- ACN 087 011 541  FCA 1591
- Federal Court of Australia
- Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd
SUPPLY CONTRACT - BETWEEN TWO AUSTRALIAN PARTIES – AGREEMENT DEFINED AS ONE OF SELLER AND BUYER, NOT AS ONE OF PRINCIPAL AND AGENT – CONTRACT GOVERNED BY AUSTRALIAN LAW - APPLICATION OF THE CISG EXCLUDED
RELEVANCE OF GENERALLY KNOWN PRACTICES AND USAGES OF THE TRADE SECTOR CONCERNED FOR CHARACTERISATION OF NATURE OF RELATIONSHIP BETWEEN PARTIES – REFERENCE TO ARTICLES 9(2) CISG, 1.9(2) UNIDROIT PRINCIPLES 2004 AND § 1-303 UNIFORM COMMERCIAL CODE
COURSE OF DEALING AS A MEANS OF INTERPRETING AND SUPPLEMENTING TERMS OF THE CONTRACT – REFERENCE TO ARTICLE 9(1) CISG, 1.9(1) AND 5.1.2 UNIDROIT PRINCIPLES 2004 AND § 1-303 UNIFORM COMMERCIAL CODE IN SUPPORT OF CORRESPONDING SOLUTION ACCEPTED IN DOMESTIC LAWS OF COMMON LAW COUNTRIES
PRICE REDUCTION DUE TO QUALITY DEFECTS OF GOODS DELIVERED – BUYER’S RIGHT TO PASS BACK TO SELLER PRICE REDUCTION IT HAD TO ACCEPT FROM ITS FINAL CUSTOMERS – EXISTENCE OF CORRESPONDING COURSE OF DEALING BETWEEN SELLER AND BUYER – TO BE PROVED
Claimant, an Australian cherry grower, entered into an agreement with Respondent, an Australian exporter, whereby Claimant undertook to deliver at a fixed price consignments of cherries Respondent intended to order in the course of the season with a view to resell them to importers in Singapore and in Hong Kong. Respondent filled a total of 21 of such orders which Claimant promptly executed. A dispute arose when Respondent paid Claimant only 2/3 of the agreed price invoking quality defects apparent in most of the consignments of the cherries on arrival in Singapore and Hong Kong.
According to Respondent the price reduction was legitimate because due to the quality defects of the goods Respondent itself had to accept a similar reduction in the price paid by its Singapore and Hong Kong customers; moreover Respondent argued that according to a course of dealing established between itself and Claimant in previous transactions it was entitled to pass back the price reduction to Claimant as the grower/supplier of the cherries. Claimant objected that the parties had agreed to a fixed price to be paid by Respondent, and that there was no course of dealing from which a right of Respondent to an automatic reduction of the price even in the circumstances of the case at hand could be inferred. Claimant therefore brought an action for the payment of the full amount of the contract price.
The Court decided in favour of Claimant.
The Court first of all had to address the preliminary question of the nature of the relationship between the parties, i.e. whether it was one of seller and buyer (as argued by Claimant) or one of principal and agent (as argued by Respondent): indeed, if Respondent was acting as a mere agent of Claimant at least some of the consignments, i.e. those shipped by Claimant to the Singapore importer, would be an international sales contract governed by the CISG according to Article 1(1)(a) of the Convention, with the consequence that Articles 35, 39, 44 and 50 CISG providing for the remedy of price reduction in case of defects of the goods were applicable. However the Court held that the relationship between Claimant and Respondent was that of an independent seller and an independent buyer and that consequently it was governed by the Australian Sale of Goods Act 1895, which did not provide for a similar remedy. According to the Court a different characterisation of the relationship between the parties could have been justified on the basis of generally known practices and usages in the cherry sale/or exporting market – and in this context the Court expressly referred to Article 9(2) CISG, Article 1.9(2) UNIDROIT Principles 2004 and §1-303 of the Uniform Commercial Code, all recognising the relevance of trade usages – but neither Claimant nor Respondent had invoked such usages.
Furthermore, the Court also rejected the argument put forward by Respondent that it was entitled to the price reduction on account of a course of dealing established in previous transactions with Claimant. The Court admitted that a course of dealing established between parties "can provide […]for the drawing of interferences as to the actual terms on which the parties have contracted and […] for the imputation of implied terms in their contract", and in this context expressly referred not only to “the domestic laws of common law countries […] e.g. Uniform Commercial Code § 1-303; Restatement of Contracts, Second, § 223 […]”, but also to “international instruments such as the CISG Art. 9 […] [and the] UNIDROIT Principles of International Commercial Contracts 2004, Arts. 1.9 and 5.1.2.” However, according to the Court Respondent had not produced sufficient evidence as to the existence of a course of dealing between itself and Claimant of the kind invoked.
REASONS FOR JUDGMENT
Anthony Hannaford, who trades under the name Torrens Valley Orchards, is a cherry grower in the Adelaide Hills. His produce is sold into both the domestic and overseas markets. In the 2003/2004 season, Australian Farmlink Pty Ltd, an exporter of South Australian produce, sold TVO cherries to a business in Hong Kong (eleven shipments) and to a company in Singapore (ten shipments). The return TVO received from Farmlink on the sale of its cherries was, in aggregate, about one third of what Mr Hannaford claims were the agreed sale prices. The primary reasons allegedly assigned for the greatly diminished returns were price reductions because of quality defects apparent in most of the consignments of the cherries on arrival in Singapore and Hong Kong. These reductions were called “purchase discounts” in Farmlink’s documentation and “credits” in TVO’s.
Neither the Singaporean buyer, Freshmart Singapore Pte Ltd, nor the Hong Kong business, Wing Cheong Laan (whose principal was named Mak), is a party to this proceeding. The second and third respondents, Choon Kiat Koh and Bruce Plummer, are directors of Farmlink. The fourth respondent, Heather Churchill, was at all relevant times Farmlink’s export manager.
The fundamental issues arising in this proceeding relate to the nature and the terms of the relationship between TVO and Farmlink in the sale of TVO’s cherries: was it that of seller and purchaser, or was it one of principal and agent? And whichever was the case, what were the terms of the sale or of the agency? Surprisingly perhaps, the parties’ agreement, such as it was, was an oral one.
It is fair to say that the respondents’ defence drifted far from that upon which the case was originally pleaded and conducted. After the close of oral submissions I was asked to entertain a further amendment to the defence to accommodate issues that had been brought into focus in final submissions. As I will later indicate, I refuse to allow the amendment sought.
The oral character of the contract(s) apart, two further factors have complicated the resolution of this matter. The first is the real uncertainty as to the legal context in which the question of characterisation of the parties’ relationship is to be addressed. If the matter is properly to be regarded as one of sale and resale, the vendor-purchaser relationship between TVO and Farmlink would be subject to the Sale of Goods Act 1895 (SA) and the resale relationship between Farmlink and Freshmart, but not Mak, probably to the Sale of Goods (Vienna Convention) Act 1986 (SA). This latter matter, though, has not been addressed by the parties and has not been the subject of evidence to the extent that it might raise questions as to the law of Singapore and Hong Kong respectively: see United Nations Convention on Contracts for the International Sale of Goods, Art 1 (“CISG”). Singapore has ratified the CISG and it is in force in that country. Though the CISG was in force in China, but not in Hong Kong, at the time of the “hand over” to China, China has apparently not taken the necessary steps to have the CISG apply to Hong Kong. The Cour de Cassation in France has, in consequence, recently concluded that the CISG was not applicable to Hong Kong: see Telecommunications Products Case, Cour de Cassation, 2 April 2008; and see generally Schroeter UG, “The Status of Hong Kong and Macao under the United Nations Convention on Contracts for the International Sale of Goods” (2004) 16 Pace International Law Review 307. If, on the other hand, the relationship of TVO and Farmlink is that of principal and agent, TVO’s relationship with Freshmart, but not with Mak, was subject probably to the provisions of the Sale of Goods (Vienna Convention) Act. I mention this for the following reason. The CISG, but not the domestic Sale of Goods Act, has a developed regime for a buyer (i) to notify a seller of lack of conformity with the quality required by the contract: see CISG Arts 35, 39 and 44 and see Schlechtriem and Schwenzer (eds), Commentary on the UN Convention on International Sale of Goods at 411 ff and 460 ff (2nd English ed, 2005); and (ii) to effect a price reduction for non-conformity: CISG Art 50 and Schlechtriem and Schwenger at 596 ff. I note this because both Farmlink and Mak effected price reductions. The evidence on whether they were negotiated or not is controversial.
The second complicating factor relates to those price reductions. It is clear from the evidence that, at presently relevant times, quality problems of varying severity were prevalent in both the domestic and overseas sales of cherries generally and that, in respect of overseas sales, exporters routinely passed on price reductions to Australian suppliers in response to this phenomenon. The evidence both of TVO’s dealings with other exporters, and of its dealings with Farmlink since the 2000/2001 cherry season, illustrate this practice. The significance, if any, of it in the characterisation of the parties’ relationship and in the terms of it has been vigorously debated before me.
I have in the event concluded that Farmlink was not TVO’s agent. It was a purchaser for resale. The individual purchases in respect of each consignment to Singapore and Hong Kong were for agreed prices. Because quality defects were a recurrent concern and because Freshmart and Mak effected price reductions (whether or not, at least in Freshmart’s case, in reliance upon Art 50 of the CISG), the individual sales by TVO took place in a context in which reductions in the “purchase price” payable by Freshmart and Mak were to be anticipated in some degree for quality defects. I am not satisfied, though, that in passing on price reductions Farmlink had any contractual right so to do. Formally it may have had rights against TVO under the Sale of Goods Act (eg s 14 and s 52) for which it may have been entitled to claim damages for breach of warranty in respect of particular individual contracts or to set off such a breach in diminution or extinction of the price.
Mr Hannaford’s routine acceptance of reductions (at least those said to be made for quality reasons) in the purchase price owing to him was, in my view, a reasonable and sensible business response to a recurrent phenomenon in an ongoing business relationship in a market for perishables. As I observed in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at :
… notwithstanding their contract, parties in an ongoing business relationship … commonly “regulate their relationships in accordance with what they consider is fair and reasonable or commercially necessary at particular points in time rather than by reference to a priori rights and duties arising under a contract”: Integrated Computer Services Pty Ltd [v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11, 110] at 11,117.
Such “mutual accommodation” may, or may not, over time evidence a contract variation. In the present case as pleaded it did not. Mr Hannaford was not obliged to accept whatever price reduction Farmlink had accepted from, or perhaps even agreed with, Freshmart and Mak. He retained his right to renegotiate his contract with Farmlink and was entitled to insist that price reductions ascribed to quality defects were reasonable and legitimate, ie were in fact made for reasons of quality and were ones for which he bore the responsibility.
The Parties’ Cases
Put in short form the applicant’s primary case is that in or about early December 2003 Farmlink orally agreed with TVO to sell cherries grown by TVO into the Hong Kong and Singapore markets at agreed prices for each of four different cherry sizes and, further, that a premium of at least one dollar above those prices was payable for cherries packed into punnets. That agreement, when enlivened by Farmlink’s individual packing orders to TVO, constituted Farmlink a purchaser of TVO’s cherries at the agreed price. Eleven such orders were filled for shipment to Hong Kong; and ten for Singapore. There was a large shortfall in the amounts Farmlink actually remitted to TVO relative to the agreed prices for these shipments. TVO’s primary claim is for the amount of the shortfall, plus damages for loss of the use of the money and interest.
The course of dealing sidewind
The matter I would stress about the above pleadings is that each side’s case was founded upon an oral contract alleged to have been entered into in or about December 2003. Farmlink’s case later took a new turn outside the pleadings. This needs some explanation as it is the subject of a ruling below. In its Summary of Facts, Issues and Contentions filed before the hearing, Farmlink referred at length to a course of dealing between itself and TVO from 1999/2000 to 2003/2004 and, in particular, to what was said to be TVO’s acceptance of purchase discounts for quality. It asserted its relationship with TVO was an agency for sale at a negotiated conditional price. And it asserted that:
Even if there was an agreement for sale of goods by TVO to Farmlink sufficiently certain to be enforceable, then the decisive point is that it was a condition and had been agreed and/or established by the course of dealing between the parties that the price paid to TVO would be the conditional price less any “purchase discounts” applied by the overseas buyers and passed back to TVO by Farmlink.
I am quite conscious of the foundation that both a prior course of dealing between parties and practices and usages thereby established between them can provide (a) for the drawing of inferences as to the actual terms on which the parties have contracted and (b) for the imputation of implied terms in their contract: for the difference between inference and imputation, see Hawkins v Clayton (1988) 164 CLR 539 at 570-571 and 573. This is evidenced both in the provisions of international instruments such as the CISG Art 9: see Schlechtriem and Schwenzer at 141 ff; see also Unidroit Principles of International Commercial Contracts 2004, Arts 1.9 and 5.1.2; and in the domestic laws of common law countries: see eg Uniform Commercial Code, §1-303; Restatement of Contracts, Second, §223; Farnsworth on Contracts, §7.13 (3rd ed, 2004); Furmston (ed), The Law of Contract at [3.18] (2nd ed, 2003); Cheshire and Fifoot, Law of Contract at [10.18] and [10.29] (9th Aust ed, 2008). I equally accept that it may well have been the case, as I will later suggest, that some at least of the terms upon which TVO and Farmlink actually intended to contract in the 2003/2004 season were to be inferred from their prior course of dealings. But that is not the question on which I must rule.
Sale and Resale or Agency: The Applicable Principles
Notwithstanding that the relationships of principal and agent and seller and buyer are mutually exclusive, the one being a fiduciary relationship, the other a “commercially adverse relationship”: Bowstead & Reynolds on Agency at [1-032] (18th ed, 2006); the distinction between them in cases where sales or purchases have been effectuated by an intermediary can be a fine one not easy to draw: see Atiyah, The Sale of Goods at 28 (10th ed, 2001). Unsurprisingly, courts have emphasised that decided cases are for the most part of limited assistance given the quite fact (and agreement) specific nature of the inquiry to be made: see eg Fraser-Ramsay (New Zealand) Ltd v De Renzy (1912) 32 NZLR 553 at 575; see generally, Dal Pont, Law of Agency at [2.3] (2nd ed, 2008); the more so when, as in the present matter, the contract in question (whether of agency or sale) is an oral one: cf Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd  EWCA Civ 288 at -.
Before identifying those factors which have been found to be of varying significance as indicators of, variously, agency or sale, it is appropriate, first, to refer generally to a number of relatively uncontroversial propositions of agency law. In so doing, I repeat for convenience in part what I said in South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 at  ff.
Those definitions of agency that take the principal and agent relationship itself as their particular focus: contrast International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652; emphasise that that relationship “can only be established by the consent of the principal and the agent”: Garnac Grain Co Inc v HMF Faure & Fairclough Ltd  AC 1130 at 1137; see, for example, Bowstead & Reynolds at [1-001]; Restatement of Agency, Third, §1.01; 3 Am Jur 2d, “Agency”, §15.
The consents so given need not necessarily be to a relationship that the parties understand, or even accept, to be that of principal and agent: Branwhite v Worcester Works Finance Ltd  1 AC 552 at 587. It is sufficient if “they have agreed to what amounts in law to such a relationship”: Garnac Grain Co Inc at 1137; Nichols v Arthur Murray Inc 56 Cal Rptr 728 (1967) at 730-731; Restatement of Agency, Second, §1 comment.
Though there is no uniformly agreed definition of agency: see the discussion in Fisher, Agency Law at 8-11 (2000); the two whose authoritative character has resulted in their wide citation are those of the Restatement of Agency, Third, §1.01 and of Bowstead & Reynolds at [1-001] (the latter being based upon the Restatement provision). The Restatement’s definition is that:
§1.01 Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
Bowstead & Reynolds’ definition is that:
[1-001] Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation.
The necessary consents apart, the required characteristic of the relationship is that one party acts on behalf of, and is authorised to act on behalf of, the other. This “representative” characteristic must be able to be discerned in the factual relation of the parties: Colonial Mutual Life Assurance Society Ltd v The Producers and Citizens Co-operative Assurance Co of Australia Ltd (1931) 46 CLR 41 at 48-50.
Though the characteristic of “control” is accentuated in the Restatement’s definition: see comment f to §1.01; its significance is far more muted in Anglo-Australian law: see South Sydney District Rugby League Football Club at . Thus, it is commented in Bowstead & Reynolds (at [1-017]) that:
It might seem therefore that control is not a significant feature of the internal relationship, except in so far as the relationship by definition posits a person, the principal, giving authority, and the agent’s duty to obey instructions if he wishes to continue as agent. Nevertheless, if the principal gives up all control of his supposed agent the relationship is only doubtfully one of agency.
I will return to the significance of the presence or absence of control later in these reasons.
Before turning to the factors which have been said to be possibly indicative of agency or of sale, it is instructive to refer first to §14J of the Restatement of Agency, Second, which accentuates the fiduciary and the adversarial characters of agents and buyers respectively:
One who receives goods from another for resale to a third person is not thereby the other’s agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit.
Judges have, on occasion, used a test stated at the level of generality of §14J to determine whether a particular relationship (ordinarily manifest in a written agreement) is one of agency or of sale. So, in Fraser-Ramsey (New Zealand) Ltd it was commented (at 566):
There is no trace in the agreement of the creation of or of the intention to create a fiduciary relation between the parties.
Characteristically, though, a more finely tuned and contextual focus on particular “indications” is employed especially where, as in the present matter, the parties’ relationship is not recorded in a written agreement. I use the description “contextual” for this reason. The indications for the most part are not necessarily determinative and acquire their actual significance from the particular context in which they appear.
For present purposes I would note the following.
(i) As an agent for sale ordinarily acts on behalf of its principal: but cf in relation to a broker selling in its own name: Bailey & Co Ltd v Balholm Securities Ltd  2 Lloyd’s Rep 404 at 408; Jackson Securities Ltd v Cheesman (1986) 4 NSWLR 484 at 489-490; is it apparent from the facts that the seller has actually conferred on the intermediary an authority to negotiate and/or to sell on the seller’s behalf thus bringing into existence direct contracts between the seller and the third party buyer: Mercantile International Group plc at -?
(ii) Often interlocking factors of some significance are (a) by whom is the sale price to the third party set? and (b) how is the intermediary remunerated/rewarded for the sale to the third party? If the intermediary is remunerated by commission pre-arranged with the seller this will ordinarily indicate an agency relationship: eg Weiner v Harris  1 KB 285; although in exceptional circumstances a buyer for resale may be paid what is described, or is misdescribed, as a commission: eg Gannow Engineering Co Ltd v Richardson  NZLR 361; Jackson v Royal Bank of Scotland  EWCA Civ 203 at -. In the absence of fully informed consent, it would be a breach of fiduciary duty for an agent to profit on the sale of its principal’s property by, for example, marking up the principal’s stipulated sale price and retaining the difference. That an intermediary so acts may itself be indicative that the parties relationship was that of seller and buyer for resale and not agency for sale: Ex parte White; In re Nevill (1870) LR 6 Ch App 397. Nonetheless, a principal may agree to an agent deriving its remuneration from a mark-up on the price the principal stipulates it is to receive from the sale: eg Ex parte Bright; In re Smith (1879) 10 Ch D 566. In Mercantile International Group plc in circumstances in which the agreements between the parties pointed unambiguously to an agency relationship, it was held that that conclusion was unaffected by the circumstances that the principal knew that the intermediary charged more to purchasers than it confirmed to the principal; the principal did not mind nor care to know the detail of the matter, but was satisfied to get the price it stipulated; and the principal was content that the intermediary should keep for itself an undefined margin, it obtaining no remuneration by way of commission or otherwise from the principal: at  and .
(iii) It may be apparent from the circumstances and context of the supplier’s and intermediary’s dealing, that, on sales to a third party buyer it was reasonably to be expected that the intermediary was to answer to that buyer for the quality of the goods sold: cf International Harvester Co; Bowstead & Reynolds at [1-032].
(iv) Two duties stemming from a finding of agency are that the agent (a) must keep its principal’s property separate from its own; and (b) must keep an accurate account of all transactions entered into on its principal’s behalf: see generally Bowstead & Reynolds at [6-088] ff; Dal Pont, Ch 13. It has been suggested on occasion that these consequences may be indicative of an agency (at least if they have been expressly or impliedly agreed by the parties): cf Benjamin’s Sale of Goods at [1-049] (7th ed, 2006). For present purposes I merely note those agency obligations. I will make further reference to them after having outlined how Farmlink actually dealt with TVO in relation to the proceeds of sale received from the Singaporean and Hong Kong buyers and in relation to keeping accounts of the sales made by Farmlink.
There are two final matters to which I should refer. First, while the relationships of agency and sale are mutually exclusive, it is not uncommon for an intermediary to be the agent of its seller-principal but to be a principal vis-à-vis a third party on the sale to it: see eg Bailey & Co Ltd v Balholm Securities Ltd at 408; Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd  1 WLR 676. As was said by Roskill LJ in Romalpa (at 690):
I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers, the defendants sold as principals, but that, as between themselves and the plaintiffs, those goods which they were selling as principals within their implied authority from the plaintiffs were the plaintiffs’ goods which they were selling as agents for the plaintiffs to whom they remained fully accountable.
As will be seen, the respondents seek to draw some comfort from this.
Secondly, neither TVO nor the respondents have sought to advance and rely upon known practices and usages in the cherry sale and/or exporting market which might illuminate in any way the complexion properly to be given to their relationship or its incidents: see CISG, Art 9(2); Unidroit Principles of International Commercial Contracts 2004, Art 1.9(2); Uniform Commercial Code, §1-303 (“usage of trade”).
Conclusion: Sale or Agency
I have already foreshadowed my conclusion and have referred in passing to elements in the evidence upon which one or other of the parties has relied to support the characterisation of the relationship for which it contends. As will be seen, their submissions in substance depend upon fact findings each invites me to make.
By way of preface to my own conclusions, I should make the following general observations. The relationships of TVO and Farmlink, and of Farmlink and Freshmart and Mak respectively, were clearly interdependent ones as the evidence of the process of making and filling orders reveals. It was open to Farmlink to choose to so structure its relationship with TVO – or for that matter with Freshmart or Mak – in a manner which obliged it to act in the interests either of TVO in the sale of cherries or of Freshmart or Mak in their purchase. It equally was open to Farmlink to choose to structure its relationships with TVO and the overseas buyers in a manner which, while requiring cooperation with, and some level of trust in, them, served its own several interests: cf Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at . In my view, Farmlink chose the latter course. This was clearly manifest in its price agreement with TVO and in its seller-purchaser relationship with the overseas buyers. There was nothing fiduciary about it.
The rival contentions of the parties can be simply put. TVO’s case is that an overarching (or framework) conditional contract was entered into in or about December 2003 under which it agreed that, if it accepted an order or orders to sell cherries to Farmlink, it would do so at the prices that the parties had previously agreed. That agreement was effectuated in the individual orders filled by TVO.
Under the shadow of the principles to which I earlier referred and of the decisions of International Harvester Co, Ex parte White; In re Neville and Witt in particular, the factual matters upon which TVO relies primarily for this conclusion are: (i) the transaction between TVO and Farmlink was at a firm price; (ii) the documentation all reflected a sale from TVO to Farmlink; (iii) Farmlink set the price for the overseas sale and kept its sale price and margin a secret; (iv) Farmlink engaged all the freight forwarders and paid the freight costs itself; (v) Farmlink never accounted to TVO in a way which showed the total amount received, its margin and amounts paid for freight, etc; (vi) Farmlink issued invoices to its overseas customers; (vii) Farmlink alone knew the identity and location of its overseas customers; (viii) Farmlink identified itself as the shipper on the bills of lading and airway bills; (ix) Farmlink negotiated the changes in price without checking or obtaining instructions from TVO or Mr Hannaford; and (x) significantly in the year that there was insurance, the insured was Farmlink, the consignee’s interest was noted, but there was no recording of TVO having any interest in the cherries.
Farmlink’s submission is that the relationship formed in December 2003 was one of agency. The indicators of this, it contends were: (i) the parties did not intend, and there was no mutual assent to, a contract of sale whereby the property in the cherries was transferred to Farmlink; (ii) there was no identifiable “offer” and “acceptance” of a contract for sale of goods; in particular, there was no price agreed – except to say it was agreed that TVO would accept whatever Farmlink stated on the completed and delivered purchase order; (iii) the course of dealings between the parties, including acceptance by TVO of the purchase discounts as applied by Farmlink, was more consistent with an agency for sale than a sale of goods; (iv) Farmlink accounted periodically for the proceeds of sales, by detailing the purchase discounts; it did not simply pay an agreed price; (v) remuneration was by a margin of $0.65 per kilogram, not by Farmlink making a profit on resale; (vi) in TVO’s letter by its solicitors of 26 March 2004, TVO acknowledged that Farmlink was an agent for sale, not the buyer of its cherries; (vii) the arrangement was that Farmlink exported TVO’s cherries, not that Farmlink bought the cherries as Farmlink’s own property at a fixed price and resold them for what Farmlink could get, keeping any profit or taking any loss; (viii) the fact that “the price” was not ascertained until Farmlink completed the purchase order including any discounts was inconsistent with there being a contract of sale.
It is, in my view, not open to serious doubt that in effecting sales to Freshmart and Mak, Farmlink acted as seller of the cherries consigned, passing the property in them to the buyers and at prices agreed between it and the buyers. The respondents appear to have accepted as much. Farmlink was acting as a principal in the conduct of its own export business and not simply as an agent in the ordinary course of its principal’s business. The email communications between Ms Churchill and Mak and Mr Koh exemplify this. They are redolent of transactions being effected between Farmlink and the overseas buyers: cf Ms Churchill’s often stated judgments about “suitability” of cherries to be exported; her indications of the quality instructions she gave to her suppliers; and, in her email of 3 January 2004: “I will reduce the price $2.50/ctn on the 24mm”.
The documentation passing between Farmlink and Freshmart and Mak respectively admits of no other conclusion, the more so given the international trading context in which the dealings occurred. It is, in my view, most improbable that the overseas buyers would reasonably have committed themselves to a contractual arrangement with a principal of whose actual identity or circumstances they may have been unaware, especially where the goods in question were perishables of a type that were apt to give rise to some level of quality issue during periodic dealings over a season: on the distinction between unidentified and undisclosed principals, see Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472. The view I take of Farmlink’s contracts with Freshmart and Mak is that they were ones to which TVO was a stranger. If the prices in those contracts were to be re-negotiated for reasons of quality defects, market conditions or whatever, that was to be by the contracting parties alone. Likewise if claims for defects in quality permissible under the applicable law against the seller were to be made they were to be made against Farmlink.
The final comment I would make on Farmlink’s relationship with the overseas buyers is that it would have been obvious to them that Farmlink was not the grower of the cherries Freshmart and Mak purchased. It was an exporter. But there is nothing in the evidence reasonably to suggest that Farmlink was acting, or was purporting to act, in the overseas sales in a “representative” capacity: cf above (3).
The issue that remains is: what was the true character of the TVO-Farmlink relationship?
It would require the proof of exceptional circumstances before a Court would be likely to be satisfied that it was an implied term of an oral agreement that a seller (or for that matter a principal) would agree to a buyer for resale (or agent) selling the goods abroad at a price to be determined after taking into account the four variables pleaded and then subsequently passing back that price (minus the reseller’s expenses and margin) to the seller as the original contract price. Such a term would place the seller at the buyer for resale’s mercy and would require a commercially most unlikely risk assumption on the seller’s part.
Parties to a sales contract are, as a matter of party autonomy, quite entitled to agree a regime of some form which would permit a buyer unilaterally to discount the price paid for the goods purchased because of some quality defect in them. As I earlier noted, the CISG contains such a regime: see also Sale of Goods Act (1979) (UK), s 48C(1)(a) and Benjamin’s Sale of Goods (at [19-203]). Benjamin’s Sale of Goods (at [12-129]) notes that this “special remedy of reduction of the price” is one which may lead to a monetary award different from what an award of damages would produce.
Accepting both that price discounts were accepted by Mr Hannaford in the past and that quality issues for which TVO would accept responsibility could reasonably be anticipated to arise in the 2003/2004 season, I am nonetheless satisfied that Mr Hannaford did not in that season agree (by word or conduct) to a price reducing or price fixing term for quality issues such as seems to be propounded by the respondents. Rather he had fixed an agreed price with Farmlink that, ultimately, could only be varied with his consent. However, in recognition of the potential for price problems occurring, it could reasonably be anticipated that he would have been prepared to respond to a predictable exigency in the sale and export of his cherries by permitting a crude procedure to be followed as a reasonable and sensible means to deal with quality issues, but without surrendering his rights either to have his responsibility for alleged quality issues demonstrated or to consent to price variations. As I indicated at the outset of these reasons, this form of sensible commercial response in a market for perishables which short-circuits potential disputes in ongoing relationships where a level of trust and confidence is required to be maintained and a quick resolution of problems is desired, is understandable, probably necessary. It leaves the actual terms of the contract where they so often lie in business dealings. That is as default rules to be availed of where, as here, reason exists because of the circumstances to have the actual entitlements and responsibilities of the parties formally established.
Accordingly I find that TVO and Farmlink contracted for the 2003/2004 season on the basis of the agreed prices for different sizes of cherry as pleaded by the applicant. Those prices could only formally be varied by Farmlink with the consent of TVO, express or implied. Mr Hannaford did not accept the “discounts” for the 2003/2004 season. He put them in question.
I have so far made little reference to the contract pleaded by the respondents. I have already indicated that insofar as it was founded on Farmlink’s Pre-Shipment Inspection Form, that document had no contractual effect. I have rejected the alleged price settling mechanism (such as it was) that was pleaded. I have presumed that the sale of cherries to Farmlink was subject to an implied condition of fitness for purpose under s 14 of the Sale of Goods Act. The alleged term referring to the Cherry Packaging Requirements seems, in the event, to be of no moment. Even if a term, there is no evidence that it was not complied with. It is the case, in my view, that the oral agreement pleaded by the respondents fell by the wayside as the case progressed, Farmlink’s case becoming, as its counsel put it, essentially one of denial of the contract pleaded by TVO.
My conclusion in effect necessitates that the applicant must succeed in his claim to be paid the purchase price.
Conclusion and Orders
I am conscious that my conclusions in this proceeding may cause some concerns in the conduct of the export trade in cherries. What needs to be understood is that those conclusions were based on the evidence, such as it was, that the parties considered appropriate to put before me and on the matters that they chose to put in issue. Significantly no reliance was placed upon practices and usages in this particular market or on the possible contextual significance of the CISG at least in relation to Singapore. It need hardly be added that this proceeding demonstrates the obvious inappropriateness of leaving the definition of the character and incidents of a complex, ongoing business arrangement to the inevitable uncertainties of an oral agreement.
24 October 2008}}