OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd
[2013] NSWCA 27
•25 February 2013
Court of Appeal
New South Wales
Case Title: OneSteel Manufacturing Pty Limited v BlueScope Steel (AIS) Pty Limited Medium Neutral Citation: [2013] NSWCA 27 Hearing Date(s): 24 - 26 October 2012 Decision Date: 25 February 2013 Before: Allsop P at [1]
Macfarlan JA at [183]
Meagher JA at [184]Decision: 1. Appeal allowed.
2. Set aside the orders of the Supreme Court made on 29 November 2011 and 2 December 2011.
3. The parties bring in short minutes of order containing orders in the following form:
(a) Judgment for the plaintiff in the sum of [a sum calculated in accordance with these reasons and including pre-judgment interest up to 29 November 2011 from 30 June 2009 pursuant to the Civil Procedure Act 2005 (NSW), s 100].
(b) The defendant pay the plaintiff's costs.
4. The respondent pay the appellant's costs of the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: CONTRACT - construction of a commercial contract - sale of iron ore - wrongful refusal to take delivery - Sale of Goods Act 1923 - s 52 - measure of damages
DAMAGES - denomination - time for conversion from foreign currency
PRACTICE AND PROCEDURE - importance of clear expression of issues at trialLegislation Cited: Sale of Goods Act 1923 (NSW) Cases Cited: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; 129 CLR 99
Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228
Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87
Bowes v Chaleyer [1923] HCA 15; 32 CLR 159
Brown Boveri (Australia) Pty Ltd v Baltic Shipping (1989) 15 NSWLR 448
Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337
Driver v War Service Homes Commissioner (No 2) [1924] VLR 535
Foran v Wight [1989] HCA 51; 168 CLR 385
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603
Harrington v Browne [1917] HCA 36; 23 CLR 297
Hillas & Co Limited v Arcos Limited (1932) 147 LT 503
In re Moon; Ex parte Dawes (1886) 17 QBD 275
John v Price Waterhouse [2002] EWCA Civ 899
Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; 36 CLR 60
Maschinenfabrik Augsburg-Nurenburg Aktiengesellschaft v Altikar Pty Ltd [1984] 3 NSWLR 152
Mitsui OSK Lines Ltd v The Ship "Mineral Transporter" [1983] 2 NSWLR 564
Moore v Magrath (1774) 1 Cowp 9; 98 ER 939
Morrells of Oxford Ltd v Oxford United Football Club Ltd [2001] Ch 459
Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116
OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd [2011] NSWSC 1450
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451
Park v Brothers [2005] HCA 73; 222 ALR 421
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; 90 CLR 235
Re Sigma Finance Corp [2009] UKSC 2; [2010] 1 All ER 571
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989
Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd (No 2) [1990] 3 All ER 723
Siemens Ltd v Schenker International (Aust) Pty Ltd (No 2) [2001] NSWSC 742
Slim v Daily Telegraph Ltd [1968] 2 QB 157
The Griparion (No 2) [1994] 1 Lloyd's Rep 533
The Selda [1999] 1 Lloyd's Rep 729
The Despina R [1979] AC 685
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165
Towne v Eisner 245 US 418 (1918)
Walsh v Trevanion (1850) 15 QB 733; 117 ER 636
White v Overland [2001] FCA 1333
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530Texts Cited: I Dear and P Kemp, The Oxford Companion to Ships and the Sea (2nd ed, Oxford University Press, 2006)
D Hughes and K Lewison, The Interpretation of Contracts in Australia (Lawbook, 2012)
E Sullivan, Eric Sullivan's Marine Encyclopaedic Dictionary (6th ed, LLP, 1999)Category: Principal judgment Parties: OneSteel Manufacturing Pty Ltd (ABN 42 004 651 325) (Appellant)
BlueScope Steel (AIS) Pty Ltd (ABN 19 000 019 625) (Respondent)Representation - Counsel: Counsel:
N C Hutley SC and S A Lawrance (Appellant)
R A Dick SC and B R Kremer (Respondent)- Solicitors: Solicitors:
Allens Arthur Robinson (Appellant)
Holding Redlich (Respondent)File Number(s): 2012/58647 Decision Under Appeal - Before: Hammerschlag J - Date of Decision: 29 November 2011 - Citation: [2011] NSWSC 1450 - Court File Number(s): 2009/298710
JUDGMENT
ALLSOP P: The issues in this appeal concern the construction and interpretation of two related commercial agreements entered into in 2004 and 2008 dealing with the sale of iron ore between two companies (to which I will refer as "OneSteel" and "BlueScope"), the parents of which were once both part of the BHP group of companies.
In 2008 and 2009, BlueScope (the purchaser of the iron ore under the arrangements), in purported reliance on a provision of the relevant deed, requested that the carrying vessel not load seven future shipments of iron ore fines. The cargoes were scheduled to be loaded on board a Handymax bulk carrier, Iron Chieftain. BlueScope asserted an entitlement to choose not to take delivery of the iron ore, by requesting the vessel not be loaded. OneSteel sued BlueScope for the loss and damage it said was caused by what it characterised as wrongful refusal to accept the cargoes.
The Commercial List judge who heard the case (Hammerschlag J) dismissed OneSteel's claim, finding that cl 4.1(d) of the principal agreement entered in 2004 permitted BlueScope to request to have the vessel not loaded and, in effect, to refuse to take delivery of the seven shipments (OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd [2011] NSWSC 1450).
I respectfully differ from the primary judge's view as to the meaning of cl 4.1(d). It did not, in my view, give BlueScope a legal foundation for refusing to take the iron ore, or at least, did not absolve it from paying damages therefor. That conclusion requires the issues in the notice of contention to be resolved.
The resolution of the principal issues on appeal requires a degree of understanding about the context in which the relevant agreements were entered into. The factual background was largely uncontentious and is taken, in significant part, from the primary judge's clear and careful reasons.
Factual background to the agreements and to the dispute
OneSteel's parent was demerged from the BHP Group in 2000. OneSteel makes steel at Whyalla in South Australia and also sells materials, including iron ore, relevantly iron ore fines, mined from nearby locations. There is no coal supply nearby.
BlueScope's parent was demerged from the BHP group in 2003. BlueScope makes steel at Port Kembla in New South Wales, just south of Wollongong. There is ample coal supply in the Illawarra region near Port Kembla, but no nearby supply of iron ore. Its supply of iron ore comes from OneSteel and from major suppliers, such as BHP Billiton and Companhia Vale do Rio Doce ("Vale").
Before 2000, the BHP group manufactured steel at both Whyalla and Port Kembla (and in earlier years at Newcastle as well, which also had ample nearby coal, but no nearby iron ore). Iron Chieftain, then owned by a member of BHP group, carried iron ore on a regular round trip from Whyalla to Wollongong (and in earlier years, to Newcastle as well) and on the return leg, coal to Whyalla.
Iron Chieftain is a self-discharging Handymax with a fully laden capacity of 46,500 wet metric tonnes ("WMT").
When OneSteel's parent separated from BHP, Iron Chieftain was sold to CSL Australia Ltd ("CSL"). In November 2003, OneSteel chartered Iron Chieftain from CSL under an agreement entitled "Contract of Affreightment Charter Party" under which CSL agreed, for eight years, to carry a specified quantity of iron ore (1,069,500 metric tonnes +/- 5%) in bulk (lump or fines) from Whyalla to Port Kembla and a specific quantity of coal (966,000 metric tonnes +/- 5%) in bulk (one or more grades) from Port Kembla to Whyalla, in round voyages between the two ports, fairly evenly spread throughout the year. It is unnecessary to deal with the CSL charter party in detail. Its existence was a mutually known fact to OneSteel and BlueScope at the time of the entry into the relevant agreements, as was the relativity of the freight payable by OneSteel to CSL and the freight payable by BlueScope to OneSteel for the carriage of iron ore. There was otherwise, however, no evidence that BlueScope was aware of the terms of the CSL charter party.
OneSteel had long-term contracts for the supply of iron ore to Chinese customers and it also sold iron ore on the spot market.
On 30 December 2004, OneSteel and BlueScope entered into a deed entitled "Sale & Purchase Deed" (the "2004 Deed"). It will be necessary to refer to a number of provisions in the 2004 Deed. A full copy of the 2004 Deed was annexed to the primary judge's reasons. Where possible, I will not repeat clauses that can be read there. I will only set out provisions, the terms of which are crucial to understanding these reasons.
Each side brought to its arguments the aid and buttressing of commercial good sense and commercial purpose. The proper approach to the construction of commercial contracts was discussed by me in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [19] - [23], with which Giles JA agreed at [63]. It is essential to understand the "genesis of the transaction, the background, the context, the market in which the parties are operating": Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995 - 996, quoted in Codelfa Constructions Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 at 350, and see Franklins at [19]. Each side pressed aspects of commercial convenience or inconvenience. Such considerations are relevant to construction and objective meaning: Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at [82]. It is also necessary not to approach words in a business context pedantically or in a manner prone to defeat the evident commercial purpose. That said, and recognising that business contracts should be given a fair and broad reading without being astute or subtle to find defects or deficiency: Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 at 514 cited in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; 129 CLR 99 at 109 - 110, it is important to recognise here that the parties drew, and agreed to, a tolerably detailed and carefully drawn agreement of over 50 pages. To the extent that commercial aim and purpose is to be taken from the terms and structure of the document itself that will generally be determinative, although, of course, the evident commercial coherence of an arrangement by reference to obvious commercial considerations and the relevant market will be important.
I will refer to the terms of the 2004 Deed in due course. It is necessary, however, for the coherent recitation of the background facts to the dispute to note that one clause of the 2004 Deed dealt specifically with the reduction in need by BlueScope for iron ore whilst one of its blast furnaces (number 5) was taken out of operation to be relined. In October 2006 (well before the so-called global financial crisis of late 2008 (the "GFC")), BlueScope announced that the reline of the blast furnace would take place in March 2009.
By April 2008, BlueScope was accumulating a stockpile of fines and was running out of storage in its yards. At about the same time, CSL was contemplating the dry-docking of Iron Chieftain for maintenance. The spot price for iron ore was significantly higher than that payable under the 2004 Deed. Thus, it suited the parties, and they agreed, to ballast four iron ore voyages to Port Kembla (V192, V194, V196 and V198) due for loading between 19 April and 15 June 2008 and to replace them with four shipments between 22 December 2008 and 30 June 2009. As shall be seen when the 2004 Deed provisions on scheduling are discussed, the parties had a rolling shipping schedule open for three months, which was updated every two weeks. As well as varying the schedule in relation to these four voyages, OneSteel and BlueScope discussed adding three additional voyages (V226, V228 and V230).
In May 2008, BlueScope announced that the blast furnace reline would take 105 days and be done in the first half of 2009.
A revised shipping schedule sent by OneSteel to BlueScope at the end of May 2008 provided for five deliveries of iron ore between 14 January 2009 and 31 March 2009 (V218, V220, V222, V224 and V226) and two (V228 and V230) between 7 June 2009 and 25 June 2009, with an annotation that there would be no deliveries in April and May due to the blast furnace reline. Shortly thereafter, at BlueScope's request, it was agreed that V226 would not take place in late March but late May 2009. An adjusted schedule was sent by OneSteel accordingly.
In August 2008, the parties executed an amending deed (the "2008 Deed"). The amending deed was put in place to document the above changes. One aspect of the 2008 Deed was that it extended the term of the 2004 Deed from 31 December 2008 to 30 June 2009. The relevance of the 2008 Deed to the controversy is that OneSteel argued that even if cl 4.1(d) of the 2004 Deed would, contrary to its primary argument, have entitled BlueScope to request that shipments not be loaded and so not to take delivery of shipments, in respect of the four voyages that replaced the four ballasted voyages in the re-arrangement referred to above, BlueScope, by the 2008 Deed, had agreed to take them and so could not rely on cl 4.1(d). It is convenient to set out the relevant parts of the 2008 Deed at this point:
"This amendment (the "Amendment Deed") is issued in reference to the sale and purchase deed of agreement between BlueScope Steel (AIS) Pty Limited ("the Buyer") and OneSteel Manufacturing Pty Limited ("the Seller") dated 30 December 2004 ("the Deed").
Both parties agree to vary the terms and conditions of the Deed as follows in respect of four (4) shipments of Iron Ore - to be ballasted between Whyalla and Port Kembla - being OneSteel Voyage Nos. 192, 194, 196 and 198, and also in respect of four (4) shipments of Iron Ore - to be sold to the Buyer on a DEQ Port Kembla basis on revised price and payment terms - being OneSteel Voyage Nos. 202, 204, 206 and 208 otherwise the conditions of the Deed remain unamended. Terms used in this Amendment Deed have the same meaning as in the Deed unless otherwise stated.
3. TERM OF THE DEED
Notwithstanding the terms of the Deed that govern the Term of this Deed, it is agreed to extend the Term such that it expires on 30 June 2009. The period between 1 July 2008 and 30 June 2009 shall be called Contract Year 2008/2009.
In respect of clause 3.2 dealing with the renewal of term, it is agreed that all references to 21st December 2008 be replaced with 30 June 2009 and all references to 21st June 2008 be replaced with 31st December 2008.
4. OBLIGATIONS TO SUPPLY & PURCHASE
Notwithstanding the terms of the Deed that govern the supply and purchase of Iron Ore delivered during the Contract Years 2007/2008 and 2008/2009, it is agreed that the Deed is varied in respect that OneSteel Voyage Nos.192, 194, 196 and 198 (due to be loaded aboard the vessel on or about between 19 April 2008 and 15 June 2008) ("the Ballasted Shipments") will be ballasted from Whyalla to Port Kembla. The Seller agrees to pay the Dead Freight in respect of the Ballasted Shipments.
The Seller agrees to supply four (4) replacement shipments ("Replacement Shipments") in Contract Year 2008/2009 in addition to the number of shipments that would have been supplied between 1 July 2008 and 21 December 2008. The Replacement Shipments will be made between 22 December 2008 and 30 June 2009 to a schedule mutually agreed between the parties.
The Buyer agrees to waive its right to purchase on a FOB Whyalla Port basis any shortfall from the Maximum Tonnage of Iron Ore accrued in the Contract Year 2007/2008.
...
The Amendment Deed applies only to the Ballasted Shipments, Replacement Shipments, Shipments and Nominated Shipments. All other shipments of Iron Ore will continue to be governed in full by the terms of the Deed. Except as modified in this Amendment Deed, all other terms of the Deed apply to the Ballasted Shipments, Replacement Shipments, Shipments and Nominated Shipments. To the extent that any provisions of the Deed are inconsistent with this Amendment Deed, this Amendment Deed prevails over the provisions of the Deed."
On 17 September 2008, OneSteel sent a revised delivery schedule to BlueScope. It identified the carrying vessel for all voyages as Iron Chieftain. It sought to accommodate a somewhat longer than previously anticipated dry-docking of Iron Chieftain, now to take place in China, not Singapore. The last delivery of iron ore to Port Kembla was to be on 29 October 2008 (V216) with a resumption on 10 February 2009 (V218, the first of the so-called four replacement voyages). The schedule had the four replacement voyages (V218, V220, V222 and V224) delivering iron ore on 10 February, 26 February, 14 March and 30 March 2009, after which there was a notation: "No deliveries in April and early May due to Blast Furnace re-line". Deliveries were identified as recommencing on 17 May 2009, with V226. The parties were therefore accommodating the blast furnace reline by the absence of deliveries in April and the first half of May.
By the end of October 2008, the GFC had commenced. BlueScope anticipated a decline in steel demand and a consequent decline in its iron ore needs. It began considering cancelling iron ore shipments from OneSteel in the period February to June 2009. Its in-house lawyers gave advice on the operation of the 2004 Deed, and in particular, cll 4.1(d) and 12.8(c). BlueScope also contacted its other iron ore suppliers in an attempt to reduce volume of expected deliveries. On 2 December 2008, BlueScope's Commodity Manager, Mr Jansen, prepared a paper entitled "FY09 Raw Material Wind-Back Strategy". The primary judge extracted the following from it at [43] of his reasons:
"Purpose of the Paper
To outline the plan and commercial strategy to reduce our FY09 commitments for iron ore and coal (and the associated freight) to facilitate a reduction in hot metal production of approximately 500,000 tonnes in response to the current market situation.
Key Assumptions and Issues:
· Iron production reduced to 13,000 tonnes per day.
· No.5 Blast Furnace shuts down on 25 January 2009 and No.6 Blast Furnace operates at 7,000 tonnes per day (average) to 30 June 2009.
· Issue in terms of issuing formal notices under raw materials contracts to mitigate commercial exposure if we have not made any public announcement or ASX disclosure."The paper foreshadowed cancellation of four shipments of fines from OneSteel (190,000 tonnes) and three shipments of ore from BHP (90,000 tonnes).
BlueScope's board met on 5 December 2008 and discussed the decline in market conditions. Shortly thereafter, Mr Jansen prepared another briefing paper. It was directed to the contractual position with OneSteel. Relevant parts of it were extracted by the primary judge at [47] of his reasons:
"FY 2009 Deliveries
· As a result of the reduction in FY2009 steelmaking production at Port Kembla Steelworks, a response plan has been developed on how we most effectively reduce our iron ore purchases.
· For OneSteel, this plan requires an initial reduction of 4 shipments (190lt) that are scheduled for delivery during February and April 2009.
· Our current contract expires on 30 June 2009, having been extended by 6 months by agreement in June 2008. This contract allows BlueScope Steel to request ballast voyages of the Iron Chieftain for any reason if we do not require iron ore. Our commercial exposure in such circumstances is limited to payment of dead freight (approx A$266k per voyage), for which OneSteel has an obligation to seek to mitigate.
· The Iron Chieftain is currently in dry dock in China for maintenance and we are not receiving any OneSteel iron ore before the scheduled deliveries in February 2009.
· The contract does not specify a specific notice period should we require a ballast voyage. However, it is recommended that we provide as much notice as possible so that OneSteel have time to reallocate the iron ore sales to other customers. More notice will also improve the chances of OneSteel finding alternative business for the Iron Chieftain, thereby reducing our dead freight liability.
· The Iron Chieftain is scheduled to perform three (3) more shipments during May and June 2009.
Recommendation:
· It is recommended that we provide OneSteel formal notice of our requirement to drop at least 4 shipments of iron ore during February and April 2009, and that further reductions maybe required subject to market and OPUP circumstances."
On 10 December 2008, BlueScope made an announcement on the Australian Stock Exchange referring to trading conditions and reduced demand and production volumes. It announced the early closure of blast furnace number 5 in January 2009, due to reduced demand, ahead of the scheduled reline. It said that some reline activity would occur in January and February, though the main reline activity would take place from March to June 2009.
After further discussion at BlueScope, Mr Jansen and a colleague spoke with OneSteel's marketing manager, Mr Barkway, and advised him of BlueScope's need "to drop an initial four shipments" that financial year.
This advice was then formulated in a letter from BlueScope to OneSteel dated 19 December 2008 that the primary judge referred to as the "December request". The letter was a "request" formulated substantially by reference to cl 4.1(d), and was in the following terms:
"Re: BlueScope Steel Request for Ballast Voyages
Deed of Supply of Iron Ore dated 30 December 2004 (the Deed)BlueScope Steel is shutting down #5 blast furnace in January 2009. At this stage, #5 blast furnace will be shut down until at least June 2009. Further, hot metal production will be significantly reduced. Accordingly, BlueScope Steel's demand for iron ore has reduced and, as a result, BlueScope Steel requests that the Iron Chieftain is not loaded with any iron ore for the following voyages as contemplated under clause 4.1(d) of the Deed:
1. Voyage 218
2. Voyage 220
3. Voyage 222
4. Voyage 224We further advise in accordance with clause 4.1(d)(ii) that BlueScope Steel does not wish to take the foregone tonnage at a later date.
We note clause 4.1(d)(i) and look forward to working with OneSteel to mitigate the impact of dead freight charges on BlueScope Steel.
Please call either Tim Jansen or myself should you wish to discuss this further."
At this point it is convenient to set out cll 4.1(d) and 12.8(c) of the 2004 Deed. They, of course, need to be understood in the context of the whole deed, but it assists in understanding the exchange that followed to appreciate the terms of these and closely related provisions. Clause 4.1(d) finds its place in cl 4 entitled "Obligations to Supply and Purchase". Clause 4.1 is entitled "DEQ Port Kembla basis supply of Iron Ore". "DEQ Port Kembla" meant Delivered Ex Quay at Port Kembla in accordance with the definition of that phrase in Incoterms 2000. Clause 4.1 was in the following terms:
"4.1 DEQ Port Kembla basis supply of Iron Ore
(a) For each Contract Year of the Term (part Contract Years pro rata), the Seller may supply to the Buyer up to the Maximum Tonnage of Iron Ore on a DEQ Port Kembla basis in reasonably evenly spaced Shipments and any Iron Ore so offered for supply must be purchased by the Buyer subject to and upon the terms of this Deed.
(b) While the Seller is under no obligation to supply the Buyer with any minimum amount of Iron Ore on a DEQ Port Kembla basis, the Seller warrants that it will not (to the extent that it is within its legal rights to control the activities of the Iron Chieftain) use the Iron Chieftain during the Term for any other seaborne trade other than the coal trade from the east coast of Australia to Whyalla Port or the Iron Ore trade with the Buyer from Whyalla Port to Port Kembla without the consent of the Buyer, which consent will not be unreasonably withheld.
(c) For the avoidance of doubt, the Parties agree that there is no obligation on the Seller to use the Iron Chieftain to deliver the Iron Ore (on a DEQ Port Kembla basis) and the Seller is free to use other Vessels to deliver the Iron Ore on a DEQ Port Kembla basis (subject to the nomination and acceptance provisions in this Deed).
(d) If the Seller has scheduled DEQ Port Kembla Shipments of Iron Ore to the Buyer and the Buyer requests the Seller for any reason (other than pursuant to Clause 6.4) to either not load the Vessel at all or not load the Vessel to the full Practical Loaded Capacity of the Vessel, then the Buyer shall:
(i) subject to clause 12.8, pay any Dead Freight in respect of that Shipment; and
(ii) advise the Seller whether the Buyer wishes to take the foregone tonnage at a later time (on either a FOB Whyalla Port or DEQ Port Kembla basis) and the Seller shall respond to the Buyer's request within a reasonable time (for the avoidance of doubt, the Seller is not obliged to agree to any such request but will not unreasonably withhold its agreement).
(e) Any sale and purchase of Iron Ore on a DEQ Port Kembla basis will be on the terms and conditions in this Deed except that the terms set out in Attachment 4 will not apply to any such supply."
Clause 12.8 dealt with dead freight, being conventionally defined as freight payable for cargo not loaded. It is to be noted that, by cl 12.8(d), dead freight charges on a DEQ Port Kembla delivery were to be at the same rate as the prevailing freight rate as defined for loaded cargo. In other words, OneSteel received the same freight for Iron Chieftain or any substitute vessel for the iron ore delivery run to Port Kembla, whether she was laden or not. Clause 12.8 was in the following terms:
12.8 Dead Freight
(a) The Buyer must pay the Seller any Dead Freight incurred by the Seller as a result of the Seller loading, at the Load Port:(i) a Vessel (other than the Iron Chieftain) with a quantity of Iron Ore less than that Vessel's Practical Loaded Capacity; or
(ii) the Iron Chieftain with a quantity of Iron Ore less than the Practical Loaded Capacity of 46,500 WMT (or as otherwise agreed),
(each a "Dead Freight Event") provided always that the Dead Freight Event was materially caused or contributed to by the Buyer.
(b) For the purposes of Clause 12.8(a), a Dead Freight Event is not materially caused or contributed to by the Buyer if (without limitation):
(i) the Dead Freight Event occurs in respect of a voyage on the Iron Chieftain to Discharge Port where the Buyer has not elected to take delivery of Iron Ore greater than the Maximum Tonnage; or
(ii) the Buyer has exercised its rights pursuant to Clause 6.4 of this Deed to suspend deliveries of Iron Ore or terminate this Deed; or
(iii) either Party is unable, wholly or in part, to perform any of its obligations under this Deed due to an event of force majeure as defined in Clause 13; or
(iv) Seller is unable to supply Iron Ore as a result of any of the events described in Clause 14.1.
(c) The Seller is aware that it is likely that during the Term of this Deed that the Buyer will reline its No.5 Blast Furnace and may undertake related work on Buyer's sinter plant (the Works) and may wish, in Buyer's absolute discretion (but reasonably proportionally with the Buyer's other iron ore fines suppliers), to reduce its level of purchases of Iron Ore from the Seller during or around that period of the Works. Seller acknowledges and agrees that any such reduction related to the Works is not a breach of this Deed and Buyer will not be liable to Seller for any cost, expense, loss (including loss of profits) or damage suffered by Seller as a result of Buyer reducing its level of purchases, but will be liable for Dead Freight that is not mitigated by Seller in accordance with this Deed. In the event that the Buyer does wish to so reduce its purchases the Seller will use its reasonable endeavours to mitigate the Dead Freight charges which would be payable by the Buyer to the Seller in respect of any Dead Freight Events during or around the Works period and will also liaise with the Buyer to assist the Seller in reducing Dead Freight.
(d) For the avoidance of doubt, the Dead Freight charges for the Iron Chieftain (and any substitute Vessel nominated by the Seller) will be at the same rate as the Freight Rate prevailing at the time ("Dead Freight Charge Rate").
The following is to be noted about the December request. First, the document referred to the shutting down of blast furnace number 5, the subject of cl 12.8(c). Secondly, the request was made specifically "under cl 4.1(d)". Thirdly, reference was made to mitigation of dead freight, a subject not expressly referred to in cl 4.1(d), except by the reference to cl 12.8 in cl 4.1(d)(i). Mitigation of dead freight is expressly referred to in cl 12.8(c), but not elsewhere in cl 12.8.
On 7 January 2009, OneSteel responded to the December request by rejecting BlueScope's entitlement to act as it had. The terms of the response were relevantly as follows:
"Your letter dated 19 December 2008 requesting that the Iron Chieftain Voyage Nos. 218, 220, 222 and 224 be ballast shipments refers.
We have duly considered your request, made in accordance with clause 4.1(d) of the Deed, and wish to advise OneSteel, exercising its right under clause 12.3.6 of the Deed does not accept your request.
As you are aware, Amendment Deed No.3 included an agreed extension of approximately six (6) months to the term of the Deed, to accommodate your iron ore requirements and incorporates the Voyages that you now request as ballast shipments."
The use of the phrase "ballast shipments" and the reference to cl 12.3.6 reflected the reliance by OneSteel on other clauses at the centre of the argument before the primary judge and on appeal.
Clause 12 dealt with iron ore movement and delivery for DEQ Port Kembla Sale and Purchase. Clause 12.1 dealt with the load port, discharge port and facilities. OneSteel was responsible at its cost for "arranging" suitable vessels: cl 12.1.1. BlueScope was responsible for the provision of "safe accommodation" for vessels of nominated length, beam and draft at Port Kembla (the equivalent of a safe port and safe berth clause): cl 12.1.2. BlueScope had the right to vet any vessel (other than Iron Chieftain) and refuse any such vessel for reasons of dimension or other reasonable ground: cl 12.1.3. If OneSteel nominated a vessel other than Iron Chieftain, it agreed to use a particular nomination form that contained relevant details of the vessel, including length, beam, draft, deadweight tonnage, holds and gear.
Under cl 12.2, BlueScope agreed to accept delivery of iron ore at Port Kembla "in accordance with this Deed".
Clause 12.3 concerned "Shipping Arrangements and Schedules". It was central to OneSteel's arguments. It was in the following terms:
"12.3 Shipping Arrangements and Schedules
12.3.1 The Buyer acknowledges that the Iron Chieftain's schedule is dependent upon a number of factors (including but not limited to: the loading and unloading of coal, the loading and unloading of iron ore, port congestion and weather) that will cause variations to the said schedule beyond the control or reasonable control of the Seller.
12.3.2 The Buyer and Seller shall liaise with each other in respect of shipping arrangements and shipping schedules in order to best utilise the preferred Vessel being the Iron Chieftain (and any other Vessels selected by the Seller for the provision of transport of the Iron Ore) for the Buyer's consumption of Iron Ore and the Seller's consumption of coal.
12.3.3. Subject to Clause 12.8 and the other terms of this Deed, the Buyer agrees that in the event of a delay to the Iron Chieftain the Seller shall not be required to provide a substitute Vessel nor suffer any other penalty or financial detriment arising out of the failure or inability to make delivery of Iron Ore on a DEQ Port Kembla basis in accordance with the shipping schedule, subject to the Seller using reasonable endeavours to ensure that the shipping schedule is met.
12.3.4 Subject to the Buyer being able to demonstrate the requirement for another vessel to be given priority over the Iron Chieftain (or substitute Vessel) due to the Buyer's Port Kembla Steelworks' urgent operational needs only, the Buyer agrees to allow the Iron Chieftain (or substitute Vessel) to be berthed ahead of other vessels already queued for the Buyer's No.1 bulk discharge berth at Port Kembla and upon berthing will be permitted to discharge as soon as reasonably practicable. Demurrage and despatch shall be payable as the case may be pursuant to the terms of this Deed.
12.3.5 The Seller shall submit to the Buyer a shipping schedule on a fortnightly basis. This schedule will indicate the forecast of Vessel movements and expected Shipments for the three (3) months following the date of the schedule. The schedule will indicate the quantity of Iron Ore expected in each Shipment and the Estimated Time of Arrival of the Vessel at the Discharge Port. No laycan will be specified for the Iron Chieftain or any substitute Vessels.
12.3.6 The Seller shall not be required to arrange the Iron Chieftain's schedule in response to any specific request by the Buyer (for the avoidance of doubt, the Buyer will not be able to require a ballast voyage by the Iron Chieftain). However, if the Buyer requests a change to a schedule that has been established in accordance with Clause 12.3.5, and the Seller agrees to the change, then any additional costs incurred by the Seller as a result of the change will be borne by the Buyer. If the Buyer requests a ballast voyage and the Seller agrees to this request, then this ballast voyage shall be deemed a Dead Freight Event and Dead Freight will be payable as determined in accordance with Clause 12.8.
12.3.7 While the Iron Chieftain is substantially in the configuration as at the commencement of this Deed and complies and performs in accordance with safety and environmental laws, the Buyer agrees that the Iron Chieftain is deemed to be automatically accepted by the Buyer without the need for nomination and acceptance in relation to any Shipment.
12.3.8 If the Iron Chieftain is not available due to any reason (including major essential maintenance such as dry-docking) the Seller may request the Buyer's agreement to the provision of a substitute Vessel for the Iron Chieftain. In such event: -
(i) the Seller must give reasonable notice to the Buyer;
(ii) the Seller must provide the Buyer with Vessel nomination for each Vessel that is intended to transport a Shipment; and
(iii) within one (1) Business Day of receipt of such nomination, the Buyer must advise the Seller, in writing, of its acceptance or refusal to accept that Vessel.
The nomination of a non self-discharging Vessel is not sufficient reason to withhold acceptance.
A perusal of cl 12.3.6 reveals why the phrase "ballast shipment" was used in OneSteel's response to the December request of BlueScope. Clause 12.3.6 refers to BlueScope not being able to "require a ballast voyage by the Iron Chieftain". Clause 12.3.6 also refers to BlueScope requesting a ballast voyage and the seller agreeing to it.
On 29 January 2009, representatives of OneSteel and BlueScope met. A file note was made of the conversation that is set out at [55] of the primary judge's reasons. The parties' positions were made clear. BlueScope said that it had a right not to take volume on the payment of dead freight. OneSteel said that BlueScope was obliged to take volume. Importantly, the note recorded the following agreement about how the parties could then proceed:
"OST sought confirmation from BSL that they did not require the four shipments as per their previous written notification. This was given. OST also sought confirmation that BSL would not seek to accuse OST of breaching the contract if they now looked to place these tonnes elsewhere. BSL confirmed that they would not seek to do so and that OST was free to take whatever decisions if sought as necessary to sell the iron ore from these shipments."
Blast furnace number 5 was shut down on 18 January 2009.
On 6 February 2009, OneSteel wrote to BlueScope setting out in detail its legal assertions and claiming damages in a document entitled "Anticipated Claim". On 17 February 2009, BlueScope responded with its own statement of its asserted legal position.
On 18 March 2009, BlueScope wrote to OneSteel requesting that the remaining three iron ore deliveries prior to 30 June 2009 not take place. The primary judge referred to this as the "March request". Its terms were somewhat different from the December request. Though it is not determinative, the sender of the letter (Mr Carberry, BlueScope's "Commodity Manager Raw Materials and Energy") thought that the request not to load under cl 4.1(d) was a request for ballast voyages. A distinction between a request not to load (under cl 4.1(d)) and a request for a ballast voyage (under cl 12.3.6) was sought to be made in argument by BlueScope. I will come to that asserted distinction in due course. The request was, however, once again, expressly made under cl 4.1(d). The March request was in the following terms:
"Re: BlueScope Steel Request for Ballast Voyages
Deed for Supply of Iron Ore dated 30 December 2004 (the Deed)Further to our letter dated 19 December 2008, in which we requested that the Iron Chieftain Voyage Nos. 218, 220, 222 and 224 be ballast shipments, in response to continued deterioration in steel market conditions we have made further reductions to our hot metal production at our Port Kembla Steelworks.
Regrettably, the impact on BlueScope Steel's demand for iron ore means that we must further reduce our purchases or iron ore fines from OneSteel. As such, we request that the Iron Chieftain is not loaded with any iron ore for the remaining term of our Deed (being 30 June 2009) and that the following voyages be ballast voyages as contemplated under clause 4.1(d) of the Deed:
1. Voyage 226
2. Voyage 228
3. Voyage 230We further advise in accordance with clause 4.1(d)(ii) that BlueScope Steel does not wish to take the foregone tonnage at a later date.
We note clause 4.1(d)(i) and look forward to working with OneSteel to mitigate the impact of dead freight charges on BlueScope Steel.
Please do not hesitate to contact me should you wish to discuss this matter further."
In late 2008 and into 2009, BlueScope negotiated reductions of receipt of iron ore fines from BHP Billiton and Vale. The primary judge set these volumes out in a schedule in [63] of his reasons.
The primary judge's conclusions
Clause 4.1(d)
OneSteel argued that cl 4.1(d) only provided for a "request" that could be acceded to or not by OneSteel and that the clause gave no right to BlueScope to have the vessel not loaded, wholly or partly. The primary judge recorded these arguments at [100] - [101], but concluded that they were "unsustainable".
The primary judge said that the words were plain and the "request" activated consequences, without the need for any response from OneSteel. The consequences were the foregoing of tonnage and, subject to cl 12.8, the payment of dead freight. The clause provided for another request of BlueScope - the taking of tonnage at a later date - and in respect of that request, a response was expressly called for. If OneSteel were free to refuse the primary request (not to load), the primary judge said that there was no rational explanation or field of operation for the fetter (of acting reasonably) on OneSteel in relation to BlueScope's request to take the foregone tonnage at a later date.
The primary judge said that to construe the primary request (not to load) as one that could be declined by OneSteel would denude the words "for any reason (other than pursuant to cl 6.4)" of work to do.
The primary judge said that the apparent right in OneSteel under cl 4.1(a) to supply and the duty in BlueScope to purchase was "subject to and upon the terms of the Deed", which included, of course, cl 4.1(d).
The primary judge saw BlueScope's construction operating congruently and without inconsistency with the other clauses in the 2004 Deed. The potential inconsistencies identified by OneSteel in argument from cll 6.4, 12.3.6, 12.8(c), 13.1 and 14.2 were dealt with by the primary judge (at [113] - [119] of his reasons) as provisions with a different field of operation and different contractual consequences as follows:
"[113] Clause 6.4 provides a regime for the suspension of shipments or termination of the Deed for reasons concerned with non-confirming shipments. Clause 4.1(d) expressly excepts reasons pursuant to cl 6.4 from the reasons for which BlueScope may make a request under cl 4.1(d) not to load. The provisions work congruently.
[114] Clause 12.3.6 concerns changes to a schedule which has been established in accordance with cl 12.3.5. Clause 12.3.2 requires the parties to liaise with each other in respect of shipping arrangements and shipping schedules in order to best utilise the Iron Chieftain and any other Vessels selected by OneSteel for the provision of transport of the iron ore for BlueScope's consumption of iron ore and OneSteel's consumption of coal. Unlike cl 4.1(d), cl 12.3.6 appears to be concerned only with the Iron Chieftain.
[115] OneSteel puts that cl 12.3.6 is incongruent with cl 4.1(d) because whilst the former makes it clear that BlueScope cannot require a ballast voyage in the Iron Chieftain's schedule, a request under cl 4.1(d) may necessitate such a voyage. In my view, this does not entail incongruity. A request not to load does not necessarily involve a ballast voyage if OneSteel is otherwise able, nevertheless, to utilise the Iron Chieftain. By contrast with cl 4.1(d), if OneSteel agrees to a ballast voyage in the schedule, BlueScope must pay any additional costs incurred by OneSteel as a result of the change which includes, but is not limited to, Dead Freight. Clause 12.3.6 also does not involve the potential commercial detriment that BlueScope might forego any tonnage.
[116] Unlike cl 4.1(d), cl 12.8(c) applies in limited circumstances and does not only apply to scheduled shipments. It makes no provision for taking foregone tonnage. The two provisions are not incongruent.
[117] Clause 13 concerns force majeure. It suspends the obligations of the affected party (not including any obligation to pay money). Unlike cl 4.1(d), cl 13.4 provides for shipments that would have been made but for the existence of the intervening event to be made at a time mutually agreed by both parties and as soon as practicable following termination of the intervening event. It provides that the Term shall be extended for such period as is necessary to achieve the intent of the clause. Clause 13.5 also provides for termination of the Deed if force majeure continues for longer than four months.
[118] Clause 14.2 provides for BlueScope to reduce its level of purchases to the extent required where BlueScope is required by any Government Authority or by law to change, vary or alter the emission standards or levels, emission contents or emission targets at its sinter plant and if OneSteel's iron ore can be shown with reasonable certainty to be a major contributor to the emissions, targets, standards, contents or levels of the emissions. It also provides for either party to terminate the Deed without penalty on one month's written notice if the reductions last longer than three months.
[119] It may well be that a single set of circumstances potentially activates more than one provision, and involves potentially different outcomes. This does not make the provisions incongruent."
The 2008 Deed
OneSteel argued that the amendments made by the 2008 Deed meant that BlueScope must take the four replacement shipments for the four ballasted voyages. This arose principally from the words of cl 4 of the 2008 Deed, that the replacement shipments "will be made between 22 December 2008 and 30 June 2009". This part of the argument did not extend to the three voyages covered by the March request.
The primary judge rejected this argument. His Honour required an inconsistency between the two deeds for the argument to succeed. He found no inconsistency.
After putting aside the submissions of both parties as to the commerciality or otherwise of their respective positions, the primary judge simply said that he could find no inconsistency between the two deeds so as to eliminate the operation of cl 4.1(d) in relation to the Replacement Shipments.
Other issues
The above two conclusions were a sufficient basis upon which to dismiss OneSteel's summons for relief. The primary judge nevertheless proceeded to deal with the other matters raised, some of which are relevant to the notice of contention. The issues of continuing relevance were: the operation of cl 12.8(c), the readiness and willingness of OneSteel to perform, and damages.
The operation of cl 12.8(c)
The primary judge rejected BlueScope's reliance on cl 12.8(c). He said (at [136] of the reasons) that in order to avail itself of the provision, BlueScope needed to establish four things:
"(a) it exercised the discretion conferred on it by cl 12.8(c);
(b) the reduction in the purchases related to the Works;
(c) the reduction was of purchases during or around the period of the Works; and
(d) the reduction was reasonably proportional with BlueScope's other iron ore fines suppliers."
The primary judge found only matter (c) present. His Honour's reasoning was closely related to how the point was argued. He concluded that the December and March requests did not, on their face, invoke cl 12.8(c). The evidence did not establish the existence of a causal connection between the "Works" (being the relining of the number five blast furnace and any related work on the sinter plant) and the reduction, the works being required to play (objectively analysed) a not insignificant part in bringing about the reduction. The evidence was that the reduction was caused by the GFC and that the blast furnace reline was brought forward to match the period of the reduction. Further, the primary judge found that the reduction was not proportionate and therefore did not provide a defence to what otherwise was a breach of contract, on this hypothesis.
Readiness and willingness of OneSteel to perform
A significant debate took place on appeal as to how the case had been conducted at the trial and what points were or were not truly taken there and, so, what points could be taken on appeal. It is regrettable that this occurred. The proper approach to commercial litigation was the subject of comment by me in White v Overland [2001] FCA 1333 at [4], which approach was expressly adopted by this Court in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116 at [28], [1] and [39]. The Commercial List judge (as any other judge, but especially him or her, given the heightened despatch required of the list and the complete and full co-operation expected of practitioners and parties in the elucidation and bringing forward of the real issues in dispute) is entitled to have the issues for disposal enunciated with clarity. This facilitates accuracy and despatch. In Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228, Spigelman CJ and I said the following at [55] about the conduct of references before referees:
"It is important in this context to state how parties should approach the conduct of references. It is for the parties to make clear what their cases are. In appropriate cases, references are a tool for the convenient and expeditious conduct and despatch of controversies. Sometimes in technical matters the referee will not be legally trained. Here, the referees were a highly experienced former commercial judge of this Court and an architect. To effectuate the administration of justice in accordance with the overriding purpose in s 56 of the Civil Procedure Act 2005, and to make efficient use of referees, parties are obliged to express with clarity the issues that they wish to ventilate and upon which the referee will report."
The same considerations concern litigation in the Commercial List, and the Court generally. The aim of the Civil Procedure Act 2005 (NSW) and the Commercial List, in particular, is prompt and accurate despatch of legal business. That can only occur if parties and counsel are frank, clear and direct as to issues. They have an obligation so to be.
Questions of the conduct of the trial make it important to recount some aspects of the reasons of the primary judge.
In rejecting OneSteel's submission that BlueScope must be taken to have admitted that OneSteel was ready and willing to perform by reference to UCPR Pt 14, r 14.11(d), the primary judge said the following at [155] - [156] about how the case was run:
"[155] OneSteel's initial case was that it sold the iron ore, which BlueScope refused to take, to other identified buyers at lower prices and it claimed the difference. The amount claimed was somewhat greater than it claims now. Effective cross-examination of OneSteel's witnesses by Mr Gleeson SC exploded this case. It was established that the sales upon which OneSteel was relying were not made in substitution for the cancelled sales to BlueScope. This led to the adjournment of the proceedings to allow OneSteel the opportunity of rearticulating its damages claim. OneSteel then sought to establish that there had been deliveries, partially in fines and partially in lump, of material that might have been delivered to BlueScope, but this case too was exploded. OneSteel had every opportunity to lead evidence on the subject.
[156] More than that, from the outset, BlueScope made it clear that it did not accept, but rather challenged, the proposition that OneSteel had the iron ore to deliver, let alone that it had delivered it elsewhere. Although BlueScope did put that at the relevant times it suited OneSteel for commercial reasons not to deliver elsewhere the fines which it would have delivered to BlueScope, the substance of BlueScope's submission that OneSteel was not ready and willing to deliver was that OneSteel did not have fines available to deliver. In the end (correctly in my view in light of the way the evidence fell), OneSteel did not even assert that it had fines available to deliver at the relevant times. Clearly, OneSteel was not in a position to deliver at the time of the shipments."
For reasons that will become apparent, it is important to understand the context and limits of these paragraphs. BlueScope was asserting that OneSteel did not have the fines physically available to make the deliveries (i.e. readiness to perform). This was part of BlueScope's case: that OneSteel had to prove the physical availability of iron ore fines at the times of putative loading present to be loaded on board Iron Chieftain.
His Honour then turned to what he saw as the only remaining question - "whether BlueScope relieved OneSteel of the obligation to be in that position": [158] of the reasons. The phrase "that position" was a reference to OneSteel having, on the relevant dates of putative loading, the iron ore fines present and available to load. After dealing with the matter of concurrency of obligations under the Sale of Goods Act 1923 (NSW), s 31 and the common law (Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; 90 CLR 235 at 246 - 248, and Foran v Wight [1989] HCA 51; 168 CLR 385 at 417 and 456ff), the primary judge said the following at [161] - [167] of the reasons:
"[161] Both parties accepted (correctly, in my view) that the Act is to be read as recognising that the obligation to be ready and willing to deliver is subject to this exception. Where one party dispenses with the necessity for the other to be ready and willing, the latter is treated as having been ready and willing.
[162] In my view, BlueScope unequivocally conveyed to OneSteel that a tender of delivery on the proposed dates for shipment would have been empty and futile and thereby dispensed with OneSteel having to be ready and willing to deliver.
[163] The December letter and the March letter not only made it clear that OneSteel should not load but stated that BlueScope did not wish to take the foregone tonnage at a later date.
[164] At the meeting on 29 January 2009, OneSteel sought confirmation from BlueScope that it did not require the four shipments, which confirmation was given. BlueScope also confirmed that it would not seek to accuse OneSteel of breaching the contract if they looked to place the tonnage elsewhere and that OneSteel was free to take whatever decisions it saw as necessary to sell the iron ore from those shipments.
[165] BlueScope put that the communications at the meeting amounted to a dispensation only if OneSteel sold the iron ore elsewhere. This submission is unsustainable. Not only were the confirmations given by BlueScope entirely inconsistent with holding OneSteel to its obligation, it could hardly by suggested that if OneSteel did not sell elsewhere, the tender to BlueScope was not still empty and futile. After all, BlueScope stated that they had no room to accept delivery of the ore even if they believed they were contractually compelled to do so.
[166] Through its solicitors' letter dated 18 May 2009, BlueScope maintained the position that OneSteel was obliged to comply with the request not to load.
[167] It was not suggested that if BlueScope had not refused delivery OneSteel would not have delivered. There was no suggestion that it had ever previously failed to deliver. BlueScope conveyed an attitude that it was not going to accept delivery of the goods and OneSteel acted upon what was communicated, thereby dispensing it of the obligation to be ready and willing to deliver. This is unaltered by the fact that the contract was kept alive. It did not have to behave as if the contract was to be duly performed and to make arrangements for the delivery to BlueScope of cargo which it had every reason to believe BlueScope would not lift; see Bulk Oil (Zug) A.G. v Sun International Ltd and Sun Oil Trading Co (No.2) [1984] 1 Lloyd's Rep 531 at 546 per Bingham J."
The matter that was raised in the notice of contention and debated on appeal was whether the primary judge was correct in what he said in the first sentence of [167]. It was submitted on appeal that OneSteel had failed to show that they would have been able to provide the volumes of iron ore fines for delivery. This is a significantly different point from not having, in fact, the fines available to be loaded on the relevant dates of putative loading. The point arose also under the question of proof of damage.
Damage
The primary judge treated the iron ore fines as goods of a type for which there was a ready market and assessed the damages as the difference between the contract price and the market price, conformably with the Sale of Goods Act, s 52(3). Section 52 is in the following terms:
"52 Damages for non-acceptance
(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against the buyer for damages for non-acceptance.
(2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract.
(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance, then at the time of the refusal to accept."
The primary judge then at [171] - [182] addressed this question in light of the fact that OneSteel did not, at the relevant dates, have the fines presently available for loading. Because of the debate as to how the case was run, I should set out [171] - [182] in full:
"[171] OneSteel did not establish that it had mined iron ore, let alone that it had blended it and had it available for delivery on the dates of the seven shipments. It may be assumed that it has not mined it (so that it still has it in the ground) and has saved the expense of mining, blending and storing it.
[172] Does this mean that OneSteel has not established that it suffered any loss by BlueScope's refusal to take delivery?
[173] In the present case, although the parties' contract was for the sale of a marketable commodity, at the time of the breach, the seller, OneSteel, did not have the commodity. It had the means to produce the commodity by mining and blending it but it had not done so.
[174] The question is whether OneSteel has proved loss by proving that the contract price of the marketable commodity (had it produced it) under the contract as at the date of the breach was lower than the market price, even though it did not at that date have the marketable commodity to sell. The parties referred the Court to no authority directly on point.
[175] In my view, OneSteel has sufficiently proved its loss because the goods concerned were a readily marketable commodity.
[176] OneSteel did not itself have to mine and blend the goods to deliver to BlueScope. It could just have easily bought them in for delivery. The principles as to damages are the same for non-delivery as they are for non-acceptance. The measure of damages to which a buyer is entitled when the seller fails to deliver is also the difference between the contract price and the market price, the essential requirement being that the buyer should be able to go out and buy equivalent goods: see McGregor on Damages, 18th ed (2009) Thomson Reuters at 20-066. This is because the goods in question are marketable. Correspondingly, the price at which OneSteel could have bought the goods in, is the same market price. The economic detriment suffered by OneSteel as a consequence of the breach remains the difference between the contract price and the market price.
[177] If it be relevant, as at the date of the breach, OneSteel had raw materials available to produce the goods the subject of the parties' contract and no doubt would have had the goods available for delivery had BlueScope been ready and willing to pay for them against delivery. It was not in this position only because BlueScope had, in anticipation of delivery, breached and repudiated the contract. If BlueScope had at that time refused to take delivery, OneSteel would have had goods for which there was a ready market and market price.
[178] With respect to marketable commodities, I do not think that there is any difference in principle between the situation where the seller owns the raw materials and was to produce the goods but does not do so because of the buyer's anticipatory breach, where the seller can buy the goods in for on-sale or where the seller actually has them available for delivery. Where the seller has them available for delivery he is not obliged to sell them: see Ruxley Electronics and Construction Ltd v Forsyth at 806.
[179] The market price for goods produced or made by a seller will reflect and incorporate the cost of production and necessary ancillary expenses. Measured as at the date of the breach, the quantum of damages is thus the same whether the seller produces the goods or not.
[180] It may be that the seller is ultimately advantaged by an increase in the market price or disadvantaged by a decrease in the market price if it produces and sells the goods later. But this is no less the case where the seller has the goods available for delivery as at the date of the breach. The seller can sell them or it can keep them, the measure remains the same. The seller recovers damages measured on the loss that he would have suffered if he had done so.
[181] Additionally, I see no basis for the imposition on the wronged party of a requirement to prove the value of the raw materials which remain in its possession only because of the breach.
[182] There is no reason why the prima facie method of assessing damages provided in s 52(3) of the Act should be displaced in this case."
It can be seen that the primary judge based his reasoning on the ability of OneSteel to produce the fines ([173], [177], read with the first sentence or first two sentences of [167]) or of OneSteel to buy the fines in ([176] of the reasons).
The appeal
OneSteel pressed three of the four grounds of appeal in the notice of appeal: grounds 1, 3 and 4 which were in the following terms:
"1. His Honour erred in finding that, on its proper construction, clause 4.1(d) of the Sale and Purchase Deed dated 30 December 2004 ("Deed") entitled the Respondent to require the Appellant not to load the Iron Chieftain with a shipment of iron ore that had been scheduled as a DEQ Port Kembla Shipment under the Deed.
...
3. His Honour erred in finding that, on its proper construction, the Amendment Deed dated 22 August 2008 did not remove any entitlement of the Respondent (pursuant to clause 4.1(d) of the Deed) to require the Appellant not to load the Iron Chieftain in respect of the Replacement Shipments referred to in the Amendment Deed.
4. His Honour should have entered judgment for the Appellant in the amount of $15,649,249 plus interest up to judgment pursuant to s.100 of the Civil Procedure Act2005."
Ground 2, which was abandoned, should, however, be mentioned briefly. It reflected a point, run below, that even if BlueScope were correct in respect of its construction of cl 4.1(d), that did not reduce the tonnage which OneSteel could require BlueScope to take under cl 4.1(a) over the 2008/2009 Contract Year. OneSteel abandoned it, subject to BlueScope not using that argument against OneSteel, after the abandonment, as the means that OneSteel could have used to effect recovery. BlueScope did not put that submission. Thus, both parties approached the appeal on the basis that the effect of BlueScope's entitlement to use cl 4.1(d) in the way argued for by BlueScope was to reduce its obligation to take tonnage identified in cl 4.1(a). BlueScope, on this view, subject to the obligation to pay dead freight, did not have any obligation to take any tonnage of fines from OneSteel if it chose to invoke requests under cl 4.1(d).
Ground 1: The proper construction of cl 4.1(d)
Some comments on approach to construction
The process of ascription of meaning to words chosen by the parties involves the determination of that which a reasonable person would have understood by the words, normally requiring consideration not only of the text, but also of the surrounding circumstances known to the parties and the purpose and object of the transaction: Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; 219 CLR 165 at [40]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]. This is an objective analysis: Franklins at [4] - [5] and [21]. The analysis can produce only one true meaning: Harrington v Browne [1917] HCA 36; 23 CLR 297 at 307 (Isaacs J); Life Insurance Company of Australia Ltd v Phillips [1925] HCA 18; 36 CLR 60 at 78 (Isaacs J); Slim v Daily Telegraph Ltd [1968] 2 QB 157 at 171 - 2 (Diplock LJ). That there is one true meaning does not detract from the pervasive reality that a contract will often have potentially more than one meaning, that words are inherently contextual in their meaning and that reasonable minds often differ about what is the true meaning. That is partly because, as Holmes J said in Towne v Eisner 245 US 418 (1918) at 425 a "word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used." Further, structure of the text and the relative weight and influence of context and purpose can strike people differently. That is why the process of construction is not a process necessarily concluded by logical reasoning or a priori analysis. It involves the weighing of different considerations partly logical and partly intuitive (though rational) leading to a choice. Analysis of competing arguments assists in that process, but the "correct" answer is not arrived at merely by seeing which side has the greater number of "good" points: see generally Morrells of Oxford Ltd v Oxford United Football Club Ltd [2001] Ch 459 at 468 [24] (Robert Walker LJ); John v Price Waterhouse [2002] EWCA Civ 899 at [94] (Robert Walker LJ); Driver v War Service Homes Commissioner (No 2) [1924] VLR 535 at 542 (Cussen ACJ); and D Hughes and K Lewison, The Interpretation of Contracts in Australia (Lawbook, 2012) at 48 - 51 [2.11]. In the context of litigation over the meaning of words, the true meaning is the choice made from the competing potential meanings by the last court that has authority on the matter.
Here, the choice ascribed by the primary judge was one that was available and arguable. I do not consider the alternative, being that put forward by OneSteel, as unsustainable; rather I think it to be preferable and the true meaning.
The 2004 Deed
The recitals to the agreement set out those aspects of the background that give explanation to the transaction. There may be other background facts, but the recitals reveal the background chosen by the parties by way of the identification of relevant context. The recitals can assist in interpretation of operative provisions, though they do not control the latter's operation when clear and unambiguous: Moore v Magrath (1774) 1 Cowp 9 at 12; 98 ER 939 at 941 (Lord Mansfield); Walsh v Trevanion (1850) 15 QB 733; 117 ER 636 at 642 (Patteson J); In re Moon; Ex parte Dawes (1886) 17 QBD 275 at 286 (Lord Esher MR). Here, the recitals were in the following terms:
"A. The Buyer operates its Port Kembla Steelworks "Sinter Plant" and requires iron ore for use at the Sinter Plant.
B. The Seller has entered into a Contract of Affreightment with CSL Australia Pty Ltd for the services of the vessel "Iron Chieftain" between Whyalla and Pt. Kembla.
C. The Seller agrees to sell, and the Buyer agrees to purchase, Iron Ore in accordance with the terms and conditions of this Deed."
It is to be noted that the background material of relevance chosen by the parties in these recitals is directed to BlueScope's requirement for iron ore (see A and C) and the availability of Iron Chieftain. No recital refers to OneSteel's need for coal, or for OneSteel's desire to defray freight costs under the CSL Charter, they being two important considerations put forward by BlueScope as part of the commercial context of the 2004 Deed.
Clause 2 of the 2004 Deed sets out the agreed purpose of the deed as follows:
"2. PURPOSE
This Deed is principally for the supply of Iron Ore by the Seller to be delivered to the Buyer on the Vessel named "Iron Chieftain" (or substitute Vessels) on a DEQ Port Kembla basis, for use at the Buyer's Sinter Plant at the Port Kembla Steelworks. The parties recognise certain exceptions to this purpose as set out in this Deed, most particularly the right of the Buyer to buy Iron Ore on a FOB Whyalla Port basis in certain circumstances when supply of Iron Ore on a DEQ Port Kembla basis is not available."
It is to be noted that both the expressed purposes (principal and by way of exception) related to the supply of iron ore to BlueScope.
Supply of iron ore on a DEQ Port Kembla basis involved OneSteel arranging the carrying vessel (usually, and in respect of the voyages in question, Iron Chieftain) with delivery at Port Kembla and risk and title passing as the iron ore passed the vessel's spout (if self-discharging) or over the vessel's side (if non-self-discharging) at Port Kembla: cll 12.2 and 12.10. The price (the "DEQ Price") was, by cll 7.1(a) and 9.2, the sum of the "Material Price" and the "Freight Price" calculated in accordance with cl 9.2. It is unnecessary to descend into all aspects of the calculation of this, other than noting that the "Material Price" was based on a "Material Rate" being equal to 97 per cent of the published Mount Newman Iron Ore Fines Price settled with the Japanese steel mills for the corresponding financial year ending 31 March (this being the definition of the phrase "Japanese Rate" used in cl 7). The Freight Rate was AUD 5 per WMT, subject to adjustments.
Supply of iron ore on a free on board (fob) basis, under the 2004 Deed the FOB Whyalla Port basis, involved BlueScope arranging the carrying vessel. The price (the "FOB Price") was set by cll 7.1(b) and 9.2. It was based on the "FOB Rate" being equal to 90 per cent of the Japanese Rate.
Clause 4 contained the parties' obligations to supply and purchase. I have already set out cl 4.1. The Maximum Tonnage was 1,081,000 WMT of iron ore fines. Clause 4.1(a) was expressed as an entitlement, not an obligation, of OneSteel. It may supply to BlueScope up to the Maximum Tonnage on a DEQ Port Kembla basis. That entitlement did not, however, leave BlueScope without any stability or assurance of supply of iron ore fines under the 2004 Deed. Clause 4.2, dealing with FOB Whyalla Port basis supply, provided that protection, as follows:
"4.2 FOB Whyalla Port basis supply of Iron Ore
(a) If, in any Contract Year (part Contract Years pro rata), for any reason other than force majeure (as defined in Clause 13.1), the Seller is:
(i) not able to; or
(ii) in the reasonable opinion of the Buyer, is unlikely to be able to,
supply the Maximum Tonnage of Iron Ore on a DEQ Port Kembla basis in reasonably evenly spaced Shipments, then:
(iii) the Buyer may in its sole discretion elect to purchase any such shortfall from the Seller on a FOB Whyalla Port basis at times scheduled in accordance with the provisions of Attachment 4, at the FOB Rate; and
(iv) the Seller must supply such shortfall,
provided always that, subject to Clause 4.3, in any Contract Year, the Buyer is not entitled to purchase from the Seller, and the Seller is not obliged to supply to the Buyer, a total amount of Iron Ore exceeding the Maximum Tonnage.
(b) Any sale and purchase of Iron Ore on a FOB Whyalla Port basis will be on the terms and conditions in this Deed, including without limitation the terms set out in Attachment 4, except that Clause 12 (and Clauses 4.1 and 4.3) of this Deed will not apply."
A number of things should be noted about cl 4.2. First, the parties were in agreement that the phrases "not able to" in cl 4.2 (a)(i) and "unlikely to be able to" in cl 4.2 (a)(ii) included OneSteel's lack of willingness so to supply by reference to, at least proper, commercial considerations. Secondly, that if OneSteel was not able (as understood above) to supply iron ore fines to BlueScope on a DEQ Port Kembla basis, BlueScope could require OneSteel to supply up to the same Maximum Tonnage on an FOB Whyalla Port basis. Thirdly, if cl 4.1(d) gave the right to BlueScope to refuse to take iron ore under the DEQ Port Kembla basis (subject to payment of dead freight) there was no equivalent right in OneSteel to refuse to deliver to the carrying vessel at Whyalla under the FOB Whyalla Port basis.
This last consideration is of some importance. One plain and obvious aspect of the commercial context of the arrangement was the variability of the price of iron ore on the market. Although the evidence revealed that the spot market in iron ore began to be active only from 2004, nevertheless the variability of the price of a commodity such as iron ore was an obvious commercial consideration. Thus, the commercial context would include the obviously mutually understood consideration that the market price for iron ore may rise or fall to a significant degree. That is why supply contracts are entered into, here based on an annual rate fixed by a well-established negotiated arrangement (between Mount Newman and the Japanese mills). If, as BlueScope would have it, cl 4.1(d) gave it freedom (effectively for any reason) not to take iron ore, and indeed to take no iron ore during a relevant year, that would leave it free to go to the market to obtain its iron ore and take advantage of the lower price on the market, as long as that price reduction from the price by reference to the 2004 Deed was greater than the dead freight payable to OneSteel (about AUD 5 per WMT). On the other hand, if the market price rose dramatically, while OneSteel may not have to deliver on a DEQ Port Kembla basis, it would be required to deliver on a FOB Whyalla Port basis. Thus, OneSteel would be bound to deliver the Maximum Tonnage under the 2004 Deed at the price there dictated, but BlueScope would not be bound to take any tonnage, subject to paying dead freight.
Not only would that be a curious commercial result, but also, bearing in mind the recitals and cl 2, textually it does not conform with the words, or at least the sense of the words, used in cl 4.1(a): "may supply to the Buyer up to the Maximum Tonnage ... on a DEQ Port Kembla basis ... and any Iron Ore so offered ... must be purchased ...". Of course, this was followed by "... subject to and upon the terms of this Deed". BlueScope submitted (and the primary judge accepted) that these last words picked up cl 4.1(d), giving it operative effect. The difficulty with that conclusion (logically correct though it may be) is that the subsidiary qualifying words remove all the force and sense from the balance of cl 4.1(a), being the part of cl 4.1(a) that appears to give linguistic sense and force to the clause. The words "must be purchased by [BlueScope]" in fact describe a circumstance properly understood, on this hypothesis, as "[BlueScope] may purchase".
The words "so offered for supply" in cl 4.1(a) raise questions as to when the iron ore is offered, when the obligation to purchase arises and the place of cl 4.1(d) in connection therewith. I will return to these questions after dealing with cl 12.
The use of FOB Whyalla Port basis was to be in accordance with Attachment 4 to the 2004 Deed. It was submitted on behalf of BlueScope that FOB Whyalla Port basis was a much less attractive option and much less attractive way to obtain the iron ore than on a DEQ Port Kembla basis. This submission was made by reference to Attachment 4. It was part of a submission that, without the freedom given by cl 4.1(d) to it, BlueScope was at a significant commercial disadvantage under the arrangement, the balance of rights and benefits against burdens being heavily weighted, it was submitted, in favour of OneSteel and against BlueScope. This submission rested not merely upon the asserted disadvantages in Attachment 4 and FOB Whyalla Port basis delivery, but also in particular upon the scheduling process in cl 12. For the present, I will address the asserted disadvantage of Attachment 4.
In looking at Attachment 4, it is to be appreciated that it was agreed between two commercial entities undertaking similar businesses, both necessarily familiar with ocean transportation of dry bulk materials and neither apparently suffering from any particular disadvantage in bargaining power or negotiating position.
It was submitted that some disadvantage arose from title and risk passing upon loading at Whyalla, and not at the point of unloading at Port Kembla, thereby requiring BlueScope to take out marine cargo cover. It was also submitted that BlueScope suffered the detriment of arranging the vessel in conformity with the requirements of Art 1 of Attachment 4, which requirements dealt with the type of vessel and its configuration and availability to the Whyalla Port and its authorities. None of these were other than apparently standard commercial terms and standard commercial steps to arrange. Insurance and ship brokers, in-house or retained, would be expected to attend to such tasks. The appropriateness of a vessel can be gauged from the nature of Iron Chieftain - a workhorse Handymax dry bulk carrier. The apparent additional costs of fob purchasing were compensated for in a reduced Material Price and the lack of necessity to pay a Freight Price. In a sale of goods requiring marine transportation, someone has to arrange the shipping and associated tasks. The contractual terms, including price, are varied accordingly. The arrangement for fob was agreed between parties apparently able to fend for themselves. There is no basis to consider that these arrangements reflect the product of unequal bargaining power or are in some fashion weighted in OneSteel's favour.
Other parts of cl 4.1 are important. Clause 4.1(b) qualifies OneSteel's lack of obligation to supply BlueScope with iron ore on a DEQ Port Kembla basis. OneSteel was required to use Iron Chieftain on the Whyalla to Port Kembla to Whyalla run, carrying iron ore and coal, unless BlueScope gave consent otherwise. This was a powerful commercial consideration, and an element of control to BlueScope. Nevertheless, under cl 4.1(c), OneSteel could use other vessels to deliver on a DEQ Port Kembla basis.
Central to OneSteel's argument were the terms of cl 12.3 (set out at [32] above) dealing with shipping arrangements and schedules and the relationship of cl 4.1(d) thereto. In particular, it was submitted by OneSteel that cl 4.1(d) should not be construed as giving BlueScope a right to have a vessel not loaded because of the clear statement (at least as to Iron Chieftain) in cl 12.3.6 that BlueScope had no right to require a ballast voyage of Iron Chieftain.
BlueScope, on the other hand, submitted that the freedom given to OneSteel in the scheduling process (especially in cll 12.3.1, 12.3.3 and 12.3.4) reflected the superior position of OneSteel in the arrangement, which its construction of cl 4.1(d) alleviated. That approach overlays external commercial assumptions upon agreed contractual arrangements. Iron Chieftain was available to do this round trip on a regular basis. Other vessels could be used, but the exigencies of shipping were provided for. Though entitled "Sale and Purchase Deed", the 2004 Deed had elements of a contract of affreightment - a given annual tonnage, reasonably evenly spaced to suit the respective business of the parties, was to be shipped to a purchaser. Laytime and demurrage were provided for: cll 12.6 and 12.7. The sailing time and expected arrival times, over a regular and not extended voyage, were always subject to exigencies, which were provided for in cll 12.3.1 and 12.3.3 in an agreed manner. Coöperation was required between the parties, as illustrated by cl 12.3.2 and also by cl 12.12 which was in the following terms:
"12.12 Optimising Freight Practices
The parties agree to work together in good faith to achieve the greatest possible efficiency in the transport of Iron Ore between Whyalla and Port Kembla with reference to scheduling, cargo lift, loading, carriage and delivery. For purposes of this clause the parties acknowledge and agree that the Seller also needs to ship coal from Port Kembla to Whyalla using the Iron Chieftain."
The word "schedule" (and the past participle "scheduled" in cl 4.1(d)) was not defined, but cl 12.3.5 makes clear what is meant. A schedule is a document produced every two weeks indicating forecast "Vessel movements" and "expected Shipments" for the following three months. The totality of the clause makes clear that a schedule will contain the identification of the carrying vessel, the quantity of iron ore in each shipment and the estimated time of arrival at the discharge port (Port Kembla). BlueScope submitted that in cl 12.3.6, especially the second sentence, "schedule" only referred to timing and not tonnage. I do not agree. The schedule contemplated by cll 12.3.5 and 12.3 generally, was a document dealing with shipping arrangements, involving necessarily the identity of vessels, the quantity of cargo (that would inevitably bear on time) and estimated delivery dates.
The schedule is capable of change, but it stands as a "forecast of Vessel movements and expected Shipments". The arranging of a schedule is not a one-off event. It is an iterative process, governed by cl 12, and involving a degree of coöperation. The first sentence of cl 12.3.6 is not limited to a time before an anticipated voyage appears on the running fortnightly document. That is too fine a reading of the words in the context of shipping arrangements. The sentence is clear. BlueScope cannot require a "ballast voyage". The phrase "ballast voyage" is not defined. That is hardly surprising. It is a voyage in which no cargo is carried. A cargo ship is in ballast when she has discharged her cargo and has taken necessary ballast on to give stability and necessary trim: I Dear and P Kemp, The Oxford Companion to Ships and the Sea (2nd ed, Oxford University Press, 2006) p 29 and E Sullivan, Eric Sullivan's Marine Encyclopaedic Dictionary (6th ed, LLP, 1999) p 223. There was debate, however, about its meaning. BlueScope argued that a request not to load (under cl 4.1(d)) was not a request for a ballast voyage, because it did not carry with it a request for the ship to come to Port Kembla. The primary judge at [115] of the reasons saw a ballast voyage as not necessarily occurring after a request under cl 4.1(d) because Iron Chieftain could be used elsewhere. With respect, neither distinction is convincing. Once a schedule was in place there was or were a vessel or vessels nominated. Here Iron Chieftain was nominated for all relevant voyages. A request not to load, implicitly at any time, explicitly for any reason (other than pursuant to cl 6.4), would be, in the commercial context of a schedule that BlueScope had no right to change and involving a vessel (as it did), Iron Chieftain, which OneSteel had no unfettered right to use on any other seaborne trade (cl 4.1(b)), a request for a ballast voyage. That is the commercial sense and reality of such a request. It was the sense used by the drafter of the March request. That usage by the author of the March request is not to be used as an aid to construction, but it does give some comfort to a view that the expression "ballast voyage" should be understood in a way conformable with the commercial and shipping realities of the operation of the terms of the 2004 Deed.
Read thus, cl 4.1(d) does create a significant difficulty for BlueScope in its construction of cl 12.3.6. It can be accepted that cl 4.1(d) is not limited to requesting that no cargo be loaded (thus requesting a ballast voyage) in that it extends to a request for part loading; but cl 4.1(d) includes a request that no cargo be loaded, and that was what occurred here. If one were to construe cl 4.1(d) as entitling BlueScope to request and require a ballast voyage once a schedule is established, this would be contrary to cl 12.3.6.
Clauses 12.3.5 and 12.3.6 have another significance. Whilst some of the language of cl 12.3.5 may seem to have a precatory character - "indicate the forecast", "expected", "Estimated Time of Arrival", the commercial context is to be recalled: the seaborne transportation of goods. Absolute precision in time and date is rare in shipping, at least outside times for payment. The types of considerations referred to in cl 12.3.1 make a degree of estimation and approximation always necessary. Thus, these words should not detract from what cl 12.3.5 does - it "establishes" a schedule: cl 12.3.6. The schedule may be subject to a degree of variation brought about by contingencies, but it is not open to BlueScope to vary it. It makes, therefore, sound commercial and legal sense to view the shipments contained in a schedule established under cl 12.3.5 as "offered for supply" for the purposes of cl 4.1(a).
In argument on appeal, BlueScope put various submissions as to when shipments were offered and when they must be purchased. These included a submission that the legal obligations to purchase only arose at the point of delivery (out of the spout of Iron Chieftain's discharging gear at Port Kembla): Transcript 25 October 2012 at pp 3 - 4. This was amended to a point immediately prior to the time of loading: Transcript 25 October 2012 at p 4. Then it was put that an offer is made under cl 4.1(a) when the schedule was issued and that offer was accepted when the vessel had been loaded and had left port: Transcript 25 October 2012 at p 5. Then there appeared to be a proposition that the offer was at the time of the end of the loading: Transcript 25 October 2012 at pp 11 - 12.
At one level it may not matter precisely when the offer of Shipments (for cl 4.1(a)) is seen to be made, if one simply subjects the obligation to purchase in cl 4.1(a) to the effective right (as BlueScope would have it) in cl 4.1(d) to make a request at any time prior to loading. Thus, the legal obligation to purchase only arises, on this hypothesis, at the point of expiry of the opportunity to exercise cl 4.1(d).
Nevertheless, viewing the schedule as an offer of Shipments, produced in accordance with cll 12.3.5 and 12.3.6, cl 4.1(a) has the effect of requiring BlueScope to purchase the Shipments. Clause 4.1(d) can then be understood in the context of cl 12.3 and, in particular, cl 12.3.6, as requiring agreement to the change to the schedule brought about by the request in cl 4.1(d). That way of looking at the matter accords with the use of the word "request" in cll 4.1(d) and 12.3.6 and recognises that a request under cl 4.1(d) concerns the contents of a schedule which, by cl 12.3.5, is concerned with quantity, and implicitly, through its relationship with cl 12.3.6, calls for agreement of OneSteel that is referred to in cl 12.3.6. To read cl 4.1(d) otherwise makes it inconsistent with cl 12.3.6.
These exchanges continued. At Black, vol 1, pp 496 - 497, the primary judge came to the question of the ability of OneSteel to deliver. The following at pp 496 - 497 reveals how the question of physical availability began to touch on ability to perform, and how BlueScope's counsel expressed the limits of his argument:
"HIS HONOUR: So we're really back to the question as to whether or not the absence of the goods - and if you wish to run with it the additional matters why you say it suited him not to perform - why he wasn't ready, willing and able. He will say all of that doesn't matter anyway because all of it is predicated on your theory that he had the goods available anyway. And if he had the goods available, that's one thing, but he doesn't say he had the goods available. Therefore, it's a completely barren inquiry and it just bypasses the question, which is: he doesn't have to have the goods. Which will be defeated by your proposition, if correct, that he did have to have the goods; otherwise s 40 doesn't apply.
DICK: It might not be entirely barren in that as well as the evidence of Barkway and Moretti, he also led the evidence of Leevers. Mr Leevers' evidence went to the question of an ability to produce the fines. So we had to defeat that evidence as well in order to show that he hasn't proved that he was able to -
HIS HONOUR: On his thesis he doesn't take upon himself that burden either.
DICK: Please the Court.
HIS HONOUR: But I would have no difficulty in finding that if this contract hadn't come to this crushing denouement as it did, and deliveries would have proceeded, that he would have delivered.
DICK: The problem with your Honour making that finding is that your Honour has to look at the position at the relevant times; namely, between January and June. Whatever had happened in the past, it appears to be very starkly the case that the fines were not prepared in the period January to June. The best that Mr Leevers has been able to -
HIS HONOUR: No, but I've hypothesised away your notices. If you hadn't told him you weren't taking the deliveries, I'd have no difficulty in finding that he would have delivered. He'd always had delivered in the past.
DICK: Yes.
HIS HONOUR: For years.
DICK: But that's where the question of willingness may also be relevant. Because there's obviously a real question as to why the fines weren't put together.
HIS HONOUR: At the end of the day the objective acts either dispensed with him or they didn't dispense with him, and if they didn't dispense with him, he wasn't in a position to deliver, and his case is that he didn't have to because you had not taken the goods and - at the end of the day I think this all boils down to whether there was or wasn't dispensation, frankly.
DICK: Can I turn to that question."
(emphasis added)
At no point in that exchange was the judge told that the issue was whether OneSteel would have been able to deliver, other than by reference to goods earlier described as produced and available.
Shortly thereafter in connection with damages (a subject closely related to readiness and willingness) counsel said the following at Black vol 1, pp 512 - 513:
"DICK: ...But looked at from our perspective, we say that what we have proved through the cross-examination of Messrs Parkway Moretti, Platanika and Mr Levers [sic] is critically the fines were never produced that were the subject of the seven shipments. So that they haven't been able to establish that, and to the extent that any reliance is being placed on Mr Levers [sic] to show that, even though the fines which would have been the subject of the shipments were not actually produced, they would have been. We have identified a range of problems with that contention.
The primary case is that they were discharged from delivering to us but that does not involve the proposition that they were discharged from producing the fines.
...
... On the one hand, for the purposes of liability we say we had primary right under 4.1(d), and we also contend that we prevailed ourselves of 12.8(c) and (d) and requested not to load.
But if we are wrong on that then a wholly separate damages question arises as to whether OneSteel in the events that happened ever did suffer any loss.
And the core reason we say they didn't suffer any loss is because they never demonstrated that they had the fines which were intended to be shipped to us available to be shipped anywhere, and that proposition underpins our response to their damages case where he put general law or to the extent any difference under the Sale of Goods Act.
And just to develop that a little, because the contract was left on foot and apparently the Iron Chieftain continued to be deployed by OneSteel under the contract, when the date for performance came that we say we didn't require to be satisfied by delivery to us, but we say did need to be satisfied to the extent of producing the fines, and then demonstrating that they were put elsewhere, this was not done. So, the question becomes firstly whether they, OneSteel ever fell within s 52(1)."
Whilst the first paragraph has a hint of a broader capacity point, the balance of what was said was clear: dispensation did not extend to producing the fines and a failure to prove such production and availability led to a failure to satisfy the Sale of Goods Act, s 40.
Counsel continued on the question of damages at Black vol 1, pp 513 - 514:
"DICK: No this is the same point but it is showing - in order to put that submission we need to rely upon and we need your Honour to make findings in accordance with our outline of submission on damages because our case is that, in order to prove damages - in order to prove that it is ready and willing, OneSteel needs to establish that it had the goods.
HIS HONOUR: But it doesn't establish it. You are going backwards over and over the same ground, Mr Dick. If you are right then you win. If you are wrong you lose.
He says that - he is not even going to try and establish it. He has got the mine. He could undoubtedly if he wanted to have produced as much of the stuff that he wanted to but he didn't. He doesn't say - his case has changed. You are entitled to be aggrieved and annoyed and whatever you are about that, but his case is completely changed. He is putting it on the basis that, he doesn't take upon himself the burden of saying that he had the goods or that he sold them elsewhere.
DICK: I accept he is not doing that but, against me, that section 52 does apply.
HIS HONOUR: He doesn't say that he had the goods in a deliverable state. He does own the mine or - well he owns the mine and he could mine the stuff if he wanted to and if you are right that goods means - the goods as hewn from the earth and blended into a form that had a sufficient F-E content, content to be iron ore, then, he was not able to deliver at the time of delivery in accordance with the schedule, the dates.
DICK: Yes, and he was also not able, and he did not do what he said to us he was going to do, namely put them to the export market.
HIS HONOUR: Yes, but he didn't. He may have but he doesn't say that he did. We don't know and in fact he had difficulty proving it, and he says he doesn't need to do any of these things, you successfully carried that blow, but it doesn't matter.
So if you are right that under the Sale of Goods Act he needed to have iron ore taken out of the ground, blended and in a position that weren't within reasonable tolerances that met your delivery requirements and the Act requires him and the Common Law requires him to do that, he loses.
DICK: Then on the hypothesis, taking into account all of that, that I'm wrong and s 52 nevertheless applies.
HIS HONOUR: Yes."
(emphasis added)
In these passages, the primary judge raised squarely the question of OneSteel mining and blending to be able to deliver. Counsel did not at that point say that that was an issue or a matter not proved. Rather, he reverted to the lack of proof of what was produced.
Further, counsel moved on, at Black vol 1 pp 514 - 515, to the next point that arises only if it be accepted that OneSteel could have mined and blended to enable delivery - the additional cost of that activity:
"DICK: My alternative submission on that is, he still hasn't proved that he suffered any loss because what has happened because the goods haven't been mined and blended, they have been left in the ground, he has saved a cost. He has saved a cost of having to mine it, blend it, put it on the ship.
HIS HONOUR: Theoretically the price of iron ore could shoot through the roof to such an extent he could sell it tomorrow for twice as he could sell it to you.
DICK: But there would be problems because I say the time now for performance has well passed.
HIS HONOUR: You see he has got the stuff in the ground. He says, look, this works on the basis that I had a contract with you to sell, at the time that I was to sell to you, the price for you was five dollars and the price, the market price was $4.50 therefore I suffered 50 cents. You say he hasn't shown that he has made a loss because to make a loss he has to - firstly he saves the cost of winning the material and secondly he hasn't sold the material so he hasn't crystallised any loss.
DICK: Correct.
HIS HONOUR: I follow.
DICK: It is an alternative way though of meeting his case.
HIS HONOUR: His answer to that is that the authorities say he doesn't have to do that, that when you refuse to take delivery he doesn't have to show anything, prima facie, he says, the onus is on you, you have to show that he hasn't made an -
DICK: But those cases that he took your Honour to this morning are distinguishable because they are all cases where you have a manufactured or a final product for a set of goods."
The matter was summarised with clarity at Black vol 1, p 522:
"HIS HONOUR: If you have discharged him it goes to the readiness and the willingness. ... So now the position is, at the end of it your case boils down to this: He can't rely on section 40 because he did not have any goods and he hasn't suffered any damage even if - for the same reason he also hasn't suffered any damage because what he's required to do to suffer damage is to have something that he could have sold and he hasn't established that he had anything that he could or would have sold at a lesser price than what he was going to sell to you.
DICK: Thank you, your Honour.
HIS HONOUR: Have I got it?
DICK: You have."
Nowhere in this crucial enunciation and explication did senior counsel for BlueScope say that it was an issue for disposition in the controversy whether OneSteel would have been in a position to deliver had BlueScope not refused to take future deliveries, beyond the fact that fines that had in fact been mined and blended were not available.
The enunciation of the matter by Mr Dick SC on 26 October reflected what Mr JT Gleeson SC (then leading Mr Dick) had said on 20 October in answer to a request from the primary judge as to the issues if there were breach:
"GLEESON: The propositions are these; on the assumption that there was a breach by the defendant, it was of this character, it was an anticipatory breach occurring in December 2008 in respect of a delivery in February/March 2009. In March 2009 in respect of a May/June delivery. That's proposition one. Proposition two is that the plaintiff chose not to accept the anticipatory breach in bringing the contract to an end. Proposition three is that when the date for performance came, the plaintiff had chosen not to make the contractual goods. Proposition four is that the plaintiff's contention that it made the goods and sold them into the spot market is falsified on the plaintiff's evidence. Proposition five is that if the plaintiff could have made the goods, which is uncertain, what was left in its hands as of June were the raw materials and the like, which it was capable of turning to profit. Proposition six is it is never proved what profit it in fact made from those raw materials. Therefore, proposition seven is to award the claimed measure of damages would offend the compensatory principle."
It is proposition five that is crucial. The only qualification to the way Mr Dick later expressed it was the residual issue reflected by the words "which is uncertain". No later enunciation of this was made.
That counsel at the hearing did not submit that it was an issue that OneSteel could not have produced the goods can perhaps be understood by reference to the evidence.
The evidence must be set against the background that OneSteel had been delivering under the 2004 Deed for over four years. The evidence did not disclose either prior difficulty in production or lack of conformity with specification. There was no evidence of any change in the business of OneSteel that may have impinged upon its ability to deliver.
Mr Roberts who, in late 2008 and early 2009, was Executive General Manager Marketing and who had been at OneSteel since 2001, gave affidavit evidence as to why he did not seek to exercise an option to put extra ore to any of OneSteel's Chinese customers. In his cross-examination, the following exchange took place (at Black Vol 1 pp 93-94):
"Q (DICK): Did you even turn your mind in December 2008, through January and February 2009, as to whether OneSteel did have a capacity to supply to BlueScope, with respect to the four shipments which BlueScope had cancelled in December?
A (ROBERTS): We had the capacity to supply the shipments to BlueScope.Q. I asked the question, did you turn your mind to that question?
A. I didn't turn my mind to it, because that wasn't my responsibility.Q. Thank you. And the fact that you didn't turn your mind to the question of whether BlueScope could have been supplied with respect to the cancelled shipments, makes it likely, I suggest to you, that you never turned your mind to whether the contractual put option could be exercised as a way of dealing with the BlueScope cancelled shipments?
A. No, that is not correct. The shipments for BlueScope were scheduled into our plan, so on that basis, and the information provided to me, I knew that we could supply them. I didn't consider or put forward any recommendation of an optional shipment, for the reasons I have outlined before, because I didn't think it was commercially viable and a risk too high for us to do that with our long term customers."
At no point was Mr Roberts challenged on the evidence that he gave that OneSteel had the capacity to supply BlueScope.
Mr Leevers was one of the principal witnesses called after the adjournment. He gave detailed evidence that was closely cross-examined upon and which was the subject of the primary judge's comments in the second half of [155]. It is not necessary to examine Mr Leevers' evidence in any traversing of the findings in [155] - [156], which are not challenged. It is necessary, however, to examine it to recognise the extent and limits of the cross-examination, effective though it was, to found the relevant findings in [155] - [156].
In 2008 - 2009, Mr Leevers was OneSteel's Manager Mines Technology and in that position he was "responsible for mine planning, all geological functions, grade control of ore ... and short term scheduling and planning of mine production": para 2 of affidavit dated 5 September 2011. In his affidavit he described the industrial process involved in mining, crushing, blending and selling ore. He described the stockpiles and stockpile reports. From paras 32 to 49 he set out what he would have done in order to supply BlueScope with fines on the seven voyages in question. At para 33 he said:
"In the following paragraphs, I have set out what I think I would have done in order to fill the BlueScope shipments. I do not mean to say that that was the only way in which those shipments could have been filled. There may have been many ways. However, I have set out what I think I would have been most likely to do."
I will address some aspects of the cross-examination shortly. It should be noted at the outset, however, that he was not challenged on the second and third sentences. I would read the qualification implicit in the word "may" in the third sentence as related to the number of ways ("many"), not as meaning that there may not have been other ways. That is the plain reading of the language.
The exercise that he did was hypothetical.
BlueScope's submissions, especially para 90 of the written submissions, sought to draw from Mr Leevers' answers in cross-examination the proposition that he conceded that OneSteel could not have delivered compliant fines. The evidence that he gave did not say that.
Taking the two voyages in February 2009, Mr Leevers accepted that the reconstruction he did of loads from various piles would not in one respect (as to zinc content) have met the guaranteed specification. It was not put to him that it was not possible in early February to put together two voyage loads that met the zinc and other specifications.
Further, he accepted that in his exercise he took 3,000 tonnes for BlueScope from a vessel whose cargo was contracted. He also said that they could have made that other vessel's cargo up from other stockpiles. He was not challenged on this, except to have pointed out that it was not part of the exercise done by him.
Likewise, in relation to the other voyages he accepted in cross-examination that the hypothetical loads that he had identified in some respects did not meet the guaranteed specification. For instance, the March shipments if they were to include BlueScope given the volumes of contracted shipments, would have required further crushing, which he said would have been done (Black vol 1 p 195).
The June shipments' sources from stockpiles did not take into account crushing in June.
There is no doubt that the exercise engaged in by Mr Leevers had to be qualified by reference to specification deficiencies in relation to each of his posited voyages.
Paragraph 90 of the written submissions overstated the effect of the evidence. For instance, at Black vol 1 p 186, Mr Leevers accepted that as at 1 December 2008, the stockpiles of compliant ore for BlueScope were exhausted. When one examines his affidavit it is clear that OneSteel stopped labelling the piles in January after BlueScope said it would not take shipments. He was not saying that they had no stockpile of fines after that date with an iron content of 62.5 per cent or more as put in para 90. Nor was it accurate to state in para 90 that all stockpiles after 1 December 2008 failed the sodium content and two failed the zinc. The answers were given in relation to particular stockpiles as at 1 December 2008. The importance of this can be seen in the fact that in a January stockpile there were compliant fines for 59,000 tonnes. Further, the relevant question, beyond the state of stockpiles as at 1 December 2008, would be whether the stockpiles could be blended.
As the primary judge said at [156], in the end OneSteel did not assert that it had fines available to deliver at relevant times. No complaint was made on appeal by OneSteel that that conclusion misstated the effect of the cross-examination of Mr Leevers' evidence. One does not extract, however, from that cross-examination anything to the effect that OneSteel would not have been capable at all of doing so absent the notices from BlueScope. This is so, not only because of the lack of necessary cross-examination to that effect, but also the lack of raising of such an issue.
In any event, the general evidence of Mr Roberts and paragraph 33 of Mr Leevers' affidavit were both left without direct challenge.
The attack on the primary judge's conclusion that, had it not been for BlueScope's December and March requests and the expressed refusal to take the seven shipments, OneSteel had raw materials available to produce the goods and no doubt would have had the goods available for delivery, therefore fails. There was material to support the conclusion. In any event, beyond the point about presently available fines, the point was not in issue. The point had not been identified at all in the exchanges. A fortiori, it had not been identified with the necessary clarity.
BlueScope also submitted that OneSteel had not proved that it was or would have been willing to deliver fines to BlueScope. One of the extracts from the exchanges between Mr Dick and the primary judge had this point as a companion to the lack of availability of fines. There was, however, ample evidence of a powerfully rationally-based desire to deliver under the 2004 Deed on a DEQ Port Kembla basis. The price under the 2004 Deed was significantly above the spot market at relevant times. The contemporaneous communications, unless characterised as disingenuous, reflect a strong desire in OneSteel for BlueScope to take the voyages.
Finally, BlueScope submitted (see ground 3 of the notice of contention in particular) that the use of market value under the Sale of Goods Act, s 52 was inappropriate. BlueScope relied on a number of propositions to make good the submission. First, it was submitted that because OneSteel had attempted to prove actual sales with the one in question and failed, it should not be entitled to damages by reference to s 52. Reliance on s 52, however, was always propounded. That OneSteel failed in an attempt to obtain higher damages from particular sales is not a reason to deny the prima facie rule.
Secondly, it was submitted that OneSteel had not proved the cost of finishing and blending any further iron ore that would have been sold to BlueScope or the costs of selling on to the market. In those circumstances, it was submitted that the lost margin under s 52(3) was not appropriate. The entitlement to rely on s 52 arises from the seller's satisfaction of s 40. The object of the rule in s 52(3) is to capture for the seller the economic value of performance by the buyer. It is a precondition under s 40 that the seller prove readiness and willingness to perform (aided, as here, by any relevant dispensation arising from the content and nature of the communications between the parties). If the seller is ready and willing, the cost of doing so is not a matter that affects what the seller has lost by the buyer's refusal. The seller has lost the difference in the contract price and the market price. This commercial loss is not affected by what might be seen to be different commercial costs to the seller of different ways of the seller bringing itself to the position of being ready and willing to deliver the goods.
If it were to be contended that any costs of extraction, crushing and blending in the ordinary course of OneSteel's business were to be particularly ascribed to the particular reduction in volume of the sale of goods able to be sold on an available market, that was a matter for BlueScope to prove. As a prima facie rule laid down by statute it is for the person who seeks a departure to demonstrate the circumstances that make it appropriate to depart from the section: Bence Graphics International Ltd v Fasson UK Ltd [1998] QB 87 at 97; The Griparion (No 2) [1994] 1 Lloyd's Rep 533 at 538. That the rule gives way to proof by the seller of a higher loss, does not mean that the statute does not permit recovery under s 52 unless it is proved that actual loss is at least equal to the prima facie measure.
Section 52(3) is an abstract rule. Its aim is ease of application and to avoid uncertainty: Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd (No 2) [1990] 3 All ER 723 at 726. It provides the prima facie measure to satisfy the general compensatory rule in s 52(2): The Selda [1999] 1 Lloyd's Rep 729 at 732. The circumstances that would give rise to a departure from the prima facie rule are those which would inform an analysis of the general rule in s 52(2).
If it be the case that some identifiably discrete cost was avoided by OneSteel that was referable only to the performance of the contract with BlueScope, it would be difficult to avoid the conclusion that it should be taken account of in the assessment of compensation for OneSteel's loss. No such discrete cost was identified here. OneSteel carried on its mining operations in the ordinary course to produce ore and fines for customers. For the reasons expressed earlier it was never an issue that OneSteel could have made fines available under the contract, other than by reference to what was present in the stockpiles. The measure of the loss of the contractual bargain in the circumstances remained the prima facie measure in s 52(3).
Thirdly, the lack of asserted willingness of OneSteel to deliver was relied on. This was said to arise from its own lack of demand for coal and that it suited OneSteel not to have Iron Chieftain steaming between Whyalla and Port Kembla. For the reasons earlier expressed, there was ample evidence that the commercial advantages of sale of the ore and the attitude of OneSteel officers meant that OneSteel was willing to sell the contracted ore to BlueScope.
For the above reasons, the first four grounds of the notice of contention should be rejected.
The fifth ground of the notice of contention concerned the primary judge's approach to cl 12.8(c) at [134] - [152] of his reasons. The three elements of complaint were as follows:
"[T]he trial Judge ought to have held, contrary to J136-137, J141 and J151-152, that:
a. the respondent was not required to prove it had exercised a discretion in order to take advantage of cl 12.8(c) or, in the alternative, if it was so required it had done so;
b. the requests by the respondent not to load the relevant shipments were related to the re-lining works; and
c. the appellant suffered no loss or damage for so much of the reduction in supply as was reasonably proportional with reductions in supply from respondent's other suppliers of iron ore."
Notwithstanding the form of element (a) above, it was accepted by BlueScope both before the primary judge and on appeal that it needed to establish as an objective matter that it was apparent from the December request and the March request that BlueScope was exercising the discretion to reduce its intake of iron ore pursuant to cl 12.8(c). The gist of complaint was reduced to disputing any requirement to demonstrate a subjective intention or view in officers of BlueScope that cl 12.8(c) was being employed or deployed.
BlueScope submitted that read in the context in which they were made the two requests evinced a reliance on cl 12.8(c). In my view, neither did. As I pointed out at [27] above, the December request contained references to facts referable to cl 12.8(c): the closing down of blast furnace number 5 and the mitigation of dead freight (although the latter might be argued to be implicit within the correlative of the obligation to pay dead freight engaged so far in advance). The letter was, however, unequivocal as to the identity of the contractual right being exercised: cl 4.1(d). Objectively the letter was a purported exercise of the power under cl 4.1(d). The March request was in terms even plainer. No reference to blast furnace number 5 was made. The further reduction was "in response to continued deterioration in steel market conditions".
The choice of contractual right to engage was more than a matter of form. Clause 12.8(c) involved qualifications and conditions: the relationship of the reduction to the Works and the proportionality with other reductions from other suppliers. If a decision be made to invoke or engage cl 12.8(c) a decision would have to be made about how much to reduce BlueScope's level of purchases of fines conformable with the two qualifications. No such decision was ever made. If one were made it might be very difficult for a court to question the legitimacy of the decision to reduce purchases by reference to the qualifications, in particular given the broad commercial evaluation of what was reasonably proportional. Of course, implicit within any such decision would be an honest and reasonable business approach. Equally, when there has been no addressing of those commercial considerations in any decision (as there was not here, complete reliance being placed on cl 4.1(d)) it is difficult, if not impossible, for the court to substitute its judgment upon the two conditions.
It is sufficient to dispose of the fifth ground by reference to the argument. Neither request reflects an objective invocation of cl 12.8(c).
The fifth ground of the notice of contention fails.
Orders
The orders that I propose are:
1. Appeal allowed.
2. Set aside the orders of the Supreme Court made on 29 November 2011 and 2 December 2011.
3. The parties bring in short minutes of order containing orders in the following form:
(a) Judgment for the plaintiff in the sum of a sum calculated in accordance with these reasons and including pre-judgment interest up to 29 November 2011 from 30 June 2009 pursuant to the Civil Procedure Act 2005 (NSW), s 100.
(b) The defendant pay the plaintiff's costs.
4. The respondent pay the appellant's costs of the appeal.
MACFARLAN JA: I agree with Allsop P.
MEAGHER JA: I agree with the reasons and proposed orders of Allsop P.
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