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CISG CASE PRESENTATION

Australia 12 October 2001 Supreme Court of Queensland, Court of Appeal (Downs Investments v Perwaja Steel)
[Cite as: http://cisgw3.law.pace.edu/cases/011012a2.html]

Primary source(s) of information for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISION: 20011012 (12 October 2001)

JURISDICTION: Australia

TRIBUNAL: Supreme Court of Queensland, Court of Appeal

JUDGE(S): Williams JA, Davies JA, Byrne J

CASE NUMBER/DOCKET NUMBER: Appeal No 11036 of 2000, SC no 106 of 1996

CASE NAME: Downs Investments Pty Ltd (ACN 010 729 567) (in voluntary liquidation) (formerly known as Wanless Metal Industries Pty Ltd v Perwaja Steel SDN BHD

CASE HISTORY: 1st instance Supreme Court of Queensland 17 November 2000 [affirmed]

SELLER'S COUNTRY: Australia (plaintiff)

BUYER'S COUNTRY: Malaysia (defendant)

GOODS INVOLVED: Scrap steel


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(b)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64(1)(b) ; 72 ; 74 ; 75 [Also cited: Articles 58(3) ; 63 ]

Classification of issues using UNCITRAL classification code numbers:

25A ; 25B [Effect of fundamental breach: avoidance of contract; Definition of fundamental breach: substantial deprivation of expectation, etc.];

64A [Seller’s right to avoid contract (ground for avoidance): fundamental breach of contract];

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

74A [General rules for measuring damages: loss suffered as consequence of breach];

75B ; 75C [Damages established by substitute transaction: relationship between avoidance and substitute transaction; Damages recoverable: difference between contract price and price in substitute transaction]

Descriptors: Fundamental breach ; Avoidance ; Letters of credit ; Anticipatory breach ; Damages

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Editorial remarks

EDITOR: Lisa Spagnolo

Excerpt from analysis of Australian case law on the CISG. Reproduced with permission of 10 Melbourne Journal of International Law (2009) 176-184

Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [201]

This case involved scrap metal sold by an Australia seller to a Malaysian buyer. The buyer failed to open the letter of credit as required by the contract. At first instance,[202] Ambrose J held that there had been a failure of the obligation to pay the price,[203] amounting to a fundamental breach in accordance with art 25, thereby enabling the seller to declare the contract avoided pursuant to art 64(1). The fact that the buyer had undergone a change in management structure was no excuse.[204] Ambrose J assessed damages in accordance with arts 74 and 75, and accepted that sub-charter of the ship fulfilled the obligation to mitigate.[205] Resale of the scrap within two months was considered a substitute transaction for the purposes of assessing damages, since it was done within a 'reasonable time' as required under art 75.[206] Article 72 on anticipatory breach was also considered.[207]

The quality of the trial decision was undermined by domestic terms such as 'acceptance of repudiation', reference to a domestic definition of repudiation, and two passing references to non-CISG cases.[208] CISG formation provisions were not mentioned, despite extensive discussion of the facts of formation and modification.[209] While far from ideal, the trial decision did encouragingly manage a reference to one US CISG case and one CISG text.[210] At the international level, the trial decision was discussed widely, generally as a step in [page 176] the right direction on certain points, and is still cited today,[211] particularly regarding awards for additional costs associated with substitute transactions under art 75.[212]

Unfortunately, the appeal decision was far more disappointing. To some extent, one might have sympathised with the Court of Appeal's references to domestic law.[213] Part of the appeal case was that failure to plead CISG provisions should have precluded the seller from reliance on the CISG at trial.[214] Astoundingly, like Perry, the CISG's importance 'only became obvious at a late stage in the trial',[215] and counsel was recalled 44 days after the hearing.[216] For the purposes of determining prejudice, comparison of the CISG with the Sale of Goods Act 1896 (Qld) was conceivably relevant.[217]

However, absence of similarity between the laws would not have constituted prejudice of the relevant kind. The Court of Appeal correctly concluded that no prejudice had been suffered, not because of similarities between provisions, but in light of the manner in which proceedings were conducted.[218] According to the Court, arguments at trial and during the leave application made it 'obvious' that the seller's case rested on something other than the Sale of Goods Act.[219] Further, the buyer had been afforded an opportunity to address the CISG in further argument,[220] and written submissions had been received.[221]

Given this conclusion, it is difficult to maintain the above sympathy. Roder Zelt's autonomous, if not internationalist, approach was ignored. Instead, without reference to relevant authority, the Court decided there was no material difference 'between art 25 and the common law',[222] and that the CISG 'adopts, at least to some extent, the common law concept of repudiation'.[223] Such statements are not only incorrect, but are, at best, dangerous examples of viewing the CISG through 'domestic lenses'.[224] [page 177]

Unperturbed, the Court embarked upon the slippery slope of 'domestication',[225] all the while chipping away at the uniformity of a law intended to be applied in the same way around the world. Despite efforts of CISG drafters to avoid such terms,[226] it described the seller's entitlement to 'rescind',[227] and cited two non-CISG (and therefore irrelevant) UK cases in support.[228] The term 'avoidance' would have been more appropriate. As discussed above, art 64 allows the seller to avoid the contract when there is either a fundamental breach,[229] or the buyer fails to pay the price or take delivery within an additional period set by the seller under art 63(1).[230] The Court considered the latter basis satisfied,[231] but determined a fundamental breach had already arisen in any event, due to the failure to open a letter of credit.[232] While the relevant provisions were considered, CISG cases and commentary on this very issue were ignored.[233]

Again, without reference to relevant authority,[234] the Court concluded the 'only possible difference between the [Sale of Goods] Act and [the CISG] for present purposes is with respect to the calculation of damages'.[235] Rather than seek guidance on those differences, it instead simply equated the right to consequential damages in art 74 with the common law test in Hadley v Baxendale.[236]

In doing so, the Court disregarded the subtle differences between the Sale of Goods Act and the CISG. The common law examines the 'contemplation' of both parties, while the CISG looks only at the breaching party's perspective.[237] [page 178] Timing of foreseeability for both is at contractual conclusion, but the threshold for liability is expressed differently: Hadley's limitation refers to 'probable' results, while art 74 directs attention to 'possible' consequences.[238] Hadley has two rules: the first is objective forseeability by a reasonable person in the same position. The second makes the 'defendant liable for loss which could have been foreseen by a reasonable person with the same knowledge of special circumstances as the defendant had',[239] thus containing 'mixed' subjective and objective elements.[240] Article 74 more clearly maintains the distinction between subjective and objective elements, by specifying that liability depends on whether the breaching party 'foresaw or ought to have foreseen' the loss, 'in the [page 179] light of the facts and the matters ... he ... knew or ought to have known'.[241] Then there is the debate over the level of certainty required for substantiation of loss under the CISG, and the availability of 'loss of a chance' damages,[242] issues recently considered by the CISG Advisory Council.[243] Such subtle differences could alter outcomes in marginal cases, thus many CISG scholars warn against the use of the Hadley test in the CISG.[244] In any event, irrespective of whether any practical difference in outcome ensues, reference to Hadley preconceptions contravenes the overriding prohibition on domesticated interpretations of the CISG, and erodes the CISG's uniformity by way of the 'homeward trend'. For all of these reasons, it would have been best not to refer to Hadley at all.

However, momentum on the precarious slopes in Downs had inexorably gathered. Some scrap metal used by the seller in the substitute transactions was [page 180] not identical to that designated to the original contract.[245] Two further (non-CISG) US cases were cited in support of the notion that this was acceptable 'where fungibles are involved ... as the sale is commercially reasonable'.[246] The US decisions related to the UCC, not art 75 of the CISG.[247]

Numerous decisions on art 75 itself were available, had counsel checked relevant sources.[248] These make clear the need to declare the contract avoided before entry into the substitute transaction.[249] Substitute transactions must be entered within a reasonable time, as the Court correctly noted. However, CISG cases should have guided the Court on what constituted a reasonable time period under art 75,[250] and on reasonableness of resale terms,[251] which need not be [page 181] completely identical.[252] Despite clearly being troubled about whether the resale was truly in substitution, the Court was not in a position to assess any proper alternative basis for damages because it failed to consult CISG doctrine or cases.

The Court was aware that abstract damages could have been calculated under art 76 if there had been no reasonable or true substitute transaction.[253] Yet contrary to the Court's opinion that 'there is no justification for limiting the operation of art 75 to contracts involving the sale of specific goods',[254] there is a strong view among scholars that art 76 is more appropriate than art 75 when the 'promisee is continuously "in the market" and therefore a specific substitute transaction cannot be attributed' for art 75 purposes.[255] As the price of scrap metal was falling rapidly, a smaller award of damages would have ensued, since [page 182] art 76 fixes the price at the time of avoidance,[256] whereas art 75 uses the substitute price actually obtained, in this case, some two months later.

Alternatively, the Court could have awarded net profits lost on the avoided sale pursuant to art 74. Lost volumes are recoverable under art 74 by sellers, on the basis that the 'resale' transaction would have happened anyway, thus the true loss was the net profit lost on the terminated sale, recovery of which places the seller in the position it would have been in had both sales occurred.[257] The claim needs to be proven with reasonable certainty.[258] This might involve showing capacity to supply both transactions, and proof the subsequent transaction was an independent event.[259] In this case, the seller went to special lengths to find alternative buyers, thus the buyer could argue the replacement sales would not have occurred irrespective of avoidance of the first contract, and were therefore not truly independent events. The seller could counter that in a falling market, a buyer should not be allowed in good faith to reap the advantage of its own fundamental breach.[260] The seller could not have recovered both lost volume profits under art 74 nor damages under arts 75 or 76, or it would have received double recovery,[261] which would go beyond the general principle of 'full compensation' inherent in the CISG.[262] [page 183]

Either analysis makes the question of 'fungibles' redundant. Unfortunately, the Court referred to only one relevant authority, Delchi v Rotorex,[263] itself the subject of much criticism for its own poor application of the CISG,[264] a matter easily established from commentary on CISG websites.[265] In summary, Downs itself is an excellent example of 'legal ethnocentricity'.[266] It is interesting that the appeal decision, unlike the trial decision, was met almost unanimously with a diplomatic, or perhaps, stunned silence from international CISG academics.[267]
_________________________

201. [2002] 2 Qd R 462 ('Downs'). Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/011012a2.html>; available from CISG-online, Search for Cases (Case No 955) <http://www.globalsaleslaw.org/index.cfm?pageID=29>; available from UNILEX, <http://www.unilex.info>.

202. Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [2000] QSC 421 (Unreported, Ambrose J, 17 November 2000). Also reported internationally at: Pace Law School, <http://cisgw3.law.pace.edu/cases/001117a2.html>; available from CISG-online, Search for Cases (Case No 587/859) <http://www.globalsaleslaw.org/index.cfm?pageID=29>; available from UNCITRAL, Case Law on UNCITRAL Texts (CLOUT) (Case No 631) <http://www.uncitral.org/uncitral/en/case_law.html>.

203. CISG, above n 1, art 54.

204. Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [2000] QSC 421 (Unreported, Ambrose J, 17 November 2000). Non-performance can be excused for certain impediments beyond a party's control pursuant to art 79 of the CISG.

205. Ibid [93]. The Court omitted to identify art 77 as the source of the mitigation obligation. The Court of Appeal agreed with this mitigating step: Downs [2002] 2 Qd R 462, 484 (Williams JA).

206. Resale of the 30,000 metric tonnes of scrap metal was effected in four transactions, including some sales domestically: Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [2000] QSC 421 (Unreported, Ambrose J, 17 November 2000) [95]-[99]. Discussed further, below n 246-256 and accompanying text.

207. Ibid [60].

208. Ibid [61], [62], [107].

209. Bruno Zeller, 'Downs Investment Pty Ltd v Perwaja Steel Sdn Bhd [2000] 402 QSC 421 (17 November 2000)' (2001) 5 Vindobona Journal of International Law and Arbitration 124. Arguably the Court should have utilised provisions on offer and acceptance: CISG, above n 1, arts 14-24, art 29 (modification).

210. Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [2000] QSC 421 (Unreported, Ambrose J, 17 November 2000) [62], citing John O Honnold, Uniform Law for International Sales (2nd ed, 1991) and Helen Kaminski Pty Ltd v Marketing Australian Products Inc (US District Court (SD NY), US, 21 July 1997) <http://cisgw3.law.pace.edu/cases/970721u1.html> (failure to open letter of credit would have been a fundamental breach, but no CISG contract was created). But see Zeller, 'Downs Investment', above n 209, 127 (arguing that the Helen Kaminski case dealt with validity).

211. Djakhongir Saidov, 'Methods of Limiting Damages under the Vienna Convention on Contracts for the International Sale of Goods' (2002) 14 Pace International Law Review 307, 354 (fns 249-50) (asserting the case as support for the proposition mitigation per art 77 does not oblige an aggrieved party to incur 'unreasonably high expenses and risks'); Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.26]-[7.31]; Bernstein and Lookofsky, above n 185, 159 (fn 295); Di Matteo et al, above n 140, (fn 507) (fundamental breach); Stoll and Gruber, 'Arts 74-77', above n 70, 777-8 (art 75); Ingeborg Schwenzer and Christiana Fountoulakis (eds), International Sales Law (2007) 414 (art 54); Graffi, above n 71, 341, (fn 58); Schlechtriem, Calculation of Damages, above n 70, (fn 9); CISG Advisory Council, Opinion No 8, above n 70, Commentary [3.1] (fn 41). Contra Zeller, 'Downs Investment', above n 209 (mixed review of the trial decision).

212. CISG Advisory Council, Opinion No 8, above n 70, Commentary [3.1] (fn 41) (costs of chartering new vessel for substitute transaction).

213. See, eg, Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.40] (coining the term 'domestication').

214. Downs [2002] 2 Qd R 462, 472 (Williams JA).

215. Ibid 474.

216. Mentioned in argument by O'Reilly SC for the appellant: ibid 464.

217. Ibid 472.

218. Ibid 472-5.

219. Ibid 474-5.

220. Ibid 472-5.

221. Ibid 474.

222. Ibid. On fundamental breach, see above n 71 and accompanying text.

223. Downs [2002] 2 Qd R 462, 481.

224. See also Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.33]-[7.39].

225. Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.40].

226. See above n 126.

227. Downs [2002] 2 Qd R 462, 480 (Williams JA).

228. Ibid 479.

229. CISG, above n 1, art 64(1)(a). On art 25, see above n 71.

230. CISG, above n 1, art 64(1)(b). See also above n 71 and accompanying text.

231. By an agreed variation, the letter of credit was due on 1 August 1996. On 5 August, the seller's solicitor wrote to request it by 7 August 1996: Downs [2002] 2 Qd R 462, 201, 476-8.

232. Downs [2002] 2 Qd R 462, 480 (Williams JA).

233. See, eg, Helen Kaminski Pty Ltd v Marketing Australian Products Inc (US District Court (SD NY), US, 21 July 1997) <http://cisgw3.law.pace.edu/cases/970721u1.html>; Vital Berry Marketing v Dira-Frost (Rechtbank van Koophandel Hasselt, Belgium, 2 May 1995) <http://cisgw3.law.pace.edu/cases/950502b1.html>; ICC Award No 7585 of 1992 (1992) <http://cisgw3.law.pace.edu/cases/927585i1.html>. See also Di Matteo et al, above n 140, 383.

234. Downs [2002] 2 Qd R 462, 473 (Williams JA) (stating that the 'difference between the contract price and the resale price was essentially the formula provided in Article 75 of the [CISG]'. This does not misdescribe art 75, but one imagines, had the Court been interpreting any other Australian legislation, that it would have referred to case law on the provision, and perhaps scholarship.

235. Ibid 475.

236. [1854] 9 Ex 341; 156 ER 145. Also cited: Robinson v Harman [1848] 1 Ex 850; 154 ER 363.

237. See, in support, G H Treitel, Remedies for Breach of Contract: A Comparative Account (1988) 159; Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.40]; Arthur F Murphey Jr, 'Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley' (1989) 23 George Washington Journal of International Law and Economics 415, 435-9 (arguing that this widens the scope of recovery); Stoll and Gruber, 'Arts 74-77', above n 70, 764-5, stating that in

Anglo-American law, the 'contemplation' of both parties is decisive. In contrast, for the purposes of Article 74, the foreseeability of the loss must be judged from the viewpoint of the party in breach at the time of the conclusion of the contract ... taking into account the circumstances of which he was aware or ought to have been aware (emphasis added) (citations omitted).

Saidov, 'Methods of Limiting Damages', above n 211, 334, 339 (notes this difference, but also acknowledges that since an aggrieved party almost always knows their own situation better than the breaching party, divergent results are unlikely).

238. Murphey, above n 237, 439-40 (arguing that this makes the CISG more generous for injured parties); Barry Nicholas, 'The Vienna Convention on International Sales Law' (1989) 105 Law Quarterly Review 201, 230 (stating that the difference might mean the art 74 requirement is 'weaker'); V Susanne Cook, 'The UN Convention on Contracts for the International Sale of Goods: A Mandate to Abandon Legal Ethnocentricity' (1997) 16 Journal of Law and Commerce 257, 260; Dodge, above n 43, 91-2. See also Cooling System Case (Oberster Gerichtshof, Austria, 14 January 2002) <http://cisgw3.law.pace.edu/cases/020114a3.html>, stating that

foreseeability [refers to] possible consequence of a breach of contract. The foreseeability of a breach ... does not matter ... [f]oreseeability in art 74 ... refers ... only to losses that at the time of the conclusion of the contract were an assessable consequence of a possible breach of obligation ... According to prevailing opinion, art 74 ... does not require precise and detailed foreseeability of losses ... It is necessary that the obligor could recognize that a breach of contract would produce a loss essentially of the type and extent that actually occurred (citations omitted).

Re Siskiyou Evergreen Inc (Debtor) (US Bankruptcy Court (D Or), US, 29 March 2004) <http://cisgw3.law.pace.edu/cases/040329u2.html> (rejection of third party contracts unforseeable and therefore lost profits could not have been claimed pursuant to art 74).

239. Treitel, above n 237, 155; Saidov, 'Methods of Limiting Damages', above n 211, 341. It has been argued Hadley contained anywhere between one to three rules: Murphey, above n 237, 429-34.

240. Trietel, above n 237, 155; Saidov, 'Methods of Limiting Damages', above n 211, 341. On the issue of objective and subjective elements in art 74, see Cooling Systems Case (Oberster Gerichtshof, Austria, 14 January 2002) <http://cisgw3.law.pace.edu/cases/020114a3.html>: 'Generally an objective standard is applied for foreseeability. The obligor must reckon with the consequences that a reasonable person in his situation (art 8(2) CISG) would have foreseen ... . Whether he actually did foresee this is ... insignificant'. On the subjective elements, the Court stated:

Yet, subjective risk evaluation cannot be completely ignored: if the obligor knows that a breach ... would produce unusual or unusually high losses, then these consequences are imputable to him. [It is necessary] to determine to what degree a reasonable person ... in ... circumstances known to [the Seller] at the time of the conclusion of the contract could (or should) foresee such problems and expenses; and if need be ... were actually foreseeable for [Seller] ... [Here, the Seller] knew at the conclusion of the contract [the conditions and places of installation and] therefore must have foreseen ... a loss in the amount claimed could arise ... [The fact that the Seller] was informed of threaten[ed] damages claims of [the Buyer]'s customer, would only be of ... importance ... if this information was given prior to or during the conclusion of the contract.

241. Saidov, 'Methods of Limiting Damages', above n 211, 341. See also Nicholas, above n 238, 230 (stating that art 74 embraces both rules).

242. Substantive-procedural classifications of issues regarding burden and standard of proof vary across jurisdictions: Djakhongir Saidov, 'Standards of Proving Loss and Determinating the Amount of Damages' (2006) 22 Journal of Contract Law 27, 51-2. It is submitted that, regardless of any difference in domestic classification, the CISG can govern procedural rules indirectly: contra Sunflower Oil Case (Handelsgericht Zürich, Switzerland, 5 February 1997) <http://cisgw3.law.pace.edu/cases/970205s1.html> (domestic law determines whether future loss estimates are sufficiently definite). Stoll and Gruber maintain 'loss of a chance' damages are unavailable under the CISG due to a high level of certainty required in proof of loss: Stoll and Gruber, 'Arts 74-77', above n 70, 759. Contra Saidov argues that 'loss of a chance' damages are governed by the CISG and should be awarded on the basis of a reasonable level of certainty, emphasising flexibility rather than 'all or nothing': Saidov, above this note, 51-2; see also Joseph Lookofsky, 'Consequential Damages in CISG Context' (2007) 19 Pace International Law Review 63, 84 (agreeing with Saidov, but ultimately favouring limitation of consequential damages by reference to domestic law proportionality tests, by treating the issue as an external gap).

243. In regard to standard of proof, the CISG Advisory Council considers that 'reasonable certainty' is required rather than 'mathematical precision'. Concerning 'loss of a chance', unless the contract itself was such that the chance of profit was an asset acquired pursuant to the contract, the CISG Advisory Council comments that 'loss of a chance' damages are typically unavailable under art 74, because the profit was dependent on a contingent event, and thus cannot be proven with 'reasonable certainty': CISG Advisory Council, Opinion No 6, above n 67, º2, Commentary [3.16]. It is submitted that Saidov's approach to 'loss of chance' is preferable in the interests of promoting uniformity and fairness: see Saidov, 'Standards of Proving Loss', above n 242.

244. See, eg, Zeller, 'A Leap Forward', above n 154, 89-90 (fn 39) and accompanying text (stating that foreseeability in Hadley v Baxendale is a domestic concept, and should not be used in the interpretation of art 74); Murphey, above n 238, ºI (warning that 'US judges should try to divorce themselves from the influence of Hadley as much as possible; its rules are not the same as ... the CISG'); Dodge, above n 43, 91-2 (agreeing, but noting that this is 'easier said than done'). See also Stoll and Gruber, 'Arts 74-77', above n 70, 764-5; Cook, above n 238, 260; Jacobs, Cutbush-Sabine and Bambagiotti, above n 4, [7.55]; Saidov, 'Methods of Limiting Damages', above n 211, (fn 148).

Contra Honnold, Uniform Law for International Sales, above n 71, 447; Ken Shiu, 'The Exclusion of the CISG in Technology Contracts: Fear of the Unknown?' (2005) 61 Computers and Law 19; Lookofsky, Understanding the CISG, above n 59, 130 [6.15]; Meat Case (Schweizerisches Bundesgericht, Switzerland, 28 October 1998) º5(b) <http://cisgw3.law.pace.edu/cases/981028s1.html>. See also, Jacob Ziegel, 'The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives' in Nina Galston and Hans Smit (eds) International Sales: The United Nations Convention on Contracts for the International Sale of Goods (1984) [9-1], [9-38] (uncertainty as to whether the test is identical to Hadley).

245. Despite a contrary position at trial (see references to steel 'held' for the buyer: Downs Investments Pty Ltd v Perwaja Steel Sdn Bhd [2000] QSC 421 (Unreported, Ambrose J, 17 November 2000) [22], [93]), it seems that on appeal it was accepted that some of the steel used for the substitute transactions was not the exact same steel that would have been supplied to the original buyer: Downs [2002] 2 Qd R 462, 483-4 (Williams JA).

246. Downs [2002] 2 Qd R 462, 470.

247. Specifically, UCC º2-706.

248. See above n 128. See above n 70, regarding damages under arts 75 and 76 of the CISG, which are triggered only upon avoidance. Fisher notes the more limited sphere of arts 75 and 76 of the CISG compared to provisions in the Sale of Goods Act 1923 (NSW) ss 52(3), 53(3): Simon Fisher, 'International and Domestic Sale of Good Remedies' (1994) 8 Commercial Law Quarterly 19, 32.

249. Arguably, if the other party has made it clear that they will not perform the contract, a substitute transaction before avoidance is declared might be sufficient for the purposes of art 75, on the basis that good faith in art 7(1) may make the need to declare avoidance beforehand unnecessary: Iron Molybdenum Case (Oberlandesgericht Hamburg, Germany, 28 February 1997) º(c) <http://cisgw3.law.pace.edu/cases/970228g1.html>; see also Stoll and Gruber, 'Arts 74-77', above n 70, 776 (stating that a party making it clear that it would not perform could not in good faith complain of failure to declare avoidance by the other party). Contra ICC Award No 8574 of 1996 (1996) <http://cisgw3.law.pace.edu/cases/968574i1.html> (purchases by aggrieved buyer before it had avoided contract not substitute transactions under art 75); Fabric Case (Oberlandesgericht Bamberg, Germany, 13 January 1999) <http://cisgw3.law.pace.edu/cases/990113g1.html> (buyer's cover purchase made before avoidance declared, so art 75 calculation inappropriate, and buyer failed to satisfy art 74); see also the recent statement by the CISG Advisory Council, Opinion No 8, above n 70, º1.2, Commentary [2.3.3] (contrary the Iron Molybdenum Case and Stoll and Gruber, 'Arts 74-77', above this note; concluding that even if the obligor 'unambiguously declared that it would not perform', it would be 'inconsistent with the explicit language of Article 75' to allow damages calculated on the basis of art 75 for a substitute transaction was entered before declaration of avoidance).

250. This will vary depending on the nature of the goods: Iron Molybdenum Case (Oberlandesgericht Hamburg, Germany, 28 February 1997) º(c) <http://cisgw3.law.pace.edu/cases/970228g1.html> (2 weeks for a highly speculative transaction); Stoll and Gruber, 'Arts 74-77', above n 70, 776-7; Shoes Case (Oberlandesgericht Düsseldorf, Germany, 14 January 1994) <http://cisgw3.law.pace.edu/cases/940114g1.html> (given location of markets and seasonality, two months is adequate). In GmbH Lothringer Gunther Grosshandelsgesellschaft fr Bauelemente und Holzwerkstoffe v NV Fepco International, (Hof van Beroep Antwerpen, Belgium, 14 April 2006) ºA.4 <http://cisgw3.law.pace.edu/cases/060424b1.html>, the Court determined that six months was an unreasonable delay for the seller's resale, and consequently damages should be reduced for failure to mitigate per art 77; CISG Advisory Council, Opinion No 8, above n 70, Commentary [2.3.2] (stating that 'duration of the reasonable time window' depends 'on the existence and variability of a market for the goods' with a 'relatively short' period appropriate for goods with a fluctuating market price, and a 'longer period' possibly acceptable for 'seasonal or unique' goods). Time begins upon declaration of avoidance: see the Secretariat Commentary on draft art 71 in the Commentary on the Draft Convention on Contracts for the International Sale of Goods, UN Doc A/CONF.97/5 (14 March 1979) 60 [5] ('Secretariat Commentary').

251. See, eg, Shoes Case (Oberlandesgericht Düsseldorf, Germany, 14 January 1994) <http://cisgw3.law.pace.edu/cases/940114g1.html> (seasonal goods (shoes) reasonably resold at lower cost recovery per art 75); Frozen Bacon Case (Oberlandesgericht Hamm, Germany, 22 September 1992) <http://cisgw3.law.pace.edu/cases/920922g1.html> (bacon resold at 25 per cent of market price was unreasonable and therefore damages was based on art 76); Industrial Raw Material Case (China International Economic and Trade Arbitration Commission ('CIETAC'), China, 4 June 1999) <http://cisgw3.law.pace.edu/cases/990604c1.html> (resale ex-warehouse was 'hard', therefore lower price reasonable). See also, Schlechtriem, Calculation of Damages, above n 70, ºII(1).

252. Terms of cover contract should correspond 'more or less' to the contract breached: Schlechtriem, Calculation of Damages, above n 70, ºII.2. Although terms need not be identical, an adjustment might need to be made to account for saved or additional costs of the substitute transaction CISG Advisory Council, Opinion No 8, above n 70, Commentary [2.3.4]; see below n 262 (discussion of damages for extra costs through art 74 'further damages').

253. Downs [2002] 2 Qd R 462, 482 (Williams JA). Although art 75 'ordinarily takes precedence if [its] requirements ... are met', where the substitute transaction is not 'reasonable', damages should be calculated in accordance with either art 76 or art 74: CISG Advisory Council, Opinion No 8, above n 70, Commentary [2.4.2], [2.4.3], [4.1.2] (accepting art 76 abstract calculation 'as if no substitute transaction had taken place' or art 74 concrete calculation of actual losses, and rejecting an alternative approach involving art 75 calculation with adjustment for 'the factor(s) that made it unreasonable'); Knapp, above n 70, 553-4 [2.3]; Frozen Bacon Case (Oberlandesgericht Hamm, Germany, 22 September 1992) <http://cisgw3.law.pace.edu/cases/920922g1.html> (supporting the use of art 76 and ignoring the unreasonable substitute transaction); Secretariat Commentary, above n 250, 60 [6] (if substitute transaction took place after unreasonable time or in unreasonable manner, calculation should proceed under art 74 or 76 as if no substitute occurred). Contra Stoll and Gruber, 'Arts 74-77', above n 70, 778 (supporting the use of art 75 plus adjustments for unreasonable substitution).

254. Downs [2002] 2 Qd R 462, 484.

255. It is noteworthy that the commentary of Knapp and Honnold, below this note, was available at the time Downs was decided. Jewelry Case (Oberster Gerichtshof, Austria, 28 April 2000) 190 <http://cisgw3.law.pace.edu/cases/000428a3.html> (stating that: 'Where the party regularly concludes similar transactions, the abstract calculation of damages under art 76 is excluded only if it identifies one of them as a specific substitute transaction'). Stoll and Gruber, 'Arts 74-77', above n 70, 781 (and authors referred therein); Knapp, above n 70, 554 [2.4] (arguing 'where it is impossible to determine with certainty whether a substitute transaction has been entered into ... if the injured party is consistently in the market for goods of the type in question, it may be difficult or impossible to determine which of the many contracts ... was in replacement. In such a case ... Article 76 will apply'); Honnold, Uniform Law for International Sales, above n 71, 450. A similar conclusion was reached in the commentary of a recent CISG Advisory Council Opinion: CISG Advisory Council, Opinion No 8, above n 70, Commentary [2.3.4] (concluding that where an aggrieved party 'often deals in contracts similar to the avoided one', identification of 'a single transaction as a substitute may be difficult', leaving the party with three options: (1) to identify the 'substitute transaction [before] engaging in it' and proceed under art 75; (2) 'choosing the first transaction after avoidance as the substitute' and proceed under art 75 (this would product similar results to art 76); and (3) proceed 'abstractly under Article 76').

256. Current price when the buyer 'took over' goods is used if this occurred before avoidance, to prevent speculation: see above n 70.

257. CISG Advisory Council, Opinion No 6, above n 67, º3C, Commentary [3.10]-[3.22]; Bielloni Castello SpA v EGO SA (Corte di Appello di Milano, Italy, 11 December 1988) <http://cisgw3.law.pace.edu/cases/981211i3.html> (seller's lost sales volume was argued but dismissed on the evidence, and damages were awarded under art 75); Jewelry Case (Oberster Gerichtshof, Austria, 28 April 2000) <http://cisgw3.law.pace.edu/cases/000428a3.html> (awarding damages to a seller for lost sales volume under art 76 on the basis that the second sale would have occurred in any event). See also Honnold, Uniform Law for International Sales, above n 71, 454 (arguing lost volume of sales under art 74); Stoll and Gruber, 'Arts 74-77', above n 70, 779 (favouring compensation for lost profits due to loss of volume if the promisor is aware or ought to have been aware the promisee continuously deals in the goods concerned); Ziegel, 'Remedial Provisions in the Vienna Sales Convention', above n 244, [9-41] (agreeing lost volume claims covered by art 74); Saidov, 'Methods of Limiting Damages', above n 211, 318-26; Huber and Mullis, above n 16, 335-6 (available pursuant to art 74 or combination of arts 74 and 75).

258. CISG Advisory Council, Opinion No 6, above n 67, º2, Commentary [2.9].

259. See Saidov, 'Methods of Limiting Damages', above n 211, 323-6 (outlining considerations to take into account in lost sales volume cases to prevent overcompensation); CISG Advisory Council, Opinion No 8, above n 70, Commentary [3.4] (describing 'true lost volume' situations enabling art 74 claims as 'where the subsequent transaction would have occurred regardless of avoidance'). Some of these sources were not available to the Court when Downs was decided. The Court in Downs did not consider the following, even though they were available to the Court at the time of the decision: Bielloni Castello, Ziegel, Knapp and Honnold.

260. Article 7(1) requires interpretation of the provisions of the CISG to promote good faith. Further, good faith is a gap-filling general principle of the CISG pursuant to art 7(2).

261. CISG Advisory Council, Opinion No 6, above n 67, Commentary [3.22]. Contra Saidov, 'Methods of Limiting Damages', above n 211, 318-26 (arguing in favour of recovery of lost volume profits of sellers pursuant to art 74 in addition to arts 75, 76 damages); Huber and Mullis, above n 16, 335 (similarly splitting damages between arts 74 and 75).

262. CISG Advisory Council, Opinion No 8, above n 70, Commentary [3.2]-[3.4], [6.4] (asserting that lost profits could not be claimed as 'further damages' under art 74 if a substitute transaction had enabled the preservation of those profits in third party transactions, since this would place the aggrieved party in 'a better economic position than if the contract had been performed'. Thus parties, having made a substitute transaction, must generally choose between a lost profit claim under art 74 and art 75 damages. In the case of a 'true lost volume seller', where no true substitution occurs, the CISG Advisory Council's Commentary suggests calculation under either art 74 or art 76. In ordinary non-'true lost volume' situations, the CISG-AC Opinion concludes that lost profits exceeding art 76 damages might additionally be claimed under art 74): CISG Advisory Council, Opinion No 6, above n 67, º1. See also Stoll and Gruber, 'Arts 74-77', above n 70, 779; Furniture Case (Landgericht München, Germany, 6 April 2000) <http://cisgw3.law.pace.edu/cases/000406g1.html>. However, note that, in accordance with the earlier decision by Ambrose J, additional, incidental and consequential costs required to make the aggrieved party whole again are available pursuant to art 74 in addition to art 75 concrete damages. See, Huber and Mullis, above n 16, 335; Stoll and Gruber, 'Arts 74-77', above n 70, 778-9 (interest, currency change, unsuccessful tender costs, storage); Shoes Case (Landgericht Krefeld, Germany, 28 April 1993) <http://cisgw3.law.pace.edu/cases/930428g1.html> (dealing with interest, currency devaluation and attorney fees), although see Zapata Hermanos Sucesores SA v Hearthside Baking Company (US Circuit Court of Appeals (7th Cir), US, 19 November 2002) <http://cisgw3.law.pace.edu/cases/021119u1.html>; ICC Award No 8128 of 1995 (1995) <http://cisgw3.law.pace.edu/cases/958128i1.html> (aggrieved buyer's expenses replacing sacks for substitute transaction); Cutlery Case (Handelsgericht Aargau, Switzerland, 26 September 1997) <http://cisgw3.law.pace.edu/cases/970926s1.html> (compensation associated with effort involved with substitute transactions); Delchi Carrier SpA v Rotorex Corp (US Circuit Court of Appeals (2nd Cir), US, 6 December 1995) <http://cisgw3.law.pace.edu/cases/951206u1.html> (customs, shipping costs). The latter four cases had been decided by the time Downs was heard.

263. Delchi Carrier, SpA v Rotorex Corp (US Circuit Court of Appeals (2nd Cir), US, 6 December 1995) <http://cisgw3.law.pace.edu/cases/951206u1.html>.

264. Murray, above n 91, 369-70; Cook, above n 238, 258; Dodge, above n 43, 92.

265. See, eg, the sources listed in Pace Law School, <http://www.cisg.law.pace.edu/cisg/wais/db/cases2/951206u1.html> (giving the case citation, details, access to abstract and full text, and listing at 'Citations to Comments on Decision' a number of commentaries on the case, including hypertext links to many articles). See, eg, Zeller, 'A Leap Forward', above n 154, 89 (fn 39) and accompanying text (arguing that the Court in Delchi made a mistake in noting that CISG damages were to be limited by Hadley v Baxendale foreseeability principles); and Saidov, 'Methods of Limiting Damages', above n 211, (fn 148) (arguing that there was a 'misapplication' of art 74 in Delchi, as the Court applied the Hadley test).

266. Cook, above n 238, 263 (coining the term).

267. Other than staunch criticism by Zeller: see Zeller, 'Traversing International Waters', above n 134, 52; Bruno Zeller, 'Downs Investments Pty Ltd (in liq) v Perwaja Steel Sdn Bhd [2002] 2 Qd R 402' (2005) 9 Vindobona Journal of International Commercial Law and Arbitration 43. Most recently, Ambrose J's decision was again cited (but not that of the Court of Appeal) in the CISG Advisory Council, Opinion No 8, above n 70, Commentary [3.1] (fn 41). Contrast this with numerous and continuing citations of trial decision, above nn 211, 212.

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Case text

Supreme Court of Queensland (Court of Appeal)
Downs Investments v Perwaja Steel (12 October 2001)

[2001] QCA 433

[...]

ORDER: Appeal dismissed with costs

[...]

[1] DAVIES JA: I agree with the reasons for judgment of Williams JA and with the orders he proposes.

[2] WILLIAMS JA: This is an appeal from Ambrose J who concluded that the respondent was entitled to recover from the appellant a total of US $1,280,347.80 for damages including interest. The claim arose out of a contract between the parties in terms of which the respondent agreed to sell scrap metal to the appellant. As the respondent was in Australia and the appellant in Malaysia it was held that the United Nations Convention on Contracts for the International Sale of Goods, made relevant by the Sale of Goods (Vienna Convention) Act 1986, applied to the transaction. The learned trial judge held on the evidence that the appellant had fundamentally breached the contract and assessed damages pursuant to Articles 74 and 75 of the Convention. From that decision the appellant has appealed on a variety of grounds.

[3] The first matter that must be considered is the appellant's contention that "in fairness" the respondent was not entitled to a judgment based on the Convention. As is evident from the appellant's outline and counsel's oral argument this issue incorporates grounds 1-9 inclusive in the notice of appeal.

[4] The proceedings were commenced in 1996 and the trial commenced on 29 May 2000. Virtually all of the interlocutory steps, including the pleadings, had been completed under the Rules of the Supreme Court. In accordance with Order 22 rr 1 and 14, the pleadings as they stood at the commencement of the trial alleged only matters of fact. There is ample authority in cases decided on those rules or their equivalent that a party could at trial rely on any legal consequences which properly flowed from the material facts pleaded. One of the changes brought about by the Uniform Civil Procedure Rules, which commenced on 1 July 1999, was that a party was obliged "if a claim or defence under an Act is relied on" to identify the specific provisions under the Act: r 149(e).

[5] In the respondent's pleadings, as they stood at the first day of trial, there was no reference either to the Sale of Goods Act 1896 ("the Act") or the Convention. Arguably the material facts pleaded by the respondent could have supported a claim either under the Act or the Convention. In para 32 of the defence it was alleged that s 51(3) of the Act was the "prevailing law"; thus the appellant was contending that damages, if any, should be assessed pursuant to that provision of the Act. That contention was "not admitted" by the respondent in its reply: para 7.

[6] In the course of his opening, counsel for the respondent (record 37) said:

"We've prepared a document which summarises the claim. There's some figures put in brackets which are negatives but the first item is the difference between the contract price and the market value at the date of termination. Your Honour, the claim is framed that way and we've kept it that way partly because the defence asserts that the correct measure of loss is as set out in s 51 of the Sale of Goods Act which provides for that assessment of loss. Another view of it would be that in fact the correct value of loss is the actual difference between the contract price and the resale prices. That would be another view of the loss. But as it turns out, the differences aren't terribly significant so we've left it on the simple base that the defence pleaded was appropriate".

The difference between the contract price and the resale price was essentially the formula provided in Article 75 of the Convention. One of the arguments addressed to this Court by counsel for the appellant was that because that statement was made the respondent was precluded at trial, and now, from contending that the assessment of damages should be made on any basis other than that set out in s 51 of the Act. Indeed the submission went so far as to contend that the respondent was precluded (the term estopped was even used) from relying at all on the Convention.

[7] At the start of day 3 of the trial, before the respondent had closed its case, its counsel asked for and was granted leave to amend the statement of claim. That application was not opposed by counsel for the appellant. The statement of claim as so amended became that which appears in the record book as the Fourth Amended Statement of Claim. Some amendment was made to para 19, and a new para 19AA was inserted; after the amendment those paragraphs were in these terms:

"19. By reason of the Defendant's repudiation, the Plaintiff was left with the said 30,000 metric tonnes of scrap metal which had a market value of about USD 148.50 (for delivery CNF FO into Asian ports) at that date, falling to USD 143.50 by about late September 1996 and being no more than USD 143.50 at all material times thereafter. Particulars of the market values are shown on exhibits "RKJG 3" and "RKJG 6" to Mr Gulliver's statement, exhibit 15.

19AA. The plaintiff resold the (approx) 30,000 tonnes of scrap by

(a) a contract in early October 1996 with Pernas Trading Sdn Bhd (exhibit 1, Part B no. 14) at the price of USD 143.50 per tonne (for delivery into Penang CNF FO) under which -
(i) 25,100 tonnes were sold and,
(ii) the Plaintiff's CNF FO costs were the same (so far as an estimate allows) as the estimated CNF FO costs per tonne which it would have incurred for the sale and delivery of 25,100 of the (about) 30,000 tonnes to be delivered under the Perwaja contract.

(b) As to the balance of about 5,000 tonnes, under one or more of the three contracts with BHP in late August, September and October 1996 (exhibit 1, Part B nos. 15, 16, 17) at a price of AUD 156.75 per tonne, under which the nett return to the Plaintiff was equivalent to that provided by a price of USD 143.50 per tonne (for delivery in Kemaman CNF FO)."

[8] At the time of seeking leave to make those amendments counsel for the respondent said (record 195):

"One of the issues in the case, one of the legal issues will be whether damages are to be assessed as at the date of termination, or repudiation, or whether they're to be assessed as at the date of expected delivery or whether they are to be assessed with reference to the contracts in para [19AA] ... we are trying to cover all the possible legal bases. In relation to para [19AA] this is where the cost exercise particularly arises. We have done all the figures in costs which include, to put it broadly, the freight costs, CNF FO for delivery into an Asian port. So we're seeking always [to] compare the price under the Perwaja contract which was on that basis with the price under the Pernas contract which was on a similar basis and that requires, of course, to prove ... that the estimated costs on CNF FO basis on the Pernas contract were, as far as one can tell, much the same as what they would have been under the Perwaja contract".

Paragraph 19AA is directly relevant to a claim based on Article 75.

[9] Counsels' addresses began on day 6 of the trial. In the course of the address by counsel for the respondent reference was made to the Convention and in particular to Articles 74 and 75 thereof relating to the calculation of damages. In submissions in reply counsel for the appellant contended that the respondent was estopped by its conduct of the trial from relying on the Convention. The learned trial judge reserved his decision.

[10] Some 44 days later the learned trial judge had the matter re-listed and indicated that the applicability of the Convention had emerged as an important consideration. The learned trial judge on that occasion invited counsel for the appellant to call any additional evidence that would overcome any prejudice that might otherwise be occasioned to the appellant because it arguably only became obvious at a late stage in the trial that the Convention was an important consideration. There was at that stage no need for the respondent to formally amend its statement of claim. I do not find it necessary to recount in any greater detail what was said on that occasion by those present. It is sufficient to record that the appellant stated it might reopen its case if the respondent amended its pleading but ultimately decided that no additional evidence would be called. However supplementary written submissions dealing with the Convention were given to the trial judge.

[11] It is in those circumstances that the issue as to the fairness of the trial was raised as a ground of appeal. Counsel for the appellant still maintains that there should have been a ruling that the respondent was precluded from relying on the Convention given the pleadings and the course the trial took.

[12] As at the first day of trial the pleadings of the respondent could not be criticised. They were in accord with the Rules which applied at the time they were drawn. Within the applicable law the respondent would have been entitled to submit, at the end of the trial, that the Convention applied to the facts as pleaded and proved, and that any assessment of damages should be made in accordance with the provisions thereof The appellant could not have complained of that.

[13] The amendment made on the third day of trial was, in the overall context, relatively minor, but it was made at a time when the UCPR applied. It is clearly arguable that Rule 149(e) required the respondent to include some reference to the Convention if it was relying on a claim thereunder. But even if that was so, as was the position under the Rules of Court, a plaintiff would not ordinarily be prevented from recovery where all essential facts were established merely because there was an omission to refer to a statutory provision or some error was made in referring to a statutory provision. Given the statements quoted above made by counsel for the respondent in the course of opening and at the time of seeking leave to make the amendments, it must have been obvious that the respondent's case included a contention that damages should be assessed on some basis other than that set out in s 51(3) of the Act. That should have put the appellant on notice that the respondent's case was based, at least in the alternative, on propositions not included in s 51(3). It is not as if the appellant and its legal advisers were not aware of the Convention. Counsel for the appellant conceded that the Convention had been considered some two years prior to the hearing and been put "back on the shelf because it wasn't relevant to the case".

[14] The basis of liability pleaded by the respondent was that it had elected to terminate the contract because of fundamental breach by the appellant. That case was in no way affected by the issue whether the Convention applied or not; the evidence and findings would have been precisely the same. Any difference between Article 25 and the common law was not material given the facts of this case. The only possible difference between the Act and Convention for present purposes is with respect to the calculation of damages. Articles 74 and 75 provide for a basis of assessment which is different from that specified in s 51(3) of the Act. Pursuant to the latter Article there has to be a "substitute transaction" which results in the resale of the goods "in a reasonable manner and within a reasonable time after avoidance". There was evidence relevant to such matters led by the respondent at trial. It was with those provisions in mind that the amendments to the statement of claim were made after the trial began. If counsel for the appellant failed to cross-examine broadly enough on such issues, or if the appellant failed to lead relevant evidence, because of a failure to appreciate the significance of those matters, that could have been the subject of further evidence consequent upon the learned trial judge giving the appellant the opportunity of reopening its case. That offer was not taken up. Ultimately the learned trial judge held on the evidence that there was a substitute transaction entered into in a reasonable manner and within a reasonable time after avoidance and it is difficult to see how those findings could be upset by the calling of further evidence.

[15] The trial was vigorously contested on a number of issues and a lot of documentary evidence was placed before the court. I cannot see that there was anything unfair about the trial because of the alleged belated concentration on the Convention.

[16] In all the circumstances I am not satisfied that the appellant has made out a case that the decision should be set aside on the ground of unfairness. The appellant did not suffer any irremediable prejudice. Further, I cannot see that anything was said or done by the respondent, or its counsel, in the course of the trial which would preclude it from relying on the Convention.

[17] Grounds 3 to 9 inclusive in the notice of appeal raise in various ways the issue whether the respondent proved the appellant's liability pursuant to the Convention. Article 64(1) relevantly provides that the seller may declare the contract avoided if the failure by the buyer to perform any of its obligations under the contract or the Convention amounts to a "fundamental breach of contract"; that expression is defined in Article 25. Essentially a breach will be fundamental if it deprives a party of what he is entitled to expect under the contract. Much of the appellant's case in this regard depended on whether or not time remained of the essence. Before the issue so raised can be determined it is necessary to set out the terms of the contract and record certain events which occurred that are relevant to the question whether or not the appellant was in fundamental breach.

[18] At the outset it should be recorded that the learned trial judge "found no reason to question the reliability of either Mr Anderson or Mr Teo whose evidence was either supported by or consistent with contemporaneous notes and correspondence". He went on to say: "I prefer the evidence of Anderson and Teo to that of Datuk Abu and Yunus". Anderson was manager of the respondent, Teo that company's agent in Malaysia, Datuk Abu the person who replaced Wan Ghani as the managing director of the appellant, and Yunus a member of the new management team of the appellant after about July 1996.

[19] The relevant contract was made on 7 May 1996. It was negotiated between Anderson and Rohani Basir, the purchasing officer of the appellant at the material time. The duly executed contract is to be found at record 503. In broad terms it provided for the sale by the respondent to the appellant of approximately 30,000 tonnes (plus/minus 10% at seller's option) of heavy melting scrap at a price of USD 164.00 per tonne to be delivered at Kemaman, Malaysia. Also at the seller's option 5,000 tonnes of shredded scrap could be included in the goods supplied. The contract provided that the buyer had the right to inspect material at any time prior to loading and during loading. Shipment was to be from "any Australian ports" during July 1996.

[20] The contract provided that vessel details and descriptions were to be submitted by the respondent to the appellant for its approval prior to charter party acceptance. However, the learned trial judge accepted evidence that it was agreed between the parties that the respondent need not formally comply with that requirement. As they had done business on a number of occasions previously, it was agreed that the respondent knew the appellant's requirements with respect to the standard of ship which was to be used to carry the scrap metal to Kemaman.

[21] The contract expressly provided that payment was to be by "Irrevocable Letter of Credit" to be established by 1 July. Any disputes were to "be settled by the laws prevailing in Brisbane". The other terms of the agreement need not be quoted.

[22] The copy of the agreement executed by Wan Ghani and bearing Anderson's signature was returned by fax under the hand of Basir on 21 May 1996. The learned trial judge found that on the same day the appellant stated in a letter to the respondent that it was prepared to agree to the respondent's request that the Letter of Credit be valid for two months provided that the respondent bore the charges for the additional month. On that basis the letter said that the Letter of Credit would be established from 8 June 1996 and be valid for two months.

[23] At the request of the respondent the establishment of the Letter of Credit was delayed until July or upon nomination of the vessel to carry the goods. Then by letter of 2 July 1996 the respondent requested a further delay in the timing of the shipment from July to August 1996. The learned trial judge found that those variations were agreed to by Wan Ghani on behalf of the appellant during a visit to Australia. That appears to have been in July 1996. On 18 July the respondent sent a fax to the appellant setting out a proposed loading schedule from 19 August to 10 September and requesting that the Letter of Credit issue on 1 August expiring on 30 September. The appellant replied by letter of 22 July stating that it would "establish L/C as per your request once you have confirmed the vessel of the contract".

[24] I now turn to how those matters were dealt with in the pleadings. After setting out the terms of the agreement the respondent alleged in para 5 of its Statement of Claim that there was implied from the express terms of the contract a provision that time was of the essence of the appellant's obligation to issue the Letter of Credit. That allegation was admitted in para 1 of the defence of the appellant. In para 7 of the Statement of Claim the respondent alleged the variation of the original terms of the contract by postponing the last date for the issue of the letter of credit from 1 July to 1 August 1996 and agreeing that the appellant would establish the Letter of Credit when the respondent confirmed the vessel to ship the scrap metal. It was then alleged in para 8 that time remained of the essence of the appellant's obligation to establish the Letter of Credit. Those allegations were dealt with in para 7 of the defence which included in subpara (c) an allegation that time was of the essence of the contract as relevantly varied. There was also a general allegation in para 3(b)(ii) of the defence that time was of the essence with respect to the obligations of each party to the contract.

[25] In July the respondent entered into a charter agreement with respect to the vessel "Dooyang Winner". On 31 July 1996 the respondent advised the appellant of all relevant details with respect to the vessel and giving a loading program commencing 8 August, concluding 29 August, with an estimated time of arrival in Kemaman of 10 September. The defence admitted receipt of that detail.

[26] The sending of those details on 31 July 1996 meant that the respondent had complied with all preliminary matters and in accordance with the appellant's letter of 22 July the Letter of Credit was to be established immediately, that is, by 1 August. That was not done and on 5 August the solicitor for the respondent wrote to the appellant setting out those matters and then stating:

"We are now instructed to request you to establish the Letter of Credit for the full price of US $4,920,000 by the close of business on Wednesday 7th August, 1996 as the vessel will commence loading on 8th August, 1996. Should you fail to establish the Letter of Credit by then, our clients will deem it that you do not wish to honour your obligations under the Agreement and have repudiated the Agreement and in such an event they will take action to dispose of the said steel scrap, cancel the charter of the vessel, if possible, and revert to you for any damages which they may sustain herein".

The reply from the appellant's solicitors, dated 7 August 1996, was materially in these terms:

"As your client is probably aware our client is now under different (interim) management and transactions are still under review. The new management team is still studying this matter. In the meantime our client makes no admission of liability".

The solicitors for the respondent replied as follows:

"As you may know, our clients have enjoyed a good business relationship with your clients for over a period of several years. It has been unfortunate that the shipment of scrap metal in question has been delayed, however, our clients cannot wait indefinitely for the shipment of the cargo as that would attract substantial expense. In view of the foregoing kindly revert by 12 noon of Friday the 9th of August 1996 as to whether your clients are prepared to honour the contract in question".

The reply from the appellant's solicitors to that was dated 9 August 1996, and was in these terms:

"Unfortunately, we are unable to obtain any positive instructions from Perwaja Steel Sdn Bhd within this short time. We understand that the board is meeting some time later this month".

That then resulted in the respondent's letter of 9 August 1996, materially in these terms:

"2. Our clients regret that as at the date hereof your clients have failed, refused and/or otherwise neglected to establish the requisite Irrevocable Letter of Credit in respect of the above contract in question between our respective clients and are therefore in breach of the same.

3. Our clients are unable to wait indefinitely for your clients to establish the said Letter of Credit as our clients will incur substantial loss and damage and will be put to enormous expense if they were to do so.

4. Furthermore, despite our client's repeated requests, your clients have still not indicated in any way whatsoever that your clients intend to honour their obligations under the said contract.

5. By reason of the foregoing, your clients have demonstrated an intention no longer to be bound by their obligations under the said contract and have thereby repudiated the same, which repudiation our clients hereby accept".

There was no reply to that letter until the fax of 15 August. It merely said:

"Though our clients note, the contents of your letter, our clients do not admit any liability. Nor do they agree with your views and conclusions".

Against that background it is necessary to consider the findings as to the change in management personnel of the appellant and the new management's attitude to the contract.

[27] The learned trial judge found that prior to 10 July 1996 the respondent had become aware through newspaper articles that the management structure of the appellant was to be changed. On or about 24 July Teo called on Yunus to congratulate him on his appointment to the new management and mentioned the contract in question in the course of discussion. Yunus replied that he had no idea of the existence of such a contract and was surprised to hear of one. When Teo next spoke to Yunus on 26 July he handed him copies of the contract, purchase order and other relevant correspondence. Again Yunus affected surprise at that information. On 29 or 30 July Anderson and Teo together visited Datuk Abu and Yunus. There was discussion of the signed contract, purchase order and other correspondence but Yunus kept reiterating that he had no knowledge of the particular contract. Datuk Abu said he was very sorry that this was not part of the hand-over notes between the previous management and that which he headed and said that had he known that there was this outstanding contract he would have asked the officials from the Ministry of Finance to issue the Letter of Credit. He also said he would have to ask the "executive committee" that was running the company for permission to issue the Letter of Credit. Anderson informed Datuk Abu that the respondent had already arranged for a ship and that it was not possible to cancel that charter. He stated that if the Letter of Credit did not issue the respondent would suffer significant loss. The learned trial judge found that Datuk Abu responded by saying: "Since you have already committed to a vessel perhaps you could ship the cargo first and we will pay you later or alternatively sell the shipment to another company. ... if you do it this way in future Perwaja will buy scrap metal from you under the new management". Anderson said he could not accede to that request, mentioning the drop in prices since the contract was made. Datuk Abu suggested Anderson and Teo come back later because the decision was not his to make, the decision had to be made by the committee.

[28] There was a further meeting between Anderson and Teo on behalf of the respondent and Yunus and Datuk Abu on behalf of the appellant on 31 July. The latter said that he had not been able to get the committee to approve the Letter of Credit but he might still be able to help and suggested he be telephoned on 2 August. Anderson and Teo again pointed out that the vessel had been chartered and that the respondent stood to suffer significant losses if the Letter of Credit did not issue.

[29] There was a meeting of the executive committee on 2 August 1996 and the Minutes form part of the evidence. Those Minutes record in relation to the transaction in question that the "Management is authorised to re-negotiate and recommend appropriate action in relation to the supply of scrap initiated on 22 July 1996". The learned trial judge found that on the evening of 2 August Teo had a conversation with Datuk Abu in the course of which the latter said that he had brought the matter to the attention of the executive committee and one of the committee members objected that the committee could not proceed with the issuing of a Letter of Credit because the contract had not been made during the tenure of office of the present management. Datuk Abu informed Teo that he would "try again" on 22 August when the board next met. Significantly at no stage up to 15 August did the appellant allege that the respondent was in any way in breach of its obligations under the contract.

[30] Based on those findings of fact the learned trial judge reached the following conclusions in the course of his judgment:

"The refusal to establish a timely Letter of Credit was clearly a

fundamental breach within the meaning of Article 25 and Article

64(1)(a) of the Convention. ...

...

In my view the refusal by Perwaja to establish the Letter of Credit at a time when the 'Dooyang Winner' was standing by at Bells Bay in Tasmania to commence loading the scrap steel so that it might complete its loading program either as advised on 18 July 1996 or as subsequently advised on 31 July 1996 was a clear breach by Perwaja of an essential term of the contract as varied.

...

Whatever may be the explanation for the avowal of Mr Yunus that he had no knowledge of the contract between Perwaja and Wanless there is no doubt that on 24 July 1996 Mr Teo advised him of its existence. On 26 July 1996 Mr Teo handed to Mr Yunus copies of all documents, purchase orders, etc. relating to that contract. He was then also advised that the shipment of the scrap steel the subject of the contract 'was so to speak actually on the way'.

Thereafter in my view the evidence indicates a simple procrastination on the part of Perwaja to meet its contractual obligation. There is nothing in the evidence to suggest that the appropriate arrangements for the issue of the letter of credit could not have been made within a day or so. Indeed, Rohani Basir had undertaken to do that 'once you have confirmed the vessel of this contract'.

...

In my view Perwaja by the officers who succeeded Rohani Basir and Wan Ghani in its management clearly evinced an intention not to meet Perwaja's contractual obligation. It is clear when one reads the 'Payment' clause and the letter from Wanless to Perwaja of 18 July 1996 that the provision of the letter of credit prior to the commencement of loading of the shipment to Perwaja of scrap metal was an essential term of the contract. It is clear in my view that Perwaja indicated that it did not intend to comply with that requirement. It is equally clear from the resolution of the committee meeting of 2 August 1996 that Perwaja proposed instead of meeting its contractual obligations with Wanless to embark upon a 'renegotiation' of that contract - presumably in the light of the fall in the current market value of scrap steel.

...

In my judgment Wanless was entitled to avoid the contract and to recover the loss it suffered as a consequence of Perwaja's repudiation and/or non-compliance with an essential term of its contract with Wanless."

In my view all of those conclusions were clearly open on the findings of basic fact made by the learned trial judge. The establishment of a Letter of Credit prior to shipment was essential from the respondent's perspective. Failure to meet that obligation deprived the respondent of what it was entitled to expect under the contract, and entitled the respondent to rescind the contract. (cf. Trans Trust S.P.R.L. v Danubian Trading Company Ltd [1952] 2 QB 297 at 301-302 and 305-306 and Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB 130 at 139-144). But the findings went even further. On the findings the appellant had no intention of meeting its obligations under the contract; that also entitled the respondent to rescind the contract.

[31] Much of the attack mounted by counsel for the appellant on those findings is dependent upon the proposition that as at 1 August 1996 time had ceased to be of the essence of the contract. That to my mind is at odds with the assertion in the defence that with respect to the obligations of each party time was of the essence; and the further admission that time remained of the essence after the initial time-frame was varied. In any event commercial commonsense would require the Letter of Credit to be established before shipment commenced and at least to that limited extent (disregarding the admissions in the pleadings) there would be imputed to the parties an intention that time was of the essence.

[32] The next attack on the reasoning in the judgment was based on Article 63 of the Convention; it was submitted that the time-frame fixed by the letters of 5 August and 8 August was too short. Paragraph (1) of that Article provides: "The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations". Article 64(1)(b) then provides that if the buyer does not, within the additional period of time so fixed, perform its obligation the seller may declare the contract avoided.

[33] It is difficult to see the relevance of Article 63 if time was of the essence. If that were so, when the letters of 5 and 8 August were written the appellant was already in fundamental breach of its obligations by not establishing the Letter of Credit. But in any event the appellant had been under notice throughout July, and in particular from and after 27 July, that it would have to establish the Letter of Credit on 1 August provided that by then details of the ship had been given by the respondent. In those circumstances the times set by the letters of 5 and 8 August for extended compliance with the obligation were not unreasonable.

[34] There is also nothing in the argument that the respondent could not terminate the contract because it had not afforded the appellant the opportunity of examining the goods before payment: Article 58(3). That matter is sufficiently addressed in the reasons for judgment of the learned trial judge.

[35] Counsel for the appellant also endeavoured to make something out of the use by the learned trial judge of the term "repudiation" in his reasons for judgment. In my view it is clear from reading his reasons as a whole that he was equating repudiation with fundamental breach of contract, the term used in the Convention. (cf. per Deane and Dawson JJ in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658.) When one has regard to Article 64(1) and Article 72 it is clear that the Convention adopts, at least to some extent, the common law concept of repudiation.

[36] Clearly in the passages quoted above the learned trial judge concluded that the failure to establish the Letter of Credit amounted to a fundamental breach of contract and the respondent in consequence declared the contract avoided by its letter of 9 August.

[37] Ground 13 in the notice of appeal challenges the finding of fact made by the learned trial judge that at all material times the respondent had the capacity to meet its contractual obligations - that is, it had on hand sufficient scrap of required quality to meet its contractual obligations. In so finding the learned trial judge said he had "no hesitation in accepting the evidence of Mr Anderson" to that effect. Anderson had been cross-examined at some length on the issue and the finding was dependent to a not insignificant degree upon the acceptance of him as a credible witness. In consequence the appellant faces significant hurdles in seeking to establish this ground of appeal.

[38] Counsel for the respondent relies on (and inferentially so did the learned trial judge) the fact that the chartered vessel was en route to commence loading at the first port on 8 August 1996. That strongly supports the oral evidence of Anderson that sufficient scrap was readily available to satisfy the respondent's contractual obligations. Apparently some of the respondent's records relating to available stock had been destroyed in a flash flood at its premises, but there was other documentary material tending to confirm the existence of stock in question. That is also supported by the fact that the respondent entered into substitute transactions involving the sale of 30,000 tonnes of scrap of a description which would have satisfied its obligations under this contract.

[39] I am not satisfied that the appellant has made out a case for setting aside the finding by the learned trial judge that the respondent had the ability to complete this contract.

[40] That leaves for consideration the grounds relating to the calculation of the quantum of damages. A number of submissions were made in that regard.

[41] As already noted the learned trial judge assessed damages pursuant to Articles 74 and 75 of the Convention; they are in the following terms:

"74. Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.

75. If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under Article 74".

It should also be noted that Article 76 provides that if the contract has been avoided and there is no resale pursuant to a substitute transaction the seller "may ... recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under Article 74". That, of course, mirrors s 53(1) of the Act.

[42] It is necessary to quote findings made by the learned trial judge with respect to the calculation of damages:

"It is clear on the evidence that Wanless sold 25,100 tonnes of the metal it was holding to fulfil its contract with Perwaja to Pernas at the then market rate of US $143.50 per ton for delivery at Penang in Malaysia. It was necessary for Wanless to charter another vessel called 'M V Handy Light' at approximately the same cost per tonne to ship that material as the cost of chartering the 'Dooyang Winner' which was unsuitable for that port. In any event I accept that the subcharter of the 'Dooyang Winner' as soon as possible was a reasonable step to minimise the damage incurred by Wanless in having such a large vessel standing by at the expense of Wanless and not being used for the purpose of shipping its scrap steel to Perwaja.

...

In my view the resale of the scrap to Pernas clearly satisfies the requirement of Article 75. The 'M V Handy Light' called at the same ports to load scrap metal as was the intention for 'Dooyang Winner' except that it avoided calling at Bell Bay in Tasmania because the sale to Pernas was 5,000 tonnes less than that under the contract with Perwaja.

In my view the sale to Pernas was effected within a reasonable time being within two months of Wanless' acceptance of Perwaja's repudiation of its contract. It is clear from the material that Wanless acted as quickly as possible in seeking a market for the scrap metal it had held for Perwaja ...

In my view it is clear on the whole of the evidence that the substitute sale to Pernas on 8 October 1996 was effected within a reasonable time of the termination by Wanless of its contract with Perwaja. The sale to Pernas was at the then market value on approximately the same freight terms as had been negotiated with the owners of 'Dooyang Winner' and involved a shipment to Penang also in Malaysia. The difference in freight costs on the evidence was minimal.

...

Wanless sold a further 5,000 tonnes to BHP by contracts made in August, September and October 1996 at a price of AU $156.75 per ton, i.e. AU $783,750. The unchallenged evidence of Mr Anderson is that BHP purchased the steel at a price which on its estimates would give Wanless the same nett return as if it had sold the scrap steel in Asia ...

...

It is not disputed by Perwaja that Wanless suffered a nett loss of US $343,163.47 as a result of chartering and re-chartering the 'Dooyang Winner'.

This loss was clearly incurred as a consequence of Perwaja's breach of its obligation to establish the appropriate letter of credit. The incurring of a loss of this kind was clearly foreseeable and Perwaja must have known that its failure to establish a letter of credit as promised would result in Wanless being left with a chartered vessel at hand which could not be used for the purpose for which it had been chartered.

In my view once Wanless accepted Perwaja's repudiation of its obligations under the contract and terminated that contract it promptly took all steps reasonably necessary to mitigate the damages it suffered as a consequence of Perwaja's repudiation".

The appellant challenges the finding that the Pernas contract was effected within a reasonable time. The evidence established that negotiations between the respondent and that company commenced on or about 12 August 1996 but the contract was not entered into until 8 October 1996. The evidence establishes that the price for scrap was dropping during that period. The respondent is criticised for not entering into a binding contract at an earlier point of time given the falling market; but one can readily understand, with the market price falling, that Pernas would not have been overly eager to enter into a contract such as suggested by the appellant.

[43] The evidence of Anderson was that the respondent was very keen to offload the scrap once the contract was avoided in order to resolve that company's cash flow problems; they were keen to convert the scrap on hand into cash. The difficulty testified to by Anderson was that buyers were reluctant to commit themselves on a falling market.

[44] Counsel for the appellant also submitted that in order to constitute a "substitute transaction" for the purposes of Article 75 the goods the subject of each contract had to be precisely the same. Counsel was asked from the bench during argument whether that meant that if the contract was for the supply of coal the "substitute transaction" had to involve the same precisely identified lumps of coal; the response, as it had to be if there was substance in the submission, was that if the transaction did not involve precisely the same lumps of coal it was not a "substitute transaction" for purposes of the Convention. This argument was relevant on the facts of this case because in performing the Pernas contract the respondent utilised some scrap that had been processed after 23 September 1996. As already noted the scrap sold to Pernas did not involve any from Tasmania which would have been involved in the supply to the appellant.

[45] The goods in question were not sold as "specific goods", but rather by weight or measure. The obligation to supply scrap pursuant to the contract entered into in May with the appellant could have been satisfied by collecting scrap from anywhere for delivery to the appellant provided it met the general description of the scrap referred to in the contract. In other words the goods the subject of this contract were, as submitted by counsel for the respondent, fungibles. That term is used to "define goods of which every particle or unit is indistinguishable from, or at least commercially equivalent to, every other particle or unit, e.g. grain, flour or oil" (Benjamin's Sale of Goods 2nd ed. para 117). The scrap metal here was clearly of that kind. Counsel for the respondent referred in argument to two United States Court of Appeal decisions, on a comparable statutory provision to Article 75, to the effect that where fungibles are involved a seller is able to use substitute goods for the purposes of the resale so long as the sale is commercially reasonable (the decision of the Sixth Circuit of United States Court of Appeal in Firwood Manufacturing Company Inc v General Tire Inc, unreported, 16 September 1996, and Apex Oil Co v Belcher Co of New York Inc (1988) 855F. 2d 997 at 1005).

[46] There is no justification for limiting the operation of Article 75 to contracts involving the sale of specific goods. The fact that some of the scrap sold to Pernas would not have been included in the scrap sold to the appellant if that contract had been completed does not mean that the sale to Pernas was not a "substitute transaction" for purposes of Article 75.

[47] Counsel for the appellant also contended that the sale to BHP was not a "substitute transaction" because it was on different terms. There was an important distinction between the sale to the appellant and the sale to BHP; one was for delivery in a foreign country, the other was purely a domestic transaction. But it is clear that the BHP contract price was fixed so as to return to the respondent the same nett amount as if it had sold the scrap metal to a company in Malaysia. The Article does not require the substitute transaction to be on exactly the same terms. What is important is that the damages recovered may not exceed the loss which the party in breach ought to have foreseen. That was accommodated in this particular case.

[48] The remaining contentious issue revolved around what were described as the consequential losses. Article 74 reflects the common law derived from Robinson v Harman [1848] 1 Ex 850; 154 ER 363 and Hadley v Baxendale [1854] 9 Ex 341; 156 ER 145. As a basic proposition a party is entitled to recover no more than the nett benefit that it would have received had the contract been performed.

[49] The quantum in issue is the loss suffered by the respondent on the charter party with respect to the "Dooyang Winner". As already noted the respondent sub-chartered that vessel in order to mitigate its loss, and had to charter a different vessel in order to deliver the scrap pursuant to the Pernas contract. The appellant sought to categorise the loss in question as a "reliance loss" covered by the decision of the High Court in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. I accept the argument for the respondent that the loss on the charter party is not a claim for "reliance loss", but rather a claim for loss suffered as a consequence of the fundamental breach of contract by the appellant. The loss in question would not have been sustained except for the fundamental breach by the appellant. Such a loss may be recovered under Article 74.

[50] Again, counsel for the respondent relied on American authority, if authority be needed (Delchi v Rotorex (1995) 71 F3d 1024). I can see no error in the calculation of damages made by the learned trial judge.

[51] It follows that the appeal should be dismissed with costs.

[52] BYRNE J: I agree with Williams JA.

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