Harrisons & Crosfield (PNG) Ltd v Post Trading Company Pty Ltd [1976] PGNC 28; [1976] PNGLR 106 (31 March 1976)

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[1976] PNGLR 106 - Harrisons & Crosfield (PNG) Ltd v Pous Trading Company Pty Ltd

SALE OF GOODS - Remedies for breach of contract - Measure of damages - Non-delivery - No available market - Contract for sale of coffee - Test, reasonable conduct of buyer - Increases in world coffee prices - Loss on buying-in to meet resale, and loss of profit allowed.

On 16th July, 1975, a contract was made between the plaintiff, a coffee trader and exporter, and the defendant, a seller of coffee, whereby it was found the defendant agreed to sell to the plaintiff and the plaintiff agreed to buy 3315 bags or 195 tons of washed New Guinea Arabica Coffee, Y grade, at a price of 72.75t. per kilogramme ex Mount Hagen; the contract providing for prompt shipment. The defendant having refused to deliver after repudiating the contract on the 22nd July, 1975, the plaintiff sought by way of damages, a loss on buying-in 195 tons of coffee, the difference between the price paid and the contract price being K92,905.06 and also a loss of profit of K3,792.36 amounting to a total claim of K96,697.42.

N1>(1) There being no available market in the sense that the entire contract quantity could have been purchased on 25th July, 1975, at a single price lower than the prices actually paid by the plaintiff, the measure of the damages recoverable by the plaintiff was the amount that a reasonable man, acting sensibly and on his own behalf and at his own risk, would be willing to pay in order to get the goods at the time and place stipulated. Hasell v. Bagot, Shakes & Lewis Ltd. [1911] HCA 62; (1911) 13 C.L.R. 374 at p. 375 applied.

N1>(2) Considering inter alia, the increase in the prices of coffee occasioned by the effect of the frost upon coffee production in Brazil in July-August 1975, the fact that the plaintiff was faced with the alternative of buying at a slightly higher price in order to cover early consignments under other contracts applicable to the repudiated transaction, or incur the risk of a penalty under those contracts, and also of the export levy of 2½ per cent effective from 1st September, 1975, and having regard to the resale commitments of the plaintiff, the purchases were at the most favourable prices available, and the sums paid were reasonable prices within the test laid down in Hasell v. Bagot, Shakes & Lewis Ltd. [1911] HCA 62; (1911) 13 C.L.R. 374.

This was a claim for damages brought by the plaintiff (purchaser, coffee trader and exporter) against the defendant (vendor, coffee seller) claiming damages for non-delivery of 195 tons of coffee under an oral contract alleged to have been entered into on 16th July, 1975.

FROST CJ: This is a claim for damages for breach of contract brought by the plaintiff, which conducts the business of a coffee trader and exporter at Lae, against the defendant, which is a seller of coffee which it buys from local producers and processes at its factory in Mount Hagen.

The plaintiff alleges that a contract was made on 16th July, 1975, between its coffee manager, Mr. Michael King, and Mr. Walter Perdacher, a director of the defendant company, whereby the defendant agreed to sell to the plaintiff and the plaintiff agreed to buy 3,315 bags or 195 tons of washed New Guinea Arabica coffee, Y grade, at a price of 72.75t. per kilogramme ex Mount Hagen. The contract as alleged provided for prompt shipment.

The plaintiff then alleges that on or about 22nd July, 1975, the defendant repudiated the contract and refused to make delivery of the coffee to the plaintiff. In fact no coffee was delivered.

The heads of damage sought by the plaintiff are two-fold, a loss on buying-in 195 tons of coffee, the difference between the price paid and the contract price being K92,905.06 and also a loss of profit of K3,792.36, amounting to a total claim of K96,697.42.

The significance of the transaction is that the contract alleged was made on 16th July when the price of coffee was steady at about 72t. per kilogramme, and that three days’ later on 19th July the coffee crops in Brazil were affected by frost which caused a dramatic increase in price within a week to 90t. and a few days’ later to approximately 120t. per kilogramme. Thus, on the one hand, if there were no contract to the extent that the defendant had uncommitted supplies in stock the price increase was to its benefit. But assuming it was bound by the alleged contract, if its commitments were such that it had to buy in to fulfil the contract the defendant stood to lose because of the higher prices which would naturally be demanded by the local producers. It was thus strongly in the defendant’s interest to defeat the claim. On the other hand, the plaintiff had at stake the heavy loss on buying-in to meet its commitments on resale.

In the course of dealing between the parties which commenced in April 1974 and extended over 11 contracts, except in one case the quantity of coffee sold was Y grade and the terms were for prompt payment which meant prompt on shipment, that is within 30 days, and in each case also the provision for exchange was firm, that is, as determined on the date of the contract.

Mr. King’s method of operation was to receive early in the morning bids from overseas buyers, either in the United States or London, for quantities of coffee at stated prices and then to endeavour to match these bids with local purchases. The plaintiff’s policy thus involved non-risk trading; it was not its practice to buy or sell on forward contracts.

As had occurred in all its transactions with the defendant, contracts of purchase by the plaintiff were negotiated over the telephone, which was essential because of daily fluctuations in the market, and were concluded by Mr. King informing the supplier of the contract number. It was necessary for a supplier to have the number because it had to be stamped upon the bags in which the coffee was consigned. The procedure was then for an indent, which was really an invoice, to be sent to the supplier setting out the particulars of the commodity, quantity, packing, weights, shipment, price, freight, finance and exchange, together with another document in precisely the same form but with provision for an acknowledgement to be signed by the supplier and returned to the plaintiff. In no previous contract with the defendant had the acknowledgement been returned. Sometimes purchases were made on terms of delivery in store Lae and sometimes ex factory, that is, the factory of the supplier. In the latter case it was the plaintiff which bore the charges of freight and insurance from the factory to its store in Lae. Bids received from overseas were in toea per kilogramme but as between the plaintiff and its suppliers prices were usually quoted, upon conversion, in Australian cents per pound. The plaintiff’s own sales overseas were f.o.b. Lae.

The defendant’s operations were carried on from a large processing plant at Mount Hagen, which enabled it to process approximately 40-50 tons of coffee per week. The coffee was bought from local suppliers and then sold as washed or green coffee. It dealt in Y grade coffee and, with the exception of a small quantity of a lower grade called “T” grade purchased in 1974 by the plaintiff, all its transactions with the plaintiff were for Y grade coffee. So far as payment was concerned the practice was for the plaintiff to pay either portion or the full amount of the contract price by telegraphic transfer as soon as the defendant informed it that the coffee was being placed on the trucks at Mount Hagen.

The defendant’s directors who were concerned in the subject transaction were Mr. Otto Strang, who owned 20 per cent of the shares and Mr. Walter Perdacher, who owned 45 per cent of the shares. All previous contracts had been concluded with Perdacher. The defendant has a substantial business with a turnover amounting to K2.5 million per year. It deals with other exporters such as Angco, during 1975, with Gollin-C.I.L. (New Guinea) Pty. Ltd., in addition to the plaintiff.

[His Honour then dealt with the evidence of the negotiations for the alleged contract, concluding that a contract was made as alleged, and continued:]

The terms of the contract, which the parties accepted was the second issue, were for the sale by the defendant to the plaintiff of 195 tons of coffee at the price of A33c ex Mount Hagen, which in metric terms is 72.75t. per kilogramme. It was not disputed that it would follow from the finding that a contract was made, the unchallenged evidence of King as to the previous course of dealing between the parties and the necessity to give business efficacy to the contract, that the terms of the contract were as alleged by the plaintiff.

King’s reference to quick delivery was sufficient to import the previous arrangement for prompt delivery, that is within 30 days. The only point raised by defendant’s counsel upon this issue was based on the continued use by the plaintiff upon the indent form of the name Harrisons & Crosfield (NG) Limited which was in fact changed on 25th March, 1974 to Harrisons & Crosfield (PNG) Limited. It was then rather faintly argued that no contract could be found as between the defendant and the plaintiff as described in these proceedings. However, the subsequent different description of the plaintiff in the indent forms cannot in my opinion affect the plain fact that the transaction was between the plaintiff and the defendant as constituted by its organization at Lae. The provisions of s. 23 (4)[cxxxv]¹ of the Companies Act 1963, relied upon by plaintiff’s counsel, are also sufficient to dispose of the point.

The final issue in the case is the measure of damages. If a contract was found it was conceded by the defendant that the defendant was in breach, and the plaintiff was entitled to recover the item of loss of profit, namely K3,792.36. The item which was disputed as to amount was the loss suffered by the plaintiff on buying-in. That loss was particularized as follows:

The evidence regarding the market for coffee is that the effect of the frost upon coffee production in Brazil was to send prices up in the first four or five days by about 20t. per kilogramme and within a fortnight to between 120t. and 123t. per kilogramme. After attaining 120t. per kilogramme the prices rose to 150t. and have since fallen back to the present price of about 140t. per kilogramme.

The plaintiff’s decision to buy in on 25th July followed advice that it took from overseas. As at a time of rising prices suppliers tend to withhold supplies King was faced with a difficult task. Buying-in at that time he considered that he bought at the best price possible as supplies became available over the period until early September. The purchases in September were required to cover early consignments under other contracts which were applied to the present transaction. If he had waited longer his buying-in would have been at a much greater price. He found it difficult to get coffee and needed every bag he could get. On some occasions he paid above the ruling prices to obtain an extra quantity of coffee, which was required in view of the plaintiff’s commitments to its customers. When such a quantity was offered at a higher price he had to consider whether to take it or not. If it had transpired that he was unable to obtain coffee in time to meet his shipment commitment before the end of August, the plaintiff would have incurred a penalty under its resale contracts for late delivery, and also on 1st September, 1975 an export levy of 2« per cent came into effect, notice of which was not given until 31st July. He was faced with the alternative of buying at a slightly higher price or incurring the risk of a penalty and also of the export levy.

Another criticism made of King was that he purchased 205 tons instead of 195 tons due under the contract. The reason for this was two-fold. He had to have some safety margin in case the coffee was not delivered in time and, further, he had to resort to the purchase of higher grades of coffee and extra quantities were required to blend the higher grades back to Y grade.

After the hearing concluded I felt some difficulty on this point, which led me to appoint a further hearing on 25th March, 1976. Counsel for the defendant maintained his position, and submitted that the plaintiff was not justified in buying coffee other than Y grade. Counsel for the plaintiff however pointed out that the defendant had been given the allowance for the extra tons of coffee as the claim was for the contract quantity reduced to an average price. Upon further consideration, on King’s evidence I find that the purchase of limited quantities of higher grade coffee was reasonable, and also that the claim is correctly quantified.

In all the circumstances, in my opinion, there was no available market in the sense that the entire contract quantity could have been purchased on 25th July at a single price lower than the prices paid by the plaintiff. I accept King’s evidence that having regard to his resale commitments he purchased at the most favourable prices available and, in my view, the sums paid were reasonable prices within the test laid down in Hasell v. Bagot, Shakes & Lewis, Ltd.[cxxxviii]⁴, and accordingly that the claim for damages has been made out.

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[cxxxv]23(4) A change of name under this Ordinance does not affect the identity of the company or any rights or obligations of the company or render defective any legal proceedings by or against the company....

[cxxxvi]55(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer the buyer may maintain an action against the seller for damages for non-delivery.

N1>(2) The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the seller’s breach of contract.

N1>(3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or if no time was fixed then at the time of the refusal to deliver.

[cxxxvii][1911] HCA 62; (1911) 13 C.L.R. 374 at p. 375.

[cxxxviii][1911] HCA 62; [1911] 13 C.L.R. 374.

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Cost of buying in 195 tons @ K121.19 (average) delivered in store Lae		K241,046.91
Less Contract price 195 tons @ 72.75 toea per kg. ex Mount Hagen	K144,699.75
Freight ex Mt. Hagen to Lae 195 tons @ K1.34 per bag	4,442.10	149,141.85
Loss

National Court of Papua New Guinea

Harrisons & Crosfield (PNG) Ltd v Post Trading Company Pty Ltd [1976] PGNC 28; [1976] PNGLR 106 (31 March 1976)

Papua New Guinea Law Reports - 1976