Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Almond Investors Limited v Kualitree Nursery Pty Limited & Anor [2011] NSWCA 198 Hearing dates: 23 June 2011 Decision date: 27 July 2011 Before: Bathurst CJ at 1; Giles JA at 91; Handley AJA at 92 Decision: 1 Appeal allowed. 2 In the event that the appellant and the respondents agree on the question of costs, direct that the appellant file short minutes of order to give effect to this judgment within 7 days of the date hereof. 3 In the event that the parties are unable to agree on the question of costs: (a) Order that the appellant file any submissions on this issue within 10 days of the date hereof; (b) Order that the respondents file any submissions in reply 7 days thereafter. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: CONTRACTS - general contractual principles - construction of contract CONTRACTS - general contractual principles - anticipatory breach - negotiations for substituted performance fail - repudiation - whether election to affirm CONTRACTS - general contractual principles - repudiation - where terminating party is in breach of a non-essential term - whether breach of non-essential term negates right to terminate for repudiation Legislation Cited: Civil Procedure Act 2009, s 100 Cases Cited: Ankar Pty Limited v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 Franklins Pty Limited v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 Hongkong Fir Shipping Co Limited v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Immer (No 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115 Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Service [2010] NSWCA 268 Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 Nursery Nuts v Almond Investors Ltd [2010] NSWDC 71 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 Roadshow Entertainment Pty Limited v (ACN 053006269) Pty Limited (Receiver & Manager Appointed) (1997) 42 NSWLR 462 Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 Sharjade Pty Limited v The Commonwealth [2009] NSWCA 373; (2009) 15 BPR 28,443 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 Shevill v The Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 Suttor v Gundowda Pty Limited (1950) 81 CLR 418 The Craftsmen Restoration & Renovations Pty Limited v Boland [2011] NSWCA 147 Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 Tramways Advertising Pty Limited v Luna Park (NSW) Ltd (1938) SR (NSW) 632 at 641-642 Category: Principal judgment Parties: Almond Investors Limited (Appellant) Kualitree Nursery Pty Limited (First Respondent) Trading Consultants Pty Limited (Second Respondent) Representation: Counsel J Gleeson SC and E M Peden (Appellant) A Black SC (Respondents) Solicitors Bruce Stewart Dimarco (Appellant) Walsh & Blair (Respondents) File Number(s): CA 2010/130203 Decision under appeal Citation: [2010] NSWDC 71 Date of Decision: 2010-04-28 00:00:00 Before: Norrish DCJ File Number(s): 73/08 (Wagga Wagga) Judgment BATHURST CJ: Introduction 1The respondents at the time of the events giving rise to these proceedings carried on a nursery business in partnership under the name "Nursery Nuts". The appellant grew and harvested mature almond trees on behalf of various investors attracted not only by the prospects of profits from their investment but also the potential tax benefits. 2On 30 October 2006, the appellant and the respondents entered into an agreement for the supply and delivery by the respondents to the appellant of 90,000 one year old almond trees on the terms contained in an email of 30 October 2006 from a Mr Graham Johns, a director of the appellant, to a Mr Peter Warner, a nursery manager and company secretary of one of the respondents. 3In June 2007, the respondents delivered 29,575 trees to the appellant. Of these trees 23,660 were accepted. Thereupon there was discussion and correspondence between the parties as to the manner in which the arrangements between them should proceed. On 31 August 2007, the solicitors for the appellant purported to terminate the contract by reason of its renunciation by the respondents and sought payment in an amount of $173,707.60, which it claimed was the difference between that which it had paid by way of deposit under the contract and the amount payable for the trees which had been supplied and accepted. 4The respondents commenced proceedings in the District Court of New South Wales alleging the appellant had wrongfully repudiated the contract and seeking damages and interest pursuant to s 100 of the Civil Procedure Act 2009. The appellant cross-claimed seeking payment of the sum of $173,707.60 together with interest. 5In Nursery Nuts v Almond Investors Ltd [2010] NSWDC 71, the learned trial judge found for the respondents and gave judgment in their favour in the sum of $232,854.31. It was from this judgment that the appellant has appealed. 6The appeal is brought only on the question of liability. Further, it is common ground that if the appellant is successful it would be entitled to a verdict of $173,707.60 plus interest. Background facts 7The findings of the trial judge in relation to events leading up to the entry into the agreement were not disputed by the parties. The respondents operated two nurseries, one at Wemen (in north-western Victoria) and the other at Narrandera (in southern New South Wales). The appellant provided a facility by which investors could invest in the almond tree industry. 8The learned trial judge found that the representatives of the appellant and the respondents who negotiated the agreement, Mr Johns and Mr Warner, had knowledge of the growth cycle of almond trees. Relevantly, this included the following matters. Seeds for the growth of almond trees are usually purchased in about April. Germinated seeds are ready for planting about mid-August. Generally, some 20-30 percent of the seeds are lost between production and planting. During spring after the seeds are planted a bud is grafted onto the rootstock. This occurs when the seed is approximately four inches above the ground. 9About 7-10 days after budding if the bud is successfully grafted onto the rootstock the bud is said to have struck and bud strike has occurred. Budding usually occurs around November. When the growing bud has grown approximately 150 mm from the bud union, the rootstock seedling is cut off at an angle approximately 10 mm above the bud union. The scion (the above ground part of the tree) is then forced to grow as quickly as possible to produce one year old almond trees available for delivery around June the following year. 10It would generally be expected that an almond tree would grow to about 0.9 metres by about June after bud strike and to at least 1.2 metres by June the following year. Trees which have not reached the height of 0.9 metres by June in the year following bud strike are more susceptible to death and damage. 11Delivery time from nurseries to growers is usually from about the first week of June to early to mid-August for planting by the third week in August. It was common industry practice for growers to require a specified height of the nursery grown tree at the time of delivery. Further, it was common for plants ordered from a nursery to be "carried over", that is for one year old trees being ordered but kept at the nursery usually for another 12 months at an additional cost. 12The appellant submitted that the background facts referred to above could be taken into account as part of the factual matrix in which the contract was entered into for the purpose of assessing how a reasonable person would have understood the language used: Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; (2001) 210 CLR 181 at [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [22]; Franklins Pty Limited v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [14]-[17], [49], [305]. The respondents did not dispute this proposition. The Contract 13It was common ground that the terms of the contract between the appellant and the respondents were set out in a letter dated 30 October 2006 from Mr Johns to Mr Warner. That letter provided as follows: "Dear Peter, I confirm my verbal order on 27 th October 2006 for 90,000 one year old almond trees. This order is subject to inspection of the trees at Wemen and Narrandera. We will inspect the trees at Wemen and if satisfactory we will pay the 25% deposit for 90,000 trees on your assurance the Narrandera trees are of the same or better quality. After inspection of the Narrandera nursery (which will be done as soon as possible) if we do not believe the quality is the same or better than the Wemen trees the payment schedule below will be applied to the Wemen nursery trees only. At this time the order is to be made up of the following varieties: a) Non Pareil 45,000 trees b) Carmel 30,000 trees c) Price 15,000 trees Please note we may only require Non Pareil and Carmel to be budded to the rootstock. We will advise you well in advance of ordering buds from Monash. Delivery of the trees is to be for planting commencing 1 st June 2007 to Almond Investors Limited Piangil Orchard off Hayward Road Piangil. Delivery should be in a covered in truck with the trees roots kept moist during the journey to the orchard. The price agreed is $7.40 per tree + GST. This price includes an ABA Monash bud at $0.40 + GST that will be supplied by Nursery Nuts from its 2006 ABA bud wood order. Delivery will be to Almond Investors Orchards at Piangil at AIL's cost. A price to trim side laterals to approximately 15mm stubs will be negotiated prior to delivery. Please note ABA budwood may be in short supply this year. Our expectation is for a tree at a minimum height of 0.9m. The tree is not to be headed in the nursery or prior to delivery. The payment schedule is as follows: a) 25% for 90,000 trees after inspection of the Wemen nursery b) 25% after bud strike c) 50% on delivery d) An additional $1.00 per tree for trees carried over for planting to June 2008 i.e. $8.40 per tree + GST. Please treat this order as confidential and do not communicate who this order is for to anyone. Please confirm you accept the above terms. Kind regards, Graham Johns" The events following the contract 14The inspection of the trees at the Wemen nursery envisaged by the contract took place in November 2006 and the appellant then paid the first instalment required by the payment schedule amounting to $183,150 inclusive of GST. 15The second instalment required was paid in February 2007, the amount paid again being the sum of $183,150. 16On 8 April 2007, Mr Warner forwarded an email to Mr Johns which relevantly provided as follows: "The trees at Narrandera are now all in good shape including many which are 2 year olds at 1 year old prices. However there are only 27,000 of the varieties you require in total at Narrandera. As these are bigger trees than the trees at Wemen nursery, we plan to dig and deliver these first, if you agree, in the last week of May. Please advise if you wish to change this sequence and if you need some varieties before others. At Wemen there are 54,000 healthy deliverable trees of which 9,000 may not make it to the specified height. We would prefer to leave all the Wemen trees in the ground as long as possible and hope for warm weather to achieve a bit more growth. All these trees want to grow sideways instead of upwards and have needed severe low branch pruning. Of the 9,000 anticipated smaller trees, we have 3 alternative suggestions in the following order of preference. Firstly we can deliver these little healthy trees in early June at a discounted price to be negotiated. Or secondly we could keep them in the ground and add them to your 2008 requirements of 2 year old trees as previously arranged at $1 extra per tree. Or thirdly we could dig them all up and pot the small ones for hot house accelerated growth for you to plant in late spring at an extra fee to be negotiated. 27,000 trees from Narrandera plus 54,000 big and small from Wemen only totals 81,000 trees of your 90,000 order. We can acquire 9,000 extra trees from other small nurseries to make up the total order, but would prefer to add an extra 9,000 (50% deposit already paid) to your anticipated 2008 order. After you have made your overall calculation of plantings from all nurseries, please advise which course you would prefer to take regarding the anticipated under size 9,000 and the 9,000 shortfall. Of the total 81,000 trees the ratios of varieties are nonperiel 53.5% carmel 34.5% price 12.0% So we are slightly light on Price but could make up the Price shortfall with Peerless if we could persuade you to take them. Please advise the colour coding you use for each variety and if you need each tree painted or just the bundles of 50 trees. Also how much root to trim if any. Soon we should talk about your 2008 requirements. Nursery Nuts has 100,000 green nemaguard seeds on order to plant this winter which should result in 75,000 trees in 2008. Also some GF677 grafted trees will be small but plantable in the winter of 2008. The GF677 can be either bare rooted or containerised." 17This email indicated there was a total of 81,000 trees available of which 9,000 may not reach the 0.9 metre height by June. The email made a number of suggestions to overcome the shortfall. 18On 11 May 2007, Mr Johns contacted Mr Warner to inquire whether the respondents had a sufficient water allocation to supply water for the trees carried over until June 2008. 19On 13 May 2007, Mr Warner responded to Mr Johns' request by an email in the following terms: "The part answer on water for next year is that all is safe at Narrandera (Belvedere Farm) but not sure about Wemen and will have to confirm with Sunraysia Nurseries early next week. I don't think it is a problem, unless Victoria makes a 100 per cent cut in allocations. Sunraysia have never used all their allocation in the past few years. Naturally we wish to dig up all the trees at Narrandera (27,000) because they are already 2 yr olds and will be huge if left another year. Furthermore we need the Narrandera space as we have 100,000 seeds on order to plant there. Wemen is another story. If the water is confirmed safe, we could leave some or all of those trees for another year, subject to a drip feed of some money." 20Shortly thereafter Mr Johns had a telephone conversation with Mr Warner in which Mr Johns inquired how many two year old trees Mr Warner had growing at the Narrandera nursery. Mr Warner told him that there were approximately 27,000 such trees and Mr Johns said that the appellant would take all the two year old trees and request a delivery during the first week of June. Mr Johns also told Mr Warner during the course of that conversation that the appellant was not likely to require any more trees that year. 21On about 8 June 2007, the respondents delivered 29,575 trees to the appellant and on 11 June 2007 invoiced the appellant for the balance owing in respect of those trees. 22On 13 June 2007, Mr Warner confirmed that the delivery of the balance of the trees payable under the contract had been deferred. Following delivery and receipt of the invoice Mr Johns complained to Mr Warner that a lot of the trees which were delivered were not straight and he would not accept them. Following this conversation Mr Johns forwarded an email to Mr Warner on 20 July 2007. This email, after summarising the progress payments which had been made under the contract, stated as follows: "Trees to be paid for: 1). 29,575 - 5,915 (20% of 2007 order not plantable) = $3 70 = $87,542 + GST 2). 40,000 in Wemen Nursery @ $8.40 each = $336,000 + GST _____________ Total $423,542 + GST $333,000 + GST _____________ Owing on delivery 40,000 trees $90,542 + GST June 2008 (ie $2.26) Peter, Please consider the above and ring me to discuss it. The numbers indicate AIL has already paid for the 2007 delivery and more than a dollar to carry over the trees in the Wemen Nursery - AIL will not require the short delivery of trees from Narroudera [sic] Nursery to be made up in 2008." 23The appellant submitted that this email simply contained a proposal from the appellant to be considered by the respondents. Having regard to what appears in the last portion of the email, in my opinion, this is correct. 24Mr Warner responded to the email sent by Mr Johns on 20 July 2007 by an email of the same date. So far as relevant it provided as follows: "The situation looks different through the eyes of Nursery Nuts. AIL ordered 90,000 trees at $7.40 for 2007 deliveries and $8.40 for 2008 deliveries. As requested we delivered 29,575 trees but you say only 23,660 were plantable. (will discuss this with you separately later). For this calculation lets assume AIL took 23,660 trees in 07 leaving 66,340 to be delivered in 08. Consequently Nursery Nuts sees the situation as follows Delivered for settlement now 23660 trees @ $7.40 175,084 less deposit paid of $3.70 each 87,542 $87,542 + GST Not delivered for settlement later 48,000 at Wemen @ $8.40 $403,200 18,340 now planting @ $7.40 135,716 66,340 for delivery 2008 538,916 less deposit paid of $3.70 each 245,458 For settlement later $293,458 + GST Apart from the deposits paid on 90,000 tree, [sic] the combined delivery calculations in your email cover much less than 90,000 trees. Had we been called upon to deliver all 90,000 plantable trees in 2007, we could have done it with a few extras from other desperate nurseries. However it suited us both to spread it over 2 years. In conciliation AIL has firmly ordered 90,000 trees and Nursery Nuts has firmly contracted to deliver 90,000 trees. In the long run I am sure AIL does not wish to cancel any. Consequently please pay on line $87,542 + GST and we can sort out remaining items when we meet." 25The amount of $87,542 plus GST referred to in the last paragraph of that email was the subject of an invoice from the respondents to the appellant on 21 July 2007. That invoice, which totalled $96,296.20, was never paid. 26It will be seen from the respondents' email of 20 July that although they were prepared only to invoice the trees which the appellant said were acceptable they were not prepared to reduce the total number of trees the subject of the order. Further, it appears from that invoice that they intended to fulfil the order in part by the delivery of 18,340 trees which were then being planted. 27By an email dated 25 July from Mr Warner to Mr Johns the respondents confirmed their position. That email, so far as relevant, provided as follows: "Meanwhile further [sic] my email of 20/07 in reply to yours of 20/07, I just want to add the following observations (1) There are no more trees at Narrandera so no possibility of more bent trees. (2) There are 48,000 trees for AIL at Wemen, which can be inspected at any time. We are planting now 25,000 seeds to make up 18,340 shortfall in the 66,340 trees to be delivered in 2008. (3) It would appear by your calculations, that you have only provided for 40,000 from Wemen in 2008. This plus 23,660 from Narrandera already delivered makes 63,660 total, not 90,000 ordered. Whereas Nursery Nuts is providing for a delivery of 66,340 in 2008, not 40,000. (4) It has been my unhappy experience that when I cancel a written order or part thereof after paying a deposit, that always there is a penalty, usually a forfeit of the deposit paid. In this case I don't think either party wants to go down this track." 28There followed discussions between Mr Warner and Mr Johns which the respondents alleged at the trial resulted in a variation of the original agreement. In an email of 8 August 2007 from Mr Warner to Mr Johns, Mr Warner sought to summarise the arrangements which he said had been reached. This email so far as relevant stated as follows: "Following our meeting at Wemen last Friday 03/08, it was understood you were going to summarise the new arrangement on [sic] an email to me over last weekend. It is now Thursday 10/08 and I have not received anything and my phone messages to you remain unanswered. So here is my summary of what you verbally offered, and all partners of Nursery Nuts accept in replacement of your original order of 30 October 2006. New quantity of order is 23,660 trees delivered plus further 45,000 straight healthy trees of not less than 1.2 high for delivery June 08. Total 68,660. Remaining 21,340 trees of original order of 90,000 to be cancelled in consideration of progressive settlements as follows Immediate payment of $8484 plus GST Remaining 45,000 x $4.70 = $211,500 plus GST to be paid in 4 instalments of $52,875 plus GST each the first immediately the second mid October 07 subject to inspection of trees the third mid January 08 subject to inspection the fourth mid March subject to inspection. Nursery Nuts warrants, as a back up for any tree failures, to grow from seed at Wemen an extra 25,000 green nemaguards. These are being planted this week." 29On 10 August 2007, a Mr Nicholas Tkalcevic, the Chief Financial Officer of the appellant, responded to Mr Warner in the following terms: "We understand that it has been acknowledged by you and Graham Johns that 23,660 almond trees were delivered to AIL's Piangil orchard in June 2007. The agreement is that we will pay $7.40 per tree plus GST (ignoring for a minute any progress payments made). We further understand that you have approximately 45,000 trees in your Wemen nursery that you plan to grow on for delivery in 2008. The agreed growing on fee is $1 per tree plus GST (in addition to the original agreed cost of $7.40 per tree plus GST). We have set out below a reconciliation of how we propose to pay for the 23,660 trees accepted this year and any trees that we will be supplied in June 2008 (all amounts shown are exclusive of GST): $175,084 Trees delivered in June 2007 (23,660 x $7.40) $166,500 Deposit on trees estimated for delivery in June 2008 (45,000 x $3.70) $341,581 Sub Total $333,000 Less Progress payments to Nursery Nuts already remitted $8,584 Amount owing In addition, we propose to make progress payments to you in relation to the trees mutually agreed to be grown on in your Wemen nursery during 2007/2008. We suggest that these be made as 25% of the balance owing (i.e. $4.70 per tree) on the following dates 15/8/07, 15/11/07, 15/2/08 balance in June 2008 on delivery. We will only authorise Nursery Nuts to grow on for Almond Investors Ltd in 2007/2008 those trees that have already reached the agreed specified height of 900mm and that therefore could have been planted in our 2007 Project; any bent trees cannot be accepted. In line with standard industry practice and fairness, any trees not grown to specification last season we are not obligated to purchase. To enable the above to progress as quickly as possible, we would request that a detailed inspection be made of the trees at your Wemen nursery by Graham Johns or one of his representatives. The purpose of this inspection will be to identify the number of trees in the nursery that are currently at the specified height of 900mm and straight, that will be accepted for growing on for delivery in 2008. It should be noted that for every tree that is not at specified height (i.e. is rejected) it will be necessary to reduce the amount owing of $8,584.00 by $3.70." 30On 13 August 2007, a Mr Wellington, an officer in the employ of one of the respondents, emailed the appellant reiterating that the respondents' position was that agreement as to the future progress of the contract had been reached on 3 August 2007. That email relevantly provided as follows: "We are all working from the terms and conditions of the original order. As a result of this and the earlier discussions I had with Graham and the inspection of the 3 rd of August, we at Nursery Nuts have difficulty accepting all these new and changing conditions. Your email of the 11 th changes or adds extra conditions to the compromise already agreed at Wemen on Friday the 3 rd August. At that meeting it was agreed: 1) Nursery Nuts accepts cancellation of 21,340 trees on the original order without penalty in consideration of securing progress payments. 2) The new quantity to be delivered in June 08 is 45,000 trees. 3) These are made up with a combination of 06 plantings backed up by 25,000 new plantings in 07. We disagree with the last paragraph of your email of the 11 th regarding yet another recount and the consequences following from that." 31On the same day Mr Tkalcevic responded rejecting that any such agreement had been reached and insisting that the trees meet the specification in the contract. That email so far as relevant provided as follows: "At the discussion you had with Graham Johns at your recent on-site meeting, Graham at that time wasn't thinking of growing-on trees that only made specification as indicated in our email dated 11/8/07. However, subsequently at a meeting in Melbourne, Graham Johns agreed with AIL's position that we did not want to grow-on trees that did not meet the agreed standard for a 2007 delivery. Therefore AIL is only prepared to authorise to grow-on any trees that have achieved the specified height and quality in 2007. We would like it understood that now and in future we are not going to accept trees that are not grown to specification or are grown at mediocre quality. We must have a high standard tree to enable us to reach the almond yield targets set in the PDS (which our investors are expecting). We insist that our suppliers meet the minimum standards that are set. The standard that we set for 2007 delivery of a straight, 900 mm 1 year old tree is in our opinion, a low standard. In future we intend to set a minimum height for a 1 year old tree at 1,200mm. As soon as we can agree on this outstanding issue, Graham Johns will immediately arrange for one of his orchard managers to attend your nursery to count the number of trees over 900mm. And obtain agreement with Graham Johns that you are able to grow-on the selected trees to the specifications of a straight tree of 1.2m in height for delivery in June 2008." 32On 14 August 2007, the appellant responded, continuing to assert that the 30 October 2006 contract had been varied by agreement on 3 August 2007. That email so far as relevant provided as follows: "Vaughan just sent me a copy of yesterdays email from Nicolas Tkalcevic. This is not in accordance with our discussions and agreement in Wemen on the 3 rd August. As you know we have had a sound and trusting relationship and I am very keen to try to preserve this. In our discussions on the 3 rd August we agreed to a) Nursery Nuts accepting cancellation of 21,340 trees of the original order without penalty in consideration of securing progress payments b) the new quantity to be delivered in June 08 is 45,000 trees c) these 45,000 to be made up from the best selection of the 06 plantings and the 07 plantings. d) progress payments to be made August, October, January and March. e) inspections of trees before settlement of each of the last three instalments." 33On 17 August 2007, Mr Johns wrote to Mr Warner making it clear that any trees which had not by that stage reached the minimum height of 0.9 metres would not be accepted. That email relevantly provided as follows: "1. AIL will not accept from nurseries trees that are not to specification. The implications to AIL and nurseries of not delivering trees to minimum specification is very serious for both parties. As per our agreement this means a minimum height of 900mm from the Lita Trading nursery in 2007. Any trees in your nursery that are not at this height now are therefore not going to be accepted because they could not have been delivered to specification this year. AIL's reasonable expectation when it agreed to pay $1.00 a tree to grow on any trees not taken this year, for delivery in June 2008, was that only trees that reached 900mm in height would be grown on. 2. After visiting your Wemen nursery on the 3 rd August I observed that many trees in the nursery would not make the minimum 900 mm height specification and that trees to specification are therefore spread throughout the nursery. Many trees were also not straight and these trees are not commercially acceptable either. 3. AIL has made an offer to pay for trees to be grown on that are now 900 mm or greater, which I believe you have at this time rejected. One other possibility to resolve the problem would be for AIL to take and pay now for any trees mutually agreed between AIL and Lita Trading after inspection that are at least 900 mm in height (and straight). AIL would multiply the total number of trees taken in 2007 by the agreed price of $7.40 per tree + GST, less any deposit paid to date and pay Lita Trading the balance. AIL would not have any further interest in any trees remaining in the Wemen nursery. This is in accordance with the original agreement. Before confirming this arrangement I would like to know the number of trees AIL would be agreeing to take. If this option was acceptable to you we would need to pull the trees within the next 7 to 10 days prior to the trees shooting." 34Mr Warner responded by email of 21 August 2007 in the following terms: "Thanks your email 17/08 which unfortunately does not address the terms and conditions of the original order. The Nursery Nuts approach to the 30 October 06 order is simple. Under the terms provided in the order, AIL elected to take only 29572 trees less 5915 allegedly unplantable in June 07 leaving 66340 to be delivered in winter of 08. The 07 height of the deferred trees is irrelevant. By the winter of 08 all remaining trees will be straight and over the specified height. Nursery Nuts considers AIL's submission re undersized trees in 07 as only an excuse to cancel a large proportion of the remaining trees on order, without incurring any cancellation penalty. The original order is for 90,000 trees. Nursery Nuts intends to complete the delivery of all 90,000 to specification by June 08. AIL, after inspection, paid a total of $3.70 deposit on all 90,000 trees. Cancellation of any of this order will attract a penalty or damages probably at least equal to the deposit paid on each tree. Nursery Nuts did entertain the AIL compromise suggestion of reducing the 08 delivery to 45,000 trees (not 66,340) in consideration of receiving some early instalment payments. Any reduction below 45,000 would not be workable or acceptable to Nursery Nuts. Therefore AIL's latest conditions outlined in emails of 13 and 17/08 are not viable, because counted numbers may well be below the 45,000 specified trees at this stage of growth, resulting in a further excuse to cancel some of the future deliveries, without penalty. Having rejected AIL's compromise proposal, Nursery Nuts returns to the written terms and conditions of the original order, and will deliver as elected by AIL. Meanwhile Nursery Nuts awaits payment for the balance owing on those trees delivered in June 07 (revised invoice 26) which is now overdue by 2 months. This email is issued by Nursery Nuts without prejudice or the abrogation of any rights at law." 35The following matters emerged from the last email: (i) The respondents appeared to be no longer asserting that the agreement was varied on 3 August 2007. (ii) There was an acknowledgement that 66,340 trees remained to be delivered. (iii) There was an assertion that the only contractual requirement was that the trees reached the specified height of 0.9 metres by June 2008. (iv) That even on the terms contended for by the respondents, the respondents only had a maximum of 45,000 specified trees (that is trees one year old as at June 2007) available for delivery in 2008. As stated in the respondents' emails of 20 July 2007 and 25 July 2007 the shortfall would be made up from seedlings planted in July 2007. 36By letter dated 31 August 2007 the solicitors for the appellant purported to terminate the contract. The letter stated that the agreement required the delivery of 90,000 trees in the planting season commencing 1 June 2007 and that it was clear from the correspondence that the respondents were not in a position to effect such a delivery. The reasoning of the primary judge 37The primary judge found (at [57]) that the contract was contained in the email of 30 October 2006 to which I have referred. However, it is not entirely clear how he construed that email. At one point in his judgment (at [58]) he seems to accept that the agreement required that the trees delivered be one year old in June 2007. However, subsequently (at [69]) he stated that that requirement was not an essential term but rather that height on delivery was critical. 38The primary judge seems to have ultimately concluded that the obligation of the respondent to deliver the balance of the trees the subject of the contract (that is the 90,000 trees less the trees delivered and accepted in June 2007) could be satisfied by the delivery in June 2008 of trees 0.9 metres in height. That appears from [93] of his judgment where his Honour states: "The condition so far as the minimum height requirement was not breached because there is no evidence that trees delivered did not meet the minimum height requirement. I satisfied [sic] that the Plaintiffs could deliver plants of a relevant minimum height (0.9 m for one year old trees), or 1.2 m (for two year old trees), as required by the Defendant if given the opportunity. It was not a condition precedent to the agreement that all the trees would be of a particular minimum height at June 2007. The height requirement had to be satisfied on delivery for payment of the 50% balance of the cost of a particular tree(s)." In other words, on the construction preferred by the primary judge, once the appellant had elected to take less than the full number of trees in June 2007 the respondents had the option of completing the contract in June 2008 by the supply either of one year old trees of 0.9 metres in height or two year old trees which, irrespective of the height they had reached in 2007, were 1.2 metres in height by June 2008. 39Having regard to that construction the primary judge held that there was no breach of any essential term of the contract and that the respondents were at all times in a position to perform their obligations. This appears from the passage of the judgment to which I have referred and also what the primary judge said at [92]: "As to the condition of the contract that the Plaintiffs would grow the trees ordered at the Wemen and Narrandera nurseries, that being the purpose of the inspections of those nurseries, although the Defendant was aware that 81,000 trees were growing as from 8 April, the conduct of the Defendant in the period of time from April through to August, when no complaint was made by the Defendant as to its terms, save for an attempt by the Defendant to renegotiate the number of trees to be delivered eventually, is capable of showing that the precise number ordered to be grown at those nurseries was not an 'essential term'. But even if it was, there was no breach at the time of the purported termination by the Defendant, as delivery of numbers and varieties required in 2008 had not been confirmed. I am mindful Mr Johns claimed he would not accept trees from other nurseries as performance of the contract, but that contingency did not directly arise. The importance of the timing of delivery to performance of the contract is such in this matter because the responsibility of nurturing and caring for the juvenile plants fell within the expertise of the Plaintiffs until delivery. Those trees were of no commercial use to the Defendant until they could be planted for subsequent commercial harvesting. This both parties knew. As at 8 April, or subsequently, the Plaintiffs have established there had not been a breach by them of an essential term of the contract such as to be a repudiation of the contract. Nor had the Defendants regarded there to have been such a breach, the information of 8 April being no great surprise." 40His Honour then concluded that even if there had been a breach of an essential term by the respondents, or a repudiatory breach by them, the appellant had affirmed the contract. In [94] and [95] of his judgment the primary judge set out the position as he perceived it as follows: "[94] In any event the conduct of the Defendant in accepting the vast majority of plants, rejecting the 'notional' number of trees in the context of the negotiated position of the Plaintiffs did not demonstrate a failure or unwillingness to perform by the Plaintiffs, nor was it recognised by the Defendant as such. The suggested further supply of plants (at least provisionally) by the email of 20 July from Mr Johns to Mr Warner and the acceptance of plants delivered (as to an agreed number) makes it clear that the breach of any implied condition, in respect of those plants rejected, was thereinafter regarded by the parties as a breach of warranty and of itself not a ground for treating the contract as repudiated (s 16(3) Sale of Goods Act 1958) . [95] If the advice by the Plaintiffs that they had (at 8 April) 81,000 available trees at Wemen and Narrandera in varieties not as 'ordered' were breaches of conditions of the contract, such as to constitute a repudiation of the Agreement by the Plaintiffs, or to be regarded as 'anticipatory breach(es)' giving rise to a right to terminate, there were a number of events that occurred and other factors that demonstrate the Defendant regarded itself as bound by the Agreement, or had 'affirmed' the Agreement. i. for commercial reasons Mr Johns was not concerned by the advice he received by the email of 8 April. I am satisfied that he had no expectation of requiring 90,000 trees to be delivered in June 2007, the holding over would be to the following year and the growth cycle of almond trees would permit satisfaction of the agreement. He knew the high risk of agricultural attrition. ii. Subsequent to the advice of 8 April the Defendant, through Mr Johns, took no steps to indicate any concern or disquiet or even to undertake any 'negotiations' or protests that might have been invited by the advice. There was expected to be a range of 'wastage' or attrition of seedlings from natural events on the Defendant's own case, estimated to be between ten and fifty percent, with weather conditions, growth rates, vagaries of agricultural production taken into account. The Defendant was aware of the numbers of seeds that had been planted, the advice as to the number of progressing trees as at April was entirely consistent with the expected vicissitudes of agriculture. iii. The Defendant in May made enquiries about ensuring that those trees that were available would be adequately watered for delivery in 2008. iv. The Defendant then ordered, from the trees available 27,000 trees to be delivered in performance of the contract. v. There was an 'election' exercising the 'option' of holding over the balance to be supplied until 2008. This was particular conduct that imposed continuing burden upon the Plaintiffs of nurturing established trees (and planting further seedlings) in expectation that the contract was to be performed. The conduct of the Defendant, particularly taking delivery of, and keeping, a reduced number of trees and exercising the 'option' to 'hold over' the balance was clear, unequivocal, affirmation of the Agreement. The actions of the Defendant 'speak louder than words'. vi. Notwithstanding dissatisfaction with some of the trees delivered in June 2007, there was a renegotiated figure acceptable to the Defendant and the Plaintiffs for the number of plants for which payment was required under the agreement. The terms of the renegotiated agreement were advantageous to the Defendant. vii. Mr Johns' email on behalf of the Defendant in 20 July 2007 was an attempt to renegotiate the number of trees to be delivered in 2008, in the context of the available information that no more than 54,000 were available at Wemen, possibly less with attrition. viii. The emails of Mr Warner of 20 July and 25 July 2007 evidenced a continuing willingness to perform the contract and an expression of capacity to do so. No view was expressed by the Defendant as to the contract being in breach. ix. Mr Johns' attendance at the Wemen nursery on 3 August for a further inspection to discuss trees available for 2008 and his indication of future needs and minimum height standards was further conduct by the Defendant affirming the contract, albeit that the Plaintiffs, through Mr Warner, were seeking to renegotiate the contract. The Defendant was making it clear at that point that it continued to want trees in 2008, subject to further negotiation to vary the number of trees required in 2008. The Plaintiffs acted to their detriment by planting more seeds. That renegotiation was unsuccessful." 41In these circumstances the primary judge took the view that the conduct by the appellant in purporting to terminate the contract constituted a repudiation of the contract by it. His conclusion is set out in [96] of his judgment: "The Plaintiffs have established that thereinafter, the failure to pay for the trees delivered in early June was a breach of an essential term of the contract by the Defendant, in the knowledge that the Plaintiffs were growing thousands of trees for it and planting seeds to grow more rootstock. The advice from the solicitors for the Defendant dated 31 August 2007 confirmed what had happened by Mr Johns' last email in August, that is that the contract was repudiated. The Defendant took no further steps to complete performance of the Agreement, declined to take delivery of further trees that it had agreed to be supplied and sought through its solicitors to terminate the Agreement, albeit by the alleged repudiation of the contract by the Plaintiffs, on 31 August 2008 [sic]. By April 2008 [sic] there was still an intention, certainly no unwillingness, on the part of the Defendant to perform what had been agreed. This repudiation of the contract by the Defendant was accepted by the consequent termination by the Plaintiffs' solicitors." 42The trial judge rejected the contention of the respondents that a compromise agreement in the terms set out by Mr Warner in his email of 8 August 2007, by Mr Wellington in his email of 13 August 2007, and by Mr Warner in his email of 14 August 2007 had been agreed upon. There was no challenge to this finding. The appellant's submissions 43The appellant submitted that as a matter of construction the contract required the respondents to have available for delivery for planting commencing 1 June 2007, 90,000 one year old trees at least 0.9 metres high growing at the Wemen and Narrandera nurseries and of the types set out in the email of 30 October 2007. It contended that the requirement for the 90,000 0.9 metre trees as at June 2007 was an essential term in the sense that the appellant would not have entered into the contract unless it was assured of at least substantial performance of that requirement: Tramways Advertising Pty Limited v Luna Park (NSW) Ltd (1938) SR (NSW) 632 at 641-642. The appellant accepted that literal non-compliance with the precise requirements might not constitute a breach of condition entitling it to terminate and that the requirement for delivery in June 2007 could be satisfied provided that delivery was made so that trees were available for planting by the appellant in the 2007 season. 44The appellant in its written submissions submitted that the carry over clause entitled the appellant to choose to defer delivery to June 2008 in consideration of the payment of an additional $1 per tree. If carried over, the obligation to the appellant was to deliver two year old trees of a height corresponding to them being 0.9 metres high in June 2007 grown at the Wemen and Narrandera nurseries and of the varieties specified in the contract. In his oral submissions senior counsel for the appellant submitted that the trees carried over had to be 0.9 metres in height as at June 2007. 45In support of this construction the appellant referred to the fact that it was entitled to delivery of 90,000 trees in June 2007 and that only it, not the respondents, had an option to defer delivery. It referred to the fact that the order was subject to an inspection of the trees, that is the 90,000 trees the subject of the contract. It referred to the fact that the deposit of 25 percent of the total purchase price was to be paid following inspection and that the delivery of the trees, that is the 90,000 trees, was for planting commencing 1 June 2007. 46In relation to the carry over clause, the appellant submitted that consistent with both the ordinary meaning and industry meaning of the expression "carry over" it referred to trees which had met the specification in June 2007 but which were not required by the appellant at that time. The $1 per tree was for the continued care and maintenance of the tree. 47The appellant further contended that the email of 8 April 2007 indicated that whilst the respondents might have had some difficulty in performing the contract according to its terms it did not indicate an unwillingness or inability to do so. It stated that the failure to respond to the email and the request for information concerning the water allocation did not amount to an election to affirm the contract as there had been no actual or anticipatory breach entitling the appellant to terminate and even if there was there was no clear and unequivocal election to affirm the contract. It submitted that the correspondence between 13 June 2007 and 13 August 2007 formed part of negotiations to achieve an acceptable solution to the problems which had emerged and that when they failed to achieve a result the appellant by its emails of 13 and 17 August 2007 indicated that it required compliance with the terms of the agreement. 48The appellant submitted that the email from Mr Warner to Mr Johns of 17 August 2007 made it clear that the respondents were neither willing nor able to carry out the contract according to its terms. Accordingly, the appellant said it was entitled to terminate the contract. It submitted that although the letter of termination did not particularise the grounds relied on by it in its submissions it was entitled to rely on those grounds: Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 at 378. The respondents' submissions 49Senior counsel for the respondents accepted that the contract could not be complied with by the provision of trees planted in 2007, that is, one year old trees as at June 2008. However, he stated that the 0.9 metre height requirement related to the height of the trees on delivery, so the obligation of the appellant could be satisfied in respect of the trees not delivered in June 2007 by the delivery of trees which had reached 0.9 metres as at June 2008 provided they were two year old trees. He accepted that this seemed illogical but submitted it was in accordance with industry practice. He stated that the additional $1 per tree was payable for the continued care and maintenance of the tree irrespective of whether they had reached 0.9 metres by June 2007. 50So far as the question of renunciation was concerned he submitted that no reliance was placed by the appellant in the court below on the email of 17 August as constituting a renunciation of the agreement and stated that this should not be allowed to be raised. However, he was unable to point to any particular prejudice. He did not contend that the litigation would have been conducted any differently or that there was any further correspondence, discussions or meetings between the date of the email and the date of termination which could affect the position. 51In their written submissions the respondents submitted that the failure of the appellant to respond to the email of 8 April 2007, its inquiry as to the position concerning water allocation, the purchase of the trees in June 2007 and the participation in discussions and correspondence between 13 June 2007 and 13 August 2007 amounted to a waiver of any breach of contract such as to disentitle the appellant to terminate as a result of such breach or, to the extent that the email of 8 April 2007 constituted a repudiation or renunciation, to terminate the contract in reliance upon it. 52So far as the respondents' email of 17 August 2007 was concerned, the respondents contended that there was no entitlement to terminate because of the failure by the appellant to pay the money said to be owing in respect of the invoice of 21 July 2007. Decision 53In my opinion, the contract required the respondents to have available for delivery for planting commencing 1 June 2007 90,000 trees of the species specified in the email of 30 October which had reached by that time a height of at least 0.9 metres. Although the height requirement is expressed as an expectation the respondents conceded, in my opinion correctly, that this requirement was a contractual term. 54That that is the correct construction appears from the following matters: (a) The order was for 90,000 one year old trees. (b) Payment of the deposit of 25 percent of the purchase price was conditional upon satisfactory inspection of those trees. (c) It was those trees which were the subject of the contractual requirement: "delivery of the trees is to be for planting commencing 1 June 2007". (d) The requirement that the trees be of 0.9 metres height was a requirement in respect to the trees which the appellant was entitled to call for delivery for planting commencing 1 June 2007, that is the 90,000 trees. (e) The payment of an additional $1 per tree carried over for planting in June 2008 related, in my opinion, to trees which had met the specification of 0.9 metres height by June 2007 but which the appellant had elected to remain in the nursery for another year. As the appellant submitted, this accorded with the ordinary meaning of the expression "carried over" as well as with the industry meaning understood by both parties. (f) The respondents conceded that their contention, namely that the trees only had to be 0.9 metres in height at the time of delivery whether that occurred in 2007 or 2008, was somewhat illogical. Whether it can be described as illogical or not, it ignores the fact that the appellant was entitled to 90,000 one year old trees of the specified height for planting commencing June 2007. If the appellant elected the option to carry over it paid extra. There is nothing in the contract to suggest that if the appellant elected not to take the trees which it had inspected the respondent would be entitled to deliver trees which were one year old by June 2007 but which had not reached the requisite height, provided they did so by 30 June 2008. Further, it is quite unclear on this construction whether or not the appellant was to pay $7.40 for such trees which it would have been entitled to reject in June or the carried over price of $8.40. In addition, this construction ignores the fact known to both parties that trees which had not reached 0.9 metres after one year were more susceptible to damage and death. 55In those circumstances, in my opinion, the construction contended for by the respondents should be rejected. 56It was common ground between the parties that the obligation to deliver the balance of the trees not delivered in June 2007 could not be satisfied by the delivery of trees which were only one year old in June 2008. 57In those circumstances it is my opinion that the trial judge erred in concluding that the only contractual requirement was that the trees be 0.9 metres in height on the delivery date irrespective whether that date was June 2007 or June 2008. 58It is in that context that the appellant makes its claim that the respondents' email of 17 August 2007 constituted a renunciation of the contract, and it is in that context that the claim requires consideration. 59As I indicated earlier the respondents contended that no reliance had been placed on the 17 August 2007 email as constituting a renunciation of the contract in the court below. Senior counsel for the respondents pointed to the fact that what was relied upon in the amended defence and cross-claim as constituting a renunciation were the emails forwarded by Mr Warner to the appellant on 13 and 14 August 2007 and that no reliance had been placed on the email of 17 August 2007 at the trial. Whilst this is correct, the respondents were unable to point to any particular prejudice they suffered by permitting the point to be raised at this stage and, in particular, acknowledged that no further evidence would have been led had the point been raised. 60In these circumstances it is my opinion that the appellant should be permitted to raise the issue on the appeal: Suttor v Gundowda Pty Limited (1950) 81 CLR 418. 61I am fortified in this view by the fact that the email of 17 August 2007 is relied upon not only in support of the proposition that the respondents were unwilling to perform the contract according to its terms but that they were unable to do so. The latter matter was plainly in issue, as evidenced by the submissions of the appellant in the court below and from the judgment of the learned primary judge (at [30]). 62For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that that party is either unwilling or unable to perform its contractual obligations, that is, evincing an intention no longer to be bound by the contract or stating that it intended to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v The Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-626; Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623 at 634, 647-648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 61; (2007) 233 CLR 115 at [44]; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 423. So far as inability to perform is concerned what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether: Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 at 481. 63The respondents' email of 17 August 2007 was written in the context of the respondents having received emails from the appellant on 13 August 2007 and 17 August 2007 asserting what I have found to be the correct construction of the respondents' obligations. The respondents' email of 17 August 2007 wrongly asserted that the contract only required trees reaching 0.9 metres in height by June 2008, but more importantly, stated that they only had 45,000 one year old trees some of which may well be below specification and, at least inferentially, the balance of the order (some 22,000 trees) would be fulfilled by trees which were one year old as at June 2008, the seedlings being planted in 2007. That this is the only inference that can be drawn is demonstrated by the respondents' earlier email of 13 August 2007 which stated that the order would be backed up by "25,000 new plantings in 07". 64In these circumstances, it is my opinion that the respondents' email of 17 August 2007, combined with the surrounding correspondence, indicated that the respondents were both unable and unwilling to perform their obligations under the contract in accordance with its terms. It follows, subject to what I have written below, that the appellant was entitled to terminate the contract on 31 August 2007. 65The respondents, however, contended that the appellant's failure to pay the invoice of 21 July 2007 prevented it terminating for anticipatory breach. 66The contractual obligation said to have been breached was the obligation to pay the amount due for the trees delivered in June 2007 and the subject of the invoice of 21 July 2007. 67It does not seem to me that the provision in the agreement providing for payment of 50 percent of the amount due in respect of trees supplied "on delivery" was an essential term, any breach of which would entitle the respondents to terminate the agreement. It does not seem to me that objectively speaking the respondents would not have entered into the agreement unless they could have been assured of strict compliance with that term. There was no fixed date for delivery, a significant deposit had been paid and it was envisaged that some trees would be carried over and not paid for until June 2008. Taking these factors into account it does not seem to me that the time for payment constituted an essential stipulation. 68Nor do I think the failure to pay the amount sought in the invoice of 21 July 2007 was a sufficiently serious breach of a non-essential term to justify termination by the respondents: Hongkong Fir Shipping Co Limited v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 69-70; Ankar Pty Limited v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549 at 562; Koompahtoo Aboriginal Land Council v Sanpine Pty Limited supra at [49]-[52]. Failure to pay took place in the context of negotiations surrounding the future performance of the agreement and in the context where the respondents had indicated they would perform their obligations only in a manner inconsistent with the terms of the contract. Further, it must be remembered that the respondents had already received payment substantially in excess of the amount due for the trees actually delivered. 69In these circumstances, the issue which arises is whether the breach by the appellant of the non-essential term disentitled it to terminate the respondents' anticipatory breach or renunciation. 70In Roadshow Entertainment Pty Limited v (ACN 053006269) Pty Limited (Receiver & Manager Appointed) (1997) 42 NSWLR 462 a video supply company entered into an exclusive distribution arrangement. Following the appointment of a receiver to the supply company the distribution company began to withhold monthly distribution fees against accruing liability for a guaranteed distribution fee. The supply company ultimately sold its business. The Court of Appeal held that this constituted a repudiation of the agreement and that the failure by the distribution company to pay distribution fees assuming it amounted to a breach of a non-essential term did not disentitle the distribution company from terminating the agreement. The Court set out the principles as follows (at 479-480, citations omitted): "As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon." And at 481 (citations omitted): "A party in breach of non-essential terms who has not repudiated may rescind for fundamental breach. A party in breach of an essential but independent term may also rescind for fundamental breach. Roadshow, we consider, was not, by reason of its conduct, unable to terminate on the ground of CEL/Vision's repudiation." 71In Sharjade Pty Limited v The Commonwealth [2009] NSWCA 373; (2009) 15 BPR 28,443 Sackville AJA, with whom Young JA agreed, adopted the same approach. After citing the passage from Roadshow Entertainment referred to above, Sackville AJA stated the principle in these terms: "[170] Although making the general observations quoted at [9] above, the Court did not consider it necessary to undertake a comprehensive analysis of the effect of a breach on a party's right to terminate. In their Honours' view, this was not a case where the party attempting to terminate was in breach of a condition or had otherwise repudiated the contract (at 479). Timely payment by the distributor was not a condition precedent to be performed before the supplier became bound to perform the obligations that had been repudiated by the receivers' sale and was independent of those obligations. The court applied the general principle (at 479-480) that: 'A party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party.' [171] The court in Roadshow Entertainment accepted that this principle might not apply if there is a causal relationship between the breach of a non-essential term by the terminating party and the fundamental breach relied on by that party. However, in Roadshow Entertainment itself, there was no such relationship between the distributor's non-essential breach and the supplier's essential breach. Thus the distributor was not prevented, by reason of its own conduct, from terminating the distribution agreement. [172] Roadshow Entertainment was followed by the Queensland Court of Appeal in Lee v Surfers Paradise Beach Resort Pty Ltd [2008] 2 Qd R 249; [2008] QCA 29; BC200800913. In Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108; BC200704116 at [68] the Victorian Court of Appeal (Warren CJ, with whom Buchanan and Ashley JJA agreed) accepted the proposition stated in Cheshire and Fifoot's Law of Contract , 8 th ed, 2002, at 943, that: 'A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term such as to deprive the other party of the substantial benefit of the contract.' See also Idameneo (No 123) Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329; BC200406211 at [97], per Santow JA, with whom Mason P and Hodgson JA agreed." 72The issue has most recently been considered by this Court in The Craftsmen Restoration & Renovations Pty Limited v Boland [2011] NSWCA 147. That case (an appeal from the Consumer Trader & Tenancy Tribunal) involved the question of whether the respondents had validly terminated a building contract with the appellant builder. It was held by the Court of Appeal that they had not done so and the matter was remitted to the Tribunal for the purpose of considering whether the purported termination by the respondents involved a repudiation of the contract and if so whether the appellant was entitled to accept it. In that context Basten JA, with whom Allsop P and Sackville AJA agreed, stated the position as follows (at [51]): "There is a second question which may arise, namely the entitlement of the respondent to accept the repudiatory conduct of the owners, assuming that element is made out. It does not seem to be in dispute that part of the building work was defective and that, accordingly, the builder was in breach of its contractual obligations. Whether that would prevent the builder accepting repudiatory conduct of the owners may be doubtful, but it cannot be said that only one answer is available. In Sharjade Pty Ltd v The Commonwealth [2009] NSWCA 373 at [166] Sackville AJA (with whom Young JA agreed) relied upon a passage from the judgment of Kerr LJ in State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyds Rep 279 at 286, to which reference had been made, with apparent approval, by this Court in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 481 (Gleeson CJ, Handley JA and Brownie AJA). The passage from Golodetz read as follows: 'The fact that in the present case both parties committed breaches before one of them elected to treat the contract as repudiated appears to me to make no difference whatever; nor the fact that (assumedly) both had been breaches of conditions. If A is entitled to treat B as having wrongfully repudiated the contract between them and does so, then it does not avail B to point to A's past breaches of contract, whatever their nature. A breach by A would only assist B if it was still continuing when A purported to treat B as having repudiated the contract and if the effect of A's subsisting breach was such as to preclude A from claiming that B had committed a repudiatory breach. In other words, B would have to show that A, being in breach of an obligation in the nature of a condition precedent, was therefore not entitled to rely on B's breach as a repudiation.'" 73These authorities establish my opinion that in the case of an actual breach entitling the other contractual party to terminate the right to terminate would not be lost merely because the other party was in breach of a non-essential term. However, in the present case the appellant relied expressly on anticipatory breach. The question is whether the same principles apply. 74In DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423, Stephen, Mason and Jacobs JJ observed (at 433): "A party in order to be entitled to rescind for anticipatory breach must at the time of the rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach ..." 75This passage was cited with approval by Mason CJ in Foran v Wight supra at 407 and by Dawson J (at 456) although Dawson J acknowledged a contrary view. Deane J disagreed. He stated the position as follows (at 437): "I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness or willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by principle or commonsense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party's repudiation. Were it otherwise, the law would require the useless and futile expenditure by an innocent party of whatever time, effort or money was necessary to place himself in a position where he could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it already had been repudiated by the other party." 76In Sharjade Pty Limited v The Commonwealth supra Hodgson JA at [50]-[69] expressed his preference for the views expressed by Deane J. His Honour expressed a similar view in Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Service [2010] NSWCA 268 at [162]. 77It is important in my opinion to observe that the passage from the judgment of Stephen, Mason and Jacobs JJ in DTR Nominees did not say that a party in breach of a non-essential term was not entitled to terminate for anticipatory breach. Rather they stated the party must have been willing to perform the contract according to its proper interpretation. It is not inconsistent with such willingness that there is a failure to perform a non-essential term when the other contracting party is either incapable or refusing to perform the contract according to its terms. 78It would be anomalous that a party willing to perform its obligations on a proper construction of the contract will be precluded from rescinding for anticipatory breach unless it fulfilled an outstanding non-essential obligation (and run the risk of having been said to have affirmed the contract). In the present case it would involve paying the monies as the subject of the invoice and then immediately seeking their recovery by way of damages. It should be noted that in this case there was no claim of equitable setoff as considered in Roadshow Entertainment. 79Approached in this way there is no need to consider whether the views expressed by Deane J in Foran v Wight supra or those of Stephen, Mason and Jacobs JJ in DTR Nominees supra represent the correct view, to the extent of any inconsistency. 80The failure to pay the monies the subject of the invoice arose in the context where, at least initially, the parties were seeking to negotiate a compromise agreement and subsequently where the respondents were asserting an incorrect construction of the contract and where it became apparent they were incapable of performing the contract according to its terms. There is nothing to suggest that, had the respondents been able to perform their obligations in accordance with the contractual terms and willing to do so, the appellant would not have been willing to pay for the trees delivered and the balance of the specified trees when the time arose. 81In these circumstances, it is my opinion that the non-payment by the appellant of the amount the subject of the 21 July 2007 invoice did not preclude the appellant from terminating the agreement. 82Nor in my view was there any election by the appellant to affirm the contract. For there to be an election there must be an unequivocal choice between two alternative and inconsistent rights with knowledge of the facts giving rise to the right to make the election. Delay in exercising the right absent the need to make the choice does not amount to such an election at least where the delay does not operate to the prejudice of the other party: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 642, 646, 655, 656 and 658; Immer (No 145) Pty Limited v The Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 at 30 and 41. 83In the present case the email of 8 April 2007 from the respondents to the appellant indicated the possibility that there would be a shortfall of 9,000 trees and a further 9,000 might not reach the specified height. That position was quite different to the facts disclosed in the email sent by the respondents on 21 August 2007 which demonstrated a shortfall of 22,000 trees and no guarantee that the other trees would be of the specified height. Thus, even assuming that the contents of the email of 8 April 2007 gave the appellant the right to terminate and the subsequent request for delivery of trees in May 2007 amounted to an affirmation of the contract, that would not affect the right to terminate in reliance on the different facts which emerged in the email of 21 August 2007. 84Further, to the extent that the further information as to the state of the trees was spelt out in the negotiations for the compromise agreement there is no evidence of any choice being made by the appellant to affirm the contract. Rather, once a compromise was not reached the appellant insisted on performance of the contract in accordance with its terms and when that was denied, terminated the agreement. In this regard it should be noted that the respondents' emails of 13 August 2007 and 14 August 2007 were the first emails to evince the intention that the respondents were unwilling to perform the contract according to its terms. 85In the circumstances the appellant was entitled to terminate the contract on 31 August 2007. 86It was common ground that if the appellant was entitled to terminate the contract on 31 August 2007 it was entitled to the sum of $173,707.60 either by way of damages or restitution, that sum being the difference between the amount paid under the contract and the amount actually payable for the trees grown and accepted. 87In the circumstances, the appeal should be allowed, the orders of the primary judge set aside and in lieu thereof orders should be made that the respondents' claim be dismissed and that there be a verdict on the appellant's cross-claim in the sum of $173,707.60 together with interest pursuant to s 100 of the Civil Procedure Act 2009 from 31 August 2007 to the date of this judgment. 88So far as the question of costs is concerned, the point on which the appellant succeeded was not raised in the court below. I would grant the respondents leave to make submissions as to the appropriate costs orders both in this Court and in the court below. 89It will also be necessary for pre-judgment interest to be calculated. 90In the circumstances the orders I would make at this stage are these: 1 Appeal allowed. 2 In the event that the appellant and the respondents agree on the question of costs, direct that the appellant file short minutes of order to give effect to this judgment within 7 days of the date hereof. 3 In the event that the parties are unable to agree on the question of costs: (a) Order that the appellant file any submissions on this issue within 10 days of the date hereof; (b) Order that the respondents file any submissions in reply 7 days thereafter. 91GILES JA: I agree with the Chief Justice. 92HANDLEY AJA: I agree with Bathurst CJ. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 July 2011