This case provides an interesting example of when a contract will have been abandoned, and how the doctrines of estoppel and waiver may apply to prevent a party from claiming a breach of contract in circumstances where its post-breach conduct (including silence) is inconsistent with such a claim. In the event of a breach of contract which the aggrieved party may wish to bring a claim for, that party should be careful that its post-breach conduct does not potentially jeopardise such a claim.
Cedar Meats Pty Ltd (Cedar Meats) agreed to provide manufacturing, processing and packaging services for lamb products to Five Star Lamb Pty Ltd (Five Star). Clause 8(a) of the contract stipulated that for any days on which the daily volume of lamb provided by Five Star fell more than 25% below the agreed daily volume, Five Star would pay Cedar Meats a minimum of 75% of the agreed daily volume. After ceasing production and then re-commencing production on a much smaller scale, Five Star delivered far less than the agreed daily volume, and Cedar Meats sought to enforce clause 8(a) for approximately $15 million.
In dismissing Cedar Meats' claims, Sifris J made the following findings:
- The parties had conducted themselves in such a way as to evince an intention to abandon or abrogate the contract. Sifris J was persuaded by the facts that the parties had continued to transact on a new basis (ie the much smaller scale production by Five Star) and with a different pricing structure without any reference to the original contract, Cedar Meats would presumably have included the shortfalls as an asset in its balance sheet if it intended to charge for them and the period of inaction until Cedar Meat’s claim was about one third of the term of the contract; and
- Cedar Meats was estopped from enforcing clause 8(a) because it represented by its conduct (including silence) to Five Star that it would not do so, Five Star clearly relied on the representation (and such reliance was reasonable in the circumstances) and Five Star would clearly suffer detriment if Cedar Meats was permitted to depart from its representation. Five Star had lost the opportunity to seek legal advice about termination of the contract and to renegotiate a contract with Cedar Meats when relations were still good.
Although not strictly necessary to decide (given the findings on abandonment and estoppel), Sifris J also found that:
- Cedar Meats’ conduct in relation to the abandonment and estoppel issue also constituted an election to waive any claims for arrears under clause 8(a), and would have founded Five Star’s allegation that that Cedar Meats had breached the then section 52 of the Trade Practices Act 1974 (Cth); and
- Clause 8(a) was a penalty because it imposed a burden on Five Star which was “extravagant or unconscionable” in relation to the greatest loss that could conceivably be suffered by Cedar Meats. Since meat processing is highly labour intensive, Five Star’s failure to deliver lamb actually resulted in significant cost savings for Cedar Meats and it would be unconscionable to insist on full payment for the shortfall without any allowances for these cost savings.
See the case.