The Case Steggles Limited v Yarrabee Chicken Company Pty Ltd - Essay Example

Business Law [Name] [Professor Name] [Course] [Date] Abstract: This paper examines the recent Federal Court of Appeal case Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 9 and attempts to provide a short account of the commercial background of the case, and key aspects of the standardized contract in dispute between the parties. Further, it discusses the case law principles governing the ‘proper construction’ of pivotal clause 7.4, in the view of the judges (Jacobson, Lander & Foster JJ) on appeal. It also explores the nature of the term which the primary judge, Jagot J. had implied into the contract. It further examines two case scenarios in which the Australian common law and equity and privity of contract are observed, and lastly the liability for professional negligence as amended by the Civil Liability Act 2003 (Qld). Keywords: contract law, liability for professional negligence, privity principles, equity. a) Commercial background of the case, and the main features of the standardized contract in the disagreement between the parties The Sydney Federal Court, made a ruling on the case Steggles Limited v Yarrabee Chicken Company Pty Ltd [2012] FCAFC 91, in which a unified verdict by Foster JJ, Lander and Jacobsen held that an appeal be permitted. The case concerned a contractual disagreement amongst two companies, namely Yarrabee Chicken Company and Streggles Limited1. Yarrabee Chicken Company entered into a contract with Steggles. More specifically, the agreements existed in a similar form and offered for the former to grow chickens through the approach of tunnel growing. During the preliminary litigation, Yarrabee purchased a representative law suite against steggles as stipulated by Part IVA of the Federal Court of Australia Act 1976 (Cth), alleging that Steggles had violated the contract and sought for damages. b) The principles of the case law governing the ‘proper construction’, of the pivotal clause 7.4, in the perspective of the judges (Jacobson, Lander & Foster JJ) on appeal The issues involved the building of clause 7.4 in the agreement, which held that Steggles would first provide “any extra Shed capacity” that arose for the duration of the contract to Yerrabee instead of third parties. Thus, the contention arose from the fact that expression “extra Shed capacity” depicted physicals sheds, which meant an increase in number or size of the sheds that were on hand, or then again, the ability to grow more numbers of chickens through the sheds that were on hand2. c) The characteristic of the term which the primary judge, Jagot J. had inferred to in the contract, and on what precepts and case law did the judges on appeal resolve that such an implied term (of fact) wasn’t essential in providing ‘business efficacy’ to the contract The primary Judge Jagot argued that the preference to “extra Shed Capacity” in clause 7.4 of the contact, Steggles to provide Yerrabee first ahead of whichever third party. Thus, the ability to nurture any bird was to take place in one of Yerrebee’s sheds at the firm. The Judge’s second judgment held that Steggles had dishonored clause 7.4 (a) based on the fact that substantiation indicated that Steggles had issued chickens to the Yerrebee for the purpose of processing at the grower’s plant at the time they had the ability to grow the chickens. The reasons for the judgment follow the claim for damages for breach of clause 7.4(a) of the contract between Yarrabee Chicken Company and Steggles Limited3. As reasoned here, the proceedings signify an illustrative legal action as stipulated by Part IVA of the Federal Court of Australia 1976 (Cth). This means that Yarrabee Chicken Company (which consisted of growers for chickens in the Hunter regions) can represent its members in dealing with Steggles in the contract. In the contract, Yarrabee Chicken Company is referred as Growers. The standard form of contract specified the terms and conditions, following which the Growers would grow chickens for Steggles using mechanically ventilated shed – also known as tunnel ventilation. The ‘Fairness and equitability” of the petition decision concerning the chicken growers in light of the dynamic commercial relationships existing between the parties The appeal decision can be argued as having been ‘fair and equitable’ to the chicken growers despite the tensed commercial relations that existed between the two parties. Steggles appealed against both of the primary judge’s ruling. The court held that as stipulated by clause 7.4 (a) talks of ‘extra shed capacity’ that was to be provided to growers, then centers on the additional physical shed size accessible to the growers that resulted from the increased capacity of Steggle at its plant (in Beresfield). The appeal was consistent with the court’s finding that that the Growers failed to establish loss or violation of contract, following the courts conclusion regarding the appropriate development of clause 7.4. To imply that the “additional shed size” that was to be provided to the growers is imputable to a special prerogative of the growers to be offered the chickens for the purpose of undergoing processing at the plant is indeed inconsistent with the purpose or the language used in the contract. In addition, it is not sustained by the background deliberations denoted by the judge4. It can be concluded that a proper approach to construction of written terms of agreement requires interpretation using the standard of impartiality stated. The methodology demands that the law court ascertains the real objectives of the parties involved in the contract in terms of an orientation that a sensible individual can interpret what the linguistic nature of the contract means. It hence calls for a consideration by text and of the surrounding circumstances, as well as the purposes of the transaction as known by the parties. In this way, in forthcoming the development of the contract, in case a semantic, comprehensive or syntactical examination of words in the commercial agreement has the potential to lead to a deduction that breaches common sense in business, thus it must be drawn in a manner that can make business common sense5. All the same, accepted views or social tenets demand that evidence of preceding negotiations should be removed from the process of constructing clause 7.4(a) 2. (a) Legal advice to Camira on whether it can sue Mackay to recover damages sustained totaling $40,000 -- with regard to privity of contract and Clause 7 as amended. With reference to Australian common law and equity only, Camira still sues Mackay through privity of contract and Clause 7 as amended, for the damages sustained totaling $40,000, it can sue Mackay to recover. To understand how this can be perceived, it is important to examine the fundamentals of privity of contract6. The privity contract doctrine provides that only person defined as parties to a contract can take action to force it. This means that a person who is a potential beneficiary of the contract is not at liberty to take any action of enforcement if denied the promised benefit7. In the present scenario, Mackay Biofuels Ltd (“Mackay”) supplies cheap biodiesel fuel to remote towns, settlements and mining firms located in western Queensland for electricity generation, including the Clairview Shire Council (“CSC”). However, the biodiesel was actually delivered to the CSC by road train (a multi-trailer truck) under a separate contract between CSC and a local transport firm, Camira Transport Pty Ltd (“Camira”). With regard to the privity contract, Mackay and CSC are signatories to a contract and are entitled to sue each other in case of a breach of the contract. However, Camira is not a signatory to the contract and consequently is not eligible to sue Mackay for the damages. This is demonstrated in the case Coulls v Bagot’s Executor and Trustee Co Ltd, where the court held that the third party did not have the capacity to implement a contract.8 A typical power of the doctrine demonstrated in the case Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co, where it was held that certain principles are elemental, specifically where individual parties in the contract are at liberty to sue each other9. However, with regard to the privity and its connection the Principle of Consideration the situation may be perceived differently. With regard to the doctrine of consideration, the rule that consideration has to shift the individual who has given consideration may put a promise into effect. In the Camira and Mackay scenario, it can be argued that Camira was not liable to charge Mackay on the grounds that C has failed to provide consideration to deliver the biodiesel safely10. Mackay’s obligation is further guarded by Clause 8, which states that “Biodiesel sold by Mackay to CSC under this contract shall not be on-sold or supplied to any third or subsequent party without CSC’s express prior permission and any such sale shall operate by way of contractual assignment subject to the exclusion clause outlined in Clause seven above.” This however raises the question as to whether a clear distinction exists between rules of consideration and privity. Cases that have demonstrated this effect include Mason CJ, Wilson J and at 164, per Toohey J11, Trident General Insurance Co Ltd v McNiece Bros Pty Ltd12, Coulls v Bagot’s Executor, at 478, Barwick CJ and, at 494, per Windeyer J. (b) Possible remedies for Camira - equity and damages at common law There are several remedies that can be pursued by Camira in suing Mackay, as the party who has failed to meet his obligation to the third party. Since C is a third party and has not been informed about the contract between Mackay and CSC, Camira has not right of action against Mackay13. However, CSC as a party to the agreement and a promise under the agreement can take legal action against Mackay. There are two likely solutions conceivable in this situation, such as specific performances in equity and damages at common law14. C) Can Camary require CSC to sue Mackay. i) Damages at Common Law Since the solution propagated by the common law highlights that the costs for violation of terms of a contract can potentially be offered to a complainant, CSC can be successful. Conversely, the crucial concern is the extent of costs or damages that are supposed to be recuperated. Essential is to recognize the position of CSC in the context of the scenario which is the vital standard for the evaluation of indemnities that arise from not adhering to the contract. Technically, damages are intended to pay off the plaintiff for the loss suffered resulting from the breach of contract. The nominal distribution of indemnities is granted to the complainant in the event that there is no law contravened. In Camary’s and Mackay’s scenario, a likely case is that the amount to damages to be recuperated by CSC would be nominal as CSC experience no harm resulting from the breach of contract by Mackay. Conversely, CSC’s position is the same disregarding whether or not Mackay is held on account to pay the damages to Camary. In this particular conditions, it could be viewed that CSC will undergo a great loss, this means that the extensive damages which indicate the value totaling $40,000, not Camary’s loss, would be awarded. Since the extent of damages recuperated will often be nominal in most cases, there may be minimal motive for CSC to apply common law damages. The facts surrounding the case, where CSC was not able to prosecute in order to recuperate the damages on account of Camary’s loss from Mackay’s contradiction of contract were confirmed in the case Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, at 522, 563, 575 and 580. (ii)Equity Different from the common law damages, specific performance will not often be granted to a plaintiff when the court proves a breach of contract15. There are several grounds the court can deny specific performance. Of particular importance is the existing situation whereby the solution may be declined if the common law damages can provide an satisfactory solution. An important decision to consider is Beswick v Beswick [1968] AC 58, where the facts, the issue that had to be determined by the judges and the decision and reasoning of the court with regard to why the damages were an inadequate remedy. b) Exceptions of the Doctrine of Privity Some general principles however exists that can enable a third party, such as Camary, to prevail over the principle of privity. Since they depend on on instituting the aspects of other developed legal institutions and doctrines, they are not exclusively regarded as true exceptions. Instead, they comprise a way of getting around the doctrine or privity as the other lawful codes apply on facts of the presented case. The key exclusions include. i) Agency Basically, an agent refers to the person who has authority to get into a contract in the place or on behalf of another person. In the Australian law, of the non-privileged party proves that one of the parties served as an agent, it can be regarded also be regarded as a party to the contract. In case one of the parties in the contract contracts an agent, then the principal of the agent, or both of them, can sue to put contract into effect. In the Camary and Mackay scenario, if Camary is CSC’s mediator, then whichever party; Camary or CSC can impose the contract against Mackay. This means that it is immaterial on whether Mackay knew that Camary was CSC’s agent16. A scenario where the agency principle arises is with contracts for the deportment of property, such as in the case where Mackay Biofuels Ltd (“Mackay”) supplies cheap biodiesel fuel to remote towns, settlements and mining firms located in western Queensland for electricity generation, including the Clairview Shire Council (“CSC”). A demonstration of the application of this principle is in the case New Zealand Shipping Co v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154, where the evidences, the subjects that had to be resolved by the court and the verdict and reasoning of the judges were observed17. In the case, the close relationship between the third party and the career was vital in creating element of the third party in Midland Silicones, it appeared this occurs if the third party pleaded the prohibition of emption when prosecuted for damages, then that would be enough18. ii) Trust The law of trust may allow a third party beneficiary to instigate action than can put into effect the promisor’s obligation. In the Camary and Mackay scenario, if CSC had contracted with Mackay in the capacity of trustee for Camaru, then Camary as the recipient has enforceable rights (in the trust). These particular prerogatives come to place as the law of trusts provides beneficiaries particular rights contrary to a trustee. With regard to the principles of privity, if Camary is a recipient under trust, Camary can offer an action in contrast to B, who in this context is the trustee. This will have an effect of triggering CSC to sue Mackay for a breach of contract. In standard practical standings, Camary sues in an action, where Mackay and CSC are united as defendants. 3. Dr Zola’s liability for professional negligence to Rubicon Holdings Under the common law as amended by the Civil Liability Act 2003 (Qld), several legal advises as to what liability for professional negligence that Dr Zola has to Rubicon Holdings can be perceived. First, on the issue of professional negligence, the notion of the reasonable may be transformed into that of the reasonable professional. The reasonable man will often lack the expertise that the professional has. The law requires that the professional man, in this case Dr Zola, should take reasonable care, as well as measure up to the standard of proficiency expected from his professionalism. a) Balance of probabilities The specific scenario calls to attention the laws concerning a claim in negligence. Under the Civil Liability Act 2003 (Qld), this will involve four aspects that the claimant, in this case Rubicon Holdings Ltd, must prove on balance of probabilities. Firstly, it must be proved whether Dr Zola (who in this case is the defendant), owed Rubicon Holdings Ltd, (who is in this case the claimant) a duty of care with regard to the damage or loss suffered. Second, the Rubicon Holdings Ltd will have to demonstrate that Dr. Zola breached the standard of this particular duty of care. Next, Rubicon Holdings Ltd must demonstrate that Dr Zola’s breach of the particular duty of care was responsible for the loss or damage in question. Lastly, Rubicon Holdings Ltd must demonstrate that the damage suffered cannot be secluded from the breach19. On the issue of proving whether the duty of care exists, Rubicon Holdings Ltd must demonstrate that Dr Zola owned him the duty of care is related to the extent of type of damage that the claimant has suffered. This can be explained by the fact that the law is more reluctant to protect the claimant on the issue of whether certain types of losses compared to others. In the present scenario, Rubicon Holdings Ltd has suffered purely economic loss. b) Economic loss Since many losses that result from negligence could be termed as economic loss, it is critical to determine whether economic loss exists. A case that illustrates the difference between economic loss and damage that occur to a property is the Spartan Steele v Martin, where the defendants cut an electric cable out of negligence, resulting to a14-hour power outage. Since there was no electricity to heat the furnace of the claimant, the metal melted in the furnace solidified forcing the claimant to shut down his factory. The claimant claimed for damage of the metal in the furnace during the outage – somatic damage to assets, the loss of profit that could have been realized after selling the metal (monetary loss that arises from property damage) and finally, the loss of profit made on the metal that could have been administered during the period in which the factory remained close20. In applying this to the present scenario, it can be contended that there was no reliance by the claimant (Rubicon Holdings Ltd) on the proficiency of the Dr Zola (the defendant). It can be submitted that the case of Dr Zola, quite clearly there was no such reliance; rather, it had existed between Dr Zola and the Wollemi Properties Ltd (“Wollemi”). Instead, Rubicon Holdings can only rely on claims by Wollemi, which had however ignored Dr Zola’s expert advice. In addition, Freddy is demonstrated as having quite clearly had specialist proficiency and judgment. Concerning the second requirement, where there must be knowledge and reasonable expectation of knowledge on the side of the defendant, the Rubicon Holdings would be relying on that statement, which is specifically more difficult. In which case, it would be difficult for Rubicon Holdings to prove that Dr Zola had information that Rubicon Holdings would be relying on the statement. With regard to the third requirement, it can be argued that it was reasonable on the part of the claimant to rely on the defendant. In the present scenario depicting Dr Zola and Rubicon Holdings, it is difficult that argue that Rubicon Holdings has a strong argument that it was reasonable on its part to rely on the information, particularly taking into account Dr Zola’s professional skills. Lastly, Under the Civil Liability Act 2003 (Qld), in order for the claimant to bring forward a case against the defendant, implicit or explicit assumption of responsibility must exist on behalf of the defendant. The existence of such assumptions should establish conclusively that a duty does exist. On the other hand, lack of existence of such an assumption would not be inevitably damaging. In the Dr Zola and Rubicon Holdings scenario, it can be argued that there was neither implicit nor explicit assumption of responsibility on Dr Zola’s behalf. c) Duty of Care If Rubicon Holdings is able to convince the court that a duty of care existed, he will have to provide proof on a balance of probabilities that Dr Zola did actually violate the standard of the duty of care. In the present scenario, an account of the fact that Dr Zola has professional skills and that the case involved a practice of that skill will be taken. This means that the law expects Dr Zola to demonstrate a degree of proficiency, which can be expected of an ordinary professional when performing that duty. When the defendant fails to fulfill that level of confidence, with the outcome of the where the loss or damage ensues, then it is likely to be held negligent. On the issue of causation, in order to institute the negligence, it must be demonstrated on a balance of probabilities that the breach of the defendant’s duty of care, was the cause of the damage, and that the damage that ensued, could not be excluded from the breach. d) Defendant's breach In addition to proving that Dr Zola’s breach of duty actually caused the damage that Rubicon Holdings suffered, the claimant (Rubicom Holdings) must prove that the damage or loss was not remote from Dr Zola’s breach21. A current test of remoteness will demonstrate that provided that the type of damage is foreseeable, it cannot be termed as being remote, regardless of whether the likelihood of its happening were slim. In The present scenario, it can be submitted that it was clearly foreseeable that Wollemi would rely on Dr Zola’s comments and take the necessary actions accordingly concerning the construction of the parking. Such a conduct could eventually lead to an economic loss. In addition, Dr Zola would clearly have had an experience of such clients relying on his expertise and comments in the past. Concerning Rubicon Holdings’ claims, it can be argued that Wollemi’s actions of disregarding Dr Zola’s expert advice were too remote from Dr Zola’s breach of duty. This means that Rubicon Holdings has no potential claim against Dr Zola. On his defense, Dr Zola can argue that Wollemi contributed to the loss by going against his expert advice before building the parking. This is however a quasi defense which may fail to relieve Dr Zola of liability, rather, it reduce the quantum of the losses or damages. In which case, although damages would be reduced, Dr Zola would still be held liable to Rubicon Holdings’ economic losses. Further, the article discussed the case law principles governing the ‘proper construction’ of pivotal clause 7.4, in the view of the judges (Jacobson, Lander & Foster JJ) on appeal. It also explored the nature of the term which the primary judge, Jagot J. had implied into the contract. It further examined two case scenarios in which the Australian common law and equity and privity of contract are observed, and lastly the liability for professional negligence as amended by the Civil Liability Act 2003 (Qld). This paper concludes that Camary can claim for damages from Mackay through the exceptions of the privity principle. In the second case scenario, it is possible that Dr Zola’s liability for professional negligence she has to Rubicon Holdings Ltd at common law as amended by the Civil Liability Act 2003 (Qld) can be reduced or eliminated as breach of duty of care may not exist. Reference List Cases Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co (1915) AC 847 Spartan Steele v Martin (1973) QB 27. Coulls v Bagot’s Executor, at 478, Barwick CJ and, at 494, per Windeyer J Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, at 115-116, Mason CJ, Wilson J and at 164, per Toohey J. New Zealand Shipping Co v A M Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154, Journals Beatson, J. (1998). Anson's Law of Contract. 27th Ed. London. Oxford University Press Huscroft, G. (1984). "Bad Doctrine and Incremental Reform". Journal of Contract Law, Vol 7 181 at 185-89 Jackson. (2007). “Pre-Contractual Negotiations: Recent Trends in the Interpretationof Contracts” Construction Law Journal, 23. 268, 269. Leech, T. (2004). Spencer Bower: The Law Relating to Estoppel by Representation, 4th ed. London. LexisNexis UK Lucke. (1998). “Two Types of Expectation Interest in Contract Damages” University of New South Wales Law Journal Vol 12, 98 Newman. (1982). “Doctrine of Privity of Contract: The Common Law and theContracts (Privity) Act 1982.”4 Auckland University Law Review, 339 -341. Neyers, J. (2007) . “Explaining the Principled Exception to Privity of Contract.” Mcgill Law Journal / Revue De Droit De Mcgill. Vol. 52 MacMillan, (2000). “A Birthday Present for Lord Denning.” The Contracts (Rights of Third Parties) Act, 1999”, 63 M.L.R. 721, pp. 730-731. Merkin. (1999). “Contracts (Rights of Third Parties) Act, 1999”, in Merkin (ed.), Privity of contract: The Impact of the Contracts (Rights of Third Parties) Act. London. LLP Professional Publishing, p. 134. 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