Data

Date:: 17-11-2000
Country:: Australia
Number:: Civil Jurisdiction No. 10680 of 1996
Court:: Supreme Court of Queensland
Parties:: Downs Investments Pty Ltd v Perjawa Steel SDN BHD

Keywords

interpretation of cisg - recourse to foreign case law and scholarly writing (art. 7(1) cisg)

fundamental breach (art. 25 cisg) - non-payment of price - seller's right to avoid (terminate) contract (art. 64(1)(a) cisg)

obligations associated with payment of price - opening of letter of credit (art. 54 cisg)

seller fixing additional time for performance by buyer - in case of failure to pay price, seller intitled to avoid (terminate) contract upon expiration of additional time (art. 63 cisg)

right to avoid (terminate) contract in case of anticipatory fundamental breach - clear likelyhood of fundamental breach by other party (art. 72 cisg)

right to claim damages - losses suffered due to breach - foreseeable damages - lost profits (art. 74 cisg)

damages in case of avoidance - injured party's right to make substitute transaction - difference between contract price and substitute transaction price - other damages recoverable under Art. 74 (art. 75 cisg)

Currency of damages currency agreed upon for payment of price
right to interest (art. 78)

Abstract

An Australian seller and a Malaysian buyer concluded a contract for the sale of approximately 30,000 metric tonnes plus/minus 10 % of scrap steel at the price of $164 per metric tonne C.N. F.F.O. Kemaman Malaysia. According to the written contract between the parties, shipment was to be made from any Australian port during July 1996 and payment was to be made by irrevocable letter of credit. Furthermore, the vessel's details and descriptions had to be submitted to the buyer for their approval prior to charter party acceptance.

As the parties had previously concluded contracts for the sale of scrap steel, it was orally agreed that the seller did not need to submit any vessel details prior to chartering an appropriate vessel to deliver the scrap steel. It was later agreed that the shipment of scrap steel was to be made in August and September 1996, and that a letter of credit for 60 days was to be issued on the 1st August 1996.

As of July 1996, the buyer changed its management. The new management introduced new procedures concerning the issuing of letters of credits, and therefore would not issue the letter of credit, until an executive committee had accepted it. At this time, the seller had already agreed to charge a vessel. At the same time, the contract price for the scrap steel was US $705,000.00 in excess of its current market value. On the 31st July 1996 the seller submitted the vessel's details and descriptions to the buyer, together with details of shipment and expected time of arrival.

As the buyer would not issue the letter of credit at the agreed time, the seller wrote to the buyer saying it would commence to load the scrap under the contract on 8th August 1996, and that the letter of credit had to be established at the latest by 7th August 1996. Furthermore, if the buyer should fail to do so, it would treat buyer as having repudiated the contract and would then take steps to dispose of the scrap steel, cancel the vessel charter if possible and then seek to recover damages from the buyer. At the same time, seller commenced to make inquiries about other possible purchasers of the scrap steel that it was holding to fulfil its contract with the buyer.
On the 7th August the buyer replied that the new management was still studying this matter. On the 8th August the seller asked the buyer to confirm by noon on the 9th August as to whether it was prepared to honor the contract in question. As the buyer was not able to give its answer before the executive committee meeting, the seller terminated the contract on that same day.

The buyer objected to the seller's avoidance, alleging that the seller had breached the contract prior to its avoidance, since it had not submitted the vessel's details and descriptions to the buyer's approval prior to charter acceptance. As a consequence, the buyer's refusal to issue the letter of credit was not a breach of contract.
The Court held that the written terms of the contract having regard to the nature of the contract and the long business relationship between the parties had to be supplemented with the oral agreements, and therefore that the letter of credit should be established upon the seller providing details of the vessel chartered to ship the material to Kemaman Malaysia.

The Court, referring to international scholarly writing and case law on CISG (Helen Kaminski Pty Ltd v Marting Products Inc see U.S. District Court, S.D., New York of 23-07-97, in UNILEX) held that the refusal to establish a timely letter of credit was clearly a fundamental breach within the meaning of Art. 25 and Art. 64(1)(a) CISG, since the failure to establish a letter of credit in the cirumstances of the case was a failure by the buyer to meet its "obligation to pay the price" (Art. 54 CISG).

The seller which the Court found was ready, willing and able to perform its obligation at a material time prior to its avoiding the contract, had the right to avoid the contract (Art. 72 CISG).

As the seller, as a foreseeable consequence of buyer's breach, had to sub-charter the vessel and charter a new one, and as it had found necessary to sell both within Australia and outside Australia the scrap steel which it was holding to meet its contractual obligation to the buyer, the buyer had to pay damages (Art. 74, Art. 75 and Art. 78 CISG). The seller had furthermore promptly taken all reasonable steps necessary to mitigate the damages it suffered as a consequence of yhe buyer's non performance.

The damages had to be paid in US Dollars, because this was the currency in which the parties expressed their contractual obligations.

Fulltext

[...]

[1] The Plaintiff continues this action commenced by [seller] to enforce its rights against [buyer] under a contract between [seller] and [buyer] dated 7 May 1996 under which [seller] agreed to supply approximately 30,000 metric tonnes plus/minus ten per cent of scrap steel at the price of US $164 per metric tonne C.N. F.F.O. Kemaman Malaysia. Within that range the seller had the option to select the metric tonnage to be supplied and the quantity actually supplied was to be determined by a draft survey at the load port (or ports presumably) by a nominated company (or equivalent).

[2] That contract also provided terms for the discharge of the scrap steel at Kemaman Malaysia.

[3] The contract provided that [buyer] would make payment for the material delivered in the following terms:

PAYMENT
By irrevocable Letter of Credit from A1 Bank in our favour payable, at sight, for 100% of the invoice value. The L/C is to be established, by 1 July. Such L/C shall be forwarded to Bank of New Zealand, Level 7, Central Plaza One, 345 Queen Street, Brisbane, QLD 4000, Australia, Fax No. 617-221 19271 and telex No. AA123240 (Contact Person - Mr David Evans). Usance charges, if applicable, shall be to the account of the buyer.

Each L/C shall allow for:
1. Telegraphically Transferred Reimbursement;
2. Transhipment Not Permitted;
3. No further Re-Confirmation Charges Payable by Buyer;
4. Charter Party Bill of Lading Acceptable;
5. All Bank Charges Outside Australia be to the Account of the Buyer;
6. Shipment From Any Australian Ports.

DOCUMENTATION
1. Signed Commercial Invoice(s) in Triplicate;
2. Full Set Clean On Board Bill Of Lading Marked "Freight Prepaid";
3. Certificate of Origin; By Griffith Australia.
4. Certificate of Draft Survey; By Griffith Australia.
5. Certificate of Quality Inspection; By Griffith Australia."
It is unnecessary to refer to other terms relating to the characteristics of the letter or letters of credit.

[4] With respect to disputes it was provided that "if both parties contracting hereto are unable to settle any differences arising herefrom such dispute shall be settled by the laws prevailing in Brisbane, Australia.

[5] With respect to shipment the contract provided -
SHIPMENT

From any Australian ports during July 1996.
Shipment shall be made in a suitable and seaworthy vessel conforming to Lloyds 10A1 or equivalent capable of carrying cargo and discharging with its own integral cranes. Seller to arrange with ship owners/agent to permit use of buyer's magnets/grabs on ship's cranes for discharging cargo. Such cranes to be minimum 25M/T capacity.
Vessel details and description to be submitted to Buyer for their approval prior to charter party acceptance. Vessel will be single deck configuration and max. 20 years old. `Over age' Insurance for vessel over 15 years old, if applicable, to be for Sellers Account.
[6] With respect to the notice of departure/arrival the contract provided

NOTICE OF DEPARTURE/ARRIVAL
Seller to advise Buyer of nominated vessel and departure and progressive advice of voyage by fax immediately on departure of vessel - including ETA Kemaman.

[7] Mr Anderson gave evidence that the terms of the contract were negotiated between him and the purchasing officer of [buyer], Rohani Basir. It was a standard form contract which had been used on previous occasions when [seller] sold scrap metal to [buyer]. In the course of those negotiations there was discussion about the nature of the vessel to be used and according to Mr Anderson, Ms Basir said in effect that [seller] had made so many shipments previously that it knew the nature of the vessel [buyer] wanted and it was unnecessary for [seller] to worry about submitting to [buyer] for its approval vessel details prior to [seller] chartering an appropriate vessel to deliver the scrap metal under the contract.

[8] After the contract had been signed by and on behalf of [seller] and [buyer], [seller's] business management, rights, and obligations were acquired by the plaintiff. It is not in contest that the plaintiff in this case may enforce against [buyer] any rights which [seller] may have had against it as a result of any breach of contract on its part.

[9] Shortly before the alleged breach by [buyer] of its contract with [seller] the structure and management of [buyer] was changed.

[10] However at the time both of the making of the contract and its alleged breach by [buyer], Mr Anderson was the manager of [seller].

[11] At the time of the making of the contract Rohani Basir and Wan Ghani, the then managing director of [buyer] were the officers of [buyer] authorised to negotiate the terms of and execute the contract in issue. However, at the time of the alleged breach of that contract by [buyer] towards the end of July and early August 1996 both Rohani Basir and Wan Ghani had been removed from their former positions of authority with [buyer] in the course of the alteration in its management structure. After that restructuring exercise the new management team involved Mr Yunus and Datuk Abu. The case for the [buyer] was that under the new management structure a letter of credit could not be provided without the permission of an executive committee which had been established as part of the change of the management structure of [buyer].

[12] This newly appointed executive committee of [buyer] comprised a number of persons only one of whom was Datuk Abu and on [buyer's] case he did not have the authority of [buyer] to issue letters of credit as had Wan Ghani.

[13] I will later analyse in more detail the events which led to the failure/refusal of [buyer] to issue a letter of credit to cover the contract price which it had agreed to pay prior to [seller] commencing to load the vessel it had chartered to deliver the scrap metal to Kemaman during the month of August 1996.

[14] Essentially it is the case for [buyer] that under its new management structure, where the authority of Datuk Abu - who replaced Wan Ghani - was less than that of Wan Ghani, it was obliged to obtain permission from an executive committee before it could provide a letter of credit. In declining to make any effort really to have issued a letter of credit in a timely way [seller] contends that [buyer] repudiated its contractual obligations - albeit that those obligations resulted from the contract negotiated and signed by authorised officers of [buyer] prior to the change in its management structure. Eventually on 5 August 1996 the Malaysian lawyers of [seller] advised [buyer] that if a letter of credit for the full contract price was not established by close of business on 7 August 1996 [seller] would treat [buyer] as having repudiated the contract because [seller] had already chartered a vessel which was standing by an Australian port to commence loading the scrap steel for delivery to [buyer]. On 8 August 1996 the lawyers for [seller] advised [buyer] that in the event that the letter of credit did not issue [seller] would take steps to cancel the charter of the vessel it had chartered to deliver the material to [buyer] and then dispose of the scrap steel it was holding to fulfil its contract and claim from [buyer] damages for loss sustained. [Buyer] replied that it was "still studying the matter" and indeed on 8 August 1996 [buyer's] lawyers advised that they were unable to obtain any positive instructions from [buyer] and that they understood "that the Board is meeting sometime later this month". By its solicitor's letter to [buyer] of 9 August 1996, [seller] purported to accept [buyer's] repudiation of its contractual obligations by its refusal/failure to have issued a letter of credit.

[15] [Seller's] agent in Malaysia was Mr Teo. He attended discussions with Mr Yunus and others between Mr Anderson and Mr Yunus and Datuk Abu.

[16] At the stage of [buyer's] alleged wrongful repudiation of the contract in August 1996 the international price for the sale of that material had dropped by US $20.50 per tonne. So had in fact [buyer] accepted the scrap steel at the contract price fixed in May, because of the drop in market value occurring over a period of about two months it would have had to pay US $705,000.00 in excess of the then current market value. It emerged in the evidence that some members of the executive committee which declined to permit the issue of the letter of credit requested by [seller] expressed the view that [buyer] at that time had an excess supply of scrap metal of the sort that it had agreed to purchase from [seller] in May-June 1996.

[17] Stated shortly the case for [seller] is that it suffered a significant loss on the resale of the 30,000 metric tonnes of scrap steel it was ready, willing and able to ship to [buyer] pursuant to the contract and a further sum of $343,163.47 arising from the necessity to sub-charter the vessel chartered to deliver the material to [buyer].

[18] [Seller] claims that [buyer] repudiated the contract because it failed and indeed refused to provide a letter of credit as required by the contract and that it accepted that repudiation reserving its rights to recover its resulting loss.

[19] It is the case for [seller] that the legislation relevant to determine the dispute between [seller] and [buyer] is the Sale Of Goods (Vienna Convention) Act 1986 (Qld).

[20] It is the case for [seller] that [buyer's] failure to establish a letter of credit to cover the cost of the scrap metal under the contract before 9 August 1996 also amounted to a fundamental breach of the contract entitling [seller] to terminate it and recover its resulting loss. The provision of the letter of credit in the circumstances was an essential security for payment of the contract price by [buyer] when the scrap metal arrived at Kemaman by which time [seller] would have incurred significant costs. Obviously the obtaining of a letter of credit before loading commenced in Australia was designed to avoid any attempt by [buyer] to "renegotiate" its contractual obligations in circumstances in which [seller] would find itself in an impossible negotiating position.

[21] For [buyer] a number of quite disparate matters were canvassed to demonstrate among other things that [seller] was in fact in breach of its contractual obligations under the contract, and that in any event it was not ready, willing and able to deliver scrap steel pursuant to the contract either at the time it chartered the vessel to make delivery of it to [buyer] or having done that when it sought from [buyer] in early August 1996 a letter of credit pursuant to the terms of the contract.

[22] For [buyer] a number of matters said upon its proper construction to amount to a breach by [seller] of the contract of 7 May 1996, were raised and argued. I will deal with them however in the course of analysing the evidence called by and the case advanced for [seller]. A variety of matters said to constitute a repudiation by [seller] of its obligations under the contract, included its failure to or its intimation of its unwillingness to comply with obligations within various periods of time specified in the contract. It is the case for [seller] that it was agreed between [seller] and [buyer] to make the various variations about which Mr Anderson gave evidence and that case appears on its face to be supported unequivocally by contemporaneous correspondence passing between [seller] and [buyer] prior to the restructuring of the management of that company to which I have referred. Indeed it was within days of the change in the management structure of [buyer] that the first hint was given of any difficulty that might arise in obtaining the letter of credit for which the contract provided. Many of the matters vigorously argued on behalf of [buyer] seem to be based upon inferences sought to be drawn from documents discovered by [seller] to [buyer] long after [seller] instituted its proceedings against [buyer] in 1996 within four months of the refusal/failure of [buyer] to provide a letter of credit by 9 August 1996 and the almost immediate efforts made by [seller] to sub-charter the vessel chartered to deliver that material to [buyer] and to then resell the scrap steel held to meet its contractual obligations to [buyer] - some in Asia and some in Australia. [Seller] found it necessary to charter another vessel of lesser capacity and draught than the one it had sub-chartered which was suitable to make delivery of 25,100 tonnes of scrap metal sold to another purchaser for delivery in another Asian port.

[23] I propose to analyse the evidence and the legal conclusions to be drawn from it under six headings.
(1) The terms of the written contract dated 7 May 1996 as varied to 9 August 1996 when [seller] purported to avoid it on the ground of [buyer's] repudiation.
(2) The extent to which [buyer] and/or [seller] had breached any essential term or terms of it at the time of the purported avoidance by [seller].
(3) Whether [seller] was entitled to avoid the contract and recover from [buyer] the losses claimed on the ground of [buyer's] repudiation and/or non-compliance with an essential term of that contract.
(4) Whether [seller] was ready, willing and able to perform its obligations under the contract at material times prior to it purporting to avoid it.
(5) Whether [seller] is entitled to damages against [buyer].
(6) If so, the quantum of any damage to which it is entitled.

[24] I will indicate at the outset that I 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. I found the evidence of Datuk Abu and Mr Yunus in many respects consistent with and supportive of that of Anderson and Teo. To the extent of any inconsistency in the evidence on matters of substance I prefer the evidence of Anderson and Teo to that of Datuk Abu and Yunus.
(1) Terms of written contract of 7 May 1996 as varied to 9 August 1996

[25] I accept the evidence of Neil Anderson, the purchasing officer of [seller] that he negotiated a contract with Rohani Basir in Brisbane in April/May 1996. [Seller] had sold scrap steel to [buyer] on many occasions over the years preceding 1996. [Seller] had a standard form of written contract which had been used on those previous occasions. Anderson and Basir went through the standard form of contract and discussed the various terms appropriate to the contract under negotiation. Various particulars were inserted. When the clause "SHIPMENT" was reached Basir told Anderson that that was not a clause that [seller] need comply with. She said that [seller] and [buyer] had done business on a number of occasions and that [seller] knew [buyer's] requirements with respect to the standard of ship which was to be used to carry the scrap metal to Kemaman. Anderson gave evidence that between 1989 and May 1996 [seller] had made at least fifteen shipments of scrap metal to [buyer]. According to Mr Anderson over the last few years before the contract in issue was negotiated there had been occasions when the formal approval of [buyer] prior to effecting a charter party had not been obtained. He said that he did not remember ever having received any complaint from [buyer] concerning his failure to get formal approval in accordance with the "Shipment" clause. Anderson said that he had observed the ships [seller] had chartered discharging scrap metal at the Kemaman port using their own shipboard cranes.

[26] I infer from the material generally that the written pro-forma contract was signed by Anderson and given and/or forwarded to Basir about the date which it bears - 7 May 1996. In any event it appears from the material that a copy executed by Wan Ghani and bearing Anderson's signature was returned by fax under the hand of Basir on 21 May 1996.

[27] On the same day that the written contract executed on behalf of [buyer] was faxed to [seller] there was another letter from [buyer] dated 21 May 1996 faxed for the attention of Anderson. It referred to a telephone discussion between the Assistant General Manager of Group Purchasing of [buyer] and Anderson and reads, inter alia, as follows:-
"As on normal practice [buyer] does not establish L/C for more than a month for scrap shipments. Hence your requirement for having L/C validity for two months means [seller] will have to bear charges for the additional month.
"We will establish L/C as per your request, i.e. from 8/6/96 valid for two months. We will advise you of the charges."

[28] On 3 June 1996 [seller] faxed to [buyer] a letter in these terms:-
REF - JULY SHIPMENT

[...]

[38] It was prior to 10 July 1996 that [seller's] agent in Kuala Lumpur had learnt through newspaper articles that the management structure of [buyer] was to be changed. He later learned that Wan Ghani had resigned as managing director of [buyer] and a new management structure had been set up. It was on about 24 July 1996 that Teo called upon Mr Yunus to congratulate him and mentioned in the course of that discussion "whether everything was okay" with respect to the outstanding contract. He said something to the effect "we have got an outstanding shipment. Is everything okay with the shipment on your end?" Mr Yunus however replied that he had no idea of the existence of such a contract and was surprised to hear of one.

[39] Mr. Yunus arranged to see Mr. Teo on 26 July. In the meantime of course Mr Teo had been in contact with Mr. Anderson at [seller] and when he spoke to Mr Yunus on 26 July he handed him copies of the contract, purchase order and other correspondence to which I have referred. He informed Mr. Yunus that the shipment "was so to speak actually on the way". Mr Yunus effected surprise at this information. He said to Teo, "Eddie I really don't have any idea of this matter. Nobody told me about this" and made it a point to inform Teo that Rohani Basir who had hitherto been in charge of this particular contract did not tell him about it. He advised Mr Teo that Rohani Basir had been transferred out of the purchasing department and that she was now working in the office of the Chairman - Datuk Abu. When he and Anderson visited the new chairman he saw that Rohani Basir was indeed sitting outside his office.

[40] It was on 29 or 30 July that Anderson and Teo together visited Datuk Abu. On that occasion they first went to the office of Mr Yunus. There was discussion of the signed contract, purchase order and other correspondence to which I have referred but Mr Yunus kept reiterating that he had no knowledge of this particular contract - in spite of the fact that Mr Teo had given him a copy of it and all relevant material some days before.

[41] In any event Mr Yunus conducted Anderson and Teo to the office of Datuk Abu. Mr Anderson again produced all the documentary evidence to which I have referred. Datuk Abu said that he was very sorry that this was not part of the handover notes between the previous management and that which he headed and 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 then discussed the changes in the management structure and said that he would have to go to an "executive committee" that was now running the company to ask for permission for the issue of the letter of credit. This executive committee comprised Datuk Abu and his brother, a representative from the Ministry of Finance and a chartered accountant.

[...]
There was a subsequent variation of the agreement so that the shipment of the scrap metal would be deferred from July to August 1996. This occurred in July 1996. Eventually it was proposed that the material would be loaded at four Australian ports and shipped to Kemaman with an estimated time of arrival of 22 September 1996. [Seller] asked that [buyer] open a letter of credit for 30,000 tonnes +/- 10% to be issued on 1 August and expire on 30 September 1996 on the basis that the latest shipment would be 29 September 1996. As late as 22 July 1996 [buyer] agreed to establish the letter of credit as requested once advised of the name of the vessel to be chartered to ship the material to Kemaman. Such information was necessary of course for the establishment of the letter of credit. On 31 July 1996 [seller] advised [buyer] that the vessel selected to ship the material was the "Dooyang Winner" which conformed in all respects with the requirements of the "Shipment" clause.

[52] It was contended strenuously on behalf of [buyer] that the written contract and particularly the "shipment" clause could not stand with the oral "understanding" reached between Anderson and Basir, that it was unnecessary for [seller] to obtain approval of [buyer] of a vessel prior to [seller] chartering it to carry the material to Kemaman. As I understood the contention the arrangement or understanding reached between Anderson and Basir on this point was reached before the written contract had been signed by each of the parties to it.

[53] In my view this is a rather unmeritorious argument. It is clear from the terms of correspondence - and particularly the letter from [buyer] dated 22 July 1996 - that [buyer] did not at that stage require submission of the name of the vessel to be chartered for its approval. Unsurprisingly the letter of that date written by Basir is consistent with the discussion Anderson said he had with her. I have no reason to doubt the terms of such a discussion were as Anderson gave in evidence. Indeed the letter under the hand of Basir to which I have referred is entirely consistent with such an attitude.

[54] This matter was strenuously argued with a view to demonstrating that [seller] was in fundamental breach of the shipment clause at the time it chartered the Dooyan Winner because it had done so without first obtaining approval from [buyer].

[55] In my view even if such a technical argument were available, [buyer] would clearly be estopped from treating [seller's] failure to get approval from [buyer] before chartering the vessel as a material breach of contract in the light of the undertaking or arrangement made between [seller] through Anderson and [buyer] through Basir on the effect to be given to the shipment clause.

[56] Certainly on the material [buyer] was aware of all relevant particulars of the "Dooyang Winner" by 31 July 1996 and made no suggestion at any relevant time that the chartered vessel did not meet with its approval. Indeed during the following week consideration was given by the executive committee of [buyer] to whether it would in fact have the required Letter of Credit issued. It is nowhere suggested that it gave any consideration to the fact that the vessel had been chartered by [seller] without the prior approval of [buyer] much less did it purport to repudiate its obligation to establish a letter of credit upon this ground.
1. Terms of contract between [seller] and [buyer]

[57] Having regard to the evidence called at the trial supplemented and confirmed in my view by the contemporaneous correspondence between [seller] and Perwaja the following were the terms of the contract between the parties as at 9 August 1996 material to the issues canvassed in this case:-
1. [Seller] would ship to [buyer] 30,000 metric tonne of scrap steel +/- 10% at the price of US$164.00 per metric tonne CNFFO Kemaman, Malaysia.
2. Payment for that material would be made by [buyer] by irrevocable letter of credit in accord with the letter from [seller] to [buyer] of 18 July 1996.
3. The letter of credit was to be for 60 days instead of 30. [Seller] was to pay for the cost of the extra 30 days on the letter of credit.
4. [Buyer] agreed that the letter of credit would be established upon [seller] providing details of the vessel chartered to ship the material to Kemaman.
(2) Extent to which [buyer] and/or [seller] had breached any essential terms of the contract as varied prior to 9 August 1996

[58] Because the parties to the contract agreed that the law applying in Brisbane would define their contractual obligations, the Sale of Goods (Vienna Convention) Act 1968 (Qld) requires the application of the United Nations Convention on Contracts for the International Sale of Goods 1980 to this contract.

[59] Article 64 of the Convention provides -
"(1) The seller may declare the contract avoided -
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) if the buyer does not within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63 perform his obligations to pay the price or take delivery of the goods or if he declares that he will not do so within the period so fixed."
"Fundamental breach" is defined in article 25 of the Convention to mean a breach "that results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."

[60] Article 72 provides -
"(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract the other party may declare the contract avoided.
"(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
"(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations."

[61] Repudiation involves conduct on the part of one party to the contract which when viewed objectively is such "as to convey to a reasonable person in the situation of the other party repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it". See Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 per Deane and Dawson JJ.

[62] 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. I refer to Honnold, Uniform Law for International Sales under the United Nations Convention 2nd ed at 510, 511 and Helen Kaminiski Pty Ltd v Marketing Products Inc (US Dist CT 21 July 1997 per Cote J). Such a failure would also justify termination at common law - see Trans Trust SPRL v Danubien Trading Company Ltd [1952] 2 QB 297 per Lord Denning at 305.

[63] Article 54 of the Convention provides -
"The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made."
Failure to establish a letter of credit in the circumstances of this case was a failure by [buyer] to meet its "obligation to pay the price" of the goods under the contract of sale.

[64] In my view there is no evidence that [seller] breached any term of the agreement as varied whether that term be described as essential or otherwise. To the extent to which [seller] did not comply strictly with the obligations imposed in the written contract bearing date 7 May 1996 such non-compliance resulted from agreed variations of the sort one would expect to be made between [seller] and [buyer] having regard to the nature of the contract in the light of the long history of commercial dealings between them.

[65] There was never any suggestion made by [buyer] that [seller] was in breach of any term of the contractual arrangements with it prior to the change in the management structure and the replacement of Wan Ghani by Datuk Abu and the executive committee to which I have referred or indeed perhaps more importantly prior to [seller] commencing this action against [buyer] for damages towards the end of 1996.

[66] In my view to the extent that there was arguably any technical breach of the shipment clause by [seller] in failing to get the approval of [buyer] prior to chartering the "Dooyang Winner" that was certainly not a breach of any essential term and could not conceivably be relied upon by [buyer] as a justification for refusing to issue the letter of credit by 9 August 1996. Indeed it was never suggested that it could be so relied upon prior to institution of proceedings by [seller].

[67] In my view the refusal by [buyer] 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 programme either as advised on 18 July 1996 or as subsequently advised on 31 July 1996 was a clear breach by [buyer] of an essential term of the contract as varied.

[68] The excuse advanced on behalf of [buyer] for failing to meet its contractual obligation to supply the letter of credit, as it had promised to do on 22 July 1996, that a change of management structure in [buyer] required that an executive management committee approve the issue of letter of credit and that that committee refused to do so, in my view, is at law no excuse at all. Obviously [buyer], whatever changes were made in its management structure or internal arrangements for meeting its financial obligations whilst bound by the contract it had made with [seller] through its authorised officers, was obliged to perform its contractual obligation to procure the issue of a letter of credit as its former authorised officer had undertaken to do.

[69] Indeed reference to the minutes of a meeting of the executive committee on 2 August 1996 indicates that the meeting noted that:-
"(a) The group records an oversupply in materials, eg -
1. Scrap in terms of quantities can last eight (8) months."
In the meeting it was decided -
"(c) Wanless Metal Industries PRE Ltd [Seller]
The management is authorised to renegotiate and recommend appropriate action in relation to the supply of scrap initiated on 22 July 1996."
I infer that the "initiation" on 22 July 1996 refers to the letter of that date in which Basir undertook to supply a letter of credit requested by [seller] on 18 July to the terms of which request I have already referred.

[70] I have already indicated that Datuk Abu told Mr Teo on the evening of 2 August 1996 that one of the committee members had objected to the contract because it had not been "formalised" during the tenure of office of the current management committee.

[71] It is possible, if indeed not likely, that members of the committee in declining to meet the contractual obligations of [buyer] to provide the letter of credit to meet the cost of the scrap steel that was awaiting shipment to Kemaman from Australia were conscious of the fact that the contract price for that scrap steel was US $705,000.00 in excess of its then current market value.
(3) Was [seller] entitled to end the contract with [buyer] and recover damages on the ground of [buyer's] repudiation and/or non-compliance with an essential term of the contract?

[72] Whatever may be the explanation for the avowal of Mr Yunus that he had no knowledge of the contract between [buyer] and [seller] 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".

[73] Thereafter in my view the evidence indicates a simple procrastination on the part of [buyer] 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".

[74] In my view the most likely explanation for the refusal of [buyer] to issue the letter of credit without delay was the resolution of the executive committee on 2 August 1996 that the management be authorised "to renegotiate and recommend appropriate action in relation to the supply of scrap" by [seller].

[75] In my view [buyer] by the officers who succeeded Rohani Basir and Wan Ghani in its management clearly evinced an intention not to meet [buyer's] contractual obligation. It is clear when one reads the "PAYMENT" clause and the letter from [seller] to [buyer] of 18 July 1996 that the provision of the letter of credit prior to the commencement of loading of the shipment to [buyer] of scrap metal was an essential term of contract. It is clear in my view that [buyer] 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 [buyer's] proposed instead of meeting its contractual obligations with [seller] to embark upon a "renegotiation" of that contract - presumably in the light of the fall in the current market value of scrap steel.

[76] On 5 August 1996 the solicitors for [seller] in Malaysia sent a letter to [buyer] complaining of its failure to establish a letter of credit as requested - as it had undertaken to do on 22 July 1996. It advised that the vessel chartered by [seller] would commence to load the scrap steel under its contract with [buyer] on 8 August 1996. It requested that the letter of credit be established by close of business on 7 August 1996. It advised that should [buyer] fail to establish a letter of credit by that date then [seller] would treat [buyer] as having repudiated the agreement and would then take steps to dispose of the scrap steel, cancel the vessel charter if possible and then seek to recover damages from [buyer].

[77] At the same time [seller] commenced to make inquiries about other possible purchasers of the scrap steel that was it was holding to fulfil its contract with [buyer].

[78] On 7 August 1996 [buyer's] legal representatives replied to the letter of 5 August 1996 advising that [buyer's] new management was "still studying this matter".

[79] On 8 August 1996 [seller's] legal representatives asked [buyer's] legal representatives "to revert by 12 noon of Friday, the 9th August 1996 as to whether your clients are prepared to honour the contract in question". [Buyer's] lawyers immediately responded "unfortunately we are unable to obtain any positive instructions from the defendant Steel SDN BHD [buyer] within this short time. We understand that the Board is meeting some time later this month. In the circumstances we will regret that we are unable to provide any repose to your query either way".

[80] Upon receipt of this correspondence [seller's] legal representatives replied purporting to accept [buyer's] repudiation of its contractual obligations and terminated the contract.

[81] In my judgment [seller] was entitled to avoid the contract and to recover the loss it suffered as a consequence of [buyer's] repudiation and/or non-compliance with an essential term of its contract with [seller].
(4) Whether [seller] was ready, willing and able to perform its obligations at material times prior to its avoiding the contract

[82] Although a great deal of time was spent cross-examining Anderson as to the ability of [seller] to meet its contractual obligation I am satisfied that it was so able.

[83] Much of the examination seemed to be based upon documents that [seller] had discovered upon which Mr Anderson was cross-examined at length.

[84] The likelihood of [seller] not being able to fulfil its contractual obligations to supply 30,000 metric tonnes of scrap metal +/- 10% at the time it negotiated the chartering of a vessel to carry such steel from four ports in Australia to Kemaman in Malaysia, because it did not have enough steel to do so in my view is so remote for a scrap metal merchant with the years of experience of [seller] in selling scrap metal both within and outside Australia as to be rejected out of hand.

[85] I have no hesitation in accepting the evidence of Mr Anderson that [seller] had the capacity to comply with its contract with [buyer] and the only thing that prevented such compliance was the repudiation in essence of its contractual obligation to provide a letter of credit prior to the "Dooyang Winner" commencing to load scrap steel at Bells Bay in Tasmania. This evidence is amply supported by contemporaneous notes made by Anderson relating to the charter and by correspondence with Sims Metal as to the ability of [seller] to supply promptly in excess of 30,000 tonnes to purchasers in Korea.

[86] I am satisfied that in the months of August and September [seller] was ready, willing and able to deliver to [buyer] at Kemaman 30,000 metric tonnes +/- 10% of scrap steel in accord with its contract so that delivery would be effected before the end of September 1996.
(5) Whether [seller] is entitled to damages against [buyer]

[87] It is clear that the repudiation of its contractual obligation by [buyer] caused very significant loss to [seller].

[88] Firstly it had chartered the "Dooyang Winner" for the sole purpose of meeting its contractual obligations with [buyer]. That vessel at the time [buyer] declined to provide letters of credit was in fact waiting to commence loading scrap steel at Bell Bay.

[89] As a result of [buyer's] repudiation of its contractual obligations [seller] found it necessary to sub-charter that boat which resulted in financial losses.

[90] In addition it found it necessary to sell both within Australia and outside Australia the scrap steel which it was holding to meet its contractual obligation to [buyer]. The sale outside Australia required scrap material to be unloaded in an Asian port which required a vessel with a more shallow draught than the "Dooyang Winner". Clearly, in my view, [seller] is entitled to recover against [buyer] damages which it suffered as a consequence of [buyer's] repudiation of its contractual obligation.
[(6)] Quantum of damages

[91] The Convention articles relevant to damages recoverable by [seller] for [buyer's] breach of contract are articles 74 and 75.

[92] Article 74 provides
"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."
Article 75 provides, inter alia -
"If the contract is avoided, and if in a reasonable manner and within a reasonable time after avoidance - 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."

[93] It is clear on the evidence that [seller] sold 25,100 tonnes of the metal it was holding to fulfil its contract with [buyer] to Pernas at the then market rate of US $143.50 per ton for delivery at Penang in Malaysia. It was necessary for [seller] to charter another vessel called "MV 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 sub-charter of the "Dooyang Winner" as soon as possible was a reasonable step to minimise the damage incurred by [seller] in having such a large vessel standing by at the expense of [seller] and not being used for the purpose of shipping its scrap steel to [buyer].

[94] It was agreed between the parties with a view to shortening the evidence which would otherwise necessarily be called that the best estimate of the cost per ton for shipping 30,000 tonnes on the "Dooyang Winner" was $21.11 per ton. It was also agreed that the best estimate for shipping the 25,100 tonnes on the motor vessel "Handy Light" was $20.24 per ton. Had [seller] shipped 33,000 tonnes of scrap steel which according to Mr Anderson it intended and was able to do the cost per ton for the shipment upon "Dooyang Winner" would have decreased to $19.19 which was less than the cost of shipping the scrap metal to Pernas on the "MV Handy Light".
[95] In my view the resale of the scrap to Pernas clearly satisfies the requirement of article 75. The "MV 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 [buyer].

[96] In my view the sale to Pernas was effected within a reasonable time being within two months of [seller's] acceptance of [buyer's] repudiation of its contract. It is clear from the material that [seller] acted as quickly as possible in seeking a market for the scrap metal it had held for [buyer] because as early as 5 August 1996 (four days before it accepted [buyer's] anticipatory breach of its contractual obligations) it inquired of a metal merchant in the United States who worked for Sims Metal which used to sell scrap steel in Korea whether it was aware of any buyers in Korea who might be interested in purchasing 33,000 tonnes of scrap metal that could be delivered promptly.

[97] 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 [seller] 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 cost on the evidence was minimal.
[98] The loss of profit incurred by [seller] as a consequence of this sale under Article 75 involves simply subtracting from the contract price for 25,100 tonnes at US $164.00 per ton, the price recovered under the Pernas contract of $143.50 per ton - i.e. $20.50 per ton which amounts to US $514,550.

[99] [Seller] 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 $783,750.00. The unchallenged evidence of Mr Anderson is that BHP purchased the steel at a price which on its estimates would give [seller] the same net return as if it had sold the scrap steel in Asia - as it had sold the other 25,100 tonnes to Pernas in Penang. This involved the calculation of the then market rate in terms of US dollars and the costs involved in freighting the material from Australia to Malaysia, payment of commission etc. For the purpose of calculating [seller's] loss on resale of 5,000 tonnes of scrap metal to BHP one need only take the US market rate for scrap steel at that time which upon the unchallenged expert evidence of Mr Gulliver was $143.50 per metric ton. The loss therefore suffered by [seller] be calculated as follows:
5,000 tonnes x $164.00 $820,000.00
Less commission - 5,000 tonnes x US $1.00 US$ 5,000
Freight etc - 5,000 tonnes x US $21.11 US $105,550 $110,550.00
US $110,550 US $710,450.00
Less the US $ equivalent of AU $783.750 US $620,494.87
US $ 89,955.13

[100] In the months of August, September and October 1996 the average exchange rate for an Australian dollar and US dollar was -
AU $1.00 = US $0.7917
Therefore, AU $783,750.00 equals US $620,494.87.

[101] Loss suffered by [seller] upon the BHP sale is US $710,450.00 less US $620,498.87. I assess therefore the loss suffered upon the BHP sales in the sum of US $89,955.13.

[102] With respect to the saving of commission on the Pernas sale it is clear that [seller] was required to pay commission to Teo at the rate of $1.00 per ton for 30,000 tonnes or part thereof which would have amounted to $25,100 on the scrap sold to Pernas. The admitted commission however payable on the Pernas sale was $9,000. No commission of course was paid on the sale to BHP. The net price paid by BHP made allowance for the commission that would have been payable. All told therefore the substitute sales involved [seller] saving commission in the sum of US $16,100 with respect to the US $25,100 sale to Pernas.

[103] It is convenient therefore to deduct the saving of US $16,100 from the loss suffered upon the sale of the 25,100 tonnes which was US $514,550. The total loss therefore suffered by [seller] on the substitute sale to Pernas was US $498,450.

[104] It is not disputed by [buyer] that [seller] suffered a net loss of US $343,163.47 as a result of chartering and rechartering the "Dooyang Winner".

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

[106] In my view once [seller] accepted [buyer'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 [buyer's] repudiation.

[107] Whether or not [seller] had entered into a legally binding charter party with the owners of "Dooyang Winner" by the time it notified Perwaja in writing on 26 July 1996 and again on 31 July 1996 was not investigated at any length upon trial. In any event the obligation to mitigate did not require [seller] to put at risk its commercial reputation by taking technical points to avoid its obligation under its agreement to charter a vessel when the owner accepted its intimation that it would charter the vessel and become liable under terms eventually to be formalised in the unlikely event that they had not been formalised prior to [seller's] termination of the contract on 9 August 1996. It was contended for [seller] that when placed in the impossible position in which it had been placed by [buyer], it acted reasonably and in accord with the observation of Lord McMillan in Banco d'Portugal v Waterlow & Sons [1932] AC 452 at 506 -
"Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty."

[108] I assess the plaintiff's damages in US dollars because that is the currency in which the parties expressed their contractual obligations -
Loss of profit on the substitute Pernas sale US $498,450.00
Loss of profit on the BHP substitute sale US $ 89,955.13
Loss resulting from rechartering "MV Dooyang Winner" US $343,163.47
US $ 931,568.60
Interest at 9% from 30/9/96 to 17/11/2000 say
4.16 yrs on US $931,568.60 US $348,779.28

[109] I give judgment for the plaintiff in the sum of US $1,280,347.80

[110] I will hear argument on the questions of costs.
}}

Source

Available at:
- University of Pace Website, http://cisgw3.law.pace.edu

Commented on by:
- M.F. Papandréou - Deterville, Observations, Recueil Le Dalloz, 2002, n.4, p.399-400.

The case was affirmed on appeal:
- [2001] QCA 433}}