Case: Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3 ; (1967) 119 CLR 460
Outcome: discussed
it be assumed (as is probably the case), that a failure by a seller to deliver wheat or barley under forward contracts of the type in question in this case would ordinarily lead to an award of damages rather than an order for specific performance, then, putting to one side for the present the effect of washout provisions, it would only be in a very loose sense that it could be said that the seller's obligations could be wholly settled by cash, rather than the delivery of the property. I do not think that that is what s 761D(3)(a)(ii) means. It seems to me that the important words in the paragraph are arrangement , permit and rather than . It seems to me that those words mean that the option wholly to settle an obligation by cash must be in the arrangement, it must be vested in the seller and the alternatives of paying cash or delivering the property must be of a similar nature or standing. The "option" of paying damages is not an option provided by the arrangement, nor is it of a similar nature or standing as the obligation to deliver the property. As Windeyer J said in Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3 ; (1967) 119 CLR 460 (at 504): "The primary obligation of a party to a contract is to perform it, to keep his promise. That is what the law requires of him. If he fails to do so, he incurs a liability to pay damages. That however is the ancillary remedy for his violation of the other party's primary right to have him carry out his promise. It is, I think, a faulty analysis of legal obligations to say that the law treats a promisor as having a right to elect either to perform his promise or to pay damages." The obligation to pay damages arises when the seller breaches his obligations, not when he settles them. The buyer's right to recover nominal damages in certain circumstances reinforces the point. There is also force in the submission of counsel for ABB Grain that it is inherently unlikely that Parliament would have intended that the application of a provision such as paragraph (ii), with all the consequences that flow therefrom, would turn on whether the discretionary remedy of specific performance was likely to be awarded. I turn now to the plaintiffs' second submission in relation to this paragraph, namely, that the washout provisions in the forward contracts mean that they fall outside the terms of paragraph (ii) because they permit the seller's (that is, the plaintiffs') obligations to be wholly settled by cash, rather than the delivery of the property. I reject that submission because the washout provisions are of a different nature and have a different operation to a permission in the arrangement for the seller's obligations to be wholly settled by cash. First, the washout provisions in the case of the ABB Grain first forward contract only operate if the plaintiffs suffer production failure, and they only operate in the case of the ABB second forward contract and the Glencore Grain forward contract if the seller finds that he is or will be in default. Secondly, it is correct to say that, in essence, the washout provisions operate at the option of the buyer, not the seller. Thirdly, where invoked, the washout provisions result in a measure of damages similar to that specified in s 50(3) of the Sale of Goods Act 1895 (SA) brought forward to a time at which it has become obvious to the seller that he or she will not be able to meet the obligation to deliver the goods.