This memorandum provides legal advice to Whey Better concerning two separate contractual issues that have arisen with its suppliers, Russell Sprout and Golden Seal. This advice is based on the common law of contract as it applies in New Zealand.
a) Claim for Damages against Russell Sprout
This section advises on whether Whey Better can seek damages from Russell Sprout for the delivery of inferior quality oats and how such damages would be calculated.
Breach of Contract
A contract for the sale of goods exists between Whey Better (WB) and Russell Sprout (RS). As this is a business-to-business transaction in New Zealand, the relevant governing legislation is the Contract and Commercial Law Act 2017 (CCLA 2017). Under the CCLA 2017, certain terms regarding the quality of goods are implied into contracts for sale.
The facts state that the oats delivered were of an “inferior quality” and “could not be used” for producing protein bars. This indicates a breach of the implied term under section 139 of the CCLA 2017, which requires that goods sold are of an acceptable quality and are reasonably fit for the purpose for which they are required. As WB’s purpose for the oats (production of protein bars) would have been known to RS, the failure to provide oats suitable for this purpose constitutes a clear breach of contract.
Given the severity of the breach – the oats being entirely unusable – WB is entitled to reject the goods and treat the contract for that specific delivery as repudiated (CCLA 2017, s 169). WB’s subsequent action of purchasing replacement oats confirms its rejection of the defective delivery from RS.
The Purpose and Calculation of Damages
The primary remedy for a breach of contract is an award of damages. The fundamental principle for the assessment of damages was established in the case of *Robinson v Harman* (1848) 1 Exch 850 and is a core tenet of New Zealand contract law. The goal is to place the innocent party, in this case WB, in the financial position they would have been in had the contract been performed correctly.
To determine WB’s loss, we must compare its current position with the position it would have been in had RS delivered oats of the specified quality.
1. **If the contract had been performed:** WB would have paid the contract price and received a delivery of usable oats.
2. **The position following the breach:** WB has paid the contract price but has received a delivery of unusable oats.
Therefore, WB’s direct loss resulting from RS’s breach is the money it paid for the worthless goods. The most straightforward calculation of damages is the full purchase price that WB paid to RS for the defective delivery. By recovering this amount, WB is returned to the financial position it was in before paying for the defective goods, enabling it to use that money to acquire conforming goods, which it has already done.
Mitigation of Loss
An innocent party that suffers a breach of contract is under a duty to take reasonable steps to mitigate, or minimise, its loss (*British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd* [1912] AC 673). A party that fails to mitigate its loss may find that its claim for damages is reduced.
In this scenario, WB acted promptly to mitigate its losses. Upon discovering the oats were unusable, Reggie Rep sourced an equivalent amount of oats from another supplier, Wheat’s End. This was a reasonable step to ensure that the production of protein bars was not unduly delayed.
Crucially, WB managed to secure the replacement oats for the same price as the original contract with RS. This successful mitigation means that WB has not suffered any additional loss with respect to the cost of replacement. If the oats from Wheat’s End had been more expensive, WB could have claimed the price difference from RS as part of its damages. As they were the same price, no such additional claim arises. However, this does not extinguish WB’s primary claim. The duty to mitigate relates to preventing further or consequential losses; it does not nullify the initial loss suffered.
Conclusion on Damages
Whey Better can seek damages from Russell Sprout for breach of contract. The damages should be calculated as the full contract price that Whey Better paid to Russell Sprout for the inferior quality oats. While Whey Better successfully mitigated any further loss by sourcing replacement goods at the same price, it is still entitled to be compensated for the primary loss of paying for goods that it could not use.
b) Contractual Obligation to Golden Seal
This section advises on whether Whey Better is contractually obliged to pay the higher price for wrapping foil to Golden Seal, following a price increase communicated by text message.
Formation of a Contract Variation
The issue here is whether the original contract between Whey Better (WB) and Golden Seal (GS) has been validly varied. A variation to an existing contract is itself a new agreement and must, in principle, contain the core elements of contract formation: offer, acceptance, an intention to create legal relations, and consideration (Burrows, Finn and Todd, 2021). The original contract anticipates such variations, stating that the price may be reviewed and that GS must inform WB of intended increases so “a new agreement can be reached”. This clause does not specify that the new agreement must be in a particular written form.
Offer and Acceptance via Electronic Communication
GS’s text message informing Reggie of a “planned price increase of $2 per meter” can be interpreted as an offer to vary the existing terms. The offer is clear and communicates an intention to be bound by the new price.
The more complex issue is whether Reggie’s “thumbs-up” emoji (👍) constitutes a valid acceptance. In a commercial context, conduct and communications are viewed objectively: what would a reasonable person in the position of the offeror believe? (*Boulder Consolidated Ltd v Tangaere* [1980] 1 NZLR 560). A thumbs-up emoji is a modern form of communication, and courts are increasingly willing to recognise its legal effect. While a New Zealand court has not ruled directly on this point, the recent Canadian case of *South West Terminal Ltd v Achter Land & Cattle* [2023] SKKB 116 provides persuasive authority. In that case, a judge ruled that a thumbs-up emoji sent in response to a contractual offer was a valid form of acceptance, creating a binding contract.
Given the context here – a direct response to a specific commercial proposal from an established supplier – Reggie’s thumbs-up is highly likely to be interpreted not as a mere acknowledgement of the message, but as an affirmation or agreement to the proposed price increase. Therefore, it is probable that a valid acceptance occurred.
The Requirement of Consideration
Traditionally, for a contract variation to be binding, the party promising to pay more (WB) must receive new consideration in return for their promise. The English case of *Stilk v Myrick* (1809) 2 Camp 317 established that merely performing an existing contractual duty, as GS is doing by supplying foil, is not good consideration. However, this position has been modified. The later English case of *Williams v Roffey Bros & Nicholls (Contractors) Ltd* [1991] 1 QB 1, which is persuasive in New Zealand, held that a ‘practical benefit’ obtained by the promisor can be valid consideration. Here, WB gains the practical benefit of maintaining a good commercial relationship and a continuous supply of foil without the disruption of finding a new supplier.
More significantly, the New Zealand Court of Appeal has taken an even more flexible approach. In *Antons Trawling Co Ltd v Smith* [2003] 2 NZLR 23, the Court suggested that for variations of existing contracts, consideration may not be required at all, as long as the variation is entered into willingly and without economic duress. The court reasoned that the parties themselves are the best judges of their own interests. Applying the *Antons Trawling* principle, since Reggie, on behalf of WB, appeared to agree to the price increase freely, the variation would be considered binding even without fresh consideration.
Conclusion on the Price Increase
It is likely that Whey Better is contractually obliged to pay the higher price to Golden Seal. The text message from Golden Seal constituted an offer to vary the contract, and Reggie’s thumbs-up emoji, viewed in context, likely served as a valid acceptance. While traditional consideration is questionable, the modern New Zealand legal position established in *Antons Trawling* indicates that a freely agreed-upon variation to an existing contract is enforceable. As there is no indication of pressure or duress, a court would likely hold that a “new agreement” was reached, binding Whey Better to the increased price.
References
Burrows, J., Finn, J. and Todd, S. (2021) *Law of Contract in New Zealand*. 7th edn. LexisNexis NZ.
*Antons Trawling Co Ltd v Smith* [2003] 2 NZLR 23 (CA).
*Boulder Consolidated Ltd v Tangaere* [1980] 1 NZLR 560 (CA).
*British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd* [1912] AC 673 (HL).
Contract and Commercial Law Act 2017 (NZ).
*Robinson v Harman* (1848) 1 Exch 850, 154 ER 363.
*South West Terminal Ltd v Achter Land & Cattle* [2023] SKKB 116.
*Stilk v Myrick* (1809) 2 Camp 317, 170 ER 1168.
*Williams v Roffey Bros & Nicholls (Contractors) Ltd* [1991] 1 QB 1 (CA).
