In the recent decision of Olivaylle Pty Ltd v Flottweg GMBH & Co KGAA (No 4) (2009) 255 ALR 632, a single judge of the Federal Court held that a purported termination of a contract for the sale of goods by the purchaser for an alleged breach of that contract was invalid. The judge also made an important observation about the acceptance of agreements in the age of email communications.

Background

Briefly, the facts of the case are as follows. The director and controlling mind of Olivaylle sought to establish a large olive grove and olive oil manufacturing plant in central western Victoria. While waiting for the first stage of the grove to reach maturity, the director of Olivaylle tendered for a number of international producers of equipment for the processing of olives and, on 8 February 2005, entered into a written contract with Flottweg, a large international manufacturer of such equipment. Prior to entering into the contract, Olivaylle paid a deposit of approximately €140. It was a term of the contract that Flottweg would guarantee that the equipment supplied would be in accordance with certain design and quality specifications, and that Olivaylle would be entitled to exercise a right to a reduction in the purchase price or a “withdrawal” from the contract on the expiry of a “reasonable period of grace” after notice in writing of a failure to meet such specifications. Such a notice was delivered on 21 February 2006 alleging purported defects in the production line process and requiring those defects to be remedied by 30 June 2006, failing which Olivaylle asserted that it would withdraw from the contract and demand the return of its deposit. On the passing of 30 June 2006, Olivaylle did just that – to which Flottweg took issue and proceedings were commenced.

Judgment

Essentially, Olivaylle’s case was that the requisite “reasonable period of grace” had expired, entitling it to terminate or “withdraw” from the contract. Further, in order to give business efficacy to the contract, it was an implied term of the contract that Olivaylle was, upon its withdrawal from the contract, entitled to its deposit back and was not required to make any further payments under the contract.

Logan J held, after much analysis of Australian and civil law concepts, that Olivaylle had no right to nominate 30 June 2006 as the conclusion of the “reasonable period of grace” and that, on the facts, that period could not end sooner than April 2007 due to certain harvesting considerations. Therefore, Olivaylle had no right to terminate on 30 June 2006. Indeed, Olivaylle’s request that certain defects be remedied was seen as an affirmation of the contract.

Logan J also expressed the view (which in the end wasn’t necessary for his decision) that the instantaneous communication rule applies when considering when and where the acceptance of an offer by email occurs. His Honour suggested that he would employ an analogy to telexes – the place where the message is received is where the contract is accepted, rather than the postal acceptance rule which states that acceptance occurs at the time and place where the letter was posted. In this case, Flottweg’s acceptance was communicated by email (sent in Germany) to Olivaylle at its olive grove in Victoria. Thus, if the Federal Court position in this regard is to be followed, it appears that a contract will be deemed to be made, and therefore the law that applies will be, where the email acceptance was received.