Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Cooper v Kinsella [2011] NSWCA 45
• Hearing dates: 4 February 2011
• Decision date: 11 March 2011
• Before: Allsop P at 1; Hodgson JA at 4; Sackville AJA at 67

Decision

(1) Appeal allowed.

(2) Orders below set aside.

(3) Judgment for Mr Cooper against the respondents for $133,923.

(4) Order that the respondents pay Mr Cooper interest on $133,923 from 1 September 2005 until to-day at prescribed rates.

(5) Order that the respondents pay Mr Cooper's costs of the proceedings below.

(6) Order that the respondents pay Mr Cooper's costs of the appeal, and that they have a certificate under Suitors' Fund Act 1951 if otherwise eligible.

If within fourteen days the parties provide the Court with an agreed calculation of interest up to to-day, the Court will give judgment for that amount (pursuant to order (4) above), to take effect from to-day.

[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 - Breach - Repudiation - Whether actual breach in the circumstances conveyed repudiation - Whether repudiation accepted - Whether innocent party relieved from performing condition precedent - Application of principle in Peter Turnbull & Co Pty Limited v Mundus Trading Co (Australasia) Pty Limited [1954] HCA 25; (1954) 90 CLR 235.; GUARANTEE - Whether contract of guarantee imposed liability greater than that of principal debtor.
• Cases Cited: Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315; Asia Television Ltd v Yau's Entertainment Pty Ltd [2003] FCA 720; Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524; Foran v Wight [1989] HCA 51; 168 CLR 385; Holland v Wiltshire (1954) HCA 42; 90 CLR 409; Mahoney v Lindsay (1980) 33 ALR 601; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235; Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; Vitol SA v Norelf Ltd [1996] AC 800; 3 All ER 193
• Category: Principal judgment
• Parties: Benjamin Robert COOPER (appellant); Ian Anthony KINSELLA (first respondent); Simon STONIER (second respondent); Scott Benjamin WRIGHT (third respondent)
• Representation: Counsel: P BEALE/ E CHRYSOSTOMOU (appellant); G B COLYER (respondents); Solicitors: Mills Oakley Lawyers (appellant); Kemp Strang Lawyers (respondents)
• File Number(s): 2008/319361

Decision under appeal

• Date of Decision: 2010-03-04 00:00:00
• Before: Robison DCJ
• File Number(s): 4604/2009

HEADNOTE

Facts

The appellant (Mr Cooper) and respondents (Mr Kinsella, Mr Stonier and Mr Wright) were variously involved in the nightclub and wholesale beverage industries. Pursuant to a share-sale agreement entered into in May 2004, Mr Cooper entered into a loan agreement with Redrock Pty Ltd ("Redrock"), a company controlled by the respondents, to lend Redrock $175,000. Clause 1.3.3 of the Loan Agreement provided that Mr Cooper would accept stock-in-trade ordered on a monthly basis by Mr Cooper or Inner City Blues Pty Ltd ("Inner City Blues", a company controlled by Cooper), not exceeding capped monthly values for a set term, as full satisfaction of the loan. Redrock could also effect full and final discharge of the loan at any time by payment to Mr Cooper of the balance of the principal sum with interest.

The respondents, by deed dated 4 June 2004, guaranteed:

"the due and punctual observance and performance by the Debtor [Redrock] of all the terms and provisions on the part of the Debtor expressed or implied in the Principal Security", and that

"The Guarantor will immediately upon demand by the Lender [Mr Cooper] in the event of default by the Debtor under or by virtue of the Principal Security pay to the Lender the principal interest and other moneys guaranteed by the Guarantor hereunder."

From late 2004, Redrock was not able to fully satisfy orders placed by Mr Cooper. Between October 2004 and February 2005, Mr Cooper did not place orders, accepting cash credits from Redrock in lieu. On about 18 March 2005, the respondents advised Mr Cooper that Redrock was not in a financial position to supply further stock or credits. Redrock gave a final cash credit on 31 March 2005. On 26 July 2005, Mr Cooper placed an order by email. Redrock did not respond, and no stock was ever supplied. On 29 August 2005 Mr Cooper's Solicitors sent letters of demand to Redrock and the respondents. Redrock was wound-up on 24 March 2006. Mr Cooper commenced these proceedings to enforce the Guarantee as a claim for liquidated damages in 2008.

The primary judge held that cl 1.3.3 of the Loan Agreement required Mr Cooper or Inner City Blues to place an order for stock-in-trade in order to trigger the scheduled repayments. The event of a single order being placed and not filled in July 2005 was not sufficient to trigger a claim for liquidated damages against the respondents for the full balance of the loan, as this would enlarge the guarantor's obligations of repayment beyond the obligations of the primary debtor under the Loan Agreement.

Issues

Issues arising on appeal:

(1) Did Redrock breach the agreement?

(2) Can repudiation be relied upon, and if so did Redrock repudiate the agreement?

(3) Did Cooper accept the repudiation?

(4) What was Redrock's liability?

(5) Did the deed of guarantee enlarge the respondents' liability?

Held (Appeal allowed, setting aside orders of the primary judge, judgment for the appellant plus costs):

In relation to (1) - Breach of Agreement

( Per Hodgson JA, Allsop P and Sackville AJA agreeing )

Redrock breached the agreement by not fulfilling the order of 26 July 2005.

( Per Sackville AJA, Allsop P agreeing, Hodgson JA not deciding )

In the alternative, Redrock was in breach of the agreement in each month from September 2005 onwards when it failed to repay the specified amount of the loan. Mr Cooper did not have to comply with the condition precedent in the Loan Agreement to trigger Redrock's obligation to repay, because Redrock intimated to Mr Cooper that compliance would be futile.

In relation to (2) - Repudiation

( Per Hodgson JA, Allsop P and Sackville AJA agreeing )

Repudiation was sufficiently raised in the pleading and evidence at first instance, such that Mr Cooper is not precluded from relying on it. In the context of the statement made on 18 March 2005, the complete lack of response to the order of 26 July 2005 conveyed unequivocally to Mr Cooper that Redrock was unable or unwilling to provide substantial performance of the Loan Agreement, and was a clear repudiation.

In relation to (3) - Acceptance

( Per Allsop P and Hodgson JA, Sackville AJA disagreeing )

Acceptance was communicated. The sensible commercial reality communicated by the letter of 29 August 2005 was that performance of the contract was over.

( Sackville AJA )

Acceptance was not communicated prior to the termination of the agreement by effluxion of time. The letter of 29 August 2005 did not clearly and unequivocally convey that Mr Cooper was treating the Loan Agreement as at an end.

In relation to (4) - Redrock's Liability

( Per Hodgson JA, Allsop P agreeing )

Mr Cooper was entitled as against Redrock to damages for loss of the bargain as at 29 August 2005, plus any damages for breach that may have accrued prior to acceptance of repudiation at that time (none having accrued in the circumstances).

( Per Sackville AJA )

Mr Cooper is entitled to damages equivalent to the amounts by which the loan would have been reduced after 7 September 2005 had Redrock complied with its contractual obligations.

In relation to (5) - Respondents' liability under Guarantee

( Per Hodgson JA, Allsop P and Sackville AJA agreeing )

Under the Deed of Guarantee, the respondents are liable for as much as Redrock is liable.

JudGment

1 ALLSOP P: I have read the reasons in draft of Hodgson JA and Sackville AJA. I agree with the reasons of Hodgson JA and with the orders that he proposes. I would only wish to add the following comments.

2 "Acceptance" in the sense of a decision to terminate the performance of the contract is to be objectively inferred and concluded from the circumstances at the time of and the letter of 27 August 2005. What is plain from the letter is that the commercial relationship was at an end and rights would be enforced. The sensible commercial reality communicated was that performance of the contract was over.

3 As to the significance of Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; 90 CLR 235, if there was in fact no acceptance of the serious breach or repudiation (though, in my view, there was) it can be concluded that there was no retraction of the repudiation that was made in March and July 2005. In these circumstances, there was proper foundation to conclude that Mr Cooper did not have to undertake the empty formalities of monthly orders. On the hypothesis that there was no acceptance of the serious breach or repudiation, I agree with the analysis of Sackville AJA that leads to substantially the same orders as proposed by Hodgson JA.

4 HODGSON JA: In proceedings brought in the District Court, the appellant Mr Cooper claimed damages against the respondents for breach of a guarantee agreement entered into between Mr Cooper and the respondents. On 4 March 2010 Robison DCJ dismissed Mr Cooper's statement of claim, and made a costs order against Mr Cooper in favour of the respondents. Mr Cooper appeals from that decision.

Outline of facts

5 I will commence with an outline of relevant facts that are not disputed or clearly proved.

6 In April 2003, Mr Cooper purchased shares in a company Redrock Co Pty Limited (Redrock), a wholesaler of alcoholic and non-alcoholic beverages, for a price of $150,000; and he also acquired units in a unit trust The Redrock Unit Trust, the owner of a warehouse associated with Redrock's business, in return for providing a guarantee to the transferor of those units of repayment of a debt of $100,000 owing by Redrock. At the same time, Mr Cooper entered into a shareholders' agreement with the other three continuing shareholders, namely the first respondent Mr Kinsella, the third respondent Mr Wright and a Mr Burlinson.

7 Mr Cooper had a part share in a nightclub conducted by Inner City Blues Pty Limited (Inner City Blues), which became a customer of Redrock, and which by about April 2004 was acquiring beverages from Redrock at the rate of about $9,000 to $10,000 per month. By about April 2004, Inner City Blues had a trading account debt of about $72,000 to Redrock; while on another account, Mr Cooper was owed $42,000 by Redrock.

8 In April 2004, Mr Cooper was introduced to the second respondent Mr Stonier; and subsequently Mr Stonier agreed to purchase Mr Cooper's shares in Redrock and his units in the Unit Trust. Agreement was reached in principle between Mr Cooper and the respondents concerning Mr Stonier's purchase on about 13 May 2004. The substance of the agreement was that the purchase price was $225,000, of which $20,000 was to be paid to Mr Cooper, $30,000 was to be applied to reduce the Inner City Blues' trading account debt, and the balance of $175,000 was to be lent to Redrock. In addition, the $42,000 owed by Redrock to Mr Cooper was to be applied in further reduction of the Inner City Blues' debt to Redrock.

9 Agreements to give effect to the transaction were signed on 4 June 2004. Most relevant to these proceedings are a Loan Agreement between Mr Cooper, Inner City Blues and Redrock, and a Deed of Guarantee between Mr Cooper and the respondents.

10 The Loan Agreement included the following recitals:

(h) Inner City Blue [sic] is a company which is subject to the management and control of Cooper;

(i) Inner City Blue [sic] is a customer of Redrock and on accounts stated by and between itself and Redrock is currently indebted to Redrock in the sum of $72,000.00 for goods sold and delivered (the "Trading Account Debt");

(j) Redrock is currently indebted to Cooper in the sum of $42,000.00 pursuant to loan accounts stated between them by and between them (the "Loan Account Debt");

(k) subject to the terms of this Agreement and to due completion of the Agreement for Sale, Cooper has agreed to lend the sum of $175,000.00 (the "Principal Sum") to Redrock;

(l) Cooper, Inner City Blues and Redrock have reached agreement amongst themselves to effect discharge of the respective liabilities owing by Redrock to Cooper in respect of the Loan Account Debt and by Inner City Blues Pty Ltd as hereinafter provided;

11 The Loan Agreement also included the following terms (the "Agreement for Sale" being the agreement by which Mr Stonier purchased Mr Cooper's shares and units for $225,000):

1. Upon and by virtue of completion of the Agreement for Sale in accordance with its terms:

1.1 Redrock is hereby authorised and directed by Cooper and Inner City Blue [sic] to set off the amount of the Loan Account Debt against the Inner City Blue's [sic] liability to Redrock in respect of the Trading Account Debt;

1.2 Cooper will forthwith pay to Redrock (by way of direction to Stonier to pay to Redrock out the purchase price otherwise payable by Stonier to Cooper under and in accordance with the terms of the Agreement for Sale) the amount of the balance of the Trading Account Debt then outstanding, namely, the sum of $30,000.00 and Cooper warrants and hereby agrees that he will in the Agreement for Sale authorise and cause Stonier to make that payment accordingly;

1.3 Cooper will forthwith lend and advance the Principal Sum to Redrock upon the following terms and conditions, namely:

1.3.1 the date upon which the loan is to be made is the date of completion of the Agreement for Sale;

1.3.2 the term of the loan is to be 3 years;

1.3.3 subject to 1.3.5. Redrock will repay the said loan and will pay interest thereon and Cooper will accept such repayment and payment in the manner following, namely, by delivery to or to the direction of Cooper and/or Inner City Blues at Inner City Blue's [sic] address as identified in this agreement or at such other address or addresses as may be mutually agreed upon at any time and from time to time (such agreement not to be unreasonably withheld) monthly and each and every month during the term of the loan:

(a) during the first 10 months of the term :

such Redrock stock-in-trade as may be ordered by or on behalf of Cooper and/or Inner City Blues up to the value (at Redrock's listed selling price or prices prevailing at the relevant time or times exclusive of GST) of $4,000.00;

(b) during the next succeeding 25 months of the term :

such Redrock stock-in-trade as may be ordered by or on behalf of Cooper and/or Inner City Blues up to the value (at Redrock's listed selling price or prices prevailing at the relevant time or times exclusive of GST) of $7,000.00;

(c) during the last month of the term :

such Redrock stock-in-trade as may be ordered by or on behalf of Cooper and/or Inner City Blues up to the value (at Redrock's listed selling price or prices prevailing at the relevant time exclusive of GST) of $6,000.00;

PROVIDED THAT Cooper and Inner City Blues acknowledge and agree that they are and each of them will be liable to and will pay to and/or reimburse Redrock on demand for the GST for which Redrock shall be or become liable in respect of the supply to them or either of them of such Redrock stock-in-trade as shall be delivered by Redrock to them or either of them under and in accordance with the preceding provisions of this Clause 1.3.3.

1.3.4 subject to 1.3.5, compliance by Redrock with its obligations to Cooper under and in accordance with 1.3.3 above shall be accepted by Cooper in full satisfaction and discharge of the loan.

1.3.5 notwithstanding the provisions of 1.3.3 and 1.3.4, Redrock may at any time prior to the expiration of the term effect full and final discharge of its liability to Cooper in respect of the loan by payment to Cooper in cash or by bank cheque of the balance of the Principal Sum then remaining unpaid together with interest thereon at the rate of $14.36 per centum per annum calculated to the end of the month in which such discharge is effected such balance to be determined by reference to and in accordance with the Schedule hereto.

1.4 The loan to Redrock the subject of paragraph 1.3 above will be made by way of payment by Stonier of the amount of the Principal Sum, namely, the sum of $175,000.00, to Redrock out of the purchase price otherwise payable by Stonier to Cooper under and in accordance with the terms of the Agreement for Sale and Cooper hereby warrants and agrees that he will in the Agreement for Sale authorise and cause Stonier to make that payment accordingly.

12 The Schedule referred to in clause 1.3.5 was as follows:

No	Opening	Interest	Repayment	Balance
1	$175,000	$2,094	-$4,000'	$173,094	0.1436
2	$173,094	$2,071	-$4,000	$171,166
3	$171,166	$2,048	-$4,000	$169,214
4	$169,214	$2,025	-$4,000	$167,239
5	$167,239	$2,001	-$4,000	$165,240
6	$165,240	$1,977	-$4,000	$163,217
7	$163,217	$1,953	-$4,000	$161,171
8	$161,171	$1,929	-$4,000	$159,099
9	$159,099	$1,904	-$4,000	$157,003
10	$157,003	$1,879	-$4,000	$154,882
11	$154,882	$1,853	-$7,000	$149,735
12	$149,735	$1,792	-$7,000	$144,527
13	$144,527	$1,730	-$7,000	$139,257
14	$139,257	$1,666	-$7,000	$133,923
15	$133,923	$1,603	-$7,000	$128,526
16	$128,526	$1,538	-$7,000	$123,064
17	$123,064	$1,473	-$7,000	$117,536
18	$117,536	$1,407	-$7,000	$111,943
19	$111,943	$1,340	-$7,000	$106,283
20	$106,283	$1,272	-$7,000	$100,554
21	$100,554	$1,203	-$7,000	$94,758
22	$94,758	$1,134	-$7,000	$88,892
23	$88,892	$1,064	-$7,000	$82,955
24	$82,955	$993	-$7,000	$76,948
25	$76,948	$921	-$7,000	$70,869
26	$70,869	$848	-$7,000	$64,717
27	$64,717	$774	-$7,000	$58,491
28	$58,491	$700	-$7,000	$52,191
29	$52,191	$625	-$7,000	$45,816
30	$45,816	$548	-$7,000	$39,364
31	$39,364	$471	-$7,000	$32,835
32	$32,835	$393	-$7,000	$26,228
33	$26,228	$314	-$7,000	$19,542
34	$19,542	$234	-$7,000	$12,776
35	$12,776	$153	-$7,000	$5,929
36	$5,929	$71	-$6,000	$0
		$46,000	-$221,000

 

SCHEDULE

13 The Deed of Guarantee included the following recitals and terms:

WHEREAS

(a) by Agreement for Loan of even date herewith made between the Lender of the first part, Inner City Blues Pty Limited of the second part and The Redrock Co Pty Limited (hereinafter referred to as the "Debtor") of the third part (hereinafter referred to as the "Principal Security") the Lender has at the request of the Guarantor agreed to lend and advance the sum of $175,000.00 to the Debtor upon terms as to repayment, payment of interest and otherwise as set out in the Principal Security;

(b) the agreement of the Lender hereinbefore recited is subject to and conditional upon the Guarantor entering into these presents

NOW THIS DEED WITNESSETH THAT:

1. The Guarantor hereby guarantees to the Lender the due and punctual observance and performance by the Debtor of all the terms and provisions on the part of the Debtor expressed or implied in the Principal Security.

2. The Guarantor hereby covenants and agrees with the Company as follows:-

2.1 The Guarantor will immediately upon demand by the Lender in the event of default by the Debtor under or by virtue of the Principal Security pay to the Lender the principal interest and other moneys guaranteed by the Guarantor hereunder.

.....

2.3 The guarantee herein contained is a continuing guarantee and shall be irrevocable and shall remain in full force and effect until the whole of the moneys secured by or other the terms and provisions on the part of the Debtor contained or implied in the Principal Security have been fully paid or satisfied.

14 The evidence before the primary judge included a statement of account from Redrock to Inner City Blues covering the period 30 June 2004 to 29 April 2005 (Blue 92-93). This statement shows an opening debit balance of just under $79,000, and a payment of $72,000 on 30 June 2004, which is plainly the sum of $42,000 and the $30,000 provided by the agreement of 4 June 2004.

15 The statement shows invoices in July 2004 amounting to about $11,000, in August and September 2004 amounting to about $14,000 in each month, and in October 2004 amounting to about $9,000. The next invoice is on 18 March 2005 for $2,411.56, and the last invoice is on 14 April 2005 for $2,879.32. The statement records credits of $4,000 on the last day of each month from July 2004 to March 2005 inclusive, as well as other payments.

16 The debit balance after the last invoice rendered in October 2004 was just under $29,000, and this was reduced by a payment of $17,021.99 and the credits of $4,000 at the end of each month from October 2004 to February 2005 to $7,683.41. The two invoices in March 2005 and April 2005, and the credit of $4,000 on 31 March 2005 gave rise to a final debit balance on this statement of $8,974.29. The evidence does not disclose any further adjustments to the account between Redrock and Inner City Blues.

17 On about 18 March 2005, there was a meeting between Mr Cooper and the respondents, at which the respondents advised Mr Cooper that they were not in a financial position to make the payments to him required by the Loan Agreement. This led to a number of emails exchanged between Mr Cooper and the respondents between 23 March 2005 and 23 June 2005 concerning what should happen.

18 On 26 July 2005, Mr Cooper sent Mr Kinsella at Redrock an email in the following terms:

please let me know if you can fulfill the following order as per agreement

4 cases smirnoff vodka 700ml

1 case jack daniels 700ml

1 case johnnie walker red label 700ml

1 case real mccoy bourbon 700ml

1 case bundaberg rum 700ml

1 case bacardi rum 700ml

1 case malibu 700ml

2 case cuervo tequila 700ml

25 cases tooheys extra dry

15 cases stella artois

25 cases corona

3 cases lindemans brut

cheers

There was no response to this email, and no beverages were supplied by Redrock as requested in it.

19 On 29 August 2005, solicitors acting for Mr Cooper sent to each of the respondents a letter in the following terms (with appropriate adjustments to the second last paragraph):

We act for Benjamin Cooper. Pursuant to the Agreement for Loan and Adjustment of Loan and Trading Accounts dated 4 June 2004 made between our client, his company Inner City Blues Pty Limited and The Redrock Co Pty Limited (" the Agreement "), our client loaned to The Redrock Co Pty Limited (" Redrock ") the sum of $175,000. By Deed of Guarantee dated 4 June 2004, you guaranteed payment of that loan in the event of default by Redrock.

We are instructed that Redrock is in default of loan repayments. Redrock has failed to make any payment to our client, or any delivery of stock in lieu of cash payment, since 14 April 2005.

Redrock is now in breach of the Agreement, and our client requires you as guarantor to make immediate payment to our client of the full balance of the loan, which is presently $148,028.71.

Please note that we have made demand of Redrock and the other guarantors, Ian Kinsella and Scott Wright.

If payment to our client in the sum of $148,028.71 is not made by 5.00pm on 19 September 2005 our client will take whatever action it considers appropriate against Redrock, Mr Kinsella, Mr Wright and you to recover that amount, plus interest and legal costs.

20 I note that in cross-examination, Mr Cooper gave evidence to the effect that Inner City Blues went into liquidation in March 2005. However, a document from Australian Securities and Investments Commission concerning Inner City Blues which was tendered by consent on the appeal suggests that the winding-up order was in fact made on 24 March 2006.

21 These proceedings were commenced in 2008.

Claim and evidence before the primary judge

22 In the Amended Statement of Claim dealt with by the primary judge, Mr Cooper claimed "liquidated damages" and interest. The Amended Statement of Claim referred to the Loan Agreement of 4 June 2004 and to the Deed of Guarantee, and then continued:

Method of Payment

7. It was a term of the Loan Agreement that repayments would be made in the form of stock in trade ordered by the Plaintiff, or in the form of cash in the equivalent sum.

Particulars

Scheduled to Loan Agreement dated 4 June 2004 signed by the Plaintiff, and the Defendants. Oral discussions between the Plaintiff and the Defendants.

[the following text was struck out: Defendants at various times said "You are OK if we pay cash instead of supplying the stock in trade to pay off the loan?" and the Plaintiff said "Yes, that's fine". ]

8. In the alternative, it was an implied term of the Loan Agreement that repayments in respect of the loan could be made in cash.

Particulars

As above.

9. [the following text was struck out: In the alternative, as Red Rock was unable to provide stock in trade pursuant to the Loan Agreement, the Plaintiff and Defendants agreed that further repayments would be made in cash by the Defendants to the Plaintiff pursuant to the Guarantee (as set out below). ]

[the following text was struck out: Particulars]

[the following text was struck out: As for paragraph 8. ]

Breach

10. Redrock failed to make payments due to the Plaintiff pursuant to the Loan Agreement, such that the principal sum of $139,000 remains outstanding.

11. In the alternative, Redrock repudiated the Loan Agreement by failing to make payments/deliver stock in trade pursuant to the Loan Agreement. The Plaintiff accepted the repudiation and looks to the Defendants for payment pursuant to the Guarantee.

12. The First, Second and Third Defendant, in breach of the Guarantee and despite demand, have failed to pay the amount outstanding in respect of the Loan Agreement.

Particulars

Clause 2.1 of Deed of Guarantee dated 4 June 2004 signed by the Plaintiff and the Defendants.

[the following text was struck out: Letter of Demand dated 28 July 2008 to the Defendants. ]

13. It was a term of the Guarantee that the Defendants would jointly and severally pay any legal costs on an indemnity basis incurred by the Plaintiff as a consequence of a breach of the Guarantee by any of the Defendants.

Particulars

Clause 4 of Deed of Guarantee dated 4 June 2004 signed by the Plaintiff and the Defendants.

14. The Plaintiff has suffered loss and damage.

15. The Plaintiff claims Damages in the sum of $139,000; and

(i) Interest calculated at the rate as set out in the Civil Procedure Act 2005 (NSW) as per the following schedule:

Loan  Agreement	Date Due	Amount		Days	Daily Interest	Interest Due
	4/06/2004	$175,000.00		1525	$68.85	$104,995.21
	Total   $175,000.00				Total Interest    $104,995.21

Repayments
Date	Posted date	Paid	Days	Daily Interest	Interest CR
31/07/2004		$4,000.00	1468	$1.57	$2,310.19
31/08/2004		$4,000.00	1437	$1.57	$2,261.40
30/09/2004		$4,000.00	1407	$1.57	$2,214.19
30/10/2004		$4,000.00	1377	$1.57	$2,166.98
30/11/2004		$4,000.00	1346	$1.57	$2,118.20
31/12/2004		$4,000.00	1315	$1.57	$2,069.41
31/01/2005		$4,000.00	1284	$1.57	$2,020.63
28/02/2005		$4,000.00	1256	$1.57	$1,976.57
31/03/2005		$4,000.00	1225	$1.57	$1,927.78
	Total $36,000.00			Credited Interest  $19,065.36
				Net Interest  $85,929.85
				Daily Interest  $67.28

Amount Owing	$175,000.00
Less Repayments	$36,000.00
Net Debt	$139,000.00
Plus Net Interest	$85,929.85
Total Debt	$224,929.85

And interest ongoing at the rate of $67.28 per day from 7 August 2008 onwards.

(ii) In the alternative, interest calculated at the rate as set out in the Civil Procedure Act 2005 (NSW):

(iii) Costs on an indemnity basis.

23 Mr Cooper put on an affidavit in proceedings which contained the following paragraphs:

24. However, in about late 2004, I noted there were a few occasions when I spoke with Ian Kinsella on the telephone and he said that certain alcohol products I ordered were not available. This became an increasing occurrence in early 2005 and [... ] the amount of orders by me decreased with Redrock because of Redrock's inability to supply a number of alcoholic products.

25. As a result of Redrock being unable to fulfil and satisfy orders for alcoholic beverages made by Inner City Blues, I was forced to place orders for alcoholic products with other suppliers. I note that between October 2004 and February 2005, Redrock continued to provide the $4,000.00 credits to Inner City Blue's [sic] account thereby reducing the balance.

26. In early March 2005, a further order was placed with Redrock. However, I tried to contact Ian Kinsella on a number of occasions to discuss Redrock's inability to supply alcoholic beverages required and requested by Inner City Blues and myself.

27. Ian Kinsella said to me in a telephone conversation that Redrock was scaling back its liquor operations because of the low profit percentages and the high debt being carried by Redrock.

28. I found it increasingly more difficult to get hold of Ian Kinsella who often would not return my telephone calls. For the first time in my dealings with Redrock, Simon Stonier called me (in early 2005) to discuss the financial problems encountered by Redrock and difficulties in fulfilling my stock orders on behalf of Inner City Blues. We then agreed to arrange a meeting to discuss these issues.

29. On approximately 18 March 2005, I met with Simon Stonier, Ian Kinsella and Scott Wright in a caf on Gardeners Road, Mascot. At that meeting, Simon Stonier, Ian Kinsella and Scott Wright advised me that they were not in a financial position to make the payments to me required by the Loan Agreement and that an alternative arrangement would need to be implemented, such as payment from a new investor or assignment of some of Redrock's debt to me.

30. I responded to them by explaining that I was flexible with repayment options; these repayment options set out in my email to Ian Kinsella of 23 March 2005 at 4.08pm. I note that Ian Kinsella responded to me by email of 23 March 2005 at 6.58pm, which I thereafter responded by way of email of 24 March 2005 at 4.46pm. Copies of these said emails are at Tab 6 of Exhibit BRC-1.

24 No affidavit evidence was put on by the respondents. The cross-examination of Mr Cooper did not challenge those paragraphs, but elicited the liquidation of Inner City Blues, which had not been mentioned in Mr Cooper's affidavit.

25 In submissions, Mr Cooper's counsel did not refer to repudiation.

Decision of primary judge

26 The primary judge held to the effect that clause 1.3.3 of the Loan Agreement provided the method for repayment of the loan, and that the obligation to repay by that method required Mr Cooper or Inner City Blues to take certain action to engage those provisions (Red 43); and that there was no implied term in the agreement that, if that did not occur, repayments were to be made in cash (Red 44).

27 The primary judge referred to "evidence which indicates that only one order was not complied with", without then identifying which order that was (Red 40); but later said "then at a stage in July 2005 that particular order was not met", plainly referring to Mr Cooper's email of 26 July 2005 (Red 43). Later, the primary judge said this:

... The submission made by Mr Colyer for the defendants to the effect that Mr Cooper chose to sit back and not place any more orders does have foundation. There was a decision which must have been made not to place anymore orders. So effectively Mr Cooper has seized upon that particular failure to fill that order to trigger this claim for $139,000. In my view there was no evidentiary basis for Mr Cooper to do that having regard to the issues which have been raised in this particular case.

That necessarily brings into play whether the plaintiff is entitled to claim effectively a liquidated sum by way of damages, the claim for $139,000 plus interest. That has to based upon an existence of a right to claim that liquidated sum at that stage, that is, the stage when the order was not filled.

It is true to say that there is no liquidated or accelerated damages clause in the loan agreement itself. The deed of guarantee must be considered in the context of the loan agreement. They are inextricably bound documents. They have to be considered together in the context of the relationship of these parties.

It has to be said that there was an alternative available to this plaintiff, a claim for damages for breach of contract, if indeed there was in fact damage. There is no evidence before this court of any damage when one considers any damages at large on the part of the plaintiff nor Inner City Blues Pty Limited ...

28 The primary judge went on to hold to the effect that the Guarantee did not enlarge the obligations of repayment beyond the obligations of Redrock under the Loan Agreement.

Issues on appeal

29 Mr Cooper relies on the following grounds of appeal:

1 The trial judge erred in failing to find that the agreement was repudiated - and/or there was breach of contract by Redrock and the respondents.

2 The trial judge erred in failing to find that the appellant did not have a cause of action for a liquidated debt.

3 The trial judge erred in finding that the only evidence of loss is in the context of the amount claimed on the statement of claim.

4 The trial judge erred in failing to find that Clause 2.1 of the Guarantee gave the Appellant the entitlement to the full amount under the loan agreement then due and owing.

5 The trial judged erred in failing to find that Clause 4 of the Guarantee indemnified the Appellant for non-payment of any moneys and non-performance of any covenants or provision in the agreement against any loss.

6 The trial judge erred in finding that there was no evidence of damage - and erred in failing to find the appellant was entitled to damages.

7 The trial judge erred in not finding that The Redrock Co Pty Limited ( 'Redrock' ) had defaulted on the loan agreement, namely:

a. The unchallenged evidence of the Appellant that his stock order for beverages was not supplied by Redrock.

b. The unchallenged evidence of the Appellant that Redrock was not in a position to make payments to the Appellant as required by the agreement

8 The trial judge erred in failing to take into account the intentions of the parties and the documents as a whole, namely:

a. ...

b. The unchallenged evidence of the Schedule to the loan agreement -setting out the repayments and interest schedule.

c. The terms of the guarantee and the nature of the obligation, performance of which is guaranteed.

9 ...

10 Failure to give any or any sufficient reason for findings and conclusions in dismissing the appellant's statement of claim.

11 The trial judge erred in failing to find an implied term in the agreement that payment by the guarantor on default should and/or could be made by way of a sum of money.

12. The trial judge erred in finding that there was only one particular failure, being the order of 25 July 2005, in triggering the claim.

30 I will consider in turn the following issues:

(1) Breaches of agreement by Redrock? (appeal grounds 1, 7, 12)

(2) Was there repudiation? (appeal grounds 1, 7)

(3) Was there acceptance of repudiation? (appeal ground 1)

(4) What was Redrock's liability? (appeal ground 6)

(5) Did the Deed of Guarantee enlarge the respondents' liability? (appeal grounds 4, 5, 11)

31 Grounds 2, 3 and 8 did not raise any independent issues; and ground 10 requires no separate consideration, in circumstances where Mr Cooper does not suggest there should be a new trial because of deficiency of reasons.

Breaches of agreement by Redrock

32 Clause 1.3.5 of the Loan Agreement gives Redrock the option of repaying money to Mr Cooper rather than providing stock-in-trade pursuant to clause 1.3.3; but in my opinion it imposes no obligation on Redrock to pay money. The Schedule proceeds on the assumption that the regime provided by clause 1.3.3 will be complied with, and makes no provision as to how interest is to be calculated if clause 1.3.3 is not complied with; but in my opinion this is plainly insufficient to expand the obligations in clause 1.3.3. This is confirmed by clause 1.3.4, which provides that compliance by Redrock with clause 1.3.3 is to be accepted by Mr Cooper in full satisfaction and discharge of the loan.

33 Accordingly, it is necessary first to consider the effect of clause 1.3.3, and determine whether any breach is shown.

34 Mr Cooper's affidavit at pars 24 and 25 refers to Mr Kinsella saying that certain alcohol products Mr Cooper ordered were not available, and to Redrock being unable to fulfil and satisfy orders for alcohol beverages made by Inner City Blues; but it does not provide evidence that any Redrock stock-in-trade was actually "ordered by or on behalf of Cooper and/or Inner City Blues" and not delivered during the period November 2004 to February 2005 inclusive.

35 If there is to be a finding of actual breach during that period, it would have to be on the basis that Redrock had conveyed to Mr Cooper and/or Inner City Blues that it was pointless to place any order, relying on the principles stated in Peter Turnbull & Co Pty Limited v Mundus Trading Co (Australasia) Pty Limited [1954] HCA 25; (1954) 90 CLR 235. In my opinion, this Court should not make a finding of actual breach on that basis, in circumstances where the evidence does not identify in anything like proper form any particular communication that could amount to an intimation of the type discussed in Turnbull , at least prior to the meeting on 18 March 2005.

36 I note further that clause 1.3.3 did not require Redrock to give credits of $4,000 per month against earlier invoices in excess of $4,000 per month, where no orders were placed in a particular month; but in my opinion it can be inferred that those credits were tendered and accepted during the months of October 2004 to February 2005 in substitution for the performance required by clause 1.3.3, in circumstances where Redrock was experiencing difficulty in providing the beverages that Mr Cooper and/or Inner City Blues required. This is a further reason for not finding any breach in the months November 2004 to March 2005.

37 The explicit statement by the respondents on 18 March 2005 that they were not in a position to make payments required by the Loan Agreement might possibly have triggered the application of the principle in Turnbull ; but in circumstances where Inner City Blues was still in debt to Redrock in an amount of just under $9,000, and the parties had treated credits of $4,000 per month as satisfaction of the agreement in the months from November 2004 to March 2005, in my opinion no breach should be found in respect of the months April to June inclusive, although, having regard to the previous practice, the debt of Inner City Blues could reasonably be considered to have been discharged by notional credits in those months.

38 The primary judge found a breach by Redrock in not fulfilling the order of 26 July 2005, and no challenge is made by the respondents to that finding. In any event, I agree with that finding. The primary judge did not award damages for that breach, because there was no evidence directed to the value of the beverages that were ordered on that occasion. I will return to that question when I come to issue (4).

39 I should note that, in submissions to this Court and in particular in written submissions provided after the hearing, the respondents raised the point that Redrock's obligation in clause 1.3.3 was an obligation limited by the words "Redrock stock-in-trade", and that this obligation did not extend to "whatever alcoholic beverages the appellant choose to order". It was submitted for the respondents that any difficulty in supply of alcoholic beverages arose from the changing nature of Redrock's stock-in-trade, and in particular that it was not shown that the order of 26 July 2005 was for items that were Redrock stock-in-trade.

40 However, I note that the Defence merely denied par 11 of the Amended Statement of Claim, and it did not anywhere suggest that any absence of delivery of stock-in-trade arose because what had been ordered by Mr Cooper and/or Inner City Blues was not Redrock stock-in-trade. Had that issue been raised by the Defence, there could have been consideration of the question whether or not Redrock could, by changing its business to one where it had no stock-in-trade, or no stock-in-trade of use to Mr Cooper or Inner City Blues, have thereby escaped all liability under the Loan Agreement.

41 In those circumstances, and in the absence of any response to the order of 26 July 2005 suggesting that it was not for Redrock stock-in-trade and in the absence of any evidence from the respondents that the items in the order of 26 July 2005 were not Redrock stock-in-trade, in my opinion this submission must fail. I note also that, in the conversation of 18 March 2005, the respondents said they were not in a financial position to make the payments required by the Loan Agreement and that an alternative arrangement would need to be implemented, not that they could make the payments required by the Loan Agreement only by provision of some other stock-in-trade than that which Mr Cooper and/or Inner City Blues had been ordering.

Repudiation

42 The material in pars 24 to 29 of Mr Cooper's affidavit, culminating in the respondents' statement at the meeting of 18 March 2005 that they were not in a position to make the payments required by the Loan Agreement, was some evidence of repudiation by Redrock of the Loan Agreement. The non-response to the order of 26 July 2005, in the circumstances in which it was made, was further evidence of possible repudiation. The solicitor's letters of 29 August 2005 could have amounted to acceptance by Mr Cooper of repudiation, giving rise to an entitlement to damages for loss of the bargain as at the time of service of that letter.

43 In this connection, three questions arise:

(1) Was repudiation sufficiently raised before the primary judge?

(2) Was repudiation proved?

(3) Was acceptance of repudiation proved?

44 As regards the first question, par 11 of the Amended Statement of Claim alleged repudiation and acceptance, the repudiation being "by failing to make payments/deliver stock-in-trade", but not by communication of inability to do this. The Amended Statement of Claim did not explicitly claim damages for loss of the bargain, but rather claimed "liquidated damages" for an outstanding principal sum of the loan plus interest on that sum, and (in par 15) "Damages in the sum of $139,000" and interest.

45 The evidence included pars 24 to 30 of Mr Cooper's affidavit, which suggested repudiation by communication of inability; but apart from inclusion of the letters of 29 August 2005, the affidavit did not say anything about acceptance of repudiation. There was no evidence explicitly addressing what were Mr Cooper's damages for loss of the bargain.

46 The issues of repudiation, acceptance and damages for loss of the bargain were not mentioned in counsel's closing address to the primary judge on behalf of Mr Cooper. For the respondents, it was put to the primary judge that the question of damages for breach of contract would have to be addressed by considering what loss Mr Cooper suffered by reason of failure to supply stock-in-trade to Inner City Blues, and that there was no evidence of that; but otherwise the question of repudiation and damages was not addressed.

47 In my opinion, the pleading and evidence did raise the question of whether Redrock had repudiated the Loan Agreement. Although the Amended Statement of Claim referred to repudiation by failure to make payments or deliver stock, the affidavit gave evidence of repudiation by communication of inability to perform, which was not objected to; and in any event, the repudiation principally relied on in this Court was that constituted by the complete absence of response to the order of 26 July 2005, having regard to the circumstances in which the order was placed.

48 In my opinion, the submission for the respondents that any damages had to be assessed on the basis of failure to supply stock to Inner City Blues was wrong: the obligation on Redrock was to supply stock ordered by Mr Cooper and/or Inner City Blues at Inner City Blues' address specified in the agreement or another agreed address; and the Loan Agreement made it clear that this was for the benefit of Mr Cooper, since he was to accept it as payment of his loan, and because clause 1.3.4 recognised that clause 1.3.3 constituted obligations of Redrock to Mr Cooper, not to Inner City Blues.

49 If it had been submitted to the primary judge at the close of the case before him that Redrock had repudiated the agreement by failure to respond to the order of 26 July 2005 (having previously communicated inability to perform), that Mr Cooper had accepted that repudiation by the letters of 29 August 2005, and that Mr Cooper should be awarded damages on the basis of the loss of his bargain as at 29 August 2005 or thereabouts, in my opinion the respondents could not have successfully objected to this, at least unless they plausibly raised respects in which they would have conducted the case differently had this claim been more clearly communicated earlier. Of course, it would have been open to them to submit that there was no evidence or insufficient evidence on which a finding of damages could be made, but that is another matter.

50 In those circumstances, in my opinion Mr Cooper is not precluded from relying on repudiation in this Court, by the principles discussed in Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418.

51 Turning to the second question, in my opinion the evidence did establish repudiation. Whether or not the statement by the respondents on 18 March 2005 was by itself sufficient, in my opinion the complete lack of response to the order of 26 July 2005 (following on that earlier statement) did convey unequivocally to Mr Cooper that Redrock was unable or unwilling to provide substantial performance of the Loan Agreement. That is, in the context of the statement made on 18 March 2005, the absence of any response whatsoever to the order was in my opinion a clear repudiation.

52 As regards question (3), it is true that the letters of 29 August 2005 did not explicitly assert acceptance of repudiation, and that they were not addressed to Redrock but to the respondents (and indeed they asserted a separate demand on Redrock, which was not in evidence). Further, subsequent correspondence could possibly be taken as including suggestions from Mr Cooper that the Loan Agreement was still on foot. Indeed, following the decision of the primary judge, a further order for stock was actually placed on 15 March 2010 purportedly in reliance on the Loan Agreement.

53 Dealing first with the last matter, in my opinion it has no relevance to the question whether the letters of 29 August 2005 amounted to acceptance of repudiation. That question depends on what intention was manifested by the letters, considered objectively in the light of the circumstances known to the parties. Correspondence occurring immediately after the letters of 29 August 2005 could possibly have some relevance to this question, particularly by way of shedding some light on what were the circumstances known to the parties at the time. In this case, however, in my opinion nothing in this subsequent correspondence is significant in this regard, and the question does turn on the terms of the letters themselves.

54 In my opinion, the letters clearly conveyed to the only directors of Redrock that Mr Cooper regarded the regime provided by the Loan Agreement as at an end, and was demanding what was owing on that basis, both from Redrock and from the guarantors. It is true that the separate communication to Redrock was not put into evidence; but this does not detract from the force of what was conveyed by the letters of 29 August 2005 to Redrock's only directors. Had the separate communication to Redrock suggested differently, it could have been put into evidence by the respondents; although in saying this, I am not suggesting otherwise than that the onus to prove acceptance was squarely on Mr Cooper. For those reasons, in my opinion acceptance of repudiation was proved.

Redrock's liability

55 Accepting that there was repudiation and acceptance, Mr Cooper was entitled as against Redrock to damages for loss of the bargain, as at the time of acceptance of the repudiation, plus any damages for breach, entitlement to which had accrued prior to that time.

56 By the end of August 2005, fourteen months of the term of the Loan Agreement had expired; and the value of the bargain to Mr Cooper at that time can in my opinion be calculated by reference to the Schedule to the Loan Agreement. I have already expressed the view that the entitlement to payment in kind was an entitlement of Mr Cooper, not of Inner City Blues; and had Redrock been willing and able to perform on its part, I see no reason why Mr Cooper would not have taken full advantage of this entitlement. On that basis the value of the loss of the bargain can be taken as the amount by which Redrock could have paid out its liability at that time, namely $133,923, plus interest at prescribed rates since that time.

57 If I were wrong on the question of acceptance of repudiation, the question would arise whether Redrock would in any event be liable for the monthly payments in the Schedule, after August 2005, on the basis of the principle in Turnbull : having plainly conveyed to Mr Cooper that it was pointless to place any more orders, could Redrock rely on the failure to place orders in order to deny all liability? It is not necessary for me to express a concluded view on this; but I am inclined to the view that Redrock could not rely on this failure, so Mr Cooper would be entitled as against Redrock on this basis also.

58 On the question whether there was in addition an entitlement to damages that had accrued before the end of August 2005, I think the better view is that there was not. I have already expressed the view that there was no entitlement for April to June inclusive; and particularly in circumstances where Mr Cooper led no evidence of the value of the order placed in July 2005, and where there had been negotiations undertaken in the exchange of emails, I would not find damages in respect of the months of July and August.

Guarantee

59 In my opinion it is clear that the respondents, under the Deed of Guarantee, are liable for as much as Redrock is liable; and accordingly I would find them liable for $133,923 plus interest at prescribed rates from (say) 1 September 2005.

60 There was argument concerning the question whether, even if Redrock was not liable on the basis I have indicated, clause 2.1 of the Deed of Guarantee imposed a liability on the respondents greater than that of Redrock. Again, it is not necessary for me to determine this question, but I will express some views on it.

61 Some support for this argument comes from the literal words of clause 2.1. The words could be read as requiring that, in the event of any default by Redrock under the Loan Agreement, the respondents are liable to pay on demand the amount of the loan that was then outstanding, even though there was nothing in the Loan Agreement to impose that obligation on Redrock. This view has some support also from clause 2.3 of the Guarantee, which makes it clear that it was a guarantee of repayment of monies secured by the Loan Agreement.

62 Such a construction could operate harshly and unreasonably against the guarantors. It would mean that if, in response to an order for $4,000 stock in one of the first ten months, Redrock delivered only $3,900 of stock, the guarantors would without more be liable on demand to pay the whole amount then outstanding.

63 An alternative construction could be that liability to pay the amount outstanding on demand would arise if there was default by Redrock sufficient to entitle Mr Cooper to terminate the Loan Agreement, that is, a fundamental breach or repudiation of the Loan Agreement. This would not operate so harshly, because in these circumstances, Mr Cooper could terminate the Loan Agreement and claim damages for loss of the bargain from Redrock; and those damages would be the same as, or at least closely similar to, the amount of the loan then outstanding.

64 I am inclined to accept the latter construction: it gives a reasonable meaning the words used, without imposing an unreasonable burden on the guarantors. On that construction, the same result would be achieved even if there were no acceptance of repudiation, and even if the principle in Turnbull did not apply in the way discussed above.

Orders

65 For those reasons, I propose the following orders:

(1) Appeal allowed.

(2) Orders below set aside.

(3) Judgment for Mr Cooper against the respondents for $133,923.

(4) Order that the respondents pay Mr Cooper interest on $133,923 from 1 September 2005 until to-day at prescribed rates.

(5) Order that the respondents pay Mr Cooper's costs of the proceedings below.

(6) Order that the respondents pay Mr Cooper's costs of the appeal, and that they have a certificate under Suitors' Fund Act 1951 if otherwise eligible.

66 If within fourteen days the parties provide the Court with an agreed calculation of interest up to to-day, the Court will give judgment for that amount (pursuant to order (4) above), to take effect from to-day.

67 SACKVILLE AJA: I have had the advantage of reading the judgment of Hodgson JA in draft. I agree with the orders proposed by his Honour, but I respectfully disagree with his Honour's conclusion on one issue. Accordingly, my reasoning is different in some respects. In this judgment, I shall use the same abbreviations as his Honour.

Acceptance of Repudiation

68 I agree with Hodgson JA that:

• Redrock breached the Loan Agreement by not fulfilling the order placed by Mr Cooper on 26 July 2005;
• the issue of repudiation was sufficiently raised before the primary Judge; and
• the complete lack of response by Redrock to Mr Cooper's 26 July 2005 email, taken in the context of the dealings between the parties, demonstrated that Redrock was unable or unwilling to perform its obligations under the Loan Agreement.

69 However, in my opinion, Mr Cooper did not accept Redrock's repudiation of terminating the Loan Agreement at any time prior to the institution of proceedings.

70 There was no dispute between the parties as to the principles that determine whether the innocent party to a contract has accepted the other party's repudiation and thereby terminated the contract. The principles were summarised by Lord Steyn, with whom all other members of the House of Lords agreed, in Vitol SA v Norelf Ltd [1996] AC 800; 3 All ER 193, at 200:

"(1) Where a party has repudiated a contract the aggrieved party has an election to accept the repudiation or to affirm the contract: Fercometal SARL v Mediterranean Shipping Co SA , The Simona [1988] 2 All ER 742, [1989] AC 788.

(2) An act of acceptance of a repudiation requires no particular form: a communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that that aggrieved party is treating the contract as at an end.

(3) ... the aggrieved party need not personally, or by an agent, notify the repudiating party of his election to treat the contract as at an end. It is sufficient that the fact of election comes to the repudiating party's attention, for example notification by an unauthorised broker or other intermediary may be sufficient: Wood Factory Pty Ltd v Kiritos Pty Ltd [1985] 2 NSWLR 105 at 146 per McHugh J, Majik Markets Pty Ltd v S & M Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49 at 54 per Young J and Carter and Harland Contract Law in Australia , (3 rd edn, 1996) pp 689-691, para 1970."

71 The letter of 29 August 2005 addressed to each of the respondents as Guarantors was capable of constituting an acceptance of Redrock's repudiation, provided that the letter clearly and unequivocally conveyed to Redrock that Mr Cooper was treating the Loan Agreement as at an end. It can readily be inferred that, even thought the demand made by Mr Cooper on Redrock itself was not in evidence, the letter to the respondents came to Redrock's attention. The question is therefore whether the letter clearly and unequivocally conveyed that Mr Cooper was treating the Loan Agreement as at an end.

72 The letter asserted that:

• the respondents had guaranteed payment of the loan in the event of default by Redrock;
• Redrock was in default of loan repayments, having failed to make any repayments after 14 April 2005;
• Redrock was " now " in breach and Mr Cooper required the respondents to make immediate payment of the full balance of the loan; and
• if payment was not made, Mr Cooper would take action to recover that amount.

The letter did not say that Mr Cooper was terminating the Loan Agreement or treating it as at an end. Nor did it say that Mr Cooper intended to sue Redrock for damages and to hold the respondents liable under the Deed of Guarantee for any such damages.

73 It is tolerably clear, in my opinion, that the author of the letter of 29 August 2005 assumed that in the event of breach of the Loan Agreement by Redrock, the unpaid balance of the loan immediately became due and payable to Mr Cooper. In other words, the author wrongly assumed that the Loan Agreement provided, explicitly or implicitly, for acceleration of loan repayments in the event of a breach by Redrock.

74 This is precisely how the solicitors for the respondents (who also acted for Redrock) interpreted the 29 August 2005 letter in their response of 7 September 2005. The response included the following:

"The [Loan] Agreement contains no term to the effect that in the event of default by Redrock (which default is denied) the entire balance outstanding is to become immediately due and payable.

Thus, even accepting (which we do not) that Redrock is guilty of a breach of contract, your client is not entitled only for that reason to 'accelerate' his entitlement to payment."

75 Mr Cooper's solicitors replied to the respondents' solicitors' letter on 17 October 2005. They disputed the respondents' claim that the Loan Agreement only obliged Redrock to meet orders if it actually had the beverages ordered by Mr Cooper in stock at the time. The reply continued as follows:

"We are also instructed that Redrock is still licensed and is therefore still able to purchase and supply liquor. Whilst our client does not dispute that the focus of your client's business has changed to non-alcoholic beverages, your client is still been [sic] capable of ordering liquor, even if only for the purposes of supplying it to our client. If your client is unable to do so due to its cash flow position, then our client will rely on the guarantees ... In any event, your client has made it clear to our client that his present intentions are to make no further payments by cash, by delivery of liquor, by delivery of its current stock in trade or otherwise.

...

Unless your clients change their attitude and propose a commercial settlement, our client will have no alternative but to take action against them."

76 The reply by Mr Cooper's solicitors is not entirely free from ambiguity. It recorded Redrock's " present intentions " to make no further payments, whether by cash, delivery of stock or otherwise. On the other hand, the reply contemplated that Redrock might resume deliveries of stock in conformity with its obligations under the Loan Agreement. By warning that " if [Redrock] is unable to " obtain supplies of alcoholic beverages, Mr Cooper would rely on the guarantees, Mr Cooper's solicitors seemed to accept that Redrock could retrieve the situation by changing its attitude and resuming deliveries. The reply did not respond to the respondents' denial that the Loan Agreement provided for accelerated repayments in the event of breach by Redrock, suggesting that the respondents had not misinterpreted Mr Cooper's solicitors' letter of 29 August 2005.

77 I accept that in determining whether the innocent party to a contract has unequivocally conveyed to the party that the contract is at an end courts should take account of the commercial context and should not insist on the use of technically precise language. As Lord Steyn said in Vitol v Norelf , no particular form of words is necessary for the innocent party to accept repudiatory conduct as terminating the contract. Even where a letter is sent by solicitors (as was the letter of 29 August 2005), it should not be read with an eye to detecting infelicities or technical deficiencies.

78 I also accept that it is not always easy to characterise the conduct relied on as terminating the contract, nor to identify the precise point at which a contract has been terminated. In Holland v Wiltshire (1954) HCA 42; 90 CLR 409, for example, all three members of the High Court held that a vendor under a contract of sale had accepted the purchaser's repudiation, but each had a different reason for so concluding: at 416, per Dixon CJ; at 422, per Kitto J; at 423-424, per Taylor J.

79 Nonetheless, in my opinion the letter of 29 August 2005 is properly to be understood as conveying to the respondents a claim that the balance of the loan had become due and payable under the Loan Agreement , rather than a claim for loss of bargain damages following termination of the Loan Agreement. The terms of the letter did not reflect or communicate a decision to terminate the Loan Agreement. It purported to make a claim under the Loan Agreement. The fact that the author of the letter mistakenly assumed that Loan Agreement accelerated repayments in the event of breach by Redrock does not alter this conclusion.

80 The subsequent correspondence between the parties supports this construction of the August letter. As I have noted, the October letter from Mr Cooper's solicitors did not dispute the respondents' understanding that the August letter made a claim under the Loan Agreement. Furthermore, the October letter, by leaving open the opportunity for Redrock to fulfil its obligations under the Loan Agreement, was inconsistent with the Loan Agreement having then been terminated.

81 It is true that Mr Cooper could have elected to terminate the Loan Agreement on 29 August 2005 or at any time thereafter that date if Redrock maintained its repudiatory stance. However, the August letter did not clearly and unequivocally convey that Mr Cooper had elected to take that course. In the absence of such an election, the Loan Agreement remained on foot for the benefit of both parties: Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; 90 CLR 235, at 246, per Dixon CJ; at 250, per Kitto J; Austral Standard Cables Pty Ltd v Walker Nominees Pty Ltd (1992) 26 NSWLR 524, at 532, per Clarke JA (with whom Kirby P and Handley JA agreed on this point).

82 If the Loan Agreement was not terminated in or about August 2005, the respondents could not be liable under the Deed of Guarantee for loss of bargain damages payable by Redrock, as no such damages were payable by it.

83 I should add that it was not suggested on behalf of Mr Cooper that the institution of proceedings against the respondents in October 2008, even if capable of constituting acceptance of Redrock's repudiation of the Loan Agreement, gave rise to a substantial claim for loss of bargain damages against Redrock. The proceedings were instituted after the Loan Agreement had terminated by effluxion of time.

Mr Cooper's Alternative Claim

84 Mr Cooper claimed, in the alternative to his loss of bargain case, that the respondents were liable under the Deed of Guarantee for the monthly payments (whether by supplying stock or otherwise) that Redrock should have made under the Loan Agreement after April 2005, but did not. The alternative claim proceeded on the basis that the Loan Agreement remained on foot at all material times.

85 It will be recalled that cl 1.3.3 of the Loan Agreement provided that Redrock would repay the loan and that Mr Cooper would accept payment in the manner specified therein: that is,

"by delivery to or to the direction of Cooper ... monthly and each and every month of the term of the loan:

... such Redrock stock-in-trade as may be ordered by or on behalf of Cooper up to the value of [$4,000, $7,000 or $6,000 per month, depending on the month]."

It is common ground that Mr Cooper placed no orders after his email of 26 July 2005.

86 The question that then arises is whether Redrock became liable to make the monthly repayments in the manner specified in cl 1.1.3 of the Loan Agreement notwithstanding Mr Cooper's failure to submit any further orders after July 2005. If so, Mr Cooper can claim damages against Redrock for its breaches of the Loan Agreement after that date (the Loan Agreement not having been terminated) and the respondents would be liable to Mr Cooper under cll 1 and 2.1 of the Deed of Guarantee for Redrock's default. If not, Redrock would not be liable under the Loan Agreement for its failure to make any further repayments and the respondents would incur no liability to Mr Cooper under the Deed of Guarantee.

87 As Hodgson JA has observed, the answer to this question depends on the principles stated in Peter Turnbull . In that case, the High Court held that the conduct of one party to a contract may, in certain circumstances, relieve the other party from the obligation to perform a condition precedent specified in the contract. The parties in the present case did not address Peter Turnbull in their initial written submissions but did so in supplementary written submissions.

88 In Peter Turnbull , a buyer under a contract for delivery of oats to be loaded onto a ship in Sydney sued the seller for damages for non-performance of the contract. The buyer was obliged to nominate the ship to receive delivery of the oats in February and was required to give fourteen days notice of the vessel and shipping date. The vendor did not do so because the buyer stated that it could only deliver the oats in Melbourne. The buyer elected to keep the contract on foot, so the damages claim was for actual, not anticipatory breach. The High Court held that the seller had dispensed with fulfilment of the condition requiring nomination of the vessel and that the buyer was entitled to damages for non-delivery of the oats.

89 Dixon CJ pointed out (at 245-246) that the case was not one of a mere declaration of inability to perform, but involved an additional element. The seller had sought the buyer's help in substituting delivery in Melbourne for delivery in Sydney and had:

"clearly intimated to the [buyer] that it was useless to pursue the conditions of the contract applicable to shipment in Sydney and that the [buyer] need not do so."

The buyer would have had time to arrange a vessel in Sydney but, because of the seller's intimation, did not take the necessary steps.

90 Dixon CJ said (at 246-247) that:

"long before the doctrine of anticipatory breach of contract was developed it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof ... But a [buyer] may be dispensed from performing a condition by the [seller] expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so. If the [buyer] acts upon the intimation it is just as effectual as actual prevention."

91 Kitto J posited (at 250-251) a case where A communicates a refusal to B to carry out the contract between them, B elects not to terminate the contract and A persists in refusing to perform:

"I am supposing, of course, a case like the present where in all the circumstances the refusal necessarily conveys to B that he need not trouble to fulfil a condition to which A's obligations under the contract are subject, because even if he does A will still not perform his obligations. Is it true in such a case to say that A's continued refusal must not be allowed any significance in an action by B against A, in which B seeks damages for not getting what he bargained for and A seeks to defend himself by relying upon the condition which he has all along shown that he was not concerned to have fulfilled? What does it matter for the purposes of that action that the refusal was not treated as ending the contract and as founding an action for anticipatory breach? The damages claimed are not for loss of the contract by premature termination, but for loss of the benefit which performance of the contract in accordance with its terms by both parties would by now have produced to B but for the fault of A. It is a cause of action which the facts I have assumed make out, unless the non-fulfilment of the condition is an answer to it; and as to that the inescapable fact is that A's refusal was a continuing intimation that the condition need not be observed, and it did not become any the less an intimation to that effect because B chose not to determine the contract before its time. The intimation having continued until the time came when A would certainly have been in default if the condition had been fulfilled, the law, as I understand it, treats A's obligation as absolute, and holds B entitled to damages for not having got what A promised he should have in the event of the condition being fulfilled."

92 Kitto J said (at 253) that the buyer had to show, in order to succeed in the action, that it was ready and willing to perform the contract. The authorities indicated that:

"although a party who has been absolved from doing an act by the refusal of the other party to carry out the contract 'may defend an action against him, by merely shewing he was so absolved, yet, if he sues the other party whose refusal he relies on, he must show he was ready and willing to perform his part, had he not been absolved from actual performance.'" (Citations omitted.)

93 The principles stated in Peter Turnbull have been frequently applied, particularly in cases involving concurrent mutually dependent obligations of vendor and purchaser where one party has intimated that it is useless for the other to proceed to completion of the contract of sale: see, for example, Mahoney v Lindsay (1980) 33 ALR 601; Foran v Wight [1989] HCA 51; 168 CLR 385, at 410-411, per Mason CJ; 419-422, per Brennan J; at 433-434, per Deane J; at 456-457, per Gaudron J; Austral Standard Cables v Walker ; Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315. It seems to be accepted that, despite Dixon CJ's reference to a " request " in Peter Turnbull , a request to refrain from conduct is not necessary. It is enough that there has been an intimation that conduct would be futile and that intimation is acted upon by the other party: see Foran v Wight , at 420, per Brennan J.

94 In conveyancing cases involving concurrent and mutually dependent obligations, Foran v Wight has been interpreted as basing the " dispensation ", which results from an intimation by one party to the other that performance will be nugatory, on the doctrine of estoppel. The elements of the dispensation were identified by Clarke JA in Austral Standard as (at 533):

"an intimation by one party that it would not perform its obligations thereby rendering nugatory any attempt by the innocent party to do so and an acting on that intimation by the innocent party to its detriment ..."

His Honour noted, however, that (at 534):

"In many cases the fact that the innocent party relied upon the intimation will be apparent from its non-performance of its contractual obligations."

See also Amaya v Everest , at [98], [109]-[110], per Young JA (with whom Beazley and Campbell JJA agreed.

95 The present case is not one of mutually dependent concurrent (or simultaneous) obligations. Redrock's obligation under the Loan Agreement to supply stock each month did not arise until Mr Cooper placed an order for that month. The placement of the order was therefore a condition precedent to Redrock becoming liable to supply stock.

96 It is not entirely clear whether the principles of estoppel apply in a case of this kind as they do to cases involving mutually dependent concurrent obligations: cf Asia Television Ltd v Yau's Entertainment Pty Ltd [2003] FCA 720, at [8]-[11], per Gyles J. If they do, a party seeking dispensation from a condition precedent must show that it did not satisfy the condition precedent because it relied on the other party's intimation that performance was futile.

97 The better view would seem to be that proof of reliance is required but that, as Clarke JA observed in Austral Standard, at 534, in many cases of non-performance of a condition precedent reliance will not be difficult to establish. I am prepared to accept for present purposes, without finally deciding, that reliance is required.

98 The evidence in this case supports findings that Redrock intimated to Mr Cooper that it did not propose to fulfil any orders placed by Mr Cooper and that Mr Cooper relied on that intimation in not placing any orders after 26 July 2005. Redrock, through its representatives at the meeting of 18 March 2005, stated that it was not in a position to make further payments. No further payments were in fact made and Mr Cooper's order of 26 July 2005 went unfulfilled. In the letter of 7 September 2005, Redrock's solicitors put forward a spurious justification for Redrock not filling any order placed by Mr Cooper and made it quite clear that it had no intention of filling any orders that might be placed. By 7 September 2005, at the latest, Redrock had intimated to Mr Cooper that it did not propose to fill any order that he might place thereafter and that it would be futile for him to do so.

99 Mr Cooper, in his affidavit, did not specifically state that he placed no further orders after 26 July 2005, because he had formed the view, based on Redrock's conduct, that it was futile to do so. However, his solicitors, in their letter of 17 October 2005, noted that Redrock had made it clear that its present intentions were to make no further payments in reduction of the amount due. The inference is plainly open that Mr Cooper placed no orders after September 2005 (if not earlier) because Redrock had made it clear that it did not propose to fill the orders.

100 I would therefore infer that Mr Cooper's non-compliance with the condition precedent in the Loan Agreement was the consequence of Redrock's intimation that compliance would be futile. On this basis, Mr Cooper is entitled to claim damages from Redrock for its breach of the Loan Agreement in each month from September 2005 onwards when it failed to repay the specified amount of the loan, whether by supplying stock or otherwise.

Damages

101 Redrock was liable to Mr Cooper to pay damages by reason of its breaches of the Loan Agreement in failing to supply stock each month to the value specified in the Loan Agreement. Mr Cooper was entitled to damages equivalent to the amounts by which the loan would have been reduced after 7 September 2005 had Redrock complied with its contractual obligations. This amount corresponds to the sum of $133,923 arrived at by Hodgson JA.

102 The respondents are liable to pay this amount to Mr Cooper pursuant to the Deed of Guarantee. They are also liable to pay interest at prescribed rates. The calculation of interest might be slightly different than that required under the orders proposed by Hodgson JA, because the dates on which breaches occurred would be slightly different. Since any such differences would be small, I agree with the orders proposed by Hodgson JA.

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Decision last updated: 15 March 2011