Pedra Branca Dairying Pty Ltd v B & S Walker Pty Ltd
[2012] SADC 35
•4 April 2012
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PEDRA BRANCA DAIRYING PTY LTD v B & S WALKER PTY LTD
[2012] SADC 35
Judgment of His Honour Judge Cuthbertson
4 April 2012
TRADE AND COMMERCE - TRADE PRACTICES AND RELATED MATTERS - CONSUMER PROTECTION - MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT
- REPRESENTATIONS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES
- REPUDIATION - ANTICIPATORY BREACH - SALE OF GOODS - CONDITIONS - IMPLIED CONDITIONS - QUALITY OF FITNESS FOR PARTICULAR PURPOSE
The plaintiff contracted with the defendant to refurbish the two dairies owned by the plaintiff. The contract included the purchase of a herd management and drafting system supplied by a third party.
HELD: The plaintiff lawfully terminated the contract for anticipatory breach by the defendant of an implied term of the contract that the system supplied would be reasonably fit for its purpose. Damages assessed.
Sale of Goods Act 1895 s 14(a); Misrepresentation Act 1972; Trade Practices Act 1974 (Cth) s 52(1) & s 82; Fair Trading Act 1987 (SA) s 56(1) & s 84, referred to.
DTR Nominees Pty Ltd v Mona Homes Pty (1978) 138 CLR 423; Federal Commerce and Navigation Co Ltd v Molena Alpha Inc (1979) AC 757; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, considered.
PEDRA BRANCA DAIRYING PTY LTD v B & S WALKER PTY LTD
[2012] SADC 35The issue
The plaintiff sues the defendant for damages for breach of an implied condition of fitness for purpose, misrepresentation and misleading and deceptive conduct arising out of the alleged failure of the defendant to complete a contract to upgrade two dairies at the plaintiff’s dairy farms at Kongorong near Mount Gambier and representations as to an automated drafting system for cattle to be supplied with the upgrade.
Background
The plaintiff is a very large dairy producer milking approximated 1,000 cows on each farm. It had already owned one dairy farm, the “Doman farm”, and had purchased another, the “Laslett farm” nearby.
The defendant carries on business as a supplier / servicer of equipment for dairies.
The plaintiff contracted with the defendant to refurbish its two dairies and supply a herd management system it obtained from DeLaval, a Swedish manufacturer and supplier of dairy systems.
In brief terms the system (Alpro system), as represented by the defendant, allows for automatic identification of each cow that comes to the dairy for milking. A recording of milk production, milk fat levels and weight of the particular cow is made, and an activity detector (which I will return to in more detail in a moment) provides information relative to her oestrus status.
Due to the fact that each cow could be identified and her milk production and milk fat levels recorded, individual feed requirements could be automatically determined. It was thus possible to adjust feed levels for a particular cow when fed in the dairy on an individual basis rather than on a herd basis. Cows could be automatically drafted off the main herd after milking based on various criteria.
The activity monitor worked on the principle that when cows are in oestrus they increase their activity and are more active in the paddock. By having the individual cows activity monitored it is possible to identify automatically cows that have increased activity relative to their normal pattern of activity as these are cows highly likely to be in oestrus and therefore appropriate to be artificially inseminated.
The system has an automatic drafting gate so that the high activity cows can be drafted off automatically immediately after milking. There are additional physical signs like vulval discharge which an operator would look at in order to make the decision whether to artificially inseminate. As the cows at a particular dairy number about 1,000, separated into two herds of 500, instead of appraising all 1,000 cows the operator’s task is simplified significantly due to the need to only appraise, for possible insemination, those cows drafted off with high activity. (T181, 369) High activity, I am informed, is an extremely accurate pointer to the likelihood that the cow is in oestrus. (T227, 228)
The method which was to be provided by the defendant from DeLaval, its supplier, to record and transmit the activity of the cow comprised a transmitter attached by a collar to each individual cow. A mechanism somewhat like a pedometer would measure the activity of the cows between milkings.
The software provided with the system is able to compare information as to the activity of the individual cow over a period and factor in the general activity of the herd to determine whether the particular individual cow has increased activity relative to its own usual degree of activity and relative to the activity of the herd. This may have increased due to extraneous factors like the need to move to a more distant pasture or the need to forage more extensively due to the sparsity of a pasture or having been chased by a dog for example.
Information on the activity level of a particular cow only gets to the central computer for processing if it is transmitted from the transmitter on the cow to the computer at the dairy.
The Laslett farm was purchased in 2006. It had an unused dairy. The plaintiff’s intention was to have the Laslett milking shed refurbished so as to be capable of milking cows by the end of February 2007 so that the original farm was not overstocked with cows that had been purchased in calf and would be calving. (T119) After the Laslett shed was refurbished cows would be moved from the Doman farm and the Doman shed would be upgraded in a similar manner. (T119)
The contract
During late 2006 discussions were held between Jason Doman and Mike Hayes on behalf of the plaintiff and Simun Lalich, the representative of the defendant. They had some six to eight meetings, generally on the farm. (T123) Lalich was informed that there would be about 1,000 cows on each farm to be milked and that a system would be required which recorded live weight, volume of milk, milk fat levels and certain other details in relation to individual cows together with their recent activity level. The Alpro herd management system and the need of the plaintiff for a sorting gate for regrouping cows for inseminations, pregnancy checks, health checks etc was also discussed. (T126, 128, 613, 614)
It was made known by the plaintiff that it was expected that work would be completed on the Laslett shed by the end of February 2007. Lalich indicated that the defendant would be able to comply with that timeframe. (T133, 134, 614)
By a letter dated 4 January 2007 two quotations were sent to Pedra Branca for the fitouts of each of the two dairies. (P1, p.118)
An agreement was concluded between the plaintiff and the defendant on 4 January 2007. (P1, p.114) The contract price was to be $316,269.95 in respect of the fitout of the Laslett dairy and $437,939.51 in respect of the Doman dairy (P1, p.114) according to its terms.
On 11 January 2007 a preliminary payment as required by the contract (P1, p.116) of $31,626.99 was paid to the defendant by the plaintiff.
According to the terms of the contract a further amount of $126,507.98, being 40% of the stage I cost and described as “Manufacturer’s / Fabricator’s deposit” was required to be paid 14 days prior to equipment arriving on farm for stage I.
The deposit having been paid, the plaintiff was keen for the work to commence but for a time all that was done was that some old equipment was removed by Lalich.
During this period Doman and Hayes, for the plaintiff, were speaking to Lalich on a regular basis about when the work was going to be commenced. Various reasons were given as to why it had not commenced including that the materials were not ready and that labour was not available. (T136)
By late February, insignificant work having been done to commence the refurbishment, and Lalich having been admitted to hospital, the plaintiff became sufficiently concerned about the lack of progress to arrange for a meeting with the principal of the defendant, Bevan Walker.
The meeting at Timboon
The meeting on 27 February 2007 took place at Timboon, a town north east of Warrnambool in Victoria, where the defendant also conducted its business. At the meeting Walker explained that the invoicing process has not taken place and that he was unaware that the deposit money had been paid. (T138)
I do not accept that Walker told Doman and Hayes that the deposit money had been banked in Lalich’s own account. I think they are mistaken about that. There was however some discussion about the payment of deposit monies and the fact that payment of such deposit had not come to the attention of Walker, who accordingly failed to set in train the ordering of the relevant material from DeLaval, its supplier. (T138)
The delay in processing the matter was the internal fault of the defendant.
Walker complained that the second payment of $126,507.98 being the “Manufacturer’s / Fabricator’s deposit” had not been paid. The explanation for this given by the plaintiff, which I accept, is that it had not received an invoice.
As the contract required such payment to be made 14 days prior to equipment arriving on the farm, and as the plaintiff could have no knowledge of when the defendant would receive the relevant equipment from DeLaval and thus when it was in a position to get it to the farm, the plaintiff was entitled to wait for an invoice or at least for some indication that the equipment was ready to arrive on the farm before making such a payment. Indeed Walker agreed with the proposition. (T671, 674)
As an act of good faith and in recognition that the delay was the fault of the defendant it allowed the plaintiff’s agents to take with them back to Mount Gambier some rubber ware and other equipment which was readily available so that the refurbishment could get underway. (T140)
On 14 March the plaintiff paid the defendant the “Manufacturer’s / Fabricator’s deposit” of $126,507.98.
Between 15 March and 12 April 2007 some work was done by the defendant so that there was a basic operational dairy where cows could be milked although there was no herd management system in place. (T151)
This left the “activity” part of the system still to be installed and made operational.
The attempt to install the activity system
On, or about 17 April Roy Lane, an agent of the defendant and employee of DeLaval, arrived at the property to install the electronic equipment including the activity system.
As a result of some discussions between Hayes and Lane it became apparent for the first time that there might be some problem with the activity system operating in a manner envisaged by the plaintiff.
The problem with the activity system
It came to the attention of the plaintiffs for the first time that the antennae that receive the information transmitted from the cow to send to the computer as to the cow’s recent activity level operated only in line of sight, had limited range and the transmitter transmitted only on hourly intervals. (T162, 164) This information created, in the minds of the plaintiff, a significant problem as to whether the most recent activity information of the cow would be transmitted to the computer and processed so as to provide the relevant information at the time of drafting so that the cows could properly be drafted having regard to their activity status. This would occur immediately after milking as the cow stands down from the bail.
The dairy is a rotary dairy and the cows are milked 50 at a time. Each cow milking takes about 10 minutes and then the cows are drafted off, the majority to commence to walk back to their allocated pastures.
The transmitters only operating in line of sight, information is not sent until the cow comes within line of sight of the receiving aerial at the milking shed twice a day for milking around about 3 - 4.00am and around about 3 - 4.00pm and then only on an hourly basis.
The area of the dairies is about 3,000 acres. (T118)
The cows generally make their own way to milking and back to their allocated paddocks after milking with encouragement to the stragglers from a drover. Because the whole process of coming to the milking shed and being milked and leaving can take less than an hour (especially at the beginning of the milking where there is not a backlog of cows waiting to be milked) it means that a cow could come to milking, be milked and leave again in an interval between the hourly transmissions so that there is no transmission before she is milked and hence no updated activity status on which to base the drafting.
I accept that the first cows to the milking shed can be in the bails, milked and out within 30 minutes. (T269)
The system is highly automated so that potentially it can be run by one person. (T153)
When the cows are milked and leave the milking platform an automatic drafting gate separates the cows off into various small groups as programmed by the computer. One such group is those cows demonstrating increased activity.
It is thus important that the cow be read (i.e. that its transmitter transmits) so that the information is in the computer before she goes through the automatic drafting gates, as it is only if that information is in the computer before she goes through the gate that the computer can analyse it to make decisions as to drafting. (T181, 114, 187)
This is the system that the plaintiff claims that it bargained for.
It would appear that the activity system was primarily developed for use in northern European countries where cows are generally shedded. Thus the standard antennae receivers can be located at the milking shed where the cows are housed and, as the cows do not leave the sheds, there is no difficulty in transmission being received by line of sight antennae receivers on hourly intervals between milkings.
When the system is transposed to an open rangeland grazing system as applied at Pedra Branca problems arise due to the cow being out of line of sight while grazing between milkings.
When Hayes and Doman had reflected upon these two new issues it quite understandably became an issue of concern to them as to how the system could be made to work effectively.
They had already paid amounts of $31,626.99 and $126,507.98. They were required to pay a further $126,507.98 “Due on completion of installation for stage I or 30 days after Manufacturer’s deposit for stage I, whichever comes first”. (P1, p.116) They wished to be assured that the defendant could complete the contract so that the plaintiff got what it bargained for. (T163, 554))
What had the plaintiff bargained for?
Lalich, on behalf of the defendant, had, on a number of occasions, been to the dairy of the plaintiff and seen how it operated. (T123) Doman and Hayes had explained that a computerised / automated herd management system was required and that the plaintiff had in mind the savings in labour and other efficiencies that such a system would theoretically bring. (T124, 125)
Lalich, through various publications supplied to the plaintiff, had pointed out as an advantage of their system over competitors that it had the ability to communicate with antennae outside milking times 24 hrs a day. In comparison, it was pointed out that competitors were only able to download information once the cows had come to the milking shed and were on the platform. (T550, 554)
As it turns out, this was the strong point of the alternative system as the activity information would be taken from the cow as she passed a point in the dairy and thus it was almost guaranteed to provide the information as there was no issue with antennae being out of reach and transmissions being on an hourly basis. (T175, 313)
Lalich was well aware that the plaintiff was interested in an activity system to assist it in the herd management by improving the efficiency of selecting cows for insemination and for possible examination for illness by exhibiting low activity.
I have no doubt that the plaintiff expected that the relevant information would be available in order for decisions to be made at least by the time the herd was accessible in the yards, namely at milking. (T227)
The two quotes provided by the defendant to the plaintiff as a prelude to the final written agreement included information on the Alpro system. (P1, p.121) It was asserted by the defendant that the system provided “allows you to manage drafting, feeding, milking and breeding as one efficient integrated business operation. This optimum herd management solution keeps track of each animal, monitors trends, predicts problems and evaluates options. Alpro provides access to the day-to-day information essential to successfully running a modern dairy farm.” (P1, p.121)
The processor “includes all the software needed to keep track of every cow and to control feeding, milking and cow traffic”. (P1, p.121)
The windows software provided means that, “Complete cow milking, feeding, breeding and veterinary records help you make the best management decisions.” (P1, p.121)
Alpro thoroughly and accurately collects and evaluates data from every animal in your herd – 24 hours a day, 7 days a week. With the Alpro herd management solution you can asses [sic], trends, evaluate alternative strategies, proactively implement correct decissions [sic] and calculate the outcome.” (P1, p.121)
The plaintiff was informed that the DeLaval sort gate “can reduce your daily labour demands by automatically diverting your herd into up to three different directions based on various sorting criteria … The combination of Alpro herd management system and DeLaval sot [sic] gate DSG3, offers an optimlly [sic] simple, economical approach to regrouping cows, inseminations, pregnancy checks, vaccinations and treatments. This system permits accurate sorting without disrupting normal cow flow. It provides gentle cow treatment and maximum cow traffic speed.” (P1, p.122)
As to the activity system the plaintiffs were told “The activity meter sends data to the system every hour provided the meter is within range of an antenna, rolling 24 hour information is sent and together with the innovative Kalman filter, % increase weighed on an hourly basis, the activity system delivers unsurpassed accuracy of the start time and certainty of increase in the cow’s activity. …
Together with using the activity system with the breeding programme it can also be used in the animal health program as a ‘low activity’ when a cow is inactive …” (P1, p.123)
The plaintiffs were provided with a letter, at the time of the contract being concluded, dated 4 January 2007. (P1, p.128) In it the defendant asserted to the plaintiff that “The DeLaval Alpro system is an integrated herd management system for the control of milk yield, recording, feeding, cow sorting, breeding calendar and overall herd management. … Measuring the actual performance of a dairy herd and capturing the data so as to be able to present to the farmer in a meaningful manner so they can use it to change parameters to see how the herd can be manipulated to obtain maximum production.” (P1, p.128)
The request for information as to how the system could work
In my view, given this information it was understandable that when informed that there were limitations on the ability of the antennae to capture the information due to a requirement for them to be in line of sight and due to the fact that transmissions were hourly, the plaintiff was acting reasonably in requesting information as to how it could ensure the information was processed within the system at the time the cow was drafted during milking.
The response of the defendant through its agents, Lane and Lalich while at the dairy, was less than satisfactory from the point of view of the plaintiff. The defendant was unable to suggest a way that would ensure that all or nearly all cows (making allowance for the occasional misread or failure to read) (T372) would have transmitted the information to the computer by the time of drafting.
Lane indicated that he would need to discuss the matter with other representatives of DeLaval. He said that he did not know how the system could work in that manner. (T162) Doman was annoyed. He had bargained for a system that included an activity system which would assist the plaintiff at the time of milking to discern high activity cows i.e. those most likely to be in oestrus. He had counted on having a skilled inseminator present for approximately half an hour to do the inseminations and then to go to the other shed and do the inseminations there rather than have that operator present for the entire milking, a period between two and three hours, examining each cow of the approximately 1,000 cows which were to be milked at each shed. (T153, 154, 181, 187)
It is clear to me that when Lane went to the dairy to connect the system he had little concept of where the antennae were to be placed. It was clear that the defendant had done no preliminary work in considering that issue which fairly obviously was going to be a significant issue given the geographical size of the dairy, the fact that the surrounding land was undulating and the fact that, between milking, the cows were likely to be dispersed a considerable distance from the dairy itself. (T165)
This was only the second time that Lalich had presented the activity system as an option to a client. He presented the information based on excerpts from website pages and general conversations with other representatives. (T550)
He frankly admitted that he was only relying on information from websites rather than from practical experience. (T554) He frankly conceded his understanding and ability to communicate the system to farmers was not as good then as it is now. (T554)
In my view Doman was acting reasonably when he told Lane that he did not want further work done in commissioning the Alpro system until he could be assured in a theoretical sense that the system would be able to deal with all cows coming into the dairy. The information received by him from Lalich and Lane on the occasion they were present to set up the system indicated that they did not know how the system could operate to guarantee provision of activity information on each cow prior to drafting.
Thereafter what happened can largely be followed by a series of memoranda and correspondence.
The e-mail of 23 April 2007 from Lane to Hayes (P1, p.23) corroborates that the plaintiffs were genuinely looking for solutions to the conundrum that had arisen, as does the e-mail of 30 April 2007 from Hayes to Lane. (P1, p.23)
The e-mail from Lane to Elfgren dated 19 April 2007 (D8) is in effect an admission that at that time the defendants did not have the answer. I do not accept that the plaintiff wanted to “cover the whole farm 24 hrs a day” although that may have been said in discussions but they clearly wanted, and expected, “active cows to be read before each milking session …” even if that meant having line of sight aerials covering the entire farm.
An admission that “this is going to be very difficult” confirmed that at that stage the defendant has no answer to a very real and reasonable issue raised by the plaintiff.
As a follow up to the meeting with Lane the plaintiff sent an e-mail to the defendant dated 24 April 2007. (P1, p.20) The plaintiff reasonably requested that the defendant “find a workable, reliable and accurate solution for activity measurement.”
The reply from David Widdicombe, an employee of DeLaval but acting as an agent of the defendant, was that two experts would be “arriving in Australia soon”. That can only have confirmed to the plaintiff that the representatives of the defendant in Australia did not know how to deal with the rather fundamental issues raised by the plaintiff about the operation of the proposed system.
This e-mail prompted a response on the same day from Doman on behalf of the plaintiff to Widdicombe which was copied to the defendant. (P1, p.22) In it the plaintiff has correctly pointed out that it has been given no assurance thus far that the system proposed for the Laslett dairy will operate as had been expected by the plaintiff.
The e-mail of 1 May 2007 from Doman to Widdicombe (P1, p.24) copied to the defendant accurately sets out the thinking of the plaintiff at that stage. “We have been promised from all involved that the situation would be resolved and we could expect a successful outcome, we are now in a situation whereby two Swedes will be coming to Australia to work out how this could be achieved as everyone else seems to be unsure.”
I note that at the time of this e-mail the plaintiff has not purported to terminate the contract. Up until now the correspondence from the plaintiff and the conversation at the dairy when Lane attended consistently indicate an invitation by the plaintiff to the defendant to explain in a theoretical sense how the Alpro system on the Laslett farm could do what the plaintiff reasonably expected it could do.
It behoved the defendant, if it were able, to give the plaintiff the assurances it sought. If it did not do so it would be open to the plaintiff reasonably to infer that the defendant was unable to do so because it knew no way that the system as sold could achieve the desired and expected result and that the defendant was thus unable to fulfil the contract.
By letter of 28 May 2007 (P1, p.25), the plaintiff, through its solicitors, sought to terminate the contract.
It is noteworthy that no effort was made in the period between 1 May 2007 and 28 May 2007 by the defendant to give reassurance to the plaintiff.
The plaintiff indicated that it was cancelling the contract on the bases firstly that the system was “wholly inadequate for the purpose for which it was originally purchased” and secondly that the plaintiff was induced to enter into the contract by “misleading and deceptive information.” (P1, p.25)
Did the plaintiff lawfully terminate the contract?
The principal question is whether the plaintiff was entitled to terminate the contract. The problem faced by the plaintiff is that on the occasion when Lane and Lalich were present on the property attempting to assemble the antennae and put together the computer system they were instructed by the plaintiff to do no more work on the property. They were told not to do any work until they could give an assurance that their system could operate effectively. They cannot rely on delay as a basis for terminating the contract as they have never sought to make time of the essence and the delay after the meeting with Lalich and Lane was of their own making.
The defendant’s response to the purported termination of the contract by the plaintiff is to assert that they were not permitted to install the system which would have required adjustments and sighting of the antennae by trial and error and that, given the opportunity, they would have been able to make the system work satisfactorily.
In effect, the plaintiff has purported to terminate the contract for repudiation by the defendant or under the doctrine of anticipatory breach, asserting that while the defendant may have been ready and willing to fulfil the contract it was not able to do so. Also the plaintiff asserts that the defendant had in effect repudiated the contract by not putting forward a viable proposal as to how the system could be made to work and remaining silent on this crucial issue.
Anticipatory breach
Either the breach had occurred by repudiation by the defendant or the alleged breach had not yet occurred at the time the plaintiff terminated the contract. Time had never been made of the essence in this contract and the defendant claims to have been ready, willing and able at all times to perform the work of installing the activity system but for the refusal of the plaintiff to let it back on the plaintiff’s property to do so.
If repudiation or breach of the contract has not already occurred at the time of termination then it must be an anticipatory breach of the contract that the plaintiff is relying on.
As it is put by the authors in Carter, Peden and Tolhurst Contract Law in Australia 5th edition:
The focal point of the repudiation concept distinguishes it from termination for breach, where the focus is on the promisors breach and its consequences. However, there is considerable overlap between the two bases for termination because an absence of readiness or willingness may manifest itself in a breach of contract.
An anticipatory breach of contract occurs if a repudiation and exercise of the right of termination take place prior to the time appointed for performance by the promisor.
(See para [30-28])
The defendant claims that it was ready, willing and able to perform but it did absolutely nothing to further that course and to allay the plaintiff’s fears that it couldn’t perform.
The concept of “readiness and willingness” encompasses an ability to do so. Even if the promisor is ready and willing to perform, if it is not able to perform then it is likely to be in breach of contract.
The learned authors continue in para [20-29]:
The following features of the concept of readiness and willingness may be noted.
First, the concept includes an ability to perform. Thus, a promisor is ready and willing to perform only if ready, willing and able to perform.
(My underlining)
Second, whether a promisor is ready and willing to perform is a question of fact.
Third, since a promisor must be both ready and willing to perform, an absence of either (or ability) may amount to a repudiation.
Fourth, the extent of readiness and willingness required is determined by the terms of the contract. Therefore, a promisor must be ready and willing to perform in accordance with the standard of contractual duty imposed by the contract at the time when performance is due.
Fifth, although a promisor need not be ready and willing to perform until performance is due, the striking feature of the doctrine of repudiation and anticipatory breach is that they permit a promisee to terminate on the basis of an anticipated absence of readiness or willingness.
[I would add ‘or ability’]
Sixth, …
(not relevant)
Seventh, proof that a promisor was not ready and willing to perform at the time when performance was due would generally be sufficient proof of a breach of contract by failure to perform. However, proof that a promisor will not be ready and willing when performance falls due is not sufficient proof of an anticipatory breach. As explained below, two further elements must be established:
§A right to terminate the performance of the contract, and
§An election to terminate on the part of the promisee.
A right to terminate
The authors of Cheshire & Fifoot Law of Contract Australian 9th Edition say of the right to terminate a contract for repudiation. “This consists of a manifestation of unwillingness or inability to perform the contract, in substance or at all, before or at the time when performance is due”.
“An actual intention to repudiate is not necessary: the issue is resolved objectively by reference to the effect it would have on a reasonable person” (see Cheshire & Fifoot para. 21.12). The learned authors cite a number of cases including DTR Nominees Pty Ltd v Mona Homes Pty Ltd[1].
[1] (1978) 138 CLR 423 at 431
It is not the case here, in my opinion, of an actual desire to repudiate the contract on the part of the defendant. Indeed, I make the finding that the defendant was at all times willing to attempt to meet the needs of the plaintiff in relation to the workings of the activity system. I have no doubt that DeLaval, acting on behalf of the defendant, was entirely genuine in bringing two technicians from Sweden to attempt to set up the system. At no time had the defendant given up on, or determined not to oblige the plaintiff. It is, however, a question of how the plaintiff might reasonably have taken the defendant’s failure to give an assurance and failure to act in any manner proactively to fulfil the contract.
In the present case, although performance had been promised by the end of February, I do not think that the fact that the performance by the defendant is being attempted in mid April 2007 and that the defendant was thus late in complying with the contract were grounds for termination by the plaintiff. Indeed, as I observed the plaintiff thereafter prevented the defendant from doing any further work.
If there was a right to terminate the performance of the contract at the time the election to terminate was made by the plaintiff in the letter of its agents Messrs DeGaris & Co dated 28 May 2007 (P1, p.25) then it could only arise from a right to terminate the performance in anticipation of breach or for repudiation given the defendant’s inability to give any assurance that the system could work as required even in a theoretical sense.
According to the authors of “Contract Law in Australia” there are two ways of establishing repudiation by the promisor, firstly by reference to the promisor’s words and conduct and secondly by reference to the promisor’s actual position.
It is necessary for the plaintiff to prove that the defendant will breach the contract in a manner giving a right to terminate for breach. (See Federal Commerce and Navigation Co Ltd v Molena Alpha Inc) [2] This may arise from the defendant’s conduct and what the defendant says or fails to say.
[2] (1979) AC 757 at 779, 783, 785
Issue is whether the defendant unable to perform the contract as promised
The plaintiff claims that the defendant, by its words and conduct, has demonstrated that it was unable to comply with a condition of the contract implied pursuant to s 14 of the Sale of Goods Act that the goods (namely the paraphernalia for the purposes of the activity system) were not reasonably fit for the purposes for which the goods were required.
Such a breach of a condition would arguably give rise to a right to terminate the contract.
Reliance on the seller’s skill or judgment
I am satisfied that in the negotiations and discussions which took place in late 2006, Doman, for the plaintiff, made it plain and the defendant through its representative Lalich, understood that the system was required to enable the plaintiff to draft out high activity cows at the time of milking in order that a quicker and more efficient appraisal could be done by an artificial insemination expert as to the appropriateness for inseminating that particular cow at that time. (T124, 125, 128)
I find that the defendant represented and the plaintiff relied on, as a desirable feature of the Alpro system, that it was not necessary to wait until the cow had arrived at the bail before information could be disseminated as to its recent activity and that that was put forward as an advantage of the system that the defendant sold over other systems. It also made it apparent to the plaintiff by the material it distributed (see paras 52-59 hereof) that the plaintiff could expect activity information to be available at the time of drafting.
I find further that the plaintiff did not know prior to the attendance of Lane and Lalich to fix the Alpro system the mechanics of how it operated and especially its Achilles heel, namely that it only operated by radio transmission in line of sight and that the transmissions were intermittent i.e. hourly. (T193, 195, 219, 252, 253)
I find that the plaintiff made it clear that the system was wanted for the purposes of selection of cows for artificial insemination at the dairy so as to save the labour required for appraising for the presence of oestrus in a large number of cows. (T193, 194)
I am satisfied that the plaintiff had expressly, and by implication, made known to the defendant the particular purpose for which the goods were required so as to show reliance on the defendant’s skill or judgment and further I find that the goods are of a description which it is in the course of the defendant’s business to sell.
It follows therefore that the particular contract carried with it an implied condition that the goods be reasonably fit for their purpose pursuant to s 14 of the Sale of Goods Act.
Goods not fit for purpose
I am satisfied that on the occasion when Lane attended the premises to install the activity system he informed the plaintiff that he could not see how the system could work so that all cows would have transmitted to the computer information as to their activity over the last 12 hours (since their last milking) prior to the completion of milking and the subsequent drafting off of the milked cows. (T162, 163, 164, 165, 216)
This is so because any of the first one hundred cows (a conservative estimate) to the milking shed could have arrived, been milked and proceeded through the drafting gates before transmitting the activity information to the computer for it to be processed as a factor in determining the drafting. There is an 8 – 9 minute rotation in the dairy and the first cows would be in to the dairy straight away, milked for 8 – 9 minutes and then out. (T117) Thus two rotations of 50 cows could occur in 20 – 30 minutes.
There is also evidence that high activity cows may well be among the leaders to reach the milking shed. (T352)
The e-mail from Lane to Elfgren dated 19 April 2007 (D8) is evidence, in my view, that Lane (who is the agent of the defendant) did not know how the system supplied would allow “active cows to be read before each milking session”. It is an admission that, “this is going to be very difficult”.
The e-mail from Hayes to Lane dated 24 April 2007 (P1, p.23) is further evidence that the defendant (through its agents) did not know how to make the system work and that changing the interval that the pedometers send data to a period of less than one hour was not, for some reason, a possible solution.
The lack of knowledge to make the system work so as to be fit for purpose is confirmed by the response to the e-mail from Doman to Widdicombe copied to the defendant dated 24 April 2007. (P1, p.20) The email invites a response from the defendant that there is a “workable, reliable and accurate solution for activity measurement”.
The response dated 27 April 2007 (P1, p.21), far from providing the assurance sought merely indicates that two technical experts will be “arriving in Australia soon to assist in setting up the Alpro activity”.
This response from Widdicombe impliedly admits that there is no known ability to provide the assurance sought and to assert the capability of the goods and services supplied to comply with the implied condition in the Sale of Goods Act. Widdicombe is here acting as the agent of the defendant and the defendant was given a copy of the e-mail and could have responded.
The lack of any response to the e-mail of Doman dated 1 May 2007 (P1, p.24) in particular and the other e-mails of the plaintiff constitutes an admission by conduct that the defendant has no way of solving the dilemma and fulfilling the implied condition under s 14 of the Sale of Goods Act.
The delay between the visit of Lane and 28 May 2007 when the letter of termination was forwarded by the plaintiff together with the expression of inability to have the activity system provide activity information in relation to all cows prior to drafting lead to the inference that the defendant was unable to comply.
I do not regard the suggestion made by Lalich that those cows that had not provided a reading could be automatically drafted into a holding pen and held until readings were obtained was anything more than a tentative and untried suggestion of a solution. (T229)There is no evidence that it could have provided a satisfactory solution. The cows, at that stage, would have already passed the drafting gate and would have been milling in some sort of a yard. The plaintiff was entitled to expect the defendant to come up with something more definite and tried as a solution than this. (T229)
Lalich himself spoke of the need to feed them back through the original drafting gates. (T588) That would be time consuming, require further labour and would depend, to an extent, on the layout of the races within the yards. (T589, 590)
Various theoretical solutions put in evidence
Much of the case for the defence was made up of putting various theories and suggestions as to how the rather obvious defect in the system could be ameliorated. These suggestions included possibilities of delaying the cows entering the dairy but keeping them in transmission range for at least one hour until such time as they would have given a transmission of their activity record or including in the draft of high activity cows those cows that had not given a transmission at all and holding the cows including the non-transmitting cows back after milking for a sufficient period of time so that the hourly transmission would have been made to the computer system together with various suggestions based on probability theory as to the number of cows that might be expected to be in oestrus and which might be expected not to have transmitted at the time of drafting.
In my view this is not sufficient compliance with what the plaintiff contracted for. It eliminates much of the expected efficiency savings and is entirely problematic. The plaintiff is not to be expected to pay very substantial sums under the contract only to receive in return experimentation to ascertain if a satisfactory system can be delivered.
In my view the system, as supplied with the number of aerials supplied, could not have ensured that all cows had transmitted their activity reports at the time of being drafted. I am not referring here to an unavoidable error. No system is perfect and no-one would expect that 100% of the cows would necessarily record each time they are in for milking prior to being drafted. No-one expects a fool-proof system. An allowance must always be made for a couple of cows slipping through the net for various reasons. (T372)
The system is required to deal with approximately 1,000 to 1,200 cows, milked in two herds of about 500 at two or possibly three milkings per day.
It is not sufficient enough compliance with the contract and its implied term, however, that two lots of 50 cows could be processed by milking and have passed the drafting gates with about 25% of activity records not being captured. Two lots of 50 cows could be milked in the first hour. I agree that the science of statistics would tend to suggest that in the first half hour 50% of the cows would have transmitted i.e. 25 cows out of fifty and in the second half hour one might expect three quarter’s of the next 50 or 37 to have transmitted and 13, or thereabouts, not to have transmitted making a conservative total of 38 cows not transmitting. I do not regard this as a reasonable error.
I have heard evidence that cows cycle every 21 days. It follows then on any given day of the approximately 38 cows one might expect not to have transmitted only 38 divided by 21 or one or two cows might be expected to be in oestrus.
Of the herd of 1,000 cows one might expect 1,000 divided by 21 i.e. 48 cows to be in oestrus on any one day.
It is one thing to draft off 48 cows for the inspection of the artificial insemination expert. It is another thing for him to have to separate out 2 cows located randomly within about 38 cows of the non-transmitting cows which may have transmitted while waiting after having been detained after milking and separated off as non-transmitting cows.
Thus, approximately 38 cows have to be redrafted by running them back through the yards leading to the drafting gate to locate and separate off a mere 1 or 2 cows which are now found to be in oestrus.
It is highly unlikely that the yards would be set up for this purpose thus requiring a large number i.e. 38 cows to be somehow taken back to the other side of the drafting gate by means of races, if they even exist, in that configuration. This is a significant and complicated effort to get the two cows that have been missed.
Moreover, it is not a sufficient response to say that they could be picked up in the next milking. The plaintiff wishes to have the artificial insemination expert present only at the morning milking and does not wish to require him to be present for the afternoon milking as well.
The next milking at which the high activity could be detected for the purpose of drafting for artificial insemination would be 24 hours away.
If the cow misses out on insemination at the particular morning milking then in effect she misses out on the breeding opportunity. (T219, 232)
I accept the evidence that the most propitious time for insemination is during a 12 hour period when the cow is in oestrus. (T379) If the cow is missed at a particular milking, bearing in mind that it could have been in oestrus for a period prior to that milking it will not be providing an activity reading for 24 hours which is too long a period. The short window of opportunity when pregnancy is most likely to occur has been missed.
It must be remembered that while we are only talking about missing one or two cows in oestrus it is one or two cows per day or 14 cows per week.
In my view such an error inherent in the system means that the system as supplied is not reasonably fit for its purpose of being able to draft all cows having regard to their activity record on the previous 10 – 12 hours since previous milking.
In any event the decision of the plaintiff to terminate the contract is to be judged according to the situation as it existed at the time and not based on theoretical solutions that the defence bring forward at trial but never suggested at the time.
Not a case of merely finetuning the system
The defendant asserts that trial and error and the use of additional antennae would have given a better coverage.
I note that the contract is silent as to who pays for any additional antennae and their associated equipment which works out at about $1,400 per additional antenna. (T556)
Lalich says that DeLaval are always accommodating but the contract is silent as to any additional costs incurred by additional antennae. (T557)
Lalich says that terms and arrangements would have to be made with the plaintiff as to the provision of additional antennae. (T557)
Moreover, it is not just a case of the cost of additional antennae. Additional costs would be involved in the BUS cable which transports the information received by the antennae to the central computer for analysis. There would need to be a BUS cable for each additional antenna. The BUS cable would need to be buried underground at such a depth that it would not be disrupted by tillage equipment drawn across the ground. (T459) This may necessitate the BUS cable to take the longer route around fence lines rather than as the crow flies, thus increasing the length of the BUS cable and its cost.
There would also need to be a separate power cable. (T463) The defendant does not even have any knowledge of whether there are any local authority or electrical authority requirements for the burying of electrical cable and whether the cable in this case needs to cross any public roads. (T466)
In any event, the plaintiff is entitled to have the appropriateness of its decision to terminate assessed against information available at the time and not based on various speculative possibilities that the defendant now advances but did not then advance in support of the Alpro system.
Defence failure to call evidence
The question of the potential of the Alpro activity system to work efficiently was the principal issue. The defendant might have called detailed evidence of a single satisfactorily working system operating in Australia in a grass land setting where cows transmit activity information before drafting for insemination. No such evidence was ever led. I am able more readily, therefore, to draw the inference from the combined evidence that the defendant did not know, and still does not know, how the system can be made to operate so as to provide activity readings for all the cows or at least all but a couple of cows coming to the dairy and being milked and then drafted. I am left in a position where I am extremely doubtful, having had the benefit of limited expert evidence from the defendant, that the system could ever be made to operate satisfactorily in the broad acre situation as exists on Australian farms.
I pay little regard in this respect to the evidence of Lalich as to the similar installation he had been involved in with the Siddiel family. On his own evidence only 75% of the cattle were providing activity readouts. (T606)
There was no evidence led as to what increased percentage of cows provided activity records when more antennae were put in place. (T606, 607)
Likewise, the evidence of Mr Eriksson about installations of the Alpro activity system in grass land operations around the world (T434) does not go so far as to assert a successful operation in a similar topographical setting where all, or nearly all, cows have transmitted to the central computer prior to drafting.
I find myself in a position that I can more readily infer the impracticality of the Alpro system to provide activity readings on all, or nearly all, cows at the time of milking by virtue of the failure of the defence to present specific evidence of it being able to do so in similar circumstances elsewhere so as to contradict the evidence I have heard which points to its impracticality.
System unfit for purpose
I have evidence that the Pedra Branca dairy was on undulating land. The aerials are line of sight and are rendered ineffective by hills or undulations, buildings and tree growth.
I am of the opinion that the defendant had demonstrated at the relevant time an inability to make this system work effectively so as to comply with the implied condition. I am also of the view that the plaintiff was reasonably entitled to form the view at the relevant time that the defendant was incapable of making the system work properly. Its conduct, its responses and its lack of responses had conveyed to the plaintiff its inability to have the Alpro activity system working properly.
Further the plaintiff was entitled to infer as much in that the failure to respond to the request by the plaintiff for an assurance that the defendant’s system was capable of doing what it was required to do is evidence of repudiation by demonstration of inability to perform at the appropriate time.
My reasons for coming to the view that the defendant was at all relevant times not in a position to convey to the plaintiff its complete ability to effect what was required and in fact was unable to do so are as follows:
1.I am of the view that at the time of contracting the defendant had not adverted at all to the problem.
2.The literature it provided did not mention the problem and indeed rather assumed that there would be no such problem.
3.The defendant made no attempt to survey in any serious manner the topography and paddock layout of the property before quoting and providing the equipment.
4.The contract provided no facility for variation according to the number of aerials, bussing etc. required.
5.The defendant apparently had no plans, in even a preliminary sense, for the proposed disposition of aerials.
6.The discussion between the plaintiff and the defendant in which 100% geographical coverage of the property was seriously entertained displayed a failure to appreciate the nature of the problem.
7.The requirement to send two technicians from Sweden indicated that the problem was more than a simple one of switching location of a few antennae which could have been easily dealt with by the local representatives of DeLaval.
8.Notwithstanding quite specific approaches by the plaintiff, orally and in e-mail, for a solution, none was proffered.
9.At trial no definitive solution was proffered but instead a number of conjectural propositions were put including the use of other filtering criteria to draft off cattle that had not had time to record an activity reading with the computer at the time of milking.
10.No evidence was led that the system operated satisfactorily in any similar open grass land setting in Australia.
In other words, coupled with the discussions with Lane at the dairy the plaintiff was entitled to take the failure of the defendant, when requested to provide an explanation of how the system could work to provide information on activity in relation to each cow at the time it was at the dairy being milked and before it was drafted off, as evidence confirming that the defendant had no idea of how this function could be adequately performed and was not able to have its supplied system perform it.
It is not as if the parties were warring and not in communication. Relations were cordial and the plaintiff could reasonably have expected a prompt and adequate response to a question asked in good faith if a response was possible.
I find the goods i.e. computer equipment, antennae, transmitters etc and the system supplied unfit for their purpose made known to the defendant, of providing activity information on cows prior to drafting for possible insemination.
Was the breach sufficiently serious to justify termination?
The breach of s 14 of the Sale of Goods Act was the breach of an implied condition according to the Act.
In Cheshire and Fifoot Law of Contract Australian 9th Edition, para 21.16, the authors say,
Failure to perform an expressed or implied obligation, that is an essential term, entitles the other party to terminate the contract. Essential terms are also called conditions, and distinguished from warranties or inessential terms.
The implied condition of fitness for purpose is described in the Sale of Goods Act as a condition.
In my view the fact that it is a condition gives a right to terminate.
Approximately half the value of the contract was in the activity system which was demonstrated to be unusable from a practical point of view. The plaintiff was about to be asked to pay out another $126,507.98. (P1, p.116)
The plaintiff should not reasonably have been required to accept the other parts of the dairy refurbishment already put in place. (See evidence of Schultz, T364, 365)
In my view the plaintiff genuinely regarded it as an important, indeed crucial, part of its business development that labour savings could be made and the efficiency of a large operation enhanced by the Alpro system and a significant part of the attraction of the defendant’s contractual offer disappeared when the system was shown to be incapable of operation up to standard.
The plaintiff would not have entered the contract without the provision of a working activity drafting system.
The breach was sufficiently serious to permit termination.
Alternative remedies
Although strictly not necessary to do so I will proceed to indicate my views on the alternative remedies sought by the plaintiff.
Common Law
The issuing to the plaintiff of documents containing the representations referred to in paragraphs 52-59 hereof together constituted actionable misrepresentation.
I find these representations induced the plaintiff to enter into the contract.
The representations were statements in relation to an existing state of affairs namely that the Alpro system provided by the defendant was capable of providing activity information on the dairy herd at least by the time the cow was to be drafted after milking.
In my view that is the way that an ordinary reasonable observer would have understood the advertising material. It was not mere hyperbole.
In my view it produced in the mind of the plaintiff a reasonable expectation that the system supplied would enable drafting to take place immediately after milking with activity based on the cow’s recent activity within the last 12 hours so that a decision could be made to draft with a view to artificially inseminating each cow.
The representations contained in the material referred to were material representations and they were false.
The contract was therefore voidable and the plaintiff was entitled to rescind.
I find that the plaintiff did rescind.
In my view the plaintiff is also entitled to damages under the Misrepresentation Act1972 in addition to the remedy of rescission.
Statutory remedies
The representations that I have referred to also constitute, in my view, misleading or deceptive conduct pursuant to s 52(1) of the Trade Practices Act1974 (Cth) and the Fair Trading Act 1987 (SA) s 56(1).
The plaintiff is entitled to damages inter alia under s 82 of the Trade Practices Act and s 84 of the Fair Trading Act.
Damages
The contract having been terminated, rights that are accrued remain enforceable including the right to sue for damages for breach of the contract. (See McDonald v Dennys Lascelles Ltd)[3]
[3] (1933) 48 CLR 457 at 476-7
The plaintiff is entitled to the amount of the unconditional deposit paid of $31,626.99.
The plaintiff is also entitled to $126,507.98 in respect of the second deposit paid.
In my view the plaintiff is also entitled to damages for delay, not on the basis of a term or representation that the job would be finished by the end of February but rather the delay caused by the system being incapable of operating as the plaintiff had bargained for and thus not continued with.
I agree with counsel for the defendant that the defendant did not make any unequivocal or unconditional assurances that the work would be completed by the end of February but rather merely acknowledged that they would make an attempt to have the work completed by then and that there were no foreseen difficulties in that goal.
Insofar as it was a representation it could only have been a representation as to present intent and there is no evidence to suggest that that intent was not genuinely held with good cause.
The question is what damages is the plaintiff entitled to for delay?
The plaintiff claims to establish losses by providing a comparison showing diminished milk production in the Laslett shed compared to the Doman shed. (P1, Part B, p.3) I am not convinced, however, that that is an appropriate basis upon which to award damages in this case.
The monthly figures show significant variations in the milk production within each shed. Moreover, there may be many factors affecting the milk production per head in each shed including,
§The quality of the herd
§The quality of the pastures
§The distance travelled for milkings
In addition disruption at a shed while in the course of refurbishment may well lead to a loss of production through longer waiting times for milking and the cattle being unsettled.
All cows on the property continued to be milked. Any increase in productivity through individual feeding would be likely to have a marginal effect and only over a period of time.
I will not make an allowance for loss of milk production.
A more solid basis for a claim for damages is in the labour component. I will allow a labour component from the end of March 2007, by which time the Alpro system should have been up and running, to mid May 2007 when an alternative system was operating.
I can only make a very broad estimate based on the fact that additional labour would have been required at the Laslett shed over a longer period of time. Additional labour was incurred in placing collars on cows and in the disruption within the shed. The Court is obliged to do its best to determine this loss. See Commonwealth v Amann Aviation Pty Ltd.[4]
The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can … Where precise evidence is not available the court must do the best it can.
[4] (1991) 174 CLR 64 at 83, 125
The plaintiff calculates approximately $10,000 for the period. (P1, p.16) Further there is the additional labour of Lane and Hayes for which no charge is made
I will allow $10,000.
Summary
There will be judgment for the plaintiff for:
$ 31,626.99
$126,507.98
$ 10,000.00
$168,134.97
The counterclaim is dismissed.
I will hear the parties as to interest and costs.
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