MANILDRA FLOUR MILLS MANUFACTURING PTY LTD v BELTAVIA PTY LTD T/AS BEN FURNEY FLOUR MILLS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL Hope, PRIESTLEY and MEAGHER JJA 11 April 1989, 31 May 1989 [1989] NSWCA 136 CONTRACT — PURELY ORAL — TERMS OF THE CONTRACT Meagher JA This case concerns a contract between two rural flour mills. The contract seemsto have been wholly oral, although to some extent evidenced in writing. The plaintiff Beltavia Pty Ltd, the respondent to this appeal, contracted to_mill the defendant's wheat and deliver the resultant flour to a location of the defendant's choosing. The plaintiff was to invoice the defendant for the flour delivered, and the defendant was to invoice the plaintiff for the wheat supplied. The plaintiff's spokesman was a Mr Newby, and the defendant's spokesman was a Mr Yeatman. The wheat was milled, the flour delivered, and invoices were monthly exchanged and paid. The amount which the plaintiff was entitled to, and did, charge the defendant was calculated in accordance with a formula, which was set out in a letter from the plaintiff to the defendant dated 4 May 1984. Omitting formal parts, it read as follows: "Following our discussions and your visit, we agreed to supply flour to you in accordance with the following formula. WHEAT PRICE $155.00 less freight GRIST RATE $ 1.31 to be reviewed periodically; Wheat 155 x 1.31 = 203.05 Offal 100 x.310 = 31.00 172.05 Production costs + Margin 72.95 Flour $245.00 per tonne, delivered Auburn As originally discussed in February when the industrial Wheat price was $155/tonne and the agreed flour price was $248/tonne these prices will fluctuate together. That is, all flour milled from Wheat costing $158/tonne will cost $248/tonne, and so on. We trust that this agreement will be to our mutual satisfaction and you can be assured of our cooperation, quality control and service at all times." This letter, of course, sets out the formula by which the plaintiff could charge for the flour. It does not in terms set out the price which the plaintiff would pay for the defendant's wheat. However, other things being equal, one would expect to be able to ascertain the price of the wheat from the price of the flour, by applying the formula backwards. Thus, if one knew the tonnage of flour supplied, by deducting the production costs per ton, and the offal per ton, and divided the remaining figure by the agreed grist rate, one should have arrived at the price of the wheat. I might add that whilst the grist rate could have been "reviewed periodically", it is common ground that this was never done. 2 UNREPORTED JUDGMENTS But other things were not equal. The arrangement lasted from May 1984 until December 1985, the plaintiff charging for flour delivered according to the formula in the 4 May letter and the defendant charging for wheat in working the formula backwards, in the manner I have suggested. In December 1985 the plaintiff discovered that it had been charged with, and paid for, more wheat than the defendant supplied. It was agreed that more wheat was charged for than supplied, although the quantities were not agreed. On making this discovery, the plaintiff instituted these proceedings to recover the amount which it alleged it had been overcharged, that is the market price of the number of tons representing the difference between wheat delivered and wheat paid for. It did so on two alleged bases: it relied on a term of the express agreement and it relied on a mistake of fact. No reliance was sought to be placed on any implied term. How could this state of affairs have arisen? One possibility is that the plaintiff's grist rate changed dramatically lower. Another possibility is that the plaintiff milled not only the defendant's wheat, but also wheat belonging to somebody else, although delivering the latter to the defendant. The evidence does not enable us to conclude which of those two possibilities is correct, or whether there might be a third explanation. Indeed, the evidence generally is remarkable for its exiguity. Neither Mr Newby nor Mr Yeatman was cross examined. The evidence does not disclose how the defendant's wheat was chosen, or how delivered to the plaintiff; nor what quantities of wheat other than the defendant's was delivered to the plaintiff; nor the manner in which any wheat was appropriated by the plaintiff to the defendant. The very invoices which either party sent to the other were not tendered. The plaintiff's allegation that there was a mistake of fact seemed to evaporate at the trial; no mistake was identified and none proved. His Honour found for the plaintiff on the basis of what he perceived was plain commercial common sense. Two businessmen, according to his Honour, should not be seen to be contracting on a deemed or fictitious basis but on a realistic one, and unless there is compelling reason to the contrary a purchaser should not be taken to have agreed to pay for wheat which was not in fact delivered to him. Hence the plaintiff obtained its verdict. It is not difficult to sympathize with this approach. The case, although within a narrow compass, is a rather difficult one; and the difficulties remain notwithstanding the extremely able and helpful arguments put to us by Mr Jukovic and Mr Spigelman, senior counsel for the appellant (defendant) and respondent (plaintiff) respectively. The plaintiff's arguments on appeal, apart from relying on the general presumptions which found favour with his Honour below, were twofold. One was that the parties had expressly agreed that the defendant was to charge only for the wheat supplied and no more. He pointed out that as early as 29 February 1984 Mr Yeatman had said to Mr Newby: "You will buy the wheat from us, at the ruling rate, which is currently $155 per tonne". This certainly fixes the rate as being the current market rate, but it does not really deal with the quantities involved. On the other hand, as the appellant pointed out to us, there is distinct evidence as to how the defendant would compute the tonnage. Mr Yeatman's letter to Mr Newby of 7 May 1984, referring to an agreement reached previously on she telephone, said: "It is anticipated when we receive your flour invoices we will send you an invoice for the equivalent wheat, based on your grist rate less your freight in', ie working the 4 WAANILDRA FLOUR MILLS MANUFACTURING PTY LTD v BELTAVIA PTY LTD T/AS BES FURNEY FLOUR MILLS (Meagher JA) May formula backwards. Similarly, Mr Newby in his statement said that Mr Yeatman said to him "You will present us with an invoice for flour delivered, and we will in turn invoice you for the equivalent in wheat, based on Your grist rate" (italics supplied). Mr Yeatman's account of the Came conversation has him saying to Mr Newby, "We will physically exchange cheques each month. You will invoice for flour delivered and we will invoice you for wheat, based on your grist rate" (italics supplied). On this evidence it seems clear to me that the defendant was contractually entitled to charge every month on receipt of the plaintiff's invoice, armed with no other knowledge than that contained in the invoice itself and the agreed formula. In other words, the parties had agreed to charge for, and pay for, quantities of wheat not as actually delivered but as computed on an agreed basis. Mr Spigelman's second argument for the plaintiff was more general. It ran thus: Since the agreement between the parties was that the plaintiff should mill the defendant's wheat, and purchase that wheat from the defendant, it follows that the defendant had no right to charge for wheat other than that supplied by it, and in particular it had no right to charge for wheat supplied by other persons. Whilst superficially attractive, on closer analysis this argument cannot be supported. In the first place, it was never demonstrated that the flour supplied to the defendant was the result of the plaintiff milling other person's wheat: that was merely one of a number of possibilities. In the second place, the same argument would preclude the plaintiff from charging the defendant with that flour under the agreement, and yet on this hypothesis it was doing just that. For these reasons I am of the view that his Honour's orders cannot stand and the appeal should be allowed. Exactly what orders should be made is not now clear, as the judgement seems to reflect not only the matters which were in dispute before his Honour and on appeal but also some other (undefined) disputes between the parties. The matter should therefore be relisted for further argument as to the final orders which should be made by this Court. Counsel for the Appellant: T Jucovic QC and BR McClintock Solicitors for the Appellant: Baker and McKenzie Counsel for the Respondent: JJ Spigelman QC and A Johnston Solicitors for the Respondent: MJ Duffy and Son