District Court New South Wales

• Medium Neutral Citation: Moresload Pty Limited v Hebden Quarries Pty Limited [2012] NSWDC 28
• Hearing dates: 31 October 2011
• Decision date: 07 February 2012
• Before: Judge M Sidis

Decision

1 Verdict for the plaintiff.

2. The proceedings are adjourned to a date to be fixed to determine the quantum of the judgment to be entered in the plaintiff's favour and to deal with issues of interest and costs and, if necessary and permissible, transfer of the proceedings to the Supreme Court.

• Catchwords: CONTRACT: Whether contract formed and if so, its terms - consideration of pre and post contract conduct in the absence of ambiguity - credit- whether failure to provide feed rock to allow plaintiff to perform its part of the bargain constituted a breach of contract- construction of exclusion clause - methodology of assessment of damages
• Cases Cited: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; Codelfa Construction Pty Ltd v State Railway (NSW) [1982] HCA 24; (1982) 149 CLR 337; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45; Jireh International Pty Ltd (t/as Gloria Jeans Coffees v Western Exports Services Inc [2011] NSWCA 137; Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; Sydney Corporation v West (1965) 114 CLR 481
• Category: Principal judgment
• Parties: Moresload Pty Limited (Plaintiffs)Hebden Quarries Pty Limited (Defendants)
• Representation: Mr R Taperell (For the Plaintiffs); Mr P Walsh (For the Defendants); Church & Grace Solicitors (For the Plaintiffs)Moray and Agnew (For the Defendants)
• File Number(s): 2009/00332958

Judgment

1 The plaintiff, under the business name Gilson Plant Hire, carried on the business of providing plant, equipment and labour for various purposes, including crushing, screening and stockpiling rock and demolition materials.

2 The defendant was a company within the SCE Group of companies. The defendant owned and operated the Hebden Quarry. Another company within the Group, SCE Resources Pty Limited, owned and operated a business that processed demolition materials at a site known as Steelstone.

3 These proceedings involved disputes between the parties concerning the terms upon which the defendant retained the plaintiff to undertake materials processing work at the Hebden and Steelstone sites.

4 The plaintiff claimed that the parties entered into a contract on 27 June 2008 pursuant to which, for a term of two years, it was to process materials at Hebden and Steelstone.

5 The plaintiff claimed that in August 2008 the defendant refused to permit it to carry out further work, breaching the contract and causing the plaintiff loss and damage.

6 The defendant denied that any contract was entered into or that, if there was a contract, it obliged the defendant to provide the plaintiff with materials for processing.

7 The plaintiff's claim that it was misled or deceived into entering into finance arrangements for the purchase of plant and equipment was not pressed.

8 The issues were:

1whether the parties entered into any contract;

2if so, whether its terms obliged the defendant to provide feed rock for processing;

3whether the defendant breached or repudiated any contract;

4the extent of any loss or damage suffered by the plaintiff

Background

9 In March 2008 contact was made between the plaintiff's principal, Mr Gregory Gilson, and the defendant's former general manager, Mr Peter Hanley. At this time the defendant was experiencing difficulty meeting orders and required extra resources.

10 Mr Hanley provided a scope of works to Mr Gilson in response to which the plaintiff submitted a quotation, dated 9 April 2008, to undertake work at the Hebden Quarry. The quotation was accepted and work commenced at Hebden Quarry on 21 April 2008.

11 Mr Gilson stated that, before providing the plaintiff's quotation, he met with Mr Hanley and an employee of the defendant, Mr Grant Stevenson, and told them the plaintiff was only prepared to work at the Hebden Quarry on a long term basis. He said he made this stipulation based on his experience in 2005 when a prior general manager promised him a minimum quantity of 100,000 tonnes of material for crushing but dispensed with the plaintiff's services after supplying only 20,000 tonnes. He said he was not prepared to take that risk again. Mr Hanley confirmed that Mr Gilson said this to him and that Mr Gilson maintained this position throughout their dealings.

12 Mr Gilson said that Mr Hanley told him that he also wanted a long term arrangement and that normal annual production at Hebden was 250,000 to 350,000 tonnes and at Steelstone it was 100,000 tonnes. In cross examination Mr Gilson repeated that Mr Hanley wanted a firm commitment from the plaintiff that he was prepared to give only if the plaintiff was provided with satisfactory quantities of material for processing.

13 Mr Gilson said that on 17 April 2008, when asked by the defendant to state the earliest date upon which the plaintiff would commence work, he requested confirmation from both Mr Hanley and Mr Stevenson that the plaintiff would be required to crush rock at Hebden and Steelstone in these quantities.

14 He received an email from Mr Stevenson, dated 17 April 2008, that read:

Please be advised that SCE confirm to Gilson Plant Hire to start the establishment of the mobile plant needed to process shot rock at Hebden Quarry. We confirm that the process will initially be a campaign of 2 weeks or an extension to this period will be negotiated by Peter Hanley within this 2 week campaign, terms will be paid on quotation bases quoted on April 9, 2008. This confirmation sent on behalf of Peter Hanley.

15 Mr Hanley's recollection of events was different to that of Mr Gilson. He said that in April 2008 he offered the plaintiff a two week trial period of work, using the term campaign, an industry term that meant that it would be short term. I noted that Mr Stevenson's email of 17 April 2008 addressed to the plaintiff referred to a campaign of two weeks and to the negotiation of an extension with Mr Hanley. This appeared to confirm Mr Hanley's recollection of the basis on which the plaintiff commenced work at Hebden Quarry.

16 Mr Gilson said that it became apparent after work started that more efficient or additional equipment was required to meet the defendant's production schedules. He discussed the need for this equipment with Mr Hanley and the managing director of the SCE Group, Mr Robert Newman. The discussions involved the question of whether SCE would provide equipment from its own resources but it was ultimately decided that the plaintiff's equipment would be used.

17 Mr Gilson said he told Mr Hanley and Mr Newman that he was prepared to order new equipment only if the parties entered into a long term contract and if the defendant agreed to increase the rates to be paid for the work performed by the plaintiff with its equipment. He said the defendant agreed to these terms.

18 Mr Hanley agreed that he and Mr Newman accepted the plaintiff's quotation, revised on the basis that the plaintiff would provide additional equipment, including trucks.

19 On 1 May 2008 the plaintiff ordered from Carrington Equipment:

(a) an Astra dump truck ($394,168.50)

(b) a Hyundai loader ($310,926.00)

(c) a Hyundai excavator ($329,747.00).

20 Mr Hanley denied that Mr Gilson told him he wanted a long term contract and did not want to be caught out. He denied conversations in which Mr Gilson said he needed a contract if he was to order new equipment.

21 These denials appeared to be inconsistent with the letter issued by Mr Hanley on 15 May 2008 in response to Mr Gilson's request for a letter of intent that he could produce to the financier of the cost of the equipment.

22 It was also inconsistent with Mr Hanley's statement where he said in late April or early May 2008, Mr Hanley told Mr Gilson:

I will organise for the contract to be drafted and give it to your legal representatives (Hanley [23]).

23 I therefore preferred Mr Gilson's version in respect of this part of the pre-contract history.

24 The undated letter of intent, signed by Mr Hanley, was forwarded to the plaintiff as an attachment to an email dated 15 May 2008. It was on the letterhead of SCE Resources, and read:

Confirming our discussion that the company wishes to enter into a long term (2 year) agreement to carry out primary crushing and screening services at the companies (sic) Hebden Quarry.

It is proposed that Gilson Plant Hire provide all necessary plant and equipment to produce and stockpile processed rock comprising but not limited to Drainage Material, Ballast, Stemming, Crusher Run, DGS and Dust.

The company will supply shot rock for the feed to the crushing plant, water for dust suppression - site amenities and fuel at cost.

The projected annual tonnages to be processed are 250,000t to 350,000t.

The company will prepare a draft contract for the works which will include:

- Rates of payment

- Projected tonnes and performance criteria

- Safety, environmental, productivity and reliability

The performance criteria when agreed will be the bases of a quarterly review, and the mechanism for the externtion (sic) of the contract terms.

The contract will contain usual general conditions as to licensing payment terms, reporting, insurance etc.

Should this be generally agreed as the bases of our discussions, then we will proceed with the preparation of the necessary documentation.

25 Mr Hanley said that until his retirement the parties were working on the basis of the terms set out in this letter.

26 A number of drafts of the proposed contract were prepared. They were clearly marked as draft documents.

27 Mr Newman said he was not involved in the negotiation of the contract. He said that on 27 June 2008 Mr Gilson told him that the equipment at the Hebden Quarry would be repossessed if he was unable to show his financier the signed contract. He said he reminded Mr Gilson that he previously told him not to buy plant and equipment until there was a contract in place. He refused Mr Gilson's request that he sign the back page of the contract before both parties were satisfied with its terms.

28 On 27 June 2008 the defendant's solicitor forwarded by email to Mr Newman the final document as discussed. Mr Newman said he read the document and made amendments to it. He instructed the defendant's solicitors to make those amendments. Mr Newman forwarded the document to the plaintiff by email on 27 June 2008. The email stated, simply, FYI.

29 He subsequently directed the defendant's solicitors to change the name of the contracting party to that of the defendant. He spoke with Mr Gilson and told him that if he agreed to the changes made to the contract, he would sign and forward the back page. Mr Gilson agreed to the changes but said he would discuss further changes in an operational sense at a later date. After telling Mr Gilson that any amendments would have to be approved by him and should be minor only he said:

I will sign the back page and send it to you on the basis that I will accept the entire agreement as amended by me in its current form and that there is no minimum tonnage to meet at Hebden or Steelstone. If we both agreed to make any further modifications then we can do this formally in the coming weeks.

30 Mr Newman sent another email to the plaintiff advising that the contracting party, to that point named in the contract as SCE Resources Pty Ltd, would be replaced with the defendant. He attached to the email a signed back page that reflected this amendment which in due course can be attached to the body of the agreement.

31 Mr Gilson denied that there was any discussion of tonnages on 27 June 2008. He denied that Mr Newman spoke of minimum tonnages and said he thought it was Mr Newman who raised the issue of operational changes.

32 Mr Gilson denied that Mr Newman at any time warned him against acquiring plant and equipment.

33 Mr Newman agreed that he made no reference in his emails to the plaintiff on 27 June 2008 to his warning to Mr Gilson not to acquire plant and equipment before the contract was in place. He said that he considered it fundamental to the contract and to his signing and emailing the final page that the plaintiff accepted that the defendant would not supply minimum tonnages. He did not repeat this stipulation in his emails or send any letter to the plaintiff confirming it.

34 Mr Gilson said that on receipt of the document signed on behalf of the defendant, he finalised the plaintiff's arrangements for the finance of the new equipment.

35 On 15 July 2008 Mr Gilson met with Mr Newman, Mr Hanley and Mr Andrew Pondekas, in the course of which a reduction in the quantities to be produced by the plaintiff was discussed. Mr Gilson said he told the defendant's representatives that this was contrary to the terms of their contract. It was arranged that another meeting would be held on 22 July 2008 but this meeting was cancelled.

36 Mr Newman's recollection of this meeting was that Mr Gilson spoke in derogatory terms of the way in which the defendant was operating the Hebden Quarry and wrote out a proposal under which the plaintiff would take over its operation. He said Mr Gilson ended the meeting by abusing those present and leaving abruptly.

37 Mr Pondekas confirmed that he attended the meeting of 15 July 2008 at which Mr Gilson complained about the poor productivity of the defendant's crew and said he could operate the quarry more efficiently. Mr Pondekas said that Mr Newman or Mr Hanley asked Mr Gilson to tell them how he would do it. After discussion Mr Newman said he would consider Mr Gilson's proposals. Mr Pondekas made no reference to abusive conduct on the part of Mr Gilson or to his leaving the meeting abruptly. He said the topic of the meeting was the efficiency of the operation.

38 Mr Gilson agreed that at this meeting he criticised the standard of work of the defendant's crew. He denied that he proposed that the plaintiff take over all of the work at the quarry.

39 Mr Hanley confirmed that discussions concerning the plaintiff's take over of all of the operations at Hebden Quarry were independent of the negotiations over the proposed supply agreement.

40 On 24 July 2008 the rock crusher at Hebden Quarry needed repairs and was removed from the site.

41 On 25 July 2008 Mr Gilson was directed to deal with Mr Phillip Calder rather than Mr Hanley. On 5 August 2008 Mr Gilson met with Mr Calder and Mr Andrew Carter, who was by then the manager of Hebden Quarry and Steelstone. At this meeting they discussed the prospect of the plaintiff's taking over fully the operation of Hebden Quarry.

42 Mr Phillip Calder, the sales and marketing manager for the Group, stated that he was directed by Mr Newman on 21 July 2008 to inspect and report on the operation of Hebden Quarry. He inspected the plant and equipment of the defendant's and the plaintiff's crews. He prepared a scope of works and sent it to the plaintiff for discussion at a meeting held on 5 August 2008. Mr Gilson wrote some figures on the document during the meeting and later that day emailed the completed scope of works to him. Mr Calder forwarded this document to Mr Newman and had no further involvement.

43 On 8 August 2008, Mr Gilson proposed the return of the crusher. He said Mr Carter told him not to bring the crusher back and denied any knowledge of a contract. Mr Gilson took the matter up with Mr Newman who said he stood by the decisions of his manager.

44 Mr Newman confirmed that he spoke to Mr Gilson on 8 August 2008. He said he rejected Mr Gilson's complaint that the defendant had misled him and told Mr Gilson to deal with Mr Carter.

45 On 14 August 2008 Mr Gilson was told that the plaintiff would not be required for August 2008. The plaintiff has not worked at Hebden Quarry since.

46 Mr Andrew Carter confirmed that he took over management of SCE Resources Division. He engaged in email correspondence and telephone conversations with Mr Gilson concerning the recommencement of the plaintiff's work at Hebden Quarry and the contractual arrangements between the plaintiff and the defendant.

47 His statement dealt with his attempts to secure a copy of the contract from the plaintiff.

Was there a contract?

48 Mr Gilson was questioned about two of the signed documents that appeared in the Court bundle at pages 176 and 1336 respectively because the signature pages were executed differently on behalf of the plaintiff. I considered that these drafts were irrelevant to the issue of whether there existed a contract between the defendant and the plaintiff. They were superseded when Mr Newman directed that the name of the contracting party on behalf of the SCE Group be changed to Hebden Quarries Pty Limited. This was the final version of the contract, an executed copy of which appeared at page 201 of the Court bundle.

49 There was no doubt that Mr Newman understood that the defendant entered into a contract in the terms of this final version.

50 His statement made it clear that he understood that the offer and acceptance process for the formation of a contract was completed in respect of this final version of the contract. Mr Newman's statement set out the terms of a conversation he claimed he had with Mr Gilson in which he was concerned to ensure that Mr Gilson accepted the terms of the contract:

Newman:I have made the following changes to the document I have sent you. I cannot guarantee you a minimum tonnage. You must understand that. On the basis that you accept the agreement as is and agree to the changes I have highlighted and sent you and now discussed with you, I will sign the back page and send it to you.

Gilson:Yes, I do. Please send (sic) the back page and send it to me. However there may need to be changes to the agreement required of an operational sense.

Newman:If there are to be any changes made to the agreement of a minor operational sense, then you must first agree any changes with my general manager and after that is done, I must formally approve them and amend the agreement accordingly. You have to understand that there will be no minimum tonnage in the agreement. I can't agree to that.

Gilson:I understand. Can we meet next week to discuss any operational amendments?

Newman:Okay

Gilson:My financiers are breathing down my neck. If I can't show them the last signed page of the contract then they will commence reclaiming the equipment.

NewmanI will sign the back page and send it to you on the basis that I will accept the entire agreement as amended by me in its current form and that there is no minimum tonnage to meet at Hebden or Steelstone. If we both agreed to make any further modifications then we can do this formally in the coming weeks.

GilsonOkay.

51 While Mr Gilson took issue with parts of this conversation, he did not dispute that he told Mr Newman he agreed to the terms of the contract that was sent to him by Mr Newman following that conversation. It was clear that Mr Newman knew that Mr Gilson did accept them.

52 Mr Carter appeared to understand that the contract was never finalised because there was no formal exchange of contracts. This was the reason he persisted in demanding that the plaintiff produce a copy of the contract rather than searching in the defendant's own files for the document that was signed on behalf of the defendant by Mr Newman on 27 June 2008.

53 This was not a transaction that required the exchange of counterpart documents in order to bind the parties.

54 On the basis of the evidence that both parties discussed, agreed upon and signed the written terms of the contract, I find that on 27 June 2008 the contract that appeared at page 201 of the Court bundle came into effect and bound them.

What were its terms?

55 The defendant relied on Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 to submit that the Court should have regard to surrounding circumstances in construing the contract. For this purpose I was asked to look at both the pre and post contract conduct of the parties.

56 The defendant did not argue that the terms of the contract were ambiguous. In the absence of ambiguity, I could have regard to this conduct only for the purpose of interpreting the terms of the contract. The Court is not permitted to rewrite those terms to reflect intentions of the parties that are not recorded in the contract or, in the absence of absurdity, to give the contract business efficacy: Codelfa Construction Pty Ltd v State Railway (NSW) [1982] HCA 24; (1982) 149 CLR 337; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45; Jireh International Pty Ltd (t/as Gloria Jeans Coffees v Western Exports Services Inc [2011] NSWCA 137.

57 At the hearing of the special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45, it was submitted to the High Court that Franklins was authority that rejected the requirement that an ambiguity in the language of the contract be identified before the court may have regard to the surrounding circumstances and the object of the transaction. In dismissing the special leave application Justices Gummow, Heydon and Bell said:

[3]Acceptance of the applicant's submission, clearly would require reconsideration by this court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this court embarks on that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.

[4]The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here.

58 The principle established in Codelfa was stated by Justice Mason (at 353) as follows:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties ...

It is here that difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself.

59 I proceeded to consider the terms of the contract in accordance with these principles.

60 Definitions of relevance provided for in the contract were:

Feed Rock means the rock or demolition materials, including concrete, brick, recycled ballast, recycled asphalt and steel furnace slag, provided by Hebden Quarries to Gilson to be the subject of the Services.

Material means an aggregate crushed material that meets and complies with the Specification and is created from Feed Rock.

Quarry means the quarries known as Hebden at Picton Lane Ravensworth and Steelstone at Onesteel Industrial site via Ingall Street Mayfield.

Plant & Equipment means the plant and equipment used by Gilson to provide the Services.

Services means the processing and crushing of Feed Rock to produce the Material.

61 The term of the agreement upon which the plaintiff relied was clause 4. It provided:

4.QUANTITY

4.1Gilson will use its reasonable and best endeavours to produce a quantity of Material in accordance with that determined by the production committee. It is anticipated that the total quantity of material to be processed shall be in the approximate range of 200,000 to 300,000 tonnes per annum, between the two (2) sites referred to in this Agreement. For the avoidance of doubt, this clause 4.1 is not intended to be binding on the parties and Gilson is not required to produce a binding minimum quantity of Services to Hebden Quarries.

4.2Hebden Quarries will provide a forecast for its projected requirements for Materials for each month of the following six month period on a rolling six monthly basis. The forecasts supplied by Hebden Quarries will not be binding and are indicative only.

4.3Hebden Quarries acknowledges that Gilson will use the forecasts to assist Gilson with its inventory and other forward planning issues to enable Gilson to meet Hebden Quarries' expected future Orders.

4.4Hebden Quarries acknowledges and agrees that the ability of Gilson to provide the quantity of Services required under any Orders and under this clause is dependant on Hebden Quarries making sufficient Feed Rock available to Gilson for processing.

62 The plaintiff's position was that under this clause the defendant was bound to provide it with Feed Rock in order that it could use its best endeavours to produce the tonnages of Material provided for.

63 The defendant contended that the contract imposed no contractual obligation on it to provide the plaintiff with minimum or any quantities of Feed Rock.

64 The defendant relied on a number of elements of pre and post contract conduct to support its contention.

65 On receipt of the initial draft of the contract, Mr Gilson noted in handwriting may need to be deleted against the second sentence in clause 4.1. (Court book, p.56). He said he made this note because this sentence appeared to be inconsistent with the remainder of the clause. The next draft of the document contained substantial amendments to clause 4 (Court book p.79). These amendments were, however, not adopted and the original clause was reinstated.

66 I noted that the sentence to which Mr Gilson originally took exception referred to Services, the definition of which I have already set out. This definition incorporated only the obligation of the plaintiff in the processing and crushing of Feed Rock. Therefore, even if this conduct could be taken into account, I did not consider that it advanced the defendant's contention.

67 The defendant also relied on the conversation that Mr Newman said took place between him and Mr Gilson before the contract was signed. There was a conflict on the evidence as to whether a conversation in these terms in fact took place. Mr Gilson was asked a number of times in cross examination if Mr Newman told him that minimum tonnages were not guaranteed. He denied that he did so, he said he did not recall that he did so, he said he did not think it was possible that he had forgotten that he did so.

68 I preferred the evidence of Mr Gilson on this point for the following reasons:

1Mr Newman insisted that it was fundamental to his execution of the contract that the defendant would not be bound to provide a minimum tonnage of Feed Rock. He gave evidence of a conversation in which he told Mr Gilson this three times. This conversation was said to have taken place after Mr Newman reviewed the contract and made amendments to it. He returned it to the defendant's solicitors for revision in accordance with those amendments. He amended the document once more to change the name of the contracting party. He returned it once more to the solicitors for amendment. It was more than apparent that he gave the document detailed consideration. It was not credible in those circumstances to suggest that, rather than requiring further amendment to make his position clear, he relied on his conversation with Mr Gilson as some kind of condition precedent to or clarification of the terms of the contract.

2Similarly, having regard to the importance that Mr Newman claimed that he attached to the question of a minimum tonnage, I did not consider it credible that he did not confirm the terms of the conversation in the emails he sent to Mr Gilson immediately prior to and at the time of transmission of the signed contract.

3The contention that the defendant was not bound to a minimum tonnage was inconsistent with the letter of intent that, according to Mr Hanley, was the basis upon which the parties worked to the time of execution of the contract.

4It was commercially inconsistent. In the absence of commitment to the provision of Feed Rock, the contract would appear to serve little purpose. Further, it imposed significant obligations on the plaintiff to provide, maintain and repair plant and equipment of substantial value as well as to provide insurances for the term of the contract.

5The defendant relied on Mr Gilson's post contract conduct in refusing to supply a copy of the signed contract to Mr Carter. It was claimed that this indicated that he understood that the contract did not provide for a guaranteed minimum supply of Feed Rock and that he produced only the letter of intent because it was more supportive of the plaintiff's position. Mr Gilson was not a particularly satisfactory witness and I accepted that he did not adequately explain his obstinacy in refusing to give Mr Carter a copy of the contract. I did not consider, however, that the interpretation of the terms of the finalised contract were to be determined by reference to this conduct on the part of Mr Gilson. I noted that a copy of the contract was to have been provided on 26 September 2008 at the meeting that was cancelled by Mr Carter.

69 Having rejected the defendant's contention that this conduct should be taken into account in interpreting the terms of the contract, there remained the issue of what, objectively construed, were the obligations of the defendant concerning the provision of Feed Rock.

70 There was no clause in the contract that clearly provided for a minimum tonnage. Clause 4.1 provided for an approximate range of 200,000 to 300,000 tonnes per annum of Material to be processed. The contract also contained the following provisions:

RECITALS

E.Hebden Quarries agrees to provide Gilson with shot rock for crushing, water for dust suppression, site amenities and fuel upon the terms set out in this agreement ("Agreement").

...

23.6Each party must:

(a)use its best endeavours to do all things necessary or desirable to give full effect to this Agreement; and

(b)refrain from doing anything which might hinder performance of this Agreement.

71 Clause 4.1 of the contract recognised that the plaintiff was not required to provide any minimum level of Services (that is, the processing and crushing of Feed Rock to produce the Material). It made no provision that diminished the defendant's obligation to provide Feed Rock. To the contrary the defendant acknowledged and agreed in clause 4.4 that the plaintiff's capacity to perform its part of the bargain depended upon the defendant's continued supply of sufficient Feed Rock.

72 Although not an operative provision, Recital E lent further support to the proposition that the defendant accepted an obligation under the contract to provide Feed Rock. Other provisions in the contract were inconsistent with the defendant's proposition that it was under no obligation to do so. Clause 3 provided for monthly orders to be placed, clause 4.2 required the defendant to issue monthly rolling forecasts.

73 Under clause 15 the plaintiff's plant and equipment was required to remain at the Hebden Quarry until the contract expired or was terminated. Interpreting the contract in the manner suggested by the defendant would have the result that plant and equipment of considerable value could be required to remain idle and unproductive in terms of income for the plaintiff for up to two years.

74 Read against the background described by Mr Gilson and Mr Hanley in which the parties were operating on the basis of the letter of intent and with the intention of putting in place a long term arrangement that secured the interests of both parties, I concluded that the contract, interpreted objectively, imposed on the defendant the obligation to provide to the plaintiff between 200,000 and 300,000 tonnes of material from the Hebden Quarry or Steelstone for crushing.

BREACH

75 The defendant argued that it committed no breach of the contract because Mr Gilson was not informed that the plaintiff's plant and equipment should not be returned to the site.

76 Emails that were attached to Mr Carter's statement confirmed that Mr Gilson was informed on 8 August 2008 that the plaintiff's crusher was not required. He was subsequently told that it was not required at all for August 2008 and he would be advised of requirements for September 2008 in due course.

77 It was not suggested that at some stage the defendant requested the return of the crusher or that it proposed to resume the supply of Feed Rock. Although Mr Gilson and the plaintiff's solicitors informed Mr Carter of the existence of the contract, he refused to meet with them to discuss the situation. He cancelled the meeting proposed for 26 September 2008 at which a copy of the contract was to be produced.

78 The defendant's solicitors appeared to have been misinformed that the contract was never finalised and that the plaintiff was unhappy with its terms and wished to continue to negotiate. They were informed that the defendant had not signed an agreed document. This was contrary to the evidence contained in Mr Newman's statement.

79 It was clear that between 27 June 2008 and August 2008 the defendant reconsidered the manner in which operations at the Hebden Quarry were to be conducted. One option was to contract with the plaintiff to take over the whole of the operation of the Quarry. Mr Gilson denied that he initiated this proposal. He said he responded to requests from the defendant that he price this option. Mr Calder confirmed this evidence.

80 Regardless of who initiated this proposal, the parties remained bound by the contract signed on 27 June 2008 until such time as it was terminated or renegotiated.

81 I concluded that the conduct of the defendant from August 2008 clearly demonstrated that it had no intention of performing its obligations under the contract entered into on its behalf by its managing director on 27 June 2008.

82 I find the defendant in breach of the contract.

DAMAGES

83 The plaintiff claimed for the payment of unpaid invoices and damages for loss of profit said to be the result of the defendant's breach.

84 The plaintiff rendered a number of invoices for services provided. Two were unpaid. An invoice, numbered 30039 was rendered on 2 October 2008 for $22,000 for the mobilisation and demobilisation of plant and equipment. Mr Carter said he refused to authorise its payment because the plaintiff failed to supply a copy of the contract. He did not explain why it was not paid after a copy of the contract was provided. In the absence of other objection to the payment of this invoice, I allowed this part of the plaintiff's claim.

85 The second invoice was said to be in the sum of $3,645.88 for fuel. There was no copy of this invoice amongst the documents provided to the Court. In the absence of evidence of the invoice, I was not able to consider this part of the claim.

86 The defendant raised two arguments against the plaintiff's claim for loss of profit. It relied on the provisions of clause 20 of the contract to claim that it was excluded from liability and it took issue with the manner in which the plaintiff's forensic accountant assessed the claim.

87 Clause 20 of the contract provided:

LIABILITY

20.1To the extent allowed by law, Gilson's total cumulative liability under this Agreement is limited in all circumstances to no more than twice the payments actually received by Gilson under this Agreement.

20.2Neither party will be liable to the other party for any economic, financial, indirect or consequential loss or damage whatsoever suffered or incurred by the other party including but not limited to loss of production, loss of rent, loss of income, loss of profit or anticipated profit, business interruption or the like.

88 The defendant argued that the plaintiff's claim for lost profit and the expense of providing plant and equipment was a claim for economic loss within the meaning of clause 20.2 of the contract and that it was excluded from liability for the plaintiff's losses. It relied on the authority of Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 to support this argument.

89 The plaintiff in turn referred to authority that it argued indicated that Darlington Futures did not provide any measure of support for the defendant's position.

90 In Darlington Futures the High Court dealt with a clause that limited liability of a broker for stock market trading losses. The clause was expressed in broad terms. The respondent suffered losses as a result of transactions that were unauthorised. The question posed was whether the clause protected the appellant from the consequences of what otherwise would be breaches of the contract (p.507).

91 The High Court considered the approach to be taken to the construction of a clause of this nature. The Court (at p.509) referred to the legitimacy, indeed the necessity, of construing the language of such a clause in the context of the entire contract of which it forms part and noted that the Court's decision in Sydney Corporation v West (1965) 114 CLR 481 was reached by a process of construction of the contract. After referring to other authority, the Court stated (at p.510):

These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and where, appropriate, construing the clause contra proferentem in the case of ambiguity.

92 The construction of clause 20.2 was not easy. It clearly conflicted with the provisions of clause 20.1 where the liability of the plaintiff was limited in all circumstances but not totally excluded. This left to speculation the circumstances in which the exclusion from liability extended both to the plaintiff and the defendant by clause 20.2 applied. Construing the clause contra proferentem, I concluded that at most it excluded liability for losses arising out of the due and proper performance of the contract and that, in the absence of express stipulation, it did not extend to losses that arose from breach of contract.

93 In the absence of a clear and unambiguous statement to that effect, I did not accept that the parties to this contract agreed that they could each ignore their obligations with impunity. I rejected therefore the proposition that clause 20.2 operated to exclude the defendant from liability for the losses suffered by the plaintiff as a result of its breach of contract.

94 The defendant's remaining arguments related to the manner in which Ms Delbridge-Bailey, forensic accountant, assessed the losses claimed by the plaintiff.

95 Ms Delbridge-Bailey prepared her report (Court book, p.282, Exhibit A) by assessing losses on the basis of a number of scenarios. The assessment took the simple approach of calculating the gross income the plaintiff would have received under each of the scenarios had the contract been performed and deducting from the figures derived the actual gross income earned by the plaintiff during the period under consideration.

96 The defendant took issue with the resulting figures because that they did not take account of:

1expenses incurred by the plaintiff for interest and finance charges incurred on the equipment that the plaintiff claimed it purchased for the purpose of fulfilling the contract; and

2depreciation in the value of this equipment, either by applying the generous allowances provided for in calculating taxable income, or on some other basis.

97 Ms Delbridge-Bailey explained in cross examination that she regarded the expenses for interest and finance on the equipment as fixed costs that applied equally to income that might have been derived under the contract and actual income. The result would be therefore that those costs would be applied to both calculations and the difference between them would remain the same.

98 In respect of depreciation, Ms Delbridge-Bailey pointed out that she dealt with wear and tear on the equipment by allowing significant amounts for repairs and maintenance. She pointed out that the Australian Master Tax guide suggested the effective useful life of the plaintiff's equipment was 25 years and that, in circumstances where the equipment would have been used in the first two years of its effective useful life, little might be allowed for depreciation in value. Further, she noted that, as with interest and finance expenses, if any amount was to be applied for depreciation, it would be applied to both the prospective and actual income figures.

99 These explanations were logical and plausible and I accepted that Ms Delbridge-Bailey's methodology was one that could be accepted as the basis for calculation of the plaintiff's losses.

100 I considered, however, that I was not in a position to calculate the plaintiff's losses for the following reasons:

1The report dealt with the period from April 2008 to April 2010, rather than from the two year period of the contract commencing on 27 June 2008.

2I considered that the calculations should be based on annual tonnages of 200,000. Had the defendant supplied tonnages at this level, no complaint could have been made of breach of contract.

101 The proceedings will therefore be adjourned to a date to be fixed to allow for recalculation of the claimed losses and to deal with the plaintiff's request that, if the resulting figure exceeds the jurisdiction of this Court, it be allowed the opportunity to renew its application to remove the proceedings to the Supreme Court.

ORDERS

102 Verdict for the plaintiff.

103 The proceedings are adjourned to a date to be fixed to determine the quantum of the judgment to be entered in the plaintiff's favour and to deal with issues of interest and costs and, if necessary and permissible, transfer of the proceedings to the Supreme Court.

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Decision last updated: 28 March 2012