average 485 kg
Dr Martin's affidavit account of the "Krone baler" conversation included no reference to this document.
Dr Martin denied that he had had any involvement in the Robertsons' purchase of the Krone baler (T48.18-.34). He was then shown the invoice. He gave the following evidence (T49.4-50.48):
Q. On the left hand side [as the document had been photocopied] it has Krone 1290HDP?
A. Correct.
Q. That is in your handwriting?
A. Absolutely.
Q. And it refers to in the right hand side from Driftway Pastoral?
A. Correct.
Q. That was another company that supplied Mushroom Composters with straw?
A. Correct.
Q. That is Barry Keir's company?
A. Correct.
KATEKAR: To assist your Honour it is an invoice, from the righthand side, from Driftway Pastoral dated 6 February 2009 to Mushroom Composters and it says, "Bales numbers 70, 4 x 3".
Q. I ask you to confirm, Mr Martin, this refers to an invoice from Driftway Pastoral Company to Mushroom Composters for the delivery of 70, 8 x 4 x 3 bales?
A. That is correct.
Q. It refers to weight, it says, "gross kilo net"?
A. Hmm.
Q. It was a net weight of 33 tonnes .94?
A. Correct.
Q. Across 70 bales?
A. Yep.
Q. Which gives you an average 485 kilograms per bale?
A. Correct.
Q. You gave this to the Robertsons to say, your competitor, Driftway Pastoral Company, is doing 8 x 4 x 3 bales at 485 kilograms per bale?
A. I gave them that docket, yes.
Q. Can you answer my question?
A. Which was?
Q. You told them that Driftway Pastoral is producing 8 x 4 x 3 bales at an average of 485 kilogram per bale?
A. This particular document refers to a trial that Barry Keir did in Victoria.
Q. Can you answer my question please?
A. Sorry?
Q. You gave this to the Robertsons and said to them, Driftway Pastoral Company is producing 8 x 4 x 3 bales at 485 kilograms per bale?
A. Yes.
Q. And that if the Robertsons wanted to be competitive they needed to do the same?
A. I didn't say that.
Q. And in order to do they needed to buy a Krone baler?
A. I refute that.
Q. If they wanted to keep the contract that's what they needed to do?
A. I absolutely and totally refute the last question.
A little later, Dr Martin agreed that his handwriting was already on the back of the invoice when he handed it to Mr and Mrs Robertson, but said that there was no reason why he had written on the invoice before he gave it to the Robertsons (T52.4-.17):
Q. You gave the invoice or a copy of it to Mr and Mrs Robertson, did you?
A. I did indeed, sir.
Q. Did you have the handwriting on it when you gave it to them or was that applied
A. I believe
Q. Later?
A. I believe that was on the back of that docket when I showed the Robertsons, yes.
Q. Was there a reason why you had written that on the back of the invoice, before you show gave the copy to the Robertsons?
A. I don't believe so, no sir.
That evidence is difficult to accept. It suggests, in effect, that it was merely coincidental, or accidental, that Dr Martin had the invoice with him when he spoke to the Robertsons. And it suggests, as a further coincidence or accident, that Dr Martin had written on the back of the invoice before he put it (for no particular reason) into his pocket or brief case.
To my mind, Dr Martin was well aware of the significance of the document, and of the fact that he had given it to the Robertsons. I think that he appreciated that the document, and the fact of its having been given to the Robertsons, were corroborative of the Robertsons' evidence on this point. Thus, I think, Dr Martin sought to dissemble.
In my view, the document is strongly corroborative of the version of the conversation given by Mr and Mrs Robertson. There would have been no need whatsoever for Dr Martin to give them a copy of the document, with the notation on its reverse to which I have referred, if (as he said) the topic of the Krone baler had been raised, in a casual and almost offhand way, only by Mr Robertson and only at the tail end of another conversation.
If, however, Dr Martin had intended to raise with the Robertsons the issue of a Krone baler, it would make sense for him to show them an invoice from a competitor, and to drive home (by the handwritten notation which he wrote on the reverse of that invoice) the point that their competitor was providing better bale weights than they were. It is common ground that higher bale weights effectively lower transport costs, because they facilitate the loading of trucks to their maximum capacity.
I prefer, and accept, Mr and Mrs Robertson's account of the substance of the conversation concerning the Krone baler. I find that it was Dr Martin who raised the topic of purchasing a Krone baler, and that in the course of discussing this, Dr Martin (having referred to Mr Barry Keir's average bale weights) told them that they were at risk of losing the contract unless they themselves bought one.
Post-contractual conduct and admissions
Mr Katekar pointed to what he said what was conduct on the part of Composters that was consistent with the agreement having been (as he submitted it was) one for a period of four years, and to admissions by Dr Martin (in particular) to the same effect. I have referred already to one such matter: Dr Martin's statement, in para 47 of his principal affidavit, that the July 2009 discussions concerned "the second season in the four year straw supply agreement" (see at [110] above).
Before I turn to the material on which Mr Katekar relied, I should set out my understanding of the extent to which post-contractual conduct may be considered for the purpose of ascertaining whether or not a contract was made and what were its terms.
The relevant principles
In some case, it is necessary to look at the conduct of the parties, at a time when or after when one of them says a contract was formed, to see if indeed a contract was formed at all. That will be so, for example, where it can be seen that one party made an offer, intended to lead to the formation of a contract to the other, and where the other is said to have accepted that offer not expressly but by its conduct, subsequent to the making of the offer. Its conduct may show that "it agreed to all the conditions contained in the offer" (to quote Ipp AJA in Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [173]). The same point was made by Heydon JA in the same case at [81] to [85].
An examination of conduct for that purpose is particularly relevant where offer and acceptance analysis is inconclusive. As Heydon JA said in Brambles at [71], offer and acceptance analysis "is neither sufficient to explain all cases nor necessary to explain all cases" of contract formation, and "does not work well in various circumstances".
Although, as will be seen, the present case does require analysis of the circumstantial evidence to see whether (and if so on what terms) a contract was formed, I am for the present looking at a narrower application, or use, of post-contractual conduct.
For that more narrow purpose, the authorities seem to me to establish two, related, propositions. The first is that post-contractual conduct may be relevant to prove whether a contract of the kind for which one party contends was made. The second is that such conduct may be relevant to prove an admission by the other party of such a contract, or of (some of) its terms, or of a fact relevant to the existence of such a contract.
The first point was stated clearly by Heydon JA in Brambles at [25]:
... post-contractual conduct is admissible on the question of whether a contract was formed... .
Allsop J (with whom Drummond and Mansfield JJ agreed) had made a similar point in Branir Pty Ltd v Owston Nominees (No.2) Pty Ltd (2001) 117 FCR 424 at [369]. And the same point was made by Giles and Basten JJA in Hendriks v McGeoch [2008] NSWCA 53 at [10], [39] respectively.
In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193, Spigelman CJ considered the principles at [7] to [28]. His Honour concluded that post-contractual conduct could be taken into account in determining the subject matter of a contract and, seemingly, its terms. That was a case where it was common ground that a contract had been made, and that the contract was not wholly in writing. Spigelman CJ referred with approval to the judgments of Megaw and Browne LJJ in Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1WLR 1213 at 1221, 1229 respectively. Their Lordships there concluded that evidence of conduct could be admissible to show, among other things, what were the terms of a contract which was not wholly expressed in writing.
McColl JA (with whom Beazley JA generally agreed) appeared to express the position more narrowly, in her judgment in County Securities.
McColl JA said at [161] that authority in the Court of Appeal favoured the view that conduct after a contract was said to have been made "can be looked to as an aid to deciding whether a contract has been entered into". Her Honour said at [162] that subsequent conduct could constitute "an admission of the state of the parties' rights", although her Honour cautioned that "care must be taken about identifying the fact said to have been admitted".
I do not see any difference in principle between the approach taken by Spigelman CJ and that taken by McColl JA. The point made by Spigelman CJ is, in my view, recognised by what McColl JA said at [161]. Her Honour's observation at [162], as to the relevance of conduct as an admission of rights (or facts relevant to the creation of rights) builds on that proposition.
Campbell JA considered the question in detail in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303. Basten JA (with a presently irrelevant qualification) and Sackar J agreed with the reasons given by Campbell JA.
Campbell JA's reasons ranged well beyond the limited problem with which I am confronted. However, at [143], his Honour said that post-contractual conduct could be relevant to identifying what it was that the parties had agreed. It is clear that this could extend to ascertainment of some of the terms of their agreement:
143. By contrast, the task in ascertaining what are the terms of a contract that is not wholly in writing is quite different - the task is finding as a fact what the parties have agreed. A range of post-contractual conduct could be relevant to ascertaining what the parties have agreed. For example, their conduct in carrying out the contract could itself be objective evidence of what they had agreed, an admission of one of the parties could assist in ascertaining what they have agreed, and business records created to record or report on the contract rather than carry it out could also assist in that task.
I should note also that Campbell JA pointed out the need, when considering whether conduct could amount to some sort of admission:
(1) (echoing McColl JA in County Securities at [162]) to identify precisely what admission was said to have been made;
(2) to ascertain (in the case of an admission said to have been made on behalf of a party) the capacity of the person to make the admission; and
(3) to consider the weight to be attributed to the admission.
His Honour's reasons deal with those matters at [150] to [165]. It is not necessary, for present purposes, to set out what his Honour said.
The last case to which I wish to refer is the decision of the Court of Appeal in Cooper v Hobbs [2013] NSWCA 70. McColl JA (with whom Bergin CJ in Eq agreed) said at [54] that post-contractual conduct could be relevant to and admissible on the question, whether the contract for which a party contended was formed, if it constituted admissions adverse to that party's interest. The authorities cited by her Honour included Heydon JA in Brambles and Campbell JA in Lym.
The key issue in that case was whether a letter written by a party's solicitor, from which it could be inferred that the party admitted the existence of a contract, was admissible as an admission to prove that fact. That was the point to which the observation of McColl JA was directed.
I do not read anything said by her Honour as detracting from the more general proposition that, in some cases, post-contractual conduct may be relevant, not necessarily as an admission, to see whether a contract was made as one party contends, and, if so, what were its terms.
That having been said, I think it is fair to say that most if not all of the matter on which Mr Katekar relied was material which (he submitted) should be considered by way of admission of a contract of the kind for which his client contended.
The conduct and admissions relied upon
In para 20 of his principal affidavit, Dr Martin says that he told Mr Robertson:
We were [sic] prepared in principle to enter into a four year contract for 10,000 tonnes per annum. Assuming the royalty payments stays [sic] up we will agree to prepay some of the royalty for the coming season. We can discuss the details before next season.
In the same paragraph, Dr Martin explained his intention as being:
... I meant that Mushroom Composters was prepared to commit to an extended term arrangement assuming that the other particulars of a straw supply agreement could be negotiated in terms agreeable to both parties.
Mr Sirtes did not read the explanation. However, Mr Katekar cross-examined Dr Martin, who agreed that the portion that I have just set out was correct.
In para 22, Dr Martin gave evidence of a meeting with Mr Robertson at the Robertsons' home. He said that their discussions related to the 2008/2009 straw season, and then said:
The 2008/2009 season was to be the first season in the four year straw supply agreement.
Again, those words were not read. Again, Dr Martin agreed in cross-examination that they were correct.
Paragraph 47 of Dr Martin's affidavit contains the passage to which I have referred at [110] above.
In para 99 (and preceding paragraphs), Dr Martin gave evidence of a meeting that he and Mr Marland had with Mr and Mrs Robertson at the White Rose Café, Dunedoo. In the course of that meeting, Dr Martin said, he and Mr Marland impressed on the Robertsons that Composters could not continue to take 10,000 tonnes, and that for the coming season it would need 5,000 tonnes only. That arose, he said (quoting himself speaking to Mr and Mrs Robertson), because "when we organised this agreement we anticipated an output of 1,200 tonnes [of mushroom compost] per week. We are now down to 800 because we lost a customer in Queensland and Gromor has lost customers as well".
If it be correct to say, as Composters now submits, that there were only single season agreements, the words "when we organised this agreement" do not make sense. On the other hand, if there were, as Robertson submits, a four year agreement, they make perfect sense.
According to Dr Martin, Mrs Robertson raised the issue of Robertson's cash flow. He said that this provoked the following from Mr Marland:
Donna I'm sick of hearing about your cash flow problems. We're paying good money for poor straw and we have our cash flow issues too. No one could have foreseen what this downturn would do to their businesses. At least we are telling you in good time what our requirements are for the next season. Look, we'll go back to the original 10,000 tonnes and we'll pre-pay you the royalty for the final season of the contract but for next we only need 5,000 tonnes and we cant pay the royalty payment upfront. You've got $600,000.00 of our money and you're about to go bust.
Again, Mr Marland's reference to "the final season of the contract" does not make sense if there were only year by year contracts, but makes perfect sense if there were a four year contract.
In para 100, Dr Martin summarised his understanding of the Dunedoo meeting as follows (so far as it is relevant):
I understood from the above discussion that the Defendant and Mushroom Composters had agreed that for the 2010/11 straw season, that is the third year of the four year straw supply agreement, the Defendant would supply Mushroom Composters with a minimum of 5,000 tonnes of straw and that Mushroom Composters would not make prepayment of the farmer royalty sum...
Dr Martin gave the following evidence in cross-examination, in relation to the Dunedoo meeting (T64.19-.42):
Q. And when you met with them in Dunedoo you said, "We only want 5,000 tonnes for next year." You did that, didn't you?
A. I said the 5,000 tonne was the minimum.
Q. And then after that in year four you would go back to normal for the 10,000 tonnes?
A. That is correct.
Q. Because you knew that you had committed to order 10,000 tonnes per year?
A. We had an arrangement for four years.
Q. At 10,000 tonnes per year.
HIS HONOUR
Q. Did you agree with that or not?
A. No, I don't agree with that.
KATEKAR
Q. And when you originally entered into the four year agreement in 2008 you were expecting 1200 tonnes per week in sales of compost?
A. Yes, 11,050, yep 1150.
Not of present relevance, but not insignificant on the point of damages, Dr Martin notes in the same paragraph that his expectation was that Robertson would supply to third parties 2009/2010 season straw that Composters had not yet collected, and would supply fresh straw, from the 2010/2011 season, to Composters (including some thousands of tonnes in substitution for the untaken 2009/2010 season straw).
In para 114 of his affidavit, Dr Martin deals with a meeting that took place between him and the Robertsons at McDonalds at Singleton. In the course of that meeting, Dr Martin said, he said the following to the Robertsons:
.... We only need 5,000 tonnes and we're not paying upfront. That's what we agreed. You said in Dunedoo in June that you would flick off 5,000 tonnes of last year's straw to feed lots, then bale 10,000 tonnes this season. Then we would be back to normal for the final year.
The strong impression from those parts of Dr Martin's affidavit is that, when he swore the affidavit, he was of the view that there was a four year contract between Composters and Robertson. The strong impression from the comments that Dr Martin attributes to himself and to Mr Marland is that, at the time the relevant conversations took place, they had the same understanding.
Mr Katekar relied on what he said was a concession made by Dr Martin in cross-examination, as to the words "in principal". I set out the relevant passage (T29.28-30.7):
Q. Well, in January 2008 you agreed with Mr Robertson that Mushroom Composters would order 10,000 tonnes of straw from Mr Robertson for four years?
A. I didn't say that. We agreed in principle that we would enter into an arrangement.
Q. Well, I'm picking up on that answer; when you say that you agreed in principle, Dr Martin, what you mean is you agreed to do it?
A. I'm not sure that's in principle, is it?
Q. Well, I'm suggesting to you, Dr Martin, that in your conversation with Ian Robertson you weren't splitting hairs as to what "in principle" meant, were you?
A. No.
Q. You were telling him he could expect that you would order 10,000 tonnes of straw for four years, that's right?
A. I looked at it as an arrangement because Robertson was to go out and purchase bales and modify them, that I would commit to taking straw from Robertson for that period for four years.
Q. Yes, 10,000 tonnes per year.
A. I didn't say that.
Q. Have a look at page 206.
A. I said "in principle".
Q. You were committing to 10,000 tonnes of straw per annum for four years, weren't you?
A. No.
Mr Katekar relied in particular on Dr Martin's agreement that he was not splitting hairs as to what "in principle" meant.
I do not think that this supposed concession has any evidentiary weight. If Mr Katekar intended to suggest that Dr Martin did not regard the words "in principal" as denying the existence of a concluded contract (were the Robertsons to accept the terms of the letter of 25 January 2008), I think it should have been put more squarely than was done. Further, when one reads the whole of the passage that I have extracted, Dr Martin was not prepared to concede in it the existence of a firm offer, capable (in legal terms) of giving rise, on acceptance, to a concluded contract.
Mr Katekar referred to another passage of Dr Martin's evidence at T59.3-.5. I set out the longer passage from which those lines were taken (to give some context, Dr Martin had been shown a document prepared by him showing, as at July 2009, Composters' projected needs for straw) (T58.35-59.5):
Q. At the top it has got your original budget of about 14 and a half thousand per annum?
A. Correct.
Q. You expected another 2,000 due to the Gromor expansion?
A. I think it says there, 2,000 tonnes to take us through to Easter 2010.
Q. I see, thank you. But because of the loss of the granite belt and the late start the Gromor expansion had gone down to 1,700 tonnes per annum?
A. Correct.
Q. At that stage you had less needs for the 09/10 season?
A. Correct.
Q. Than you had originally budgeted for, but still in June 2010 you had contracted for 10,000 tonnes from the Robertsons?
A. Correct.
Q. You knew that because that was the second year of the four year agreement?
A. Correct.
The last two questions, and the answers to them, could be read as acceptance by Dr Martin of the proposition that Composters' conceded obligation to take 10,000 tonnes of straw from the Robertsons as at June 2010 flowed from "the four year agreement".
There are two other passages in Dr Martin's cross-examination that require consideration in this context. The first passage arose in the context of Dr Martin's evidence that, as at April 2010, Composters was operating at a loss for various reasons, and had resorted to its overdraft facility to fund its operations. Dr Martin then gave the following evidence (T61.24-62.4):
Q. The situation was, in April 2010, is that you knew that unless things changed you were not going to be able to pay the Robertsons their $600,000 upfront payments?
A. I couldn't be certain whether I could or not at that point.
Q. You were concerned that you wouldn't be able to?
A. I didn't say that.
Q. No, but you were aware in April 2010 that you had just finished paying the Robertsons six instalments of $100,000?
A. Correct.
Q. And you were aware that you had a four year agreement with the Robertsons?
A. I had a four year agreement.
Q. Yes, that you had a four year agreement with them?
A. I did.
Q. And you expected that you would need to pay the Robertsons $100,000 a month starting in December 2010?
A. I didn't know that at all.
Q. Where you said "the requirement to part pay for new season's straw has placed a strain on cash flow", do you see that under the heading "financials" in the first sentence?
A. Correct, and also in relation to lower sales.
Q. But you're referring there to the payments you've just been making to the Robertsons?
A. Correct.
Finally (in this context), Dr Martin gave the following evidence in relation to the Dunedoo meeting (T64.19-65.1):
Q. And when you met with them in Dunedoo you said, "We only want 5,000 tonnes for next year." You did that, didn't you?
A. I said the 5,000 tonne was the minimum.
Q. And then after that in year four you would go back to normal for the 10,000 tonnes?
A. That is correct.
Q. Because you knew that you had committed to order 10,000 tonnes per year?
A. We had an arrangement for four years.
Q. At 10,000 tonnes per year.
HIS HONOUR
Q. Did you agree with that or not?
A. No, I don't agree with that.
KATEKAR
Q. And when you originally entered into the four year agreement in 2008 you were expecting 1200 tonnes per week in sales of compost?
A. Yes, 11,050, yep 1150.
Q. Go to page 38 of your affidavit?
A. Yeah, it says 1200.
Q. "1200 tonnes per week, we're now down to 800"?
A. Yes.
Q. "And we're not in a financial position to keep paying upfront like this."?
A. That's what was said.
My impression of this passage of Dr Martin's evidence is that he was all too aware of the significance, in terms of concession of an aspect of the Robertsons' case, of what had been said at the Dunedoo meeting. In my view, on this topic also, Dr Martin sought to dissemble.
Authority to make admissions
The significance of those admissions (if it is convenient to call them that for the moment, without deciding their precise status) is a matter to be considered in the context of all the other available evidence. But a primary question is the authority of Dr Martin and Mr Marland to make the admissions.
As to Dr Martin, I think, it is clear that he did have that authority. He was the general manager of Composters, responsible, subject to the Board's supervision, for running all its business operations. I have observed already that there is some reason to think that the burden of supervision was light. Undoubtedly, Dr Martin's duties included negotiating contracts for the supply of straw, and committing Composters to them. It has not been suggested that he required the authority of the Board to enter into such contracts. On the contrary, his reports to the Board describe the contracts that he has caused Composters to make.
Given the wide-ranging nature of Dr Martin's executive role, and his ability to bind the company to at least some kinds of contract, he must be taken to have had authority, at all material times, to make coterminous admissions on behalf of Composters. That is so in particular in relation to contracts for the supply of straw. It would be quite extraordinary if Dr Martin had authority, on his own and without the need for approval from anyone else, to make such contracts, but lacked authority to make admissions as to their existence or terms.
As to Mr Marland: Composters was controlled by two families, his being one and the Powe family the other. He and a representative of the Powe family were the only two directors of Composters. It is plain that Mr Marland took an active interest in Composters' affairs at the relevant time (he has since retired). Indeed, as I have noticed, he was directly involved, with Dr Martin, in some of the negotiations with Mr and Mrs Robertson.
It seems to be clear, as a matter of fact if not as a principle of law, that Mr Marland had authority to participate in the negotiation of contracts for the supply of straw. That being so, what I have said as to the corresponding authority to make admissions (in the case of Dr Martin) must apply also to Mr Marland.
Thus, I conclude that to the extent that the matters to which I have referred are to be taken into account as admissions, they should be regarded as admissions made on behalf of Composters by people having at least implied authority to do so.
The parties' submissions
Mr Sirtes submitted that the letter of 25 January 2008 was not couched in terms of an offer to enter into a contract. He emphasised the words "in principal", the use of the future conditional tense throughout, and the stated need for various matters to be resolved.
Further, Mr Sirtes submitted, no contract was concluded until the heads of agreement document (sent on 22 October 2008) was accepted by conduct, the conduct being delivery of invoices for prepayment of royalties and payment of those invoices.
Mr Sirtes' submissions appeared to put to one side the contract pleaded by Composters: a contract partly oral and partly written, comprising both the discussions preceding the sending of the heads of agreement and those heads of agreement themselves, as well as acceptance by performance. As I have observed already, once it is acknowledged (as Composters' pleadings do) that the contract is not to be found wholly and only in the heads of agreement (or in that document combined with acceptance by performance), the field of debate is enlarged.
For that year, Robertson's total income was $2,251,256.00. Of that sum, $363,950.00 was attributable (according to the profit and loss statement) to "increase in stock on hand (market value)". Since it is unlikely that any significant proportion of the expenses should be treated as referable to that accounting income, it should be excluded. There are also other items which perhaps should be excluded, but since they are minimal, I do not propose to take up time dealing with them.
Adjusted income for the year is thus $1,887,306.00.
Straw sales for that year produced $1,149,702.00 in revenue. That sum is 61% of the total adjusted income.
Mr Katekar submitted that the expenses for the 2009/2010 year could be taken as representative, in the sense that they should be taken to provide a safe guide to expenses that would have been incurred in the subsequent years. That, I think, is correct. By then, the Robertsons had acquired, and made available to Robertson on hire, all the equipment that it needed.
For the 2009/2010 year, expenses were $2,504,826.00. Those expenses were substantially higher than those for the previous year. They include a significant amount, $800,000.00, for plant hired by Mr and Mrs Robertson to their company. Although that appears to include a component of repayment of capital expenditure, there is no basis on which it could be adjusted to reflect what might be regarded as a commercial rate of hire. Nonetheless, inclusion of the full amount is a conservative approach for present purposes.
61% of the 2009/2010 financial year expenses is $1,527,944.00.
For the 2009/2010 year, Robertson harvested and baled about 14,600 tonnes of straw. The notional expense that I have calculated is referable to the whole of that activity. However, the portion attributable to straw harvested and baled for Composters would be 10,000/14,600, or 68.5%. Applied to the calculated "straw" expenses, that would suggest that $1,046,537.00 of those expenses should be attributed to straw harvested and baled for Composters.
If those figures are to be taken as a guide, then the lost profit is of the order of $389,463.00 for each of the years.
Stating the outcome in that fashion produces an impression of certainty that is essentially spurious. It is the result of applying layers of assumptions to the base figures. In my view, it is appropriate to allow a discount to compensate for the imprecision that is a necessary concomitant of multi-layered assumptions, and then a further discount to allow for the prospect that the income might not have been earned, either in the amount claimed or at all.
I should note that Mr Katekar's calculations (which produced claimed losses of, respectively, $607,000.00 and $704,000.00 for the 2010/2011 and 2011/2012 years) embodied what he asserted were elements of conservatism. Further, in this area, it is quite clear that Robertson does not make any claim for interest. Mr Katekar submitted that this introduced a further element of conservatism.
It is correct to say that, if one accepts Mr Katekar's methodology, there are conservative elements within it, compounded by the ultimate conservatism of not seeking interest. But if one does not accept the methodology (and for the reasons I have given, I do not), the fact that its conservative application produces a higher figure than one that seems to me to be justifiable on the basis of such evidence that there is does not mean that the figure produced by what I consider to be a more appropriate methodology should be left undiscounted.
The selection of a discount for inherent uncertainties in (and in the application of) the underlying assumptions is inherently arbitrary. Acknowledging that it is a matter of impression rather than the result of any logical analysis, I propose to allow a discount of 20%.
There is then the question of a further discount to reflect the inherent uncertainty in the assumption that the income would have been earned in full. For the 2010/2011 season, it does not seem to me that any discount should be allowed. Composters did not seek to negotiate a reduction in the price per tonne by reference by what it claims as the lower royalty figure that is appropriate. Its approach was to say that it would not take the full 10,000 tonnes that, on my view, it was obliged to take.
However, it seems to me, if Composters had been made aware of its legal obligations, there is a real likelihood that it would not have taken any straw for the last season except upon the basis of a reduced price. The evidence is, as I have said, that there was then an abundant supply of straw, and that prices were dropping. To my mind, there is a real likelihood that Composters, acting in good faith and taking into consideration market conditions, would have been entitled to insist on a substantially lower straw price.
Robertson's reaction, if that position had been taken, is speculative. Of course, Mr and Mrs Robertson though that they were entitled to receive the full negotiated price for the full four years. If what in my view is the correct operation of the contract had been explained to them, they would have appreciated the obligation to negotiate in good faith where market conditions required or justified such negotiation. Presumably, so advised, their attitude would have been that it was better to get something than nothing, particularly having regard to the heavy capital expenditure that they had undertaken.
Thus, in my view, it is likely that the parties (properly advised, and intending to perform their obligations in good faith) would have negotiated a lower price for the last season to which the supply agreement applied.
What that price might have been is difficult to assess. There is some evidence of prices around $100.00 per tonne ex farm. Doing the best I can, an appropriate reduction, in relation to the 2011/2012 season, to allow for the contingency that a lower price might have been negotiated is of the order of 35% off the otherwise appropriate figure for damages. In case it is not clear, that is a further reduction of 35%, not a reduction of 35% that incorporates the reduction of 20% to which I have referred already. However, as with that earlier reduction, I acknowledge that the figure is the result of impression rather than logical analysis.
Accordingly, I would propose to assess damages for loss of bargain as follows:
(1) in respect of the 2010/2011 straw season, in the sum of $311,570.00; and
(2) in respect of the 2011/2012 straw season, in the sum of $202,521.00
I have said "I would propose to assess" for two reasons. One is that I indicated to the parties, in the course of submissions, that if I thought a different methodology to that propounded by Mr Katekar was appropriate, I would give them an opportunity to speak to it. The other is that even if the methodology be accepted in principle, there may well be arithmetical errors in what I have done.
Finally, since Robertson's abandonment of a claim to interest was premised on rendering more conservative the damages that it calculated, fairness demands that it should have an opportunity to reinstate that claim, and to calculate interest, if it wishes.
Sixth issue: Composters claim for damages (excluding damages dealt with under issues 7 to 10)
Since this issue is premised on Composters' succeeding on issues 1 to 3, it does not arise.
Seventh issue: the Gilgandra depot
Essentially for the reasons that I have give at [75] to [84] above, I conclude that it was Composters' obligation to establish the Gilgandra depot.
It follows that paragraph 7 of the heads of agreement, relating to straw hauled from north of the Tahrone turn-off, is engaged.
Composters quantifies its loss, or perhaps more accurately the additional cost of hauling straw from north of the Tahrone turn-off, at $27,815.00 exclusive of GST. That amount is assessed on a rational basis. To the extent necessary, the underlying figures are supported by appropriate records. Robertson does not dispute this quantification.
Robertson's answer is that, had the Gilgandra depot been established, it would have hauled straw from areas north of the Tahrone turn-off to the depot. Two consequences would have followed. One is that Composters would not have recovered the additional charges. The other is that Robertson would have derived additional income, for so much of the haulage as related to the distance from the Tahrone turn-off to the depot.
Mr Robertson said, in substance, that he was not worried about paragraph 7 of the heads of agreement, because he always expected that the Gilgandra depot would be established and that he would haul straw to it. But that expectation does not seem to me to be relevant.
Undoubtedly, the parties contemplated that there would be established a depot at Gilgandra. But the contract that they negotiated involved two elements. One was that Composters might cause the straw to be collected and taken straight to Singleton. In that event, Robertson was responsible for the additional freight cost, in respect of straw collected from areas north of the Tahrone turn-off.
The other alternative contemplated was that Robertson would haul the straw to the depot, and be paid something for it. That did not happen, because the depot was not established.
Accordingly, in the events that happened, paragraph 7 has been engaged. Robertson is liable to bear the extra freight cost involved: $27,815.00.
In addition, Composters is entitled to interest on that amount.
Eighth issue: the additional freight term
Proof of this term depends on acceptance of Dr Martin's evidence. Mr Robertson did not accept that any such term had been agreed. I prefer Mr Robertson's evidence.
The parties discussed additional freight charges in the context of Mr Robertson's proposal to obtain straw from areas north of Coonamble: specifically, from around Come by Chance and Walgett. They reached an agreement as to the way in which the additional cost of haulage would be treated. That was documented in the heads of agreement.
I have no doubt that if, either then or subsequently, Mr Robertson had proposed to make straw available at some other relatively remote area (for example, the Griffith region), a similar allowance would have been discussed and agreed.
In circumstances where the issue was raised in a specific context, and dealt with by agreement in that context, I think that the evidence is against the wider term for which Composters contends.
If I were wrong in this, I would assess damages in the amounts claimed by Composters. Exclusive of interest (and GST) those amounts are:
(1) $8,470.00 for the 2008/2009 straw season; and
(2) $7,165.00 for the following season.
Ninth issue: bale weights
Mr and Mrs Robertson's evidence is that this provision (paragraph 5) of the heads of agreement was not agreed, and that Mr Robertson informed Dr Martin of that in a conversation a day or so after he received the heads of agreement. I accept that evidence. It follows that there was no such term.
Tenth issue: optimum loading of trucks
Composters' pleaded case is that this is the term recorded in paragraph 6 of the heads of agreement. As I have said already, I accept the evidence of Mr and Mrs Robertson that they rejected this term. Accordingly, I do not find that there was any such obligation as pleaded.
Were I wrong in this, I would assess damages in the amount claimed by Composters (exclusive of GST and interest): $81,189.00. As with the other calculations, there is a rational basis for deriving the figure and it is supported by underlying contemporaneous records.
Nonetheless, Composters called evidence of a conversation at which, it asserts, there was discussion on the topic of the optimum loading of trucks. It is not clear what (if any) significance Composters attaches to that conversation. On the pleaded case, it cannot have any contractual effect. However, less the matter go further and it should transpire that the conversation does have some significance that at present escapes me, I think the better course is to deal with the facts.
Were I wrong in this, I would assess damages in the figure of $81,189.00, exclusive of GST and interest. It should be noted, however, that if I were wrong in respect of both this issue and issue 9, that sum should be allowed once only and not twice. Composters' submissions on damages made it clear that those two claims were alternatives.
Dr Martin said that he met Mr and Mrs Robertson at the Milestone Hotel in Dubbo. According to Dr Martin, Mr McCulloch and Mr Brines were present. According to Dr Martin, he said to Mr and Mrs Robertson, in the course of their discussion, words to the effect that:
Given we'll have the two bale sizes this year and we'll need to load bales of each size on each truck you'll need to have sufficient smaller bales available at each stack on each farm for loading. ... if we don't get these issues of stacking and access right the freight is going to kill me. I know these issues will be resolved once you've set up the Gilgandra Depot... .
According to Dr Martin, Mr Robertson replied to the effect:
Yeah we will try and do what you want us to do with the stacks... .
Mr McCulloch said in his affidavit evidence that the discussion included some but not all of what Dr Martin had asserted. (Mr McCulloch did not say that a Gilgandra depot was discussed.) However, in cross-examination, Mr McCulloch gave a different account of the relevant part of the discussion (T165.34-166.28):
Q. Mr McCulloch, in your affidavit you've sworn that in around January 2009, "I attended a meeting with the Geoff Martin of Mushroom Composters at Dubbo"?
A. That is correct.
Q. That was at the Milestone Hotel?
A. That is correct.
Q. It was later than January 2009, wasn't it?
A. The time, date I couldn't confirm. But we definitely had a meeting at that hotel and in attendance at that hotel was Geoff Martin, Ian and Donna Robertson and my driver Rod Brines.
Q. Yes. And at that time the price of diesel fuel was particularly high?
A. Correct.
Q. Mushroom Composters in particular, Geoff Martin, was concerned to optimise truck weights?
A. That is correct.
Q. He was concerned that your haulage driver, Rod Brines, was not loading the truck correctly?
A. Yeah, what the meeting was about was topping the front of the A trailer up or loading the A trailer of the Bdouble with smaller bales to optimise the maximum weight that the Bdouble could carry rather than being light
Q. Did I interrupt you?
A. And that meant most probably loading the bigger bales at one stack and going to a different location to load the smaller bales. Ian Robertson agreed at that meeting that he would put the little bales at a suitable place for the driver to be able to get them.
Q. He said that he would cart, he would put some 8 x 4 x 3 bales at a shed at Trewilga, didn't he?
A. Correct.
Q. He didn't say that he would cart smaller bales to each of the farms?
A. I don't recollect exactly, but if he was going to take it he was going to put them in a suitable place to make it easier on the drivers to obtain them.
HIS HONOUR
Q. That was the shed at Trewilga, was it?
A. I can't recollect if that was what was said, but it was a suitable place. If that's the place that he said, well, he signed it. I can't recollect the exact place.
A little later in his cross-examination, Mr McCulloch gave the following evidence (T167.5-.35):
Q. A minute ago I asked you a question about carting the smaller bales to each of the farms, do you remember that question?
A. Yes.
Q. What you have put in your affidavit is this statement that is, you in your affidavit have attributed these words to Mr Robertson, if you can just follow me here, this is what you've said that Mr Robertson said, "I'll cart smaller bales to each of the farms and they will be available at the stacks with the big bales." The question I want to ask you, Mr McCulloch, is that wasn't said by Mr Robertson, was it?
A. I would assume that it was said, but in saying that I can't recollect the exact words, it was too long ago.
HIS HONOUR
Q. When you say you would "assume" it was said, Mr McCulloch, what do you mean?
A. Well, it was definitely said that he would make access to those bales that he picked up easily, whether that meant taking them to the stacks where the other ones was located or putting them in a different shed where we could pick them up on the way or afterwards. So it was definitely organised so to put those smaller bales to be easily accessed, whether that meant to go where the straw stacks were or for another shed on the highway. I suppose that would depend on where the small bales have come from.
HIS HONOUR
Q. Your memory of the outcome is that Mr Robertson agreed to make the small bales available whether at farms individually or at a convenient collection point, you can't now recall, is that correct?
A. That is correct.
Mr Brines swore an affidavit. He was not required for cross-examination. The salient feature of that affidavit is that, although it makes numerous complaints about the way in which (according to Mr Brines), Robertson stacked straw on farms, it does not refer to, let alone give any account of, the meeting at the Milestone Hotel.
Mr and Mrs Robertson did not refer to the meeting in their affidavits. They did deal with a meeting at Cudal, which, they said, happened at around the same time as Dr Martin said the meeting at the Milestone Hotel took place. Mr Robertson was cross-examined to suggest that in fact the Cudal meeting to which he had referred was the Dubbo meeting to which Dr Martin referred. He did not agree.
However, Mr Robertson agreed, there was (on his view also) a meeting at the Milestone Hotel at which he and Mrs Robertson and Dr Martin, Mr McCulloch and Mr Brines attended.
In substance, Mr Robertson denied Dr Martin's account of the conversation. Specifically, Mr Robertson denied that he had agreed to stack both 8x4x4 and 8x4x3 bales on each farm.
To the extent that the Milestone Hotel conversation is relevant, I do not find that it occurred in the terms asserted by Dr Martin. Specifically, I do not find that Mr Robertson agreed that he would stack both 8x4x4 and 8x3x3 bales at each farm. There are several reasons.
First, looking at the matter objectively, it is extremely unlikely that Mr Robertson would have agreed to such a requirement. It was commercially impractical (if not impossible). I refer to what I have said at [18], [19] above.
Secondly, Mr McCulloch's account of the conversation does not support Dr Martin when one takes his evidence in cross-examination into consideration. On Mr McCulloch's evidence as a whole, Mr Robertson agreed only to stack 8x4x3 bales at some convenient point, such as "his shed at Trewilga". Mr Robertson accepted that he was prepared to do this.
Thirdly, although Composters called Mr Brines as a witness, it did not seek to adduce any evidence from him as to the meeting in question. The obvious inference is that it feared to do so (see Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418).
Conclusions and order
Composters succeeds on its claim, but only in respect of the cost of hauling freight from north of the Tahrone turn-off. Its damages are quantified at $27,815.00 (exclusive of GST), before interest. Since Robertson has not pleaded a defence by way of set off, Composters is entitled to judgment against Robertson in that sum together with interest to the date of judgment.
Robertson succeeds against Composters on its cross-claim. Its damages comprise the following amounts:
(1) in respect of the 2009/2010 season: $808,328.00.
(2) in respect of the 2010/2011 season: provisionally (and subject to what follows), $311,570.00.
(3) in respect of the 2011/2012 season (again provisionally, and subject to what follows), $202,521.00.
The parties are to have an opportunity to consider the basis on which I have provisionally assessed damages in respect of the 2010/2011 and 2011/2012 seasons. If the parties accept the methodology that I have proposed then, subject to correction of any arithmetic errors, damages will be assessed accordingly.
If the parties do not accept the methodology then it will be necessary to deal with the dispute. I would propose to do so by way of written submissions.
There is also the question of interest. Robertson is to clarify whether it claims interest in respect of the 2009/2010 season damages, and whether (because of the view that I have taken as to the appropriate methodology for the last two season) it wishes to claim interest for those seasons.
Again, if necessary, those matters (if disputed) should be dealt with by way of written submissions.
Once those issues are resolved, Robertson should have judgment on its cross-claim for whatever is the outcome. It would be appropriate for this judgment to be set off against the judgment to be entered in favour of Composters.
There will also be questions of costs. Again, unless the parties persuade me to the contrary, I would propose to deal with costs on the basis of written submissions.
The most efficient (or least inefficient) way of achieving a final resolution is to stand the matter over for directions. If the parties are in substance agreed on the orders to be made, they should submit them in advance and I will make them, and deal with any outstanding (insubstantial) disputes. If there is to be a significant dispute, I will give directions for submissions (and any necessary affidavits) to be filed and served, with copies provided to my associate.
For those reasons, the only order that I make is to stand the matter over for directions to 9:30am on 25 March 2014.
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Decision last updated: 05 March 2014
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