Northaus Trading C/L & Anor v State of Queensland
[1997] QSC 22
•19 February 1997
IN THE SUPREME COURT
OF QUEENSLAND No. 2235 of 1995
[Northaus Trading C/L & Anor v. State of Queensland]
BETWEEN:
NORTHAUS TRADING COMPANY LTD
First Plaintiff
AND:
JOHN DAVID McNAMEE
Second Plaintiff
AND:
STATE OF QUEENSLAND
Defendant
AND:
RAB AUSTRALIA PTY LTD,
MICHAEL CHARLES MOORE and PHOEBE MOORE
Third Parties
REASONS FOR JUDGMENT - THOMAS J
Delivered:19 February 1997
CATCHWORDS: CONTRACT - breach - whether obligation to sell separate from obligation to deliver - best endeavours - implied terms - contractual commitments.
AGENCY - undisclosed principal - capacity.
Counsel:Mr McMurdo QC, with him Mr Varley for the Plaintiffs
Mr Gotterson QC, with him Mr C. Wilson for the Defendant
Mr Daubney for the Third Parties
Solicitors:Clarke & Kann for the Plaintiffs
Crown Solicitor for the Defendant
Middletons Moore & Bevins for the Third Party
Hearing Dates: 3-5 February 1997
IN THE SUPREME COURT
OF QUEENSLAND No. 2235 of 1995
BETWEEN:
NORTHAUS TRADING COMPANY LTD
First Plaintiff
AND:
JOHN DAVID McNAMEE
Second Plaintiff
AND:
STATE OF QUEENSLAND
Defendant
AND:
RAB AUSTRALIA PTY LTD,
MICHAEL CHARLES MOORE and PHOEBE MOORE
Third Parties
REASONS FOR JUDGMENT - THOMAS J
Delivered 19 February 1997
On 25 June 1996 it was ordered pursuant to O.39 r.12 that the issues raised in paragraphs 1 to 9 of the statement of claim in this action be tried in advance of the other issues in the action. Those issues have now been tried before me.
The third parties (RAB and Mr and Mrs Moore) are involved in a separate action brought by the State of Queensland (No. 318 of 1995) in which findings in the present matter as between the plaintiffs and the defendant may have a direct or indirect impact. In recognition of this, by order of 11 July 1996, these parties were given leave to defend the plaintiffs' action and to appear upon the trial and take part therein. During the proceedings before me it became apparent that it might become necessary, as an incident of deciding the issues tried before me, to determine the meaning and effect of a clause in a contract between RAB and the State of Queensland. With respect to that exercise, it was agreed by all parties that any findings made in this trial as to the interpretation performance or breach of cl. 4.2 of the contract between the State of Queensland and RAB Australia Pty Ltd dated 23 March 1994, should be findings as between the plaintiffs and the defendant in this action only, and not as between the defendant and the third parties.
The present litigation concerns a written contract dated 10 June 1994 between the second plaintiff (Mr McNamee) and the defendant (the State of Queensland).
The primary issues raised before me can be shortly stated.
Was the contract made by Mr McNamee on behalf of the first plaintiff ("Northaus")? This involves two questions: firstly, whether Mr McNamee was authorised by Northaus to make such a contract, and secondly, whether he in fact made the contract on its behalf.
The construction of cl. 5.1 of the contract and in particular:
(a)was the Department obliged to supply five hundred cattle or merely to use its best endeavours to do so as soon as possible;
(b)was the Department obliged to deliver within a reasonable time;
(c)if only obliged to use best endeavours to effect delivery as soon as possible, did the Department breach that obligation.
Facts
The first plaintiff, Northaus, at material times carried on the business of a dealer in and exporter of cattle. At material times until 1993 the defendant the State of Queensland, through its Department of Primary Industries conducted a cattle research station at Wacol, and developed a new breed of dairy cattle shortly described as AFS cattle. It will be convenient to refer to the defendant as "the Department". AFS cattle were bred so as to achieve special ability to produce milk in tropical and subtropical climates. The Department developed a herd of such cattle and agisted them on various properties throughout Australia. It also dealt in such cattle, and made a number of agreements granting certain commercial enterprises "options" or other rights in relation to the purchase of such cattle.
In late August or early September 1993 however a government decision was made that the Department should divest itself of this programme. It is fair to say that the Department's attempts to terminate the programme and to end its commercial relationships with its customers have led to the present litigation.
Within the AFS programme there were what might be described as two designations or two "herds" of cattle, although the members of each "herd" were located with various private breeders and rearers at many locations. Firstly there were the pure bred AFS programme cattle and secondly there were AFS cross-breed cattle referred to as "Appendix 3 cattle". On 3 September 1993 the Department invited tenders for acquisition of the assets of the programme, which included all cattle owned by the Department and other assets such as semen, embryos, milk entitlement, related equipment and information.
The third party "RAB" was successful in its tender for the pure bred herd and what might be described as the project assets, other than the Appendix 3 cattle. Subsequently Mr McNamee (either on his own behalf or on behalf of Northaus) through the contract which is in issue in these proceedings, obtained the rights to the Appendix 3 cattle. There is no doubt that he was able to negotiate these rights because of the existence of earlier arrangements in relation to those cattle by which the Department regarded itself as bound. In the event it and Mr McNamee made the contract on 10 June 1994 which superseded these earlier arrangements.
The Department had existing arrangements with various breeders to purchase seven-day-old Appendix 3 calves bred by those persons with the assistance of the Department. It made further arrangements with various rearers to rear the seven-day-old calves so acquired by the Department. By a contract between the Department and RAB dated 23 March 1994, RAB obtained the right to continue arrangements with the breeders and rearers in lieu of the Department when the Department in effect dropped out of the programme on 30 April 1994. This included the right and obligation to purchase these seven-day-old Appendix 3 calves from breeders, on and from 1 May 1994, at $150 each. The Department further agreed to sell to RAB calves to which the Department would become entitled after 1 May 1994, namely all weaned AFS calves "complying with the Specification . . . which the Department is not at the date hereto contractually committed to sell to a third party". The price was $400 each. There was a further provision in that contract which would enable the Department, if it became necessary to do so, to acquire back some Appendix 3 calves from RAB. That provision was expressed as follows:
"4.2 The Company agrees to sell to the Department such number of weaned AFS Appendix 3 heifer calves complying with the Specification as the Department notifies the Company that the Department requires to meet its contractual commitments existing at the date hereof. The Department will pay the Company $400 ex rearer for each weaned calf up to 90 days old it purchases."
The relevant specification was a weight range of 66 to 93kg, with prescribed vaccinations, certain health requirements, freedom from a range of defects, prescribed identification and other requirements. Shortly stated each calf would need to be an Appendix 3 heifer approximately 3 months old, complying with fairly strict health requirements and free from most observable defects. "The date hereof" was 23 March 1994. It will in due course be necessary to ascertain what the "contractual commitments" of the Department were as at that date.
It is convenient now to examine the arrangements that had been made between the plaintiffs and the Department. Northaus was a private company the shares in which were purchased by members of the McNamee family and the Morgan family in 1992. The evidence which the parties saw fit to place before me on the question of company control and dealings is surprisingly general and very brief. That may be because, as Mr McNamee says, there was a strong friendship and trust between the families and apparently directors' meetings were not considered necessary. There seems to have been an initial meeting of directors when the company was initially acquired, at which Mr Methuen Morgan senior was appointed chairman of directors and Mr McNamee was appointed managing director of the company. It is possible that a second directors' meeting might have occurred at some time, but there are no minutes and there is no recollection of any relevant business. The directors seem to have been Mr Methuen Morgan senior, Mr McNamee, Mr McNamee's sons James and David, Mr Morgan's sons Methuen Morgan junior, Laird Morgan, Rian Morgan and a Desmond Reinhardt. Everything seems to have been left in Mr McNamee's hands. I accept that Northaus has been fairly active in the exporting of cattle both before and after the contracts that are particularly relevant in the present case, namely a contract dated 27 May 1994 between Northaus and the Government of Thailand, and the contract of 10 June 1994 with the Department. The ultimate profit-sharing resulting from Northaus' activities does not seem to be relevant to the question whether Northaus was a contracting party in a given transaction, and neither party pursued that aspect or suggested that it had any relevance.
I accept that Mr McNamee was appointed managing director of Northaus at the outset in 1992 notwithstanding the absence of any minutes confirming the appointment.
On 19 January 1993 Northaus, through Mr McNamee as managing director made a contract with the Department, confirmed by a letter written by the "business manager" of the Department. The Department promised to make available 600 AFS Appendix 3 heifers at average age 10-12 months at $700 each, or PTIC (pregnancy tested in calf) heifers at $850 each. Although referred to as an "option" in evidence, this appears to have been a sale. The specific animals were described in an attached schedule. The Department further promised that should any of those heifers be lost, they would be replaced by other heifers of equivalent standard. About 256 of these were supplied to Northaus before the middle of 1993, and these were successfully exported by Northaus. The Department had not delivered any further heifers to Northaus when the negotiations in relation to the contract of 10 June took place.
At all material times Northaus was the only person or entity within what has been described as the McNamee interests which held any export licence.
On the same date, 19 January 1993, Mr McNamee agreed with the Department, under the name "McNamee Partners", "for the growing out to PTIC" of AFS Appendix 3 heifers. It was in the nature of an agistment agreement, and apart from the circumstance that it was in the name of McNamee Partners, it has little relevance in the present proceedings.
A little later, in May 1993 Mr McNamee, on behalf of "McNamee Partners" made an arrangement with the Department for "an option against a forward order for a further 2500 AFS A.3 heifers . . . at about 10-12 months of age". It was indicated by the Department that these cattle would not exceed ten months of age at 1 May 1993. The evidence suggests that the cattle contemplated as capable of fulfilling the order were spread over three properties, one of them Mr McNamee's. Presumably then some of the cattle the subject of this sale were those which McNamee Partners were already caring for under the earlier-mentioned agistment agreement.
These earlier arrangements are the background against which the subsequent agreement of 10 June 1994 was made. The Department at all material times regarded itself as obliged to supply these heifers (totalling 3100) and it will be seen that only 256 of them had by that time been supplied.
As earlier noted, in the latter half of 1993 the Department received instructions from the government to terminate the AFS programme. It therefore set about making arrangements with those parties with whom it had made contractual arrangements, and also if it could, to minimise loss or even make a profit.
The first such arrangement took place in March 1994 when the Department made two contracts with RAB for the sale of its programme and certain cattle to RAB, retaining the right to obtain cattle from RAB in order to meet the Department's contractual commitments existing as at 23 March 1994. This has been earlier mentioned.
In May 1994 Mr McNamee, on behalf of Northaus visited Thailand and on 27 May 1994 made a contract on Northaus' behalf with the Government of Thailand. Under this contract, Northaus agreed to supply 3000 impregnated AFS Appendix 3 cattle at a price of $1200 (US) each. Delivery was to be progressive through to December 1995.
Upon his return he informed representatives of the Department, and in particular Mr Hazard that he had succeeded in obtaining a Thai export contract.
Members of the Department had put much energy and internal discussion into the ways in which it would terminate this programme and deal with third parties. A Ministerial Briefing Note of 13 May 1994 and discussion paper of 16 May 1994 present various "options" as to what should be negotiated "with McNamee". The preferred option was "negotiate a total divestment package with McNamee Partners on the basis of an average price per head". The recommendation to the Minister in the briefing note was "that the Honourable The Minister give approval for Mr Roly Nieper to negotiate with Mr John McNamee of McNamee Partners to realise on the AFS Appendix 3 options held by Yancroft Pty Ltd, Northaus Trading Co Pty Ltd and McNamee Partners at an average price per head of not less than $200".
There is a conflict of evidence between Mr McNamee and Mr Hazard as to whether the Thai contract was actually produced and read by Mr Hazard during negotiations. Both witnesses accept that the contract was mentioned. I accept that both the contract and the consequential need for Mr McNamee to deliver 3000 cattle within a limited time would have been heavily emphasised. However whilst I am prepared to accept most of the evidence given by Mr McNamee, I think it inherently unlikely that he would have exposed to departmental representatives the price that he had obtained from the Thai Government, particularly in a context when he and the Department were haggling over the price that he should pay to the Department. I therefore do not accept that the contract was actually produced to Mr Hazard and read by him. I am however satisfied that, price aside, the making of the contract and its general effect including the need to export 3000 cattle by the end of the year were clearly mentioned during the negotiations.
There is no doubt that during discussions preceding the meeting of 2 June 1994 a price of $200 had been mentioned with respect to the Department's Appendix 3 herd. There is also little doubt that by 2 June the departmental representatives had decided to attempt to obtain a higher price than this. Up to that time both parties had been interested in a simple acquisition by the McNamee interests of the entire Appendix 3 herd, with no specification as to weight, age or state of pregnancy. This was described in the departmental memo as a "total divestment package with McNamee Partners on an average price her head basis". There had also been some discussion about the possibility of Mr McNamee obtaining some extra cattle from the Department. There is little doubt however that in May 1994, and indeed on 2 June 1994, Mr McNamee was prepared to acquire the whole Appendix 3 herd at a price of $200 per head without any further requirement for additional cattle or so-called "spares".
At the meeting on 2 June, the Director-General stated that the price would be $250 per head. This surprised Mr McNamee, and induced him to reintroduce a requirement that 500 "spares" be provided. From Mr McNamee's point of view, such additional cattle would cover him against any shortfall between the existing herd and the Thai contract. It will be remembered that considerable growth, impregnation and other work would be needed on Mr McNamee's part to convert the Department's herd into the impregnated, 300 kilogram, 18 to 30 month old animals that were required under the Thai contract. Some failures and losses were to be expected. Further, many of the cattle in the Department's herd at that time would not be 10 to 12 months old or PTIC. After a good deal of haggling, agreement was reached that the herd would be sold at a price of $235 per head, and that the Department would sell a further 500 "extra heifers" or "spares" at $400 per head.
The relevant clauses in the written contract include the following:
"1.1Subject to -
(a)the provision of the security specified in clause 2; and
(b)the Buyer entering into an agreement with the Department, within fourteen (14) days of the date of this Agreement, for the sale to the Department of 548 AFS Appendix 3 pregnancy-tested in-calf heifers to satisfy the Department's contractual obligations to a third party,
the Department -
(c)transfers to the Buyer all right, title and interest in 3288 heifers identified by the ear tag numbers specified in Schedule 1 ("the Heifers"); and
(d)will make available from time to time to the Buyer, from the bulls in Schedule 2, such number of the bulls as the Department considers necessary for the impregnation of heifers purchased from the Department.
1.2Subject to the Buyer satisfying the conditions specified in clause 1.1(a) and (b) the Department also agrees to sell and the Buyer agrees to purchase the heifers identified by the ear tag numbers specified in Schedule 3 ("the Additional Heifers").
. .
3.1The amount specified in clause 2.1 or such amount as is owed from time to time to the Department pursuant to this Agreement shall be secured by the Buyer within fourteen (14) days of the date of this Agreement by a stock mortgage.
. .
5.1In addition to the heifers specified in clauses 1.1 and 1.2 the Department agrees to sell to the Buyer and the Buyer agrees to purchase a further 500 AFS Appendix 3 heifers complying with the specification in Schedule 4 ("the Extra Heifers") subject to the Buyer satisfying the conditions specified in clause 1.1(a) and (b). The times and places of delivery will be determined by the Department but the Department will use its best endeavours to effect delivery as soon as possible. The Buyer will pay to the Department $400 for each Extra Heifer at or prior to delivery."
The parties were described as the State of Queensland and Mr McNamee who was referred to as "the Buyer". It is common ground that the conditions in cl. 1.1(a) and 1.1(b) were satisfied. The "specification in Schedule 4" was in respect of heifer calves. It specified a target weight of 75kg (range 66-93kg), special vaccination, health and appearance standards, records and other details. It is in similar terms to the specification relating to the "weaned AFS appendix 3 heifer calves" in cl. 4.2 of the Department's earlier contract with RAB, but the contract did not identify the RAB heifer calves as the source of supply. The contract was drawn up by the Department or its advisers.
The numbers of cattle available to Mr McNamee were reduced by the obligation imposed by the contract that he should resupply to the Department cattle that would enable it to discharge its obligations to Yancroft. This meant that Mr McNamee had to supply to the Department (or to Yancroft) 548 head of Appendix 3 PTIC heifers, at the price of $775 per heifer.
Leaving aside the Yancroft obligation, in summary the Department agreed to sell to Mr McNamee three categories of cattle -(a)3288 state-owned heifers available for immediate delivery (cl. 1.1(c));
(b)285 "additional heifers" being specific cattle in possession of cattle rearers but owned by the state (cl. 1.2);
(c)500 "extra heifers" or "spares", most of which were not yet born but which were expected to be born after 1 May 1994 (cl. 5.1).
It will be remembered that the Department had on 23 March 1994 assigned to RAB its rights to calves that were born to Departmental cattle being reared on other persons' properties. The departmental representatives seem to have held the view that they would be able to call on RAB under cl. 4.2[1] of the Department's contract with RAB in order to obtain the 500 "spares" mentioned in (c) above.
At all events that was the contract which the Department negotiated with Mr McNamee.[1]Cl. 4.2 is set out on p 4 of these reasons.
Parties to the Contract
Was the contract made by Mr McNamee on behalf of Northaus? It was made in Mr McNamee's own name, but the question is whether he did so as agent for an undisclosed (or perhaps partially disclosed) principal. It is well established that subject to some well-recognised exceptions, where an agent, having authority to contract on behalf of another, makes a contract in his own name, either the agent or principal may sue or be sued (Siu Yin Kwan v. Eastern Insurance Co Ltd [1994] 2 AC 199, 207).
In my view Mr McNamee had the authority of Northaus to make such a contract. He was the managing director of Northaus. He had been given the express authority to negotiate and make the Thai contract, in the form of a power of attorney. It also authorised him "to do . . any other matter act or thing which, in the opinion of the Attorney, ought to be done . . or performed in connection with any of the documents". I do not think that this amounts to express authority to enter into contracts of purchase with other parties, and would read that authority as directed to the effecting of a valid contract with the Thai authorities. However, in the context of Mr McNamee having been entrusted with the project of making a valid export contract it is easy to infer that somebody (and there was no other active director than Mr McNamee) would be expected to do something to obtain the cattle that would enable the contract to be performed.
I accept that Mr McNamee was appointed managing director of Northaus at the outset, and that he, and no one else, acted in that capacity at all material times. A managing director has implied authority to enter into contracts for a trading company. Article 26 of the Articles of Association empowers the directors to appoint a managing director and to entrust to and confer upon such managing director all or any of the powers of the directors.
The business of Northaus was to export cattle, which includes the acquisition of cattle in Australia and their sale by export. Northaus was the only relevant entity to hold an export licence. One of the outstanding obligations that merged in the 10 June agreement was the obligation of the Department to supply cattle to Northaus under the agreement of 19 January 1993. It is common ground that the new agreement discharged the earlier contracts. It must have been understood that the person making the replacement agreement had the authority of Northaus to do so. Similar obligations were also owed by the Department to an entity described as McNamee Partners, and plainly Mr McNamee also had that authority.
Although the evidence is scanty, I am satisfied that Mr McNamee was entrusted with the conduct of the general business of Northaus and that he had its authority to enter into a transaction such as the agreement of 10 June. In short, I am satisfied that he had the authority of Northaus to make such a contract. The remaining question is whether he in fact contracted on its behalf.
The extent to which Mr McNamee personally adverted to the capacity in which he was contracting raises some doubt in my mind. He conceded that he tended to use the word "I" loosely and to talk as if all entities were the one. It is true that in an affidavit filed at an early stage in the present proceedings, Mr McNamee suggested that he and McNamee Partners acquired cattle which were on-sold pursuant to an oral contract to Northaus, but I am satisfied that in fact there were no intermediate financial dealings of this kind. In short the intention was that Northaus would be the direct accounting party both with respect to purchase and export.
In the end I am prepared to accept Mr McNamee's evidence that he was at the relevant time intending to make the contract on behalf of Northaus. A number of objective factors support this conclusion. The contract was made to acquire cattle to be exported by Northaus under an export contract indisputably made by Northaus some fourteen days earlier. This fact was probably known to both parties. Mr McNamee was not personally engaged in the business of cattle trading. It was also obvious to both parties that the new contract involved the extinguishment of an existing claim of Northaus. There was no apparent legal or commercial reason for Mr McNamee to choose to contract as a principal. Indeed he could not have done so consistently with his fiduciary and statutory obligations to Northaus as its managing director. Mr Gotterson QC for the Department relied inter alia upon the circumstance that the stock mortgage which secured the balance of the contract price was given by Mr McNamee, not by Northaus. However it seems to me that this is affected by the same question, namely whether in doing so Mr McNamee was acting as agent for Northaus. Northaus, in my view, if entitled to sue on the contract made by Mr McNamee, would also be bound by the stock mortgage given by Mr McNamee to secure payment under it. Indeed both Mr McNamee and Northaus would be bound by both documents. There is I think some circularity in reliance upon this particular point. Mr Gotterson also adverted to the fact that the price payable under the agreement was invoiced to Mr McNamee, and in a few instances to McNamee Partners, and was in the first instance apparently paid by those parties. These facts, although relevant, are not in my view decisive on the question of contractual rights.
I accordingly hold that the contract of 10 June 1994 was made by Mr McNamee on behalf of the plaintiff Northaus.
Construction of cl. 5.1
This clause effects an express sale of 500 cattle. The fact that some of them might not yet be born, or even that the Department might fail in due course to obtain them was not introduced as a qualification. Impossibility of performance would not in such a context be an excuse. Indeed no issue of frustration or defence of that kind is raised.
In the present case the obligations of the parties are not expressed to be conditional upon the goods coming into existence or upon their being acquired by the seller. The only relevant qualification in cl. 5.1 is in relation to delivery, which is a distinctly different notion from sale.
Reference was made to evidence which counsel described as the "factual matrix" against which the parties contracted, and made conflicting submissions as to the consequences to be attributed to the surrounding facts. Apart from general comprehensibility of the contract and a better understanding of the terms used in it, the submissions do not clearly indicate specific relevance of the so-called "matrix" evidence. Much of the evidence was, I think, directed towards the alternative questions whether a reasonable time for delivery should be implied, and whether the defendant used its best endeavours to effect delivery as soon as possible.
On the plain words of cl. 5.1 the defendant agreed to sell and has not done so. In the event it failed to effect delivery either quickly or at all. It is now conceded that the defendant can never effect delivery and that it cannot supply the further AFS 500 heifers. Irrespective of any question of breach of the best endeavours to effect delivery provision, there is a breach of the basic agreement to sell, encompassing the failure to give title and possession to 500 AFS cattle.
The reference to "best endeavours" is a qualification to what would otherwise be a broad discretion given to the Department as to times and places of delivery which were to be determined by the Department. However the provisions as to "best endeavours" relate to delivery, not to the obligation to sell. Of course the question of damages for breach of the obligation to sell will be affected by the question of when delivery should have been made had the Department used its best endeavours to do so as soon as possible.
It was submitted for the plaintiffs that in the absence of a specified date or dates for delivery, the Department was obliged to deliver the cattle within a reasonable time. Whilst that submission is superficially attractive, it is undermined by the circumstance that the contract itself contains a specific term about delivery. It imposes on the defendant an obligation which might be more or less onerous than that of effecting delivery within a reasonable time. In my view it is neither necessary nor appropriate to imply a term that delivery would be effected within a reasonable time. It is to the words of the contract that attention must be directed in deciding whether the Department breached its obligations in relation to delivery.
I have considered whether it might be possible to imply "a reasonable time" as the time by which the primary obligation to sell, i.e. to give a good title, should be performed. Extreme complexity would follow if such an approach were necessary, especially if different times might be found for the time when the seller was obliged to give a good title and the time when it was obliged to make delivery. The point may not eventually matter. In case it does I express my view that the obligation to sell was breached no later than the time by which the exercise of best endeavours would probably have resulted in any particular heifer calf being identified or allocated for supply under this contract. In short, breach of this obligation probably occurred at an earlier time than the time when delivery would have been effected had the Department used its best endeavours.
Further facts now need to be stated. The oral agreement (upon which the written agreement of 10 June 1994 was based) was reached by the parties on 2 June 1994. Mr Hazard immediately contacted Mr Moore of RAB advising him that the Department required the supply of a further 500 heifers from RAB. Indeed at all material times thereafter it seems that the representatives of the Department assumed that all that had to be done to satisfy the Department's obligations to the plaintiff was to insist that RAB supply 500 Appendix 3 calves. Now, quite plainly, as between the Department and RAB, the Department was only entitled to demand animals to meet contractual commitments existing as at 23 March. As at that date in my view the Department did not have any commitment to supply the additional calves that it later promised to supply to the plaintiff.
The most charitable way to describe the subsequent correspondence and dealings between the Department and RAB, and between the Department and the plaintiffs, is to say that it acted disingenuously. On 24 June 1994 the Department informed RAB that "in accordance with cl. 4.2 of the agreement . . the Department requires 500 . . Appendix 3 heifer calves . . to meet its contractual requirements", mentioning the price of $400 per head. RAB's response, which at that stage assumed that the Department was entitled to make such a demand, was that $400 per head would not cover costs and consideration was requested of the payment of $500 per head. RAB also pointed out that at the current pick-up rate of only 100 calves per month, this particular demand would mean that it would lose the major portion of its profits from the programme over the first six months. It is in my view probable that had the Department agreed to that request, it would have been able to satisfy its obligations to the plaintiff. The possibility that the necessary spare cattle could be obtained for an additional $100 per head was not mentioned by the Department to the plaintiff.
The Department simply replied to RAB refusing its request, and repeating the assertion that "the Department has a requirement to be supplied with 500 weaned AFS Appendix 3 heifer calves . . to meet its contractual commitments". As earlier mentioned it had no such contractual commitments at the relevant date, 23 March 1994. Its obligations to the McNamee interests were of a broader nature (e.g. they related to older cattle of different specification and value) and those obligations had by this time been merged into the more specific obligations of the 10 June contract. The Department at no stage informed RAB that the contractual commitments it was seeking to satisfy arose under its agreement with the plaintiff of 10 June. It sought to rationalise its call for 500 cattle by reference to calculations of the numbers which it theorised would have been required in order to grow out sufficient mature or pregnant cattle to fulfil the "options".
The precise nature of the Department's contractual commitments as at 23 May 1994 was not the subject of any clear submission. It seems to me that the Department probably was committed to supply the balance of the 600 Appendix 3 heifers mentioned in the "option" granted to Northaus in January 1993. The precise number still to be delivered under that commitment is not in evidence, but it is known that at least 256 had been supplied by the middle of 1993, and it is probable that as at 23 March 1994 the Department had a commitment to deliver 344 such cattle in due course to Northaus. The second "option" in favour of McNamee Partners, started in May 1993, was simply "an option against a forward order for a further 2500 AFS A3 heifers" with delivery "at about 10-12 months of age" and delivery desired between March and October 1994. The maximum commitment of the Department under these options as at March 1994 was 2844 cattle. The Department's obligation was merely to supply such cattle as and when they were produced to the necessary specification. If by October 1994 the full number had not been attained, Mr McNamee would have had no claim against the Department with respect to the shortfall. The evidence does not show how many cattle of the appropriate specification existed, either with rearers or in the Department's herd as at March 1994, or June 1994 or at any material time. In my view it has not been shown that the Department was as at March 1994 contractually committed to supply to any person the 500 heifer/calves that it demanded of RAB in June 1994. The contractual commitment to do so only arose upon the Department's acceptance of this specific additional obligation in the contract of 10 June 1994.
On 26 August 1994 RAB called the Department's bluff and asked the Department for a "detailed explanation as to why the DPI requires 500 calves and as to why the position has changed so dramatically from that represented by Hazard in January". RAB also asked for full details of the contractual commitments which the DPI had undertaken and which were in existence as at 23 March. This reasonable request resulted in a very long letter in reply which made no mention of the 10 June agreement, but instead made reference to "the heifer deficit arising from the over-estimated calf pick-up predictions" which it said amounted to 502 head. This, said the Director General "has been rounded down to 500". I can only regard this letter and other similar documents as rationalisations aimed at producing a predetermined number, namely 500.
The truth is that the DPI's reliance on cl. 4.2 of the agreement of 23 March 1994 was misconceived. The Department did not require the 500 cattle in order to meet its contractual commitments existing as at 23 March 1994; it required them in order to meet the commitments agreed on with the plaintiffs under the written contract of 10 June 1994. That contract created completely different contractual commitments to those in the previous options. It was for different cattle, different specification (i.e. 3 months rather than 10-12 months or pregnant), and different prices ($235 per head instead of $700-$850 per head). Moreover, by the 10 June contract the Department committed itself to supply 500 cattle over and above its full herd. It had no right to transfer this new obligation to RAB.
I therefore reject the submission that the 500 cattle demanded from RAB represented any contractual commitment of the Department existing as at 23 March. It may be noted that it was not submitted that cl. 4.2 of the RAB contract gave the Department an arbitrary right of notification of requirement irrespective of the true state of its contractual commitments.
The Department's obligation to use its "best endeavours" to effect delivery as soon as possible did not oblige the Department to go beyond the bounds of reason (Hospital Products Ltd v. United States Surgical Corporation (1984) 156 CLR 41, 64; Hawkins v. Pender Brothers Pty Ltd [1990] 1 Qd. R. 135).
"He is required to do all he reasonably can in the circumstances to achieve the contractual object but no more."
(Hospital Products Case, above, per Gibbs CJ, p 64).
"Nor does the existence of a best efforts clause or best endeavours clause . . impose a duty upon the 'promisor' to disregard his own interests . . "
(ibid, per Dawson J, at 143-144).
Even so the conduct of the Department in this instance fell well below "best endeavours". At best the Department took a position that was legally misconceived. It is more likely that those who acted on its behalf suspected it was in a weak position and that it sought to achieve its object by obfuscation. In those circumstances the reasonable thing to do when RAB indicated a willingness to supply at $500 per head was to accede to the proposal and thereby ensure that the commitment to the plaintiff could be met. The Department was in a position of having promised to deliver 500 calves of a certain specification. The obvious source from which to obtain them was RAB, to whom the Department had assigned the rights to the new cattle to be born under the programme so far carried out. There were however other sources including two departmental officers, Messrs Legg and Cook both of whom were known to have such cattle. Mr Hazard's explanation for not following up the possibility of acquiring cattle from those persons, or even finding out how many they had, is unsatisfactory. It seems to come down to personality clashes. No suggestion was made of doubts as to the title of these persons to the cattle they owned. The obligation to satisfy the contract with the plaintiff would seem to have called for the Department to at least explore the possibility of acquiring cattle from these and indeed any other sources from which such cattle might be able to be acquired. In the event all that it did was to make invalid demands on RAB.
I accordingly hold that the Department did not use its best endeavours to effect delivery as soon as possible, in breach of its obligations to do so under cl. 5.1. It may well be that had the Department used its best endeavours it would probably have obtained 500 heifers progressively from RAB from about July 1994. However that, and further findings on the consequences of the Department's breaches of contract will arise, if it becomes necessary to explore them, on the question of damages. My function is to make findings of fact relevant to the question of breach.
Findings
(a)I find the facts stated in paragraphs 1 to 8 of the statement of claim to be established.
(b)I find that the defendant breached the contract by failing to supply and deliver the 500 cattle referred to in cl. 5.1 of the agreement and in not using its best endeavours to effect delivery as soon as possible.
Orders
(a)Judgment for the first plaintiff for damages to be assessed by reason of the said breaches.
(b)Liberty to apply.
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