LAW CASE STUDY OF KUJA CATTLE

QUESTION

Question One                                                                                              (2000 words)

In early January 2011, Kuja Cattle Pty Ltd (“Kuja”) entered into a verbal ‘hand-shake’ agreement to sell Livestock Exports Pty Ltd (“Livestock”) 3,000 head of breeding stock a month for six months (April to September 2011) Droughtmaster at AUD $1,000 per head, or $3 million per monthly contract, payable by bank transfer a month in advance, with delivery to the Port of Townsville for live export. In negotiations, Livestock specifically advised Kuja it was buying these cattle for the export market, to fulfill a parallel six month contract it had obtained with Cavite Stock Imports (“Cavite”) a Manila, Philippines’ firm. Also, that it would be specially chartering a livestock ship each month to deliver the cattle to Subic Bay Port, near Manila. The Cavite contract was expressly made subject to Queensland law. Clause 25 of the contract required Livestock to pay Cavite agreed damages as follows:

1. $500,000 for failing entirely to deliver any of the promised six shipments.
2. $250 per head in the event of delivering less than 3,000 head of cattle in a shipment.
3. $65,000 per day penalty for late delivery to the Port of Townsville up to a maximum of 7 days, with Cavite having the right thereafter to cancel that month’s shipment, with such option triggering application of 25(1) above.

Then after a sharp 25% rise in cattle prices across Australia, Kuja advised Livestock by email just 21 days before it was due to supply cattle in September 2011 that, unless Livestock agreed to a $250 per head price increase, then Kuja would not be supplying any cattle under the final, September installment. Following Kuja’s advice, Livestock had little option but to purchase Droughtmaster cattle in the open market. With demand far exceeding supply, it was able only to purchase 2,500 at an average price of $1,350 ($3.375 million in total). As a result of these changed arrangements:

• It cost Livestock an extra $250,000 to recharter the livestock ship Prima Donna which it had initially cancelled on Kuja’s advice of refusal to supply.
• Delivery of the 2,500 cattle to the Port of Townsville for live shipment, was six days late.

Required:

Advise Livestock as to its legal rights and remedies under Australian common law (including equity) in relation to the following possible claims against Kuja.

(a) $250,000 being the extra costs associated with cancelling and then rechartering the Prima Donna. (400 words)

(b) $875,000 being the additional cost of purchasing 2,500 Droughtmaster cattle in the market ($1,350 versus $1,000). (400 words)

(c) Reimbursement of $125,000 and $390,000 respectively under agreed damages Clause 25 as payable to Cavite. (400 words)

(d) $125,000 being for loss of profits on 500 cattle based on Livestock’s average profit of $750,000 per shipment of 3,000 cattle. (400 words)

(e) Recovery of the $3 million advance payment to Kuja for the final September installment of Droughtmaster cattle. (400 words)

Question Two                                                                                              (700 words)

Dr Anka Bakana owned a prime real estate site – inherited from her late parent’s estate – in central Bundaberg, a thriving coastal Queensland town. Following protracted negotiations, she granted the Queensland supermarket chain Barina-Carina Pty Ltd (“BCP”) an irrevocable, non-assignable option to purchase the property for $1.25 million on payment of a non-refundable $125,000 deposit, the balance payable within one year. The contract expressly provided that to exercise the purchase option, BCP had to obtain timely approval from the Bundaberg Regional Council (“BRC”) for supermarket construction. But approval was delayed due to planning objections from local residents. One month before its option was due to expire, BCP asked Dr Bakana for a one year extension in order to submit a new much improved application it had already prepared, to the BRC accommodating those residents’ quite reasonable objections. After a series of lengthy telephone conversations with BCP’s lawyers, Dr Bakana reluctantly agreed to this extension, and for no additional payment. But six weeks later – by which time BCP had spent a further $25,000 on consultant’s fees in connection with its revised application – she received an unconditional written $2 million cash offer from a rival national supermarket chain, Jingella Foods for acceptance within 28 days.

Required:

Advise Dr Bakana, who plans to donate the proceeds of sale to a local educational charity, whether she can accept Jingella’s offer or if she is still bound (or estopped) under contract to sell the property to Barina-Carina Pty Ltd or could otherwise avoid the contract by offering to repay BCP its $125,000 deposit which she had placed on initial receipt in a trust account with the Bundaberg Credit Union. (700 words)

Question Three                                                                                           (800 words)

Read the recent High Court of Australia case Insight Vacations Pty Ltd v Young [2011] HCA 16 (see http://www.austlii.edu.au/) together with any other relevant material you care to consider, and answer the following questions.

(a) Provide a summary account of the material facts of the case and its progression through the Australian court hierarchy. (200 words)

(b) What do s 74(2A) Trade Practices Act 1974 (Cth) and s 5N Civil Liability Act 2002 (NSW) provide, and how do they interact vis-à-vis the appellant’s potential liability for breach of warranty and the exemption clause? (300 words)

(c) What is the ratio decidendi of the case? (not a case summary). (300 words)

SOLUTION

Answer 1

1. a.     In the above case, there was a hand shake agreement between parties. Although the agreement was not an expressed written one, but contains all the essentials of a valid contract such as agreement, consideration, legality of object, capacity to contract and the formalities. Live stock export private ltd (Livestock) suffered a loss of $250,000 extra as the other party Kujja Cattle Pvt. Ltd (kuja) denied to supply the cattle heads on the fixed charge of $ 1000, for the September installment which was the last installment. The kuja was demanding for the extra charge as there was an increase of 25% in the cattle price in the market. As livestock had to go with the decision of kuja, he paid the surplus amount to kuja. Then further they had to export the castles to another company with a parallel running contract between them. The terms of contract between the livestock and the cavite stock imports Pvt. Ltd (cavitte) as under clause 25 that in case of delivering less than 3,000 heads of cattle in the shipment, the livestock will have to pay $250 per head of the cattle. As with the increase in price of the cattle by kuja, live stock left with no option but to buy cattle heads on that increased rate. As a result of this, the livestock were able to buy only 2,500 cattle heads at an average price of $1,350 instead of 3000. It is clear that due to breach to perform his duty, kuja made livestock to pay the extra amount. Under section 26 clause 5 of the law of contract in Australia the person who is suffered due to the breach of contract between them has the right to claim damages, as monitory compensation, caused to him. [Paterson Janie, 2009]The general principle governing on this rule was laid down by Park B in the famous case of Robinson v Harmon. The principle behind this rule is that if a person sustains a loss due to breach of contract by the other party then by damages in monetary sense he is supposed to be placed in the same position as he was before suffering to the loss. It is clear from the law of contract principle that the damages are compensatory not the punitive one. Damages and liquidations are also the common law remedies available for the person sustaining loss in such situations. In law of contract, the damages are supposed to be the substitute of the performance which the performer left. [Clarke Julie, 2010] Hence in this case the live stock can take the advantage of this rule and claim for the damages from kuja which he suffered.
2. b.     Livestock, at the time of entering of the contract disclosed to the kuja the reason of purchasing the cattle heads by them that they are buying these castles for the export work to the other company named ‘Cavitte’ a Manila Philippines Import Company. Also that there contract was to meet another contract running between the livestock and cavitte and also, that they are chattering another shipment for the export of the castles. As per the clause of agreement between the livestock and cavitte, if livestock failed to deliver less than 3000 heads of cattles then he has to pay $ 250 per head. The livestock had to pay an extra amount of $875,000 additional as they were able to purchase only 2500 from kuja instead of 3000 with the cost of $ 1,350. Here livestock suffered loss due to kuja.

When the parties enter into the contract or shake hand for the performance of some work. They only want the thing to be done. But the law says that the contracting parties have the choice either to perform the promise as it is or to pay the compensation agreed upon. In many situations, the party thinks in economic perspective and finds it feasible to pay the compensation instead of performing the entire contract. [Lecture notes, 2012] In this condition he has to pay the actual amount which the defendant will suffer from plaintiff not performing the contract. When the plaintiff who is claiming damage is able to establish the exact value of damages then the courts generally grants the permission to take the compensation but where the plaintiff is not sure about the exact value of the loss he suffered in that situation the performance of the contract is the correct damage. In Common Wealth v Amman Aviation Pty. Ltd, the courts held that mere difficulty in estimating the damages will not relieve the courts from placing the value on which the loss has been suffered by the plaintiff. But in every situation the burden of proving the breach of performance lies upon the plaintiff or the person claiming the damages. Then the claim of the defendant is also subjected to some limitation given under section 27 of the Act. Hence as the livestock had exactly estimated the value he had suffered due to the breach of kuja, the courts are now in the position to easily grant compensation to them.

1. c.      Livestock is entitled to claim reimbursement from the Kuja as they had to pay additional amount from their own pocket to Cavitte. For claiming any damage or compensation the causation is very important, hence the plaintiff have to prove that the breach on part of defendant caused him to suffer the monetary or financial loss. [lecture notes, 2012]

The handshake contract between livestock and kuja was not the only contract running in this case but there was another parallel contract running between livestock and Cavitte. The livestock required the heads of the cattles from Kuja on time so that it can export the same to the Cavitte. Kuja agreed to deliver Livestock Heads at the rate of $1000 per head. On the other hand, the livestock and Cavitte were bound by the terms of the contract where on failure to deliver the exact number of 3000 heads, they have to pay Cavitte $250 per head for this shortage. With the increase in price in the market, Kuja also demanded for $250 extra on each cattle head with very short notice. Just 21 days before, they were informed that they had to pay $250 extra. With no other option Livestock paid Kuja with increased price. Due to the extra payment to Kuja, Livestock was unable to purchase 3000 cattle’s head and they purchased only 2500 which was 500 less than the agreed number. Now as per the terms of contract between Livestock and Cavitte, they have to $125,000 for the short supply. It is necessary to show that the breach caused loss. The case of Alexander v Cambridge Credit Corporation Ltd, established the fact that how causation can arise as an issue in the contract. Hence we saw that Kuja’s non performance generates the potential right for the damages to Livestock. It is also clear that the loss suffered by the livestock is actually due to denial to pay on the previously fixed price by the Kuja. Livestock is now in the clear position to claim reimbursement of money which they paid Cavitte.[Latimer Paul, 2012] The reason about the reimbursement by Kuja is that livestock disclosed the very purpose of their contract and as they had to pay the surplus money to Kuja as increased price they were able to buy only 2500 heads. If the price would not been increased then the Livestock could have been purchased all 3000 and delivered to the Cavitte.

1. d.     The breach of contract occurs where the party fails to perform the contract precisely or exactly his obligation as per the contract.[Bolton v Mahadeva, 1970] The breach may be the actual breach or anticipatory. In actual breach the party from performing the duty. Anticipatory breach where the party in advance announces that due to some situation he is not going to perform the obligation. Due to such renunciation the other party who was supposed to gain some surplus or profit will definitely going to suffer a loss. In such situation the party sustaining loss can bring an action against the person on whose fault his had suffered financially. Damages are the basic remedy for the breach of Contract. This is a common law remedy which can be used as right to compensation by the innocent party. This is the expectation damages where the damages for the loss of chance. This kind of damages was awarded by the courts where the plaintiff only expected gain the chance of a benefit from the performance of the contract. House of Lords in England raised this possibility of remedy available, an account of profits, this requires the defendant to account for any profit made by reason of his breach. The principle behind this award is not the compensation rule but the loss of profit by the defendant as a result of the breach.[Paterson Jannie, 2009] The person suffering loss must prove that he had suffered the substantial loss otherwise the court will award the nominal damages. Livestock’s loss of $125,000 is the substantial financial loss that any person can suffer in business.

Here livestock was in expectation of the profit from the contract between Kuja and him. But with the refusal of Kuja to deliver the cattle heads at the agreed price livestock had to pay the increased price to purchase heads. As a result of which he failed to purchase all 3000 heads and delivered only 2500 to Cavitte which in return charged $125,000 as damages. Because of all these livestock suffered a financial loss of $125,000 instead of his expected profit of $75,000. The livestock believe in the performance of contract between them and Kuja and entered into another contract with Cavitte. Any fault in the previous contract was obviously going to affect the later contract. Such losses will usually be included in the expectation damages. Hence he is entitled to claim a compensation for the loss of his profit due to the act of Kuja exactly as in the Victoria laundry case [Victoria Laundry (Windsor) Ltd v Newman industries Ltd, HPH 921]

1. e.      The handshake agreement between Kuja and Livestock contains all the ingredient of a valid contract. Kuja agreed to deliver 3000 cattles to Livestock at the rate of $1000 and the payment had to be made through bank as advance on monthly basis. The contract was for the sale of head of breeding stock for six months i.e from April to September. As the contract is to be performed in installments, it had to be performed in that way only. In other words within this contract the other installment contract was existing there. Hence each part is to be performed separately and can not be mixed and said to be partly performed.[Hoing v Issac, 1952] In the last installment, Kuja increased price as a result of the increased market value of cattle heads. Due to Kuja’s this act, Livestock’s failed to purchase 3000 cattle heads and purchased only 2500 in last month. As Kuja failed to supply the cattles in the last installment for the month of September they are bound to return the amount paid by live stock as advance in performance of its contract. A contract can commonly be discharged by the performance by the parties but the non performance also gave right to the parties to discharge the contract. [Breach of Contracts & Remedies, 2012] The parties who are in non- breaching position got the right to discharge the contract as they wishes because the other party breached his part of obligation. Here the contract was to be performed in installments. The Kuja had to deliver head stock and Livestock to pay the money in advance through bank on monthly basis. Kuja informed Livestock only 21 days before the final installment that he is not delivering the cattle heads at the rate agreed upon earlier but on a new increased price. The contract between them was almost performed except the last installment. So, the livestock, on Kuja’s failure to deliver the heads stock gained the right to repudiate that part of contract and ask for the recovery of advance of $ 3 million paid by him. Livestock can show the courts its records of payment made in advance and plead for an order directing Kuja to return the amount paid by it for the month of September.

Referencing

1. Jannie Paterson, (2009), Principle of Contract Law, Monash University, viewed on 3^rd May 2012, https://mailattachment.googleusercontent.com/attachment/?ui=2&ik=c2876bdf39&view=att&th=13710b0a4db680b5&attid=0.3&disp=safe&realattid=4288cc800b71ac35_0.3&zw&saduie=AG9B_P89uulThiqLE1x0NX4zeQDC&sadet=1336017905464&sads=tRoiqMTAUmWJ546NVPmFfabJkXk
2. Julie Clarke, (2012), Formation, Australian Contract Law, viewed on 22^nd Feb 2012, http://www.australiancontractlaw.com/law/formation.html
3. Lecture Notes, Remedies, (2010), viewed on 3^rd May 2012, http://law.anu.edu.au/colin/Layout/Remedi_h.htm
4. Breaches of Contract & Remedies, (2012), viewed on 3^rd May 2012 from http://www.goldsmithibs.com/resources/free/Breach-of-Contract/notes/Breach-of-Contract-Remedies.pdf
5. Paul Latimer, (2012), Australian Business Law, 31^st edition, PP 467-68, viewed on 3^rd May 2012 from http://books.google.co.in/books?id=qOLWXTET0MC&pg=PA467&lpg=PA467&dq=reimbursement+under+australian+contract&source=bl&ots=QByATxSX5v&sig=wCAoKzezVj0eRkIIb2wR9XM_VLk&hl=en&sa=X&ei=FiWiT6y6IML5rAfEgoiVBw&ved=0CEIQ6AEwBQ#v=onepage&q=reimbursement%20under%20australian%20contract&f=false

Case Law

1. Robinson v Harmon (1848) I Ex 850, 855; 154 ER 363, 365
2. Common Wealth v Amman Aviation Pty. Ltd (1991) 174 CLR 64, 80, 98, 117, 134, 148, 161.
3. Alexander v Cambridge Credit Corporation Ltd HPH 908
4. Bolton v Mahadeva (1972) 1 WLR 1009
5. Victoria Laundry (Windsor) Ltd v Newman industries Ltd, HPH 921
6. Hoenig v Isaacs [1952] EWCA Civ 6

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