Auspine Ltd v Australian Newsprint Mills Ltd

[1998] FCA 22

FEDERAL COURT OF AUSTRALIA

CONTRACT - supply and purchase agreement - formation - offer and acceptance - absence of formally signed contract - alleged incompleteness and uncertainty - commercial agreements - implied terms - conditions of implication - business efficacy

CONTRACT - sale of woodchip - evidence of surrounding circumstances and conduct of parties admissible to determine whether concluded agreement - whether exchange of documentation setting out contractual terms condition precedent to binding contract - Masters v Cameron

W Howarth The Meaning of Objectivity in Contract (1984) 100 LQR 265
Professor Lucke Arrangements Preliminary to Formal Contracts 1967 Adel LR 46
Carter and Harland Contract Law in Australia 3 ed (1996)

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 applied
Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd
(1979) 144 CLR 596 cited
Codelfa Construction Pty v State Rail Authority of New South Wales (1982) 149 CLR 337 cited
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 cited
Hawkins v Clayton (1988) 164 CLR 539 followed
Byrne v Australian Airlines (1995) 131 ALR 422 followed
The Moorcock (1889) 14 PD 64 applied
Hillas & Co v Arcos Ltd (1932) 147 LT 503 applied
Vroon BV v Foster’s Brewing Group (1994) 2 VR 32 applied
Didymi Corp v Atlantic Lines and Navigation Co. Inc [1988] 2 Lloyd’s Rep. 108 cited
F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53 applied
Custom Credit Corporation Ltd v Cenepro Pty Ltd (unreported, C.A. (NSW)
7 August 1991) cited
Masters v Cameron (1954) 91 CLR 353 followed
Allen v Carbone (1975) 132 CLR 528 considered
Von Hatzfeldt-Wildenburg v Alexander [1912] 1 Ch 284 cited
Sinclar Scott Co Ltd. v Naughton (1929) 43 CLR 310 cited
Branca v Cobarro [1947] KB 854 considered

Rossiter v Miller (1878) 3 App. Cas 1124 applied

Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 applied
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 applied
Brogden v Metropolitan Railway Co (1877) 2 App. Cas 666 applied
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 (C.A(N.S.W.)) applied
Legione v Hateley (1983) 152 CLR 406 followed

AUSPINE LIMITED (ACN 004 289 730) v AUSTRALIAN NEWSPRINT MILLS LIMITED (ACN 009 477 132)

NO SG 26 OF 1997

O’LOUGHLIN J
ADELAIDE
23 JANUARY 1998

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 26  of   1997

BETWEEN:

AUSPINE LIMITED (ACN 004 289 730)
APPLICANT

AND:

AUSTRALIAN NEWSPRINT MILLS LIMITED (ACN 009 477 132)
RESPONDENT

AUSTRALIAN NEWSPRINT MILLS LIMITED (ACN 009 477 132)
CROSS CLAIMANT

AUSPINE LIMITED (ACN 004 289 730)
CROSS RESPONDENT

JUDGE

O'LOUGHLIN J

DATE OF ORDER:

23 JANUARY 1998

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

This matter be adjourned sine die with liberty to either party to relist it for mention on 14 days notice.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SG 26 of 1997

BETWEEN:

AUSPINE LIMITED (ACN 004 289 730)
APPLICANT

AND:

AUSTRALIAN NEWSPRINT MILLS LIMITED (ACN 009 477 132)
RESPONDENT

AUSTRALIAN NEWSPRINT MILLS LIMITED (ACN 009 477 132)
CROSS CLAIMANT

AUSPINE LIMITED (ACN 004 289 730)
CROSS RESPONDENT

JUDGE:	O'LOUGHLIN J
DATE:	23 JANUARY 1998
PLACE:	ADELAIDE

FINDINGS OF FACT AND LAW

On 22 January 1997, Mr Russell Horner, the managing director of Australian Newsprint Mills Ltd (“ANM”), the respondent in these proceedings, wrote the applicant, Auspine Ltd (“Auspine”) (Ex A279) saying:

“I refer to recent communications between representatives of our respective companies concerning our future relationship.

Having considered at length ANM’s position, it has been decided that ANM will discontinue its purchase from Auspine of sawmill chips.  Rest assured this is not a decision which we come to lightly.

We do not propose that supply of sawmill chips should stop with immediate effect.  Rather, as a gesture of good faith, ANM will continue to purchase the current quantities of chips until the end of March, providing they conform with specification”.

As a result of that letter, Auspine instituted these proceedings seeking, primarily, an order for specific performance by ANM of its obligations under an agreement, described in the statement of claim as “the 1995 agreement”.  Broadly, the case for Auspine is built around an allegation that in August 1995 ANM committed itself, for a term of three years, to purchase all Auspine’s woodchip that was produced at its Scottsdale mill.  It is Auspine’s case that ANM was not therefore entitled to discontinue its purchase of that chip as contemplated in its letter of 22 January 1997.  Auspine sought interlocutory injunctive relief; however it was not necessary for the Court to resolve that application for the parties came to an agreement that they would continue their trading arrangements pending the outcome of the substantive litigation.  Consent orders were made to accommodate the parties’ temporary resolution of their dispute.

The parties are also in dispute over the quality of some of the sawlog that ANM supplied to Auspine.  Auspine rejected deliveries of sawlog from the Star of Peace plantation on the ground that those logs were not to specification.  ANM has denied this allegation and has cross-claimed seeking damages as a consequence of Auspine’s refusal to accept that sawlog.  ANM is seeking further damages from Auspine alleging that it breached various agreements to supply sawmill chip to specification.

During the pre-trial processes, it was agreed by the parties that it would be expeditious to proceed to the trial of certain limited issues, leaving for a later date questions of the quantification of damages if and when they should arise; it is for this reason that these remarks are described as “Findings of Fact and Law”; in due course the parties will be able to make their submissions on the further prosecution of these proceedings.

Auspine has a very large operation in the timber industry in the south east of South Australia, in Victoria and also in Tasmania.  Although incorporated in Victoria, it has its head office in South Australia at Tarpeena, a small town near Mount Gambier.  Since 1987, Auspine has been the proprietor of a timber mill at Scottsdale in the north of Tasmania where it processes timber, and in particular, radiata pine, for sale in Australia and overseas.  The raw material that it purchases comes mainly from plantations in areas in the north of Tasmania and mostly from the Tasmanian Government.  When delivered to the mill, the timber that is relevant to these proceedings is known as “sawlog”.  At the mill the purchased timber is de-barked and then processed through a “green” mill; during this process logs are sawn into various sizes of timber.  Next the sawn timber (which is then unseasoned) is kiln dried through specially constructed kilns and thereafter it is “dry” milled, that being the finishing process before the timber is packed for dispatch to market.  In the main, the Scottsdale mill processes sawlog for the production of timber products suitable for structural use in the construction industry.  The standard of the timber so produced is higher than the standard known as “Merch” quality; “Merch” is used for posts, rails and other lesser purposes.

A by-product that is produced at the Scottsdale mill as a result of processing sawlogs is radiata pine chip, sometimes called “sawmill chip”, “woodchip” or “residue chip”; that woodchip is used in the production of paper and paper products.

ANM is the proprietor and operator of a newsprint and timber mill at Boyer, Tasmania.  It also owns and manages timber plantations, processes timber that is harvested from its own plantations and others and presents it for sale in the form of sawlog or pulpwood.  At the Boyer mill, ANM also produces woodchip: this comes from chipping timber that has been harvested from its own plantations or purchased from other timber harvesters.  That woodchip, along with chip purchased from external suppliers (of whom Auspine is one) is then used by ANM in its production of newsprint and other paper products.  Since its acquisition of the Scottsdale mill, Auspine has regularly sold to ANM residue chip that has been produced at that mill.

Until early 1997 when ANM gave notice that it proposed to discontinue its purchase of Auspine’s chip, the parties had had a long and important - albeit at times a turbulent - relationship.  An example of the importance of that relationship may be found in ANM’s letter of 25 February 1993 (Ex R14).  ANM wrote Auspine noting that Auspine supplied “almost a quarter of [ANM’s] annual intake” and commenting that ANM’s reliance on the Scottsdale mill’s performance was “to be conservative, important”.  To adjudicate upon the competing claims that each party has made, it is now necessary to have regard to the history of that relationship and, in particular, to the nature of that turbulence.

HISTORY:  1991 - 1995

A convenient starting point is a letter from ANM dated 15 October 1991 (Ex A3).  The letter was addressed to SEAS Sapfor Ltd, Auspine’s name until it changed to its present name on 18 May 1995.  After complaining that there were problems concerning the quality of Auspine’s chips, the author of the letter nevertheless went on to say:

“We are aware that our contract with you expires at the end of this financial year and in this context we would seek to commence negotiations for renewal of this contract for a further five year period.”

However, seven months later in May 1992, ANM wrote Auspine informing it that ANM would not be renewing the contract because of “on-going problems with chip quality”.  The letter said in part:

“We have written to you on previous occasions in relation to this matter and undertaken mill visits to discuss the matter with you personally and other members of your staff.  Notwithstanding this we continue to receive loads of chips which are contaminated with very large pieces of timber and metal objects that, together with an ongoing oversize problem, makes your chips unsuitable for ongoing use at our Boyer mill.”(Ex A4)

The letter ended with a conciliatory note to the effect that ANM may be prepared to reconsider the position if Auspine could demonstrate that it was able to overcome the problems of contamination and general chip quality.  It would seem that Auspine was able to meet ANM’s demands; following an inspection of Auspine’s Scottsdale mill, ANM wrote Auspine on 14 July 1992 in these terms:

“I wish to confirm that, providing the remaining quality problems with your chips could be rectified quickly (these appear to relate to removal of oversized slivers and occasional contamination with metal objects), then we will establish a new long term contract with you.  Size distribution of your chips now seems to be generally fairly good and in line with our specifications.  We would also like you to examine measures to improve the moisture content of your chips.

I understand that you now anticipate a long term chip volume of approximately 50,000 tpa and, in this regard, we would be prepared to enter into a five or ten year contract.”(Ex A7)

One of the most contentious issues in this trial was the identification of the specification that was applicable to the residue chip that was to be supplied by Auspine to ANM.  It was Auspine’s case that the parties had agreed in 1995 that the chip to be supplied would meet the specification that is and was used by the export section of Auspine in respect of woodchip destined for export markets.  That specification was described in evidence as “Auspine’s Export specification”.  ANM disagreed, claiming that the chip had to meet the “Boyer mill specification”, a specification which I accept as being higher than Auspine’s Export specification.  A second contentious issue was whether the parties had committed themselves in 1995 to a long term agreement.  ANM’s letter of 14 July 1992 (Ex A7) is therefore of interest in that, first, it refers to Auspine’s chips being “in line with our specifications” (which I take to be the Boyer mill specification) and secondly, it shows that ANM were looking for a long term contractual commitment from Auspine.

Auspine continued to supply woodchip while negotiations with respect to the terms of the contract continued.  In November 1992 Mr de Bruin, the managing director of Auspine wrote ANM on various issues, one of which was chip quality, stating:

“3.Chip quality to meet the attached specifications for size distribution (within reason), bark content and moisture, and must be free of foreign material (ie. no contamination).”(Ex A9)

The specification to which he referred was not identified by name but I have little doubt, having regard to the rest of the evidence, that it was Auspine’s Export specification.

By letter dated 23 February 1993 (Ex R13) ANM wrote Auspine complaining about contaminated chips.  The situation was described as “quite intolerable”.  The letter is also important for its mention of “our specification”, which I again take to be a reference to the Boyer Mill specification.  The letter concluded with the advice:

“We will not accept any further loads until these problems are rectified”.

Despite this ultimatum, the parties were able to resolve their problems.  Once again, deliveries resumed and negotiations resumed.  On 13 October 1993, Mr Neil (“Curly”) Humphreys, the general manager of the division known as ANM Forest Management, wrote Mr de Bruin thanking him for his participation in the development of “a new woodchip purchase contract” (Ex A15).  Mr Humphreys’ letter offered the following terms:

“1.ANM agrees to purchase approximately 55 000 green metric tonnes per annum of Pinus radiata woodchips from your sawmill at Scottsdale.

2.Chip quality must meet the attached specifications for size distribution, bark content and moisture, and must be free of foreign material.

3.An impartial sampling procedure will be implemented to assess chip quality compliance.

4.The term of the new contract will commence on November 1, 1993.  The contract may be determined by either party in writing 1 year in advance of the termination date.

5.ANM will pay a price of $36.40 per green metric tonne loaded on to truck or rail wagon at your mill.

6.The price will be indexed to movements in the average Australasian radiata pine FOB chip export price and the Australian/US dollar exchange rate, and will be adjusted at three month intervals thereafter in accordance with a formula to be mutually determined.

7.The terms listed above will form the basis of a new contract which will be drafted by ANM on receipt of your acceptance of the Heads of Agreement.”

Paragraph 2, as quoted above, referred to “the attached specifications”.  Unfortunately, no such specification was attached to the exhibit but, again, I am prepared to assume that it was the Boyer mill specification.

However, a week or so later, on 22 October 1993, a Mr Worley, who described himself as ANM’s “Softwood Harvesting Superintendent” wrote Auspine’s mill manager at Scottsdale complaining that “over the past four weeks your woodchip quality has been extraordinarily poor; in particular the occurrence of long, unprocessable slithers has caused us to reject several loads” (Ex R17).

It does not seem that there was an immediate response from Auspine to Mr Humphreys’ earlier offer of 13 October and so the matter dragged on.  But in early 1994, ANM’s sawlog had been drawn into the equation.  ANM approached Auspine, advising that several of ANM’s pine plantations were approaching a stage whereby they would be ready for harvesting.  It was suggested that it might be in the mutual interests of both parties for them to be involved in a two way contract whereby Auspine would supply residue chip to ANM whilst ANM supplied sawlog to Auspine.  On 14 March 1994 Mr T G H (“Geoff”) Bankes, Auspine’s general manager, Resource Management Division, wrote Mr Humphreys of ANM stating that Auspine was “interested in developing a long term arrangement with ANM Ltd for sawlog purchase” (Ex A23).

On 9 September 1994, Mr Paul Hingston of ANM sent a copy of ANM’s woodchip specification to Auspine; Exhibit R26 is a facsimile transmission from Auspine responding to Mr Hingston in these terms:

“Paul, I have discussed your chip spec as per your fax of 9/9/94 with Mike Brill our Q.C. officer and we agree that your spec is acceptable and achievable to us as printed.”

Although the term “Boyer mill specification” was not used, I am satisfied that these transmissions were referring to that specification.  I am also satisfied that in the period immediately following these transmissions the Scottsdale mill was, to the best of its ability, attempting to supply chip to the Boyer mill specification.

The matter progressed to the point where ANM’s Mr John Simpson, wrote his company’s solicitors by letter dated 21 October 1994, (Ex A29) instructing them to prepare a draft agreement for the purchase of woodchip from Auspine.  A matter of relevance to these proceedings that was referred to in the letter of instruction was a reference to a particular specification set out in the schedule to that letter with the note that ANM, in its discretion, could either reject any load that failed to comply with the specification or apply penalties.  The letter also stipulated that the term of the agreement was to be for a period of five years commencing on 1 January 1995.

The letter of instruction did not, however, make any mention of ANM selling sawlog to Auspine.

At about the same time, Auspine prepared a document entitled “Memorandum of Understanding” (Ex A31).  The introductory sentence of that document was as follows:

“This memorandum sets out the basis of an intended agreement between SEAS Sapfor Ltd (“SEAS”) and A.N.M. Forests Ltd (“ANM”) for purpose of purchase and sale of Pinus radiata sawlogs and sawmill residue woodchip.”

One of the terms of this document was to the effect that the volume of sawlog that ANM would make available to Auspine for purchase would increase from 20,000 cubic metres in 1995/96 to “a desirable level” of 200,000 cubic metres by the year 2000:  (the parties are in agreement that a cubic metre approximates one tonne).  This reference to the year 2000 was perpetuated in correspondence from both litigants but it was the evidence of witnesses for ANM that it was a mistake and that it should have been a reference to the year 2010.  The issue generated some controversy but I do not attach much weight to it.  I am inclined to the view that I should accept the evidence of ANM’s witnesses on this subject.  There was no reason for them to state falsely their company’s likely future production.  In any event, Auspine failed to establish how they were misled by the erroneous reference to the year 2000.  Indeed, there is reason to believe that Auspine was initially the party responsible for inserting the incorrect year and that ANM’s error was merely its failure to note Auspine’s mistake.

The Memorandum of Understanding also included a term that ANM was to purchase all the sawmill residue chip from Auspine’s Scottsdale mill.  This is another factor that has achieved a measure of importance in this litigation.  Auspine lacked facilities at the Scottsdale mill to stockpile unsold woodchip.  Residue chip can deteriorate over a period of time and hence, so it was claimed, Auspine was concerned to establish an outlet for the disposal of all its woodchip.  The Memorandum contemplated the parties completing and executing two agreements - one called the “log supply agreement” and the other called the “wood chip agreement”.  A copy of that Memorandum of Understanding was forwarded to Mr Humphreys.

Mr Humphreys wrote Mr Bankes by letter dated 25 November 1994:  (Ex A33).  He made no mention of the Memorandum of Understanding nor of its contents but he addressed in detail issues of pricing for the residue chip and the sawlog, setting out a series of calculations as examples of his proposals.  Both pricing structures were based on export prices and I find that both parties were happy to adopt export parity as a base for establishing the ultimate sale price of their respective products.

Mr Humphreys wrote Mr Bankes again on 12 December 1994 (Ex A36).  On this occasion Mr Humphreys said that ANM would purchase all Auspine’s sawmill chips generated from Scottsdale.  He referred to a “five year rolling term” and concluded by saying that “an arrangement for the sale of sawlogs from ANM forests to SEAS will be put in place”.  This letter brought an immediate response from Mr Bankes on 13 December (Ex A37).  After stressing the importance of a “reliable and consistent market for all our residue chip from Scottsdale” Mr Bankes said:

“As the mill is now consistently producing woodchip of a quality acceptable to ANM the purchase of all this material as it is produced should not present a problem.”

He then accepted the various proposals that Mr Humphreys had set out in his letter save that he said that Auspine preferred a three year rolling term.  ANM replied to Mr Bankes’ letter by letter dated 22 December  1994 (Ex A40).  It was signed by Mr Arnold Willems, the acting general manager of ANM Forest Management.  The letter stated in part:

“With reference to the conditions you have placed on ANM’s previous offer these are acceptable, except for the interim increase of price from the 1 January 1995.”

The question of price was, of course, of critical importance, but it would seem, nevertheless, that the parties were moving closer to a concluded agreement.

Then on 13 January 1995, Mr Humphreys sent Mr Bankes a draft agreement (Ex A41) for his perusal and comments.  The draft had been prepared by ANM’s solicitors; it addressed several of the issues that have been debated throughout this trial:

• in recital D it contained an acknowledgment that the Pinus radiata chips that were produced by Auspine at its Scottsdale mill “will meet” ANM’s “requirements and specifications”;

• rather than containing a commitment to purchase all the chip, there was a provision for an annual maximum of 80,000 tonnes with a minimum of 45,000 tonnes;

• all chip sold was to comply with the specification contained in the sixth schedule to the draft;

• The sixth schedule was attached to the draft agreement; it contained a specification entitled “Fine Chip Specifications 100% Pinus Radiata”.  The schedule also contained particulars of chip sizes plus provision for bark and slivers with some additional comments one of which was as follows:

“It is agreed and acknowledged ... (that) it is desirable to consistently have higher percentages of 25mm, 22mm, 16mm chips, as indicated by ANM’s Pine Chip Plant specifications.  Those upper levels indicate expectations, given current constraints but the longer term goal is for an upward trend in percentage of chips in these sizes.”

• the term of the agreement was expressed to be five years, rolling over on an annual basis for a further term of five years commencing on the day after the expiration of the first year of the original term and the first year of each successive term, with a maximum term of twenty years unless earlier cancelled.

The agreement did not contain the price payable by ANM for the residue chip.  There was a statement in the draft that it was “to be agreed”.  Furthermore, the agreement made no mention of the sawlog that ANM was to sell to Auspine.

On 31 January 1995, Mr Humphreys submitted a confidential memorandum to his managing director, Mr Ogilvie (Ex A42).  Mr Ogilvie, who gave evidence in the trial, resigned as managing director of ANM in mid September 1995 to take up a position in Malaysia.  He was ultimately replaced by Mr Horner in that position.  I regard Mr Ogilvie as an impressive and truthful witness and aspects of his evidence have been of material importance to me in coming to some of my conclusions.  Mr Humphreys’ memorandum dealt only with the subject of chip residue; it did not mention the sawlog.  The opening sentence of the memorandum was as follows:

“On 24/1/95 the following deal was concluded with Geoff Bankes, General Manager of SEAS for the supply of sawmill chips from Scottsdale to Boyer.”

But the concluding sentence showed that the parties had not yet made firm contractual commitments.  It read:

“The major uncertainty of this arrangement is of course Adrian Debruin (sic).  I made it clear to Geoff Bankes that if Adrian comes over the top (which is his entitlement as Managing Director) we would not review only one issue but all issues would be open for review.  Geoff accepted this and he felt confident that Adrian would agree to this deal.  We await confirmation sometime next week.”

The deal to which Mr Humphreys referred in his memorandum to Mr Ogilvie covered the following subjects:

• a five year rolling term

• the purchase by ANM of all chip produced by Auspine at the Scottsdale mill

• each party to increase its storage facilities

• on “Price” and “Indexation” the memorandum said:

“$36/tonne.  Current price is $31.50/tonne and the current residual export price is $37.45/tonne (see calculation attached).  We are disappointed to suffer the price increase but given the export price and the built in long-term security of these arrangements $36 is not an unreasonable price.

Prices will be indexed January 1 each year and will be based on chip export prices from Australia of radiata and the West Coast transaction price of newsprint.”

• the term of the agreement was to commence on the “Signing of Heads of Agreement”.

Unfortunately, Mr de Bruin did come “over the top” and so the expected agreement failed to materialise.  On 2 February 1995 Mr Bankes wrote Mr Humphreys (Ex A 44) telling him that Mr de Bruin was seeking a higher price - $38 per tonne - for the residue chip with six-monthly pricing reviews.  Mr Bankes also wrote that Auspine sought a rolling term of three years in lieu of the five years suggested by ANM.  Mr Bankes wrote Mr Humphreys again on 15 February 1995 (Ex A45).  This letter came shortly after a conference that had occurred in Canberra a week earlier involving representatives of the parties.  Mr Bankes wrote:

“We remain firm on price but are prepared to accept a 5 year agreement for both residue woodchip and sawlog sale/purchase.”

In this letter there was another reference to 200,000 cubic metres of sawlog being available by the year 2000.

The next item of correspondence was a letter dated 28 February 1995, Ex A 47, from ANM’s Mr John Simpson to Mr Bankes in which ANM accepted the higher price of $38 per tonne.  Mr Simpson stated in his affidavit affirmed on 16 May 1997 that he had been employed by ANM in its division known as ANM Forest Management for approximately eleven years.  For the last four of those years, he had worked in a position that carried the title Fibre Supply Manager.  In his letter of 28 February, Mr Simpson, a witness in the trial, perpetuated the reference to the year 2000 saying:

“4.      Sawlogs

(i)ANM to give SEAS the first right to purchase sawlog on a ratio based on woodchip deliveries to ANM.

(ii)Sawlog sales will be made from ANM’s statewide operations and will vary from time to time.  For the next five years a minimum indicative volume would be in excess of 10 000 cubic tonnes rising to some 200 000 tonnes by the year 2000.

(iii)Delivered price at Scottsdale will be the equivalent market value by grade and specification.”

Mr Simpson and Mr Humphreys remained adamant in their evidence however, that the reference to 2000 was an error and that it should have been 2010.

At this stage, although ANM had agreed the increased price of $38 per tonne, the parties had not agreed on the method of indexing price reviews.  The parties continued to negotiate and correspond throughout March including one particular letter, Ex A48 dated 3 March 1995, from Mr Jim Panagopoulos of Auspine to Mr John Simpson.  Mr Panagopoulos described himself as “Strategic Planner Manager Resource Management”.  He wrote in response to Mr Simpson’s letter to Mr Geoff Banks dated 28 February 1995, Ex A47, and among other things, he confirmed in his letter that it had been agreed that $38 per tonne ex Scottsdale was the price to be paid by ANM for residue chip.  He added “this has been implemented”.  He also said that it was his understanding that the figure of $38 per tonne was to be back dated to 1 January 1995 but he also noted, as was the case, that Mr Simpson had said in his letter of 28 February 1995 that “the implementation date would be on exchange of letters between our respective managers”.  As to this, Mr Panagopoulos said in his letter, “this point needs clarification”.  Mr Panagopoulos further wrote that the question of the agreed sawlog price still remained unanswered and that Auspine was still seeking confirmation from ANM that Auspine’s current sawlog price of $54 per cubic metre delivered to Scottsdale would be the base figure for initial deliveries.  Mr Panagopoulos also acknowledged that another outstanding issue was that dealing with periodic price reviews.

Mr Ogilvie, as ANM’s managing director, wrote personally to his counterpart, Mr de Bruin by letter dated 7 March 1995:  (Ex A49).  This letter added little to the resolution of the outstanding matters although it did contemplate that the parties would ultimately sign “Heads of Agreement” and it reaffirmed “the authority of Curly Humphreys, General Manager of ANM Forest Management to conclude the agreements without further recourse to me”.

On 23 March 1995 Mr Humphreys wrote Mr Bankes (Ex A55) saying, among other things:

“Prices

We have agreed that the price to be paid for both woodchip and sawlog is the export parity discounted to reflect local conditions.

In the case of woodchips from SEAS this has been done and agreed to at a rate of $38.00/tonne ex the Scottsdale sawmill.

For softwood sawlogs you have suggested the benchmark be export “K” grade sawlogs priced ex NZ ports to which we agree.”

Mr Humphreys then proceeded to set out his method of calculating the price of the sawlog to be delivered to the Scottsdale mill.  Later in his letter, Mr Humphreys referred to “Strategic Issues”, a term that had earlier been used in correspondence between the parties.  Under that heading, he said:

“The strategy issue is important and covers more than a simple price differential.  The benefits to both parties from a partnership can be summarised, in no particular order of importance, as follows:”

The benefits to Auspine  and ANM were then listed.  They included a guaranteed market for Auspine’s chip residue and a guaranteed source of that chip for ANM.  However Mr Humphreys sought to apply a measure of pressure to Auspine as he concluded his letter by saying:

“Finally, I reiterate that existing prices and conditions will continue until heads of agreement are signed.  I repeat that no back payment will be made.”

Mr Humphreys’ letter brought an immediate reply from Mr Bankes and with it the parties grew further apart.  Mr Bankes’ letter was dated 24 March 1995 (Ex A56).  He disagreed with aspects of Mr Humphreys’ pricing calculations and he complained that ANM had still failed to commit itself to the quantity of sawlog that it would supply over the next five years.  Perhaps the issue that most upset Mr Bankes was ANM’s refusal to pay $38 per tonne for back deliveries of woodchip.  His complaint with respect to this subject was followed by the statement:

“It seems to us that we are being pushed towards the export alternative, an option that we have not discarded.”

The reference to “the export alternative” meant that Auspine would be looking to sell its woodchip through the export market.  If this were to happen it would deprive ANM of an important source of supply.  Mr Humphreys conceded, during the course of his cross-examination, that this statement was a matter of concern to ANM.  In fact, ANM was so concerned that it wrote the Commonwealth Minister of Resources on 1 June 1995 (Ex A84) in the hope that the Minister would intercede and prevent Auspine from entering the export market.  Mr Humphreys seemed reluctant to acknowledge what was obvious.  He agreed that Auspine’s alternative plan to enter the export market was “a real possibility” (T848).  The following passage from his cross-examination exhibited his extreme discomfort about aspects of ANM’s conduct in this matter.  It was not the only occasion when I had cause to be concerned about Mr Humphreys’ reliability as a witness:

“That is why you and Mr Simpson set up the strategy to block those export attempts, was it not? --- Yes, we put our case to the Minister. It was his decision of any blocking.

Yes, I know, but I am talking about your strategy. I will put it again: it was because you knew that it was a real possibility that Auspine would go into export sales that you and Mr Simpson set up the strategy to block those attempts, was it not? --- We put our case to the Minister and it was his decision.

Mr Humphreys, I will do it once more. It is very simple if you just follow it through. Forget about the Minister for the moment and what you in fact did. What I am asking you about is why you did it. I will put it again. Because you knew that it was a real possibility that Auspine would go into export sales you and Mr Simpson set up the strategy to block those attempts, did you not? --- Yes, we put our case to the Minister.

Because you realised it was a real threat to you? --- Because we wanted to use their chips.”  [T848]

On 21 April 1995 Mr Bankes wrote Mr Humphreys (Ex A65) in reply to a letter from Mr Humphreys’ dated 4 April (Ex A57).  Because of its importance, it is desirable to set out the full text of Mr Bankes’ letter as it clearly identifies the contentious issues that were confronting the parties at that particular time:

“Thank you for your communication dated 4 April and advice that the sawlog supply likely to be a available for purchase by S.E.A.S is limited to around 10,000 cubic metres per annum over the next 5 years.

This quantity falls well short of our expectations being no more than 4% of our current availability.  In other words the volume over the next 5 years is insignificant.

Our view is that the strategic alliance as put is very heavily in favour of ANM Ltd as we were talking about supply of 100,000 tonnes of quality residue woodchip per annum against a meagre log supply.

Accordingly we are unable to continue to make available for sale residue woodchip at current and future production levels at less than world prices where there is insufficient sawlog on a reciprocal basis to reach a strategic position that is mutually beneficial to all parties.  This position is exacerbated by ANM Ltd refusal to pay for the residue woodchip from 1 January, 1995 at a rate stated in my letter dated 24 March, 1995 and as had previously been agreed upon subject to clarification of sawlog availability.

Supply of woodchip from our Scottsdale sawmill to ANM Ltd will therefore be phased out week commencing 24 April, 1995.”

Auspine had taken the decision to cease supplying ANM with woodchip because during the month of April it had succeeded in establishing a commercial arrangement to export woodchip through North Forest Products, a Tasmanian division of North Broken Hill Ltd (which held an export licence) to Mitsubishi.  Auspine commenced deliveries of woodchip to North Forest Products on 26 April 1995 and negotiated with Mitsubishi to the stage where Mitsubishi submitted to it on 16 May a draft of a long term (five year) contract for the supply of pine woodchip.  Exhibit A63 is a facsimile transmission from Mr Mike Plummer, Auspine’s Export Harvesting manager, to North Forest Products dated 21 April 1995, informing of Auspine’s intention to start moving woodchip immediately to North Forest Products’ Burnie facility at the rate of approximately 1,000 green tonnes per week.  No fixed term appears to have been agreed as Mr Plummer’s letter said that Auspine will continue “to monitor this new arrangement with a view to development of long term business relationship”.  The evidence of Mr Plummer (T290) made it clear that Auspine was intending to apply for an export licence so that it could deal directly on the overseas market and with international purchasers such as Mitsubishi.  As Mr Plummer acknowledged, its arrangements with North Forest Products would be “short-term”; Auspine was intending to by-pass North Forest Products if and when it obtained its export licence.

Mr Humphreys sought to retrieve the situation.  He wrote Mr Bankes on 27 April, (Ex A67) acknowledging Mr Bankes’ letter of 21 April, (Ex A65), warning that North Forest Products could be in breach of its export licence conditions by exporting Auspine’s chips, but nevertheless saying:

“Your rejection of sawlog purchases from ANM is accepted.  Because of your previous desire to amalgamate sawmill chip and sawlog sales in the one agreement, there is now no impediment to concluding our agreement on sawmill chips.

As you know we have been in agreement that the sawmill chip purchases should be at commercial rates.”

Mr Humphreys concluded by urging that the parties meet and confer.  The latter part of Mr Humphreys’ letter shows clearly that Auspine had the upper hand at that stage:

“Given your precipitous discontinuation of chip supply it is frustrating that you cannot meet ANM before the week commencing May 8.  If you should reconsider this, I am available on May 3, 4 or 5 in Mt Gambier or Melbourne.  I am also available on May 10 or 12.”

Mr Bankes applied further pressure.  On 8 May 1995, he wrote Mr Humphreys (Ex A74) telling him that Auspine would not agree to hold further discussion unless ANM first paid it $197,676.50.  Previously, Auspine had sought back-payments from 1 January 1995, but the figure of $197,676.50 was the amount required to bring back payments for woodchip since 1 July 1994 up to $38 per tonne.  ANM refused to meet this condition, Mr Ogilvie describing it as “very provocative” (T520) and Auspine ultimately withdrew it.  Mr Ogilvie said the withdrawal of that condition “was a great relief to us”.  Nevertheless it represents a useful indicator of the hard bargaining that was then evident.  Meanwhile, ANM was taking legal advice, not only with respect to its position with Auspine, but also with respect to the conditions attaching to North Forest Products’ export licence.  It is clear to me and I so find that ANM was attempting to close off this outlet as a source of sales for Auspine so that Auspine would be forced to deal with ANM.  In my opinion, the material that has been extracted from the documentary evidence to this stage in the parties’ negotiations justifies a finding that ANM was most concerned to reactivate the supply of residue chip to it by Auspine and, for that purpose, it was prepared to commit itself to long term arrangements for the supply of that woodchip.  Whether it did or did not so commit itself remains to be considered, but the circumstances clearly point to a willingness on its part to do so.

JUNE - JULY 1995

Ultimately the parties were able to arrange a meeting on 2 June 1995 at Auspine’s Tarpeena premises in South Australia.  Mr Humphreys and Mr Simpson attended the meeting on behalf of ANM; Mr de Bruin and Mr Bankes represented Auspine.  The ANM representatives at the meeting reported the results of the meeting to Mr Ogilvie who wrote a report to his Board of Directors on 6 June (Ex A90).  Mr Ogilvie first submitted a draft of his report to Mr Humphreys who made certain amendments to it.  There are several aspects of that report that warrant a mention:

• Mr Ogilvie reported that the loss of Auspine’s chip “would incur an incremental cost of around $4 million p.a. at current pulp prices”.  The passage just quoted had appeared in the draft that had been examined by Mr Humphreys.  Mr Johnson, an expert witness who was called to give evidence on behalf of ANM, rejected this figure, agreeing that it was “ridiculous” (T1040); he thought the increase would be about $160,000.  It is not necessary to resolve this disagreement.  The matter of importance is that Mr Ogilvie and Mr Humphreys both thought the size of the loss would have been the figure of $4m and that would have been the figure that influenced the report and their thinking.

• Mr Ogilvie acknowledged that from June 1994 (ie for the preceding twelve months) the quality of Auspine’s chips “complied with specification”.  The details of the specification were not discussed but it is a fair inference that Mr Ogilvie would have been referring his Board to his company’s specification; that is, the Boyer mill specification.

• Mr Ogilvie wrote that it would be “an understatement to say negotiations have been difficult”.  He instanced five examples, each of which should be mentioned.

  “-       Lingering angst from Boyer’s rejection of chips

  -Rapidly escalating, profitable alternative opportunities for Auspine on export markets

  -       An accepted method of determining export price parity

  -The practice of Auspine MD, Adrian de Bruin, “coming in over the top” of agreements made with Operations Manager, Geoff Bankes

  -Auspine’s desire to gain export parity for their chips but not to value ANM’s sawlog supply to them on the same basis”

However, Mr Ogilvie was able to conclude his report on a happier note.  He said of the 2 June meeting that Mr de Bruin had taken “a responsible position”, that there were “some loose ends to be tied up this week” and that a final exchange of letters “was anticipated by mid June”.  He further reported that he and Mr Humphreys would be meeting with Mr Bankes on 9 June; he described that as a “deal finalisation meeting”.  He said that Mr de Bruin would not be present at the 9 June meeting.  Apparently Mr de Bruin had other commitments.  However, Mr Ogilvie reported that Mr de Bruin would attend “an expected celebratory dinner ... on Sunday, June 11 to consummate the deal”.  The contents of Mr Ogilvie’s report to his Board, although preceding the meeting of 9 June and the celebratory dinner two nights later, points to an expectation on the part of Mr Ogilvie that there was to be a contractual commitment that would be binding on both companies.  Having regard to Mr Humphreys’ evidence as it unfolded, it is of significance that Mr Ogilvie made no mention of the chip specification in his report to the Board of ANM; nor did he report that Mr Humphreys and Mr Simpson had experienced any difficulties with Mr de Bruin on the subject of chip specification at the 2 June meeting.  There were difficulties at that meeting and they are referred to in some detail later in these findings.

The meeting of 9 June duly took place at the Tarpeena office of Auspine.  Mr Ogilvie and Mr Humphreys represented ANM and Auspine’s representatives were Mr Bankes, Mr Michael Young and Mr Michael Plummer.  Mr Young was General Manager of Auspine’s Manufacturing division.  That entailed the responsibility for the manufacturing process of sawlog to finished product at a number of mills in South Australia, Victoria and Tasmania (including, of course, the Scottsdale mill).  Mr Bankes’ division, “Resource Management”, covered plantation management, plantation harvesting, plantation investment and the production of woodchip.  There are other divisions in Auspine - “marketing” and “international” being two that were mentioned, but those other divisions are not relevant to these proceedings.  In the hierarchy of Auspine Mr Young was on the same level as Mr Bankes; they were each answerable directly to Mr de Bruin as managing director and later to Mr Ryan when he was interposed as deputy managing director.  Because of his relatively junior position, Mr Plummer said that he had little participation in the meeting.

Of all those present, only Mr Young of Auspine was able to produce any contemporaneous notes and they were, with one exception, of no value.  The exception was an entry “Chip specification - Export Quality”:  suggesting, at the least, that the subject was discussed and, at the most, that the specification was agreed.  The subject of notes gives rise to another instance where I found disquiet with respect to Mr Humphreys’ evidence.  He positively asserted that he took no notes of the meeting.  Yet his superior, Mr Ogilvie, although acknowledging that he had no memory one way or the other, said that he would have expected Mr Humphreys to have taken notes, that taking notes would have been normal practice and that Mr Humphreys was “an excellent note-taker” (T529), a compliment that Mr Humphreys denied when it was put to him (T794).

Mr Humphreys, in his attempts to establish that Auspine’s Export specification had been raised by Auspine and rejected by ANM at the meeting of 9 June, clashed with Mr Ogilvie.  As Mr Humphreys would have it, there was an open discussion on the subject with Mr Bankes actually saying:

“We would like the agreed chip specification to be based on Auspine’s export specification” (par 38 of Mr Humphrey’s affidavit, affirmed on 16 May 1997).

According to Mr Humphreys, Mr Ogilvie then gave a lengthy answer, explaining how the Boyer mill is a mechanical mill and that the chip specification for a mechanical mill is more stringent than for a chemical mill.  Mr Humphreys said that he added to Mr Ogilvie’s remarks by commenting that ANM would have to rescreen all the chip if it did not meet the Boyer mill specification “and that would not be acceptable”.  Yet Mr Ogilvie in his evidence said that there was virtually no discussion on the subject of chip specification.  In fact, his evidence was that he would have “erupted” at the suggestion of using Auspine’s Export specification.  Mr Ogilvie’s contradiction of Mr Humphrey’s evidence cannot be explained away as a lapse of memory on Mr Humphreys’ part.  I feel that I must reject Mr Humphreys’ evidence on this subject in preference to that of Mr Ogilvie.  I find, based on the evidence of Mr Ogilvie that there was virtually no discussion on the subject of chip specification at the meeting of 9 June.

I also find myself unable to rely on aspects of Mr Bankes’ evidence.  It is quite clear that his memory of some important events is deficient.  For example, in preparing for these proceedings, Mr Bankes swore an affidavit on 24 March 1997 deposing to events that allegedly occurred at the meetings of 2 and 9 June; he was clearly confused.  In par 10.5 of his affidavit, Mr Bankes stated that he recalled Mr de Bruin saying words to the effect “chip quality will be to export specification and not to any other standard”.  He then added that he recalled Mr Ogilvie saying words to the effect “we will accept that”.  Mr Bankes was wrong.  Not only did he mix up the events of the meetings of 2 and 9 June but he was wrong in deposing to Mr de Bruin and Mr Ogilvie being present at the same time at either meeting.  Mr de Bruin was present at the meeting of 2 June but Mr Ogilvie was not; Mr Ogilvie was present at the meeting of 9 June but Mr de Bruin was not.  I am satisfied that Mr Bankes has engaged in reconstruction and I cannot rely on his memory.  Once again I prefer the evidence of Mr Ogilvie.

Mr Ogilvie said (T493) in respect of the meeting of 9 June that he could not remember “any discussion on whether it was meeting Boyer’s specification or not”.  As I have said Mr Ogilvie impressed me as a witness of truth.  The following passage from his evidence satisfies me that there were no detailed discussions on the subject of the requisite specification at that meeting:

“Are you saying - I am not sure whether I followed - that there was no discussion at all about the chip specification at that meeting? --- I cannot remember any discussion on whether it was meeting Boyer's specification or not. I know had it have been export specification then my whole - my whole 11 years of experience would've erupted. I just would've - would've done nothing else but say, "Hey, hey, it's crazy. We can't accept that. We can't chip" and why would they've brought it, if I can ask a question?

So just to make the clear, you say if it had been brought up you would have to use your words - erupted? --- Yes.

But you did not do that, did you? --- No, I didn't erupt. It was a peaceful, harmonious positive relation-building meeting.

You did not have any discussions about Auspine export specification at all? --- No, it would've been inflammatory to me.

No mention of specification at all whether it be Auspine export, ANM or any other source? --- No, I said I couldn't remember whether it had been – been ANM or not. I presume we did discuss it but I have no specific memory so long ago.

I put it to you again that you were desperate; Auspine's chip standard was high and had been so for some months; that you had agreed already to take all of their chip and that you then agreed to take it on the basis that it was to Auspine export's specification? --- I certainly didn't do the latter and I would never have done the latter. [It] just wouldn't have made newsprint that was satisfactory for my customers. It was an impossible ask. It's - it's that important.” [T493]

The interesting feature about this passage of Mr Ogilvie’s evidence is that it must be reconciled with Mr Humphreys’ evidence that Mr de Bruin was “adamant” at the earlier meeting of 2 June that Auspine would only supply chip to Auspine’s Export specification.  Although Mr Simpson would not agree that “adamant” was the appropriate word, he accepted that Mr de Bruin “was a strong personality” and was maintaining that “it had to be Auspine’s export specification” (T1068).  Mr Humphreys conceded, more than once, during the course of his evidence (T 835, 843, 855, 857-859) that at the 2 June meeting Mr de Bruin was “adamant” that any residue chip that would be supplied by Auspine to the Boyer mill was to meet Auspine’s Export specification.  But he also claimed that he told Mr de Bruin that the chip had to meet the Boyer mill specification; he agreed that this therefore amounted to a contradiction of Mr de Bruin’s proposal (T861).  He said also that he told Mr Ogilvie about the stand that Mr de Bruin had taken.  I cannot accept that statement.  If Mr Humphreys or Mr Simpson had reported in those terms to Mr Ogilvie, he would have said so in his evidence and he would have included in his report to his Board some reference to the disputed subject of the specification.  If one managing director was “adamant” that his company’s specification was to be used and if the other managing director would have “erupted” at that suggestion how did the two companies reach a solution that allowed Auspine to resume delivering residue chip to ANM’s Boyer mill?  There is, in my opinion, only one answer to that question:  the truth was withheld from one or perhaps both managing directors.  In particular, I find myself unable to believe Mr Humphrey’s assertion that he told Mr Ogilvie that Mr de Bruin was “adamant” about the use of Auspine’s Export specification.

At p 847ff of the transcript it was put to Mr Humphreys in cross-examination that ANM was “desperate” to get a resumption of deliveries of Auspine’s woodchips.  He denied that his company was desperate but his denials did not impress me.  The probabilities are that at the meeting of 9 June Mr Humphreys and Mr Bankes avoided the issue of identification of any specification but instead, proceeded on the understanding that Auspine would maintain the standard that had existed for the preceding twelve months.  That standard (by whatever name called) had, with the occasional exception, been acceptable to the Boyer mill.  Why then should there be a need to put a label on the standard just to satisfy the dictates of a managing director?  Such an explanation would explain why there was little discussion, according to Mr Ogilvie, on the subject of the specification at the 9 June meeting.  If this explanation is not the appropriate finding, one wonders how the parties could have come together and resumed their trading relationship in light of the diametrically opposed views of the two managing directors.

In his final submissions, counsel for Auspine pressed for a finding that there had been agreement that Auspine’s Export specification would be accepted; he submitted that the idea of a “hybrid” specification was “fanciful”.  As I have made a finding that I prefer Mr Ogilvie’s evidence on this subject, it follows that it would be inconsistent for me to make a finding that Auspine’s Export specification was the applicable specification.  Far from being fanciful, it is strongly arguable that the so-called hybrid specification was seen by Mr Humphreys and Mr Bankes as a practical solution to an otherwise insoluble problem.

The celebratory dinner was duly held, as planned, on 11 June 1995.  Presumably, the parties were of one mind that the final terms of the agreement were virtually agreed upon and that it only remained for Mr Humphreys and Mr Bankes to work out the details.  In fact those two gentlemen met in Hobart on 6 July along with Mr Jim Panagopoulos and Mr John Simpson where they discussed prices for chip and sawlog and exchanged their respective calculations (Ex A98A and Ex 100).  Shortly thereafter, Mr Bankes wrote Mr Simpson of ANM on 26 July (Ex A105) setting out “matters to be incorporated into the agreement”.  The six matters listed in that letter were:

“(1)     Pricing of sawlog/woodchip to be reviewed every three months.

(2)Prices to be based on independently verified export pricing average calendar month preceding quarterly review.

(3)     Chip quality to be based on export specification.

(4)     Log specification as per supplied.

(5)Term of agreement to be agreed upon, suggest 3 years with annual review of volumes.

(6)Letter of agreement to be used in preference to formal legal agreement.”

Mr Bankes concluded his letter by saying:

“If you are prepared to accept the above in principle we can move to putting a letter of agreement into place whilst at the same time fine tuning the dollars.”

Counsel for ANM made much of the phrase “based on” appearing in the third point of Mr Bankes’ letter.  That point could have read “Chip quality to be [Auspine’s] export specification”.  The difference in terminology affords some support to the probability that there were attempts by members of each group to avoid the confrontation that would otherwise have arisen if either party had insisted on its specification being nominated as the approved specification.  Interestingly, the expression “based on” appears a year later in a facsimile transmission from Mr Simpson to Auspine dated 25 July 1996 (Ex A237); and the same gentleman, earlier in September 1995 (Ex A129), referred to chip supply having been “structured on” export specification.

In his letter of 26 July 1995 (Ex A105) which was entitled “Strategic Alliance”, Mr Bankes also set out his “Assumptions” and “Calculations” which led Mr Simpson to submit an internal memorandum to Mr Humphreys on 3 August 1995 (Ex A110) describing the proposal for a “Strategic alliance” as an “insult”.  Mr Simpson added that ANM should look at its options including its earlier attempt to block Auspine from making export sales.  Once again, so it would seem, the parties were at loggerheads.  But there was an early reversal of this trend.  Mr Humphreys wrote Mr Bankes on 11 August 1995 (Ex A112) confirming the understanding of the parties with respect to various matters such as exchange rates, the chip export and sawlog prices, costs of money, cartage costs, a term of three years and so on.  In terms of determining whether the parties had yet reached a concluded agreement, the following entries in that letter are relevant:

“...  our arrangements will be documented by an exchange of letters.

Both chip and log specifications will be documented in these letters and will conform to our current understandings.

...

John Simpson will work with Jim Panagopoulos to determine the cost inputs for the initial deliveries which are scheduled for 14/8/95.”

Counsel for ANM was, to a degree, critical of this letter for, as he pointed out, it did not address what was to happen if components of the export price - such as cartage and port charges - were to change.  However, I do not see how this omission can be cause for concern.  There was no evidence that any components of the export price or of costs were altered in terms that brought disagreement between the parties.  On the contrary, the evidence reveals that in the period of seventeen months - from August 1995 to January 1997 - the parties were able to maintain (in financial terms) a harmonious and consensual relationship.  There is no point in speculating on what might have happened if at some stage in the seventeen month period the parties had found themselves unable to agree upon an issue of costing that had occurred as a result of some extraneous force.  There were other criticisms of this letter by counsel for ANM but I will defer consideration of them until later in these findings.

Mr Humphreys, as the author of the letter, was asked to explain what he meant when he wrote that specifications will “conform to our current understandings”.  I do not understand there to be any dispute about the log specification; it was put to Mr Humphreys and he agreed that it was the Forestry Tasmania specification (T876).  As to the chip specification, Mr Humphreys was asked at the same page whether his “current understanding” was that which Mr Bankes had written in his letter of 26 July: Ex A105:  ie “based on export specification” or whether he was referring to ANM’s Boyer mill specification.  In answer, Mr Humphreys said the two were not mutually exclusive:

“... they would be based on export chip specifications and they would meet the requirements of the mill.”(T877)

I am sure that Mr Humphreys never informed his superior, Mr Ogilvie that he was - or had been - negotiating with Auspine in these terms.  It is another indicator that Mr Humphreys was, indeed, “desperate” to effect a resumption of the supply of chips.  This compromise was also advocated by Mr Simpson in his evidence:

“But the current understandings on what you have told us was that on the one hand Auspine was saying: Auspine export specification. On the other hand ANM was saying: Boyer Mill specification, and never the twain shall meet? --- No, not quite correct.

Was there something in between was there? --- Mr de Bruin was saying Auspine export specification. Mr Bankes was saying based on Auspine export specification. My understanding was that there would be a mutual agreement where the Auspine export specification and the Boyer requirements could be blended and merged with some change to make them fit.

Did you get that understanding from speaking with Mr Bankes or from Mr Humphreys telling you he had spoken with Mr Bankes? --- No, from Mr Bankes' correspondence.

I will show it to you so that we just get it correct. It is document 106 (sic) please, Mr Associate. I think if you look at the top of the second page is probably what you are referring to? --- Yes, it is.

So you saw that letter because it was in fact addressed to you? --- Yes.

And did you say to Mr Humphreys: well, what does he mean by based on export specification? --- No, I assumed that based on export specification meant that again there would be discussion between the two parties to come up with something that was mutually agreeable to both.

Well, you just assumed that did you? --- Yes.”  [T1077]

(Exhibits A105 and A106 are each copies of the same letter from Mr Bankes dated 26 July 1995).

But this view was not commonly held:  neither by ANM’s witnesses nor by Auspine’s witnesses.  Mr Hingston of ANM said (T941) that it was his belief that the resumed deliveries were to meet the Boyer mill specification.  Mr Hingston said he formed his belief from what he had been told either by Mr Humphreys or Mr Simpson.  If indeed one or other of them said that to Mr Hingston, it would be a contradiction of their evidence to which reference has just been made.  In his affidavit that was affirmed on 16 May 1997 and read as part of his evidence in chief, Mr Hingston stated that he was employed by ANM as a Harvesting Supervisor.  He said that his duties meant that he was “responsible for supervising and managing the supply of wood based products for processing at ANM’s Boyer mill ...”.  He also said that he reported to Mr John Simpson.

Mr Bankes said (T183) that it was his belief that an agreement had been put in place upon his receipt of Mr Humphreys’ letter of 11 August 1995 (Ex A112).  He said “that the specification for chip had been agreed as being the Auspine Export specification” (T183).  He emphasised that point by saying that it had been agreed on the occasion of the meeting of 9 June.  I do not accept that passage of Mr Bankes’ evidence.  Just as I have rejected Mr Humphrey’s statement that the Boyer mill specification was discussed and agreed because of my preference for Mr Ogilvie’s evidence, so also I reject Mr Bankes’ evidence on the same ground.

Mr Plummer said (T280) that at the meeting on 9 June the parties agreed to accept Auspine’s Export specification.  I must reject his evidence on this subject in preference to that of Mr Ogilvie.  In coming to this conclusion, I have had regard to the fact that there was a period of approximately seventeen months from August 1995 to January 1997 during which Auspine delivered residue chip to ANM at its Boyer mill.  An examination of the documentary evidence discloses that throughout that period there were many complaints by ANM about the quality of the residue chip that Auspine was supplying.  Although those complaints were not couched in specific terms that the chip did not meet the Boyer mill specification, the evidence of Mr Mathys, the manufacturing manager at the Scottsdale mill, and Mr Young acknowledges that Auspine was endeavouring to supply chip to a specification that was higher than Auspine’s Export specification.  In those circumstances it would be inconsistent to accept that there was agreement reached between the parties at the meetings in June 1995 that Auspine’s Export specification would be the relevant specification for the purposes of the residue chip.

AUGUST - DECEMBER 1995

Despite the fact that there were matters that had been left outstanding, Auspine did recommence deliveries of residue chip to ANM at its Boyer mill on 14 August 1995 as contemplated in Mr Humphreys’ letter of 11 August.  Although ANM admits the resumption of deliveries, it denies that they had the effect contended for by Auspine.

On 23 August, Mr Panagopoulos wrote Mr Simpson (Ex A116) setting out information concerning exchange rates, chip export prices and production schedules.  It was Auspine’s case, according to its counsel in his opening, that this information completed “the picture in relation to all matters that had to be agreed” (T79).  Exhibit A125 is an internal memorandum from Mr Simpson to other employees in ANM advising them that there was an agreed price for Auspine’s chips at $56.13 per tonne effective from “their deliveries in August”.  The employees were asked to use that rate and to prepare a retrospective payment for earlier deliveries that had been costed at a lower rate.  I find that this memorandum is evidence that justifies a finding that the parties had agreed the initial price for Auspine’s residue chip.  The memorandum is also very significant in that it contradicts Mr Humphreys’ earlier advice to Mr Bankes in his letter of 23 March 1995 (Ex A55) that existing prices “will continue until heads of agreement are signed”.  Heads of agreement had not been signed at that stage yet ANM was prepared to make the higher payments.  ANM’s conduct suggests that its earlier requirement that heads of agreement be signed was not of material importance to it.

But trouble was not far away.  On 29 August 1995, fifteen days after the resumption of deliveries, the pulp mill superintendent at Boyer sent an internal memorandum to Mr Simpson with a copy to Mr Hingston complaining about the quality of the chips being supplied.  The superintendent said:

“Until [Auspine] can change their operation to comply with our specs, we can no longer accept their chips.”

I regard this note as important for two reasons; first, it suggests that the superintendent, like Mr Hingston, had been given to believe that future deliveries would meet the Boyer mill specification; secondly, it suggests that Auspine considered that it had succeeded in having the standard of the chips reduced - if not to its export specification, then at least, to a standard less than that to which it had adhered in the preceding twelve months.

Mr Young of Auspine said in evidence that he spoke by phone with Mr Simpson on 1 September 1995 with respect to the quality of the residue chips that Auspine was supplying.  He said:

“Mr Simpson was expressing some concern as to the specification. I reiterated in that telephone conversation that the agreement that was reached on the 9 June was an export softwood chip specification and that I would supply him a copy of that specification if he did not already have one, which he advised me he didn't, and accordingly I wrote the letter with the accompanying specification which I sourced from our export division.” [T330]

Based on that telephone conversation Mr Young forwarded a copy of the specification under cover of a facsimile transmission dated 4 September 1995:  Ex R119. Mr Young concluded his transmission to Mr Simpson with the words:

“After I have spoken to the site management, I will revert on the issues raised.”

In cross-examination (T343) Mr Young said that “the issue” to which he referred in his transmission was that relative to “the complaint of the specification for the chip quality being supplied to Boyer Mill.”

Mr Young was present at the meeting on 9 June but he was not present at the earlier meeting of 2 June.  The positive manner in which he expressed himself about the applicability of Auspine’s Export specification places him in direct conflict with Mr Ogilvie.  Either Mr Young was attempting deliberately to mislead the Court or he now genuinely thinks that agreement had been reached that Auspine’s Export specification had been accepted.  I do not believe that Mr Young attempted to mislead the Court but I do incline to the view that he, like some other witnesses, has engaged in an exercise of ex post facto rationalisation.  I believe that he has convinced himself that the parties did agree to Auspine’s Export specification.

Mr Simpson, upon receiving Mr Young’s facsimile (Ex R119), forwarded it to a Mr Ernie Hacker asking him to “advise on acceptability and if not what needs to change”:  Ex A120.  On 8 September Mr Simpson received a reply to his inquiry informing him that Auspine’s Export specification was not acceptable for use in the Boyer mill.

Meanwhile, Mr Simpson wrote Mr Panagopoulos on 11 September confirming the figure of $56.13 as the revised price per tonne for residue chip.  He said:

“that the agreed export parity rate for Auspine’s woodchips ex the Scottsdale mill will be $56.13.  During the period when supply started and before the rate was finalised I had been using $38 per tonne; therefore the difference between $56.13 and $38 will be made up through a retrospective payment”.

But Mr Simpson also complained again about the quality of the woodchip in his letter of 11 September 1995.  Mr Panagopoulos was in the Management Resource division of Auspine and Mr Simpson knew that he did not have any control over the quality of the woodchip that was produced at the Scottsdale mill.  Even so, Mr Simpson was writing him on some issues of pricing and used that opportunity to voice his concerns about the quality of the chips.  He said that there were oversized chips as well as a high level of fines and sawdust that blocked the refiners and reduced the pulp strength.  He said that, as an interim measure, ANM was re-screening the deliveries at Boyer but that there were practical and financial limits on that exercise.

Mr Simpson’s letter of 11 September had also come to the attention of Mr Bankes.  He wrote a note on it addressed to Mr Panagopoulos:

“Jim, Price review due 1st Nov - please do review and also put together letter of agreement.”

It cannot therefore be said that the question of an agreement or an exchange of letters had been wholly overlooked by Auspine.  Rather, so it would seem, neither party was overly concerned to attend to this matter.  In particular, it must be noted that ANM had been accepting deliveries of residue chip since 14 August and paying for them but had made no request since that date for an exchange of letters.

Then came a surprising document from Mr Simpson.  He wrote Mr Panagopoulos on 18 September 1995 (Ex A129) saying:

“While I appreciate and accept that the discussions over chip supply and price between Auspine and ANM have been structured on export parity and export specification it is now obvious that the export specification does not fit with Boyer’s refining process.”

Mr Simpson’s explanation (T1093) was that Mr Young of Auspine, having made a specific request to ANM that it accept Auspine’s Export specification and having sent ANM a copy of that specification, (Ex A119), he (Mr Simpson) was merely replying that Auspine’s Export specification did not “fit with Boyer’s refining process”.  This would have been a logical explanation were it not for the reference in Mr Simpson’s letter to his appreciation and acceptance that “the discussions over chip supply ... have been structured on ... export specification ...”.  This passage establishes, in my opinion, that in September 1995 ANM knew and accepted that Auspine was not supplying chip to the Boyer mill specification.  That finding does not mean that Auspine were supplying to its Export specification.  In fact, the evidence points to Auspine doing everything within its power to upgrade the quality of its chip above the standard of its Export specification.  Mr Simpson’s reference to the chip supply being “structured” on Auspine’s Export specification, like Mr Bankes’ turn of phrase “Chip Quality to be based on export specification” would support a the finding that a compromise was struck - probably between Mr Humphreys and Mr Bankes (and without reference to their respective managing directors) at or about the time of the meeting of 2 June 1995.  On the balance of probabilities, I find that the parties to that compromise were Mr Humphreys of ANM and Mr Bankes of Auspine.  Neither of these gentlemen acknowledged specifically that they had been a party to any such arrangement and I am, of course, well aware, that the conclusion that I have reached means that I regard each of them as having withheld material information from the Court when giving their evidence - Mr Bankes more so than Mr Humphreys.  One comes to such a conclusion in a commercial cause with reluctance and I have pondered long, seeking an alternative explanation.  I have not been able to find it.  I cannot say that Mr Simpson was also a party to the compromise but I can say that Mr Ogilvie and Mr de Bruin most definitely were not.  Although Mr de Bruin was called as a witness in the applicant’s case, he added little to what has already been noted.  Despite coming in “over the top” and his attendance at the 2 June meeting and 11 June dinner, he did not play a great part in the on-going discussions between the parties.

Mr Simpson said in evidence that the rescreening that ANM felt compelled to carry out in September 1995 only lasted two to three weeks because thereafter the quality of the woodchip that Auspine delivered to the Boyer mill “had started to improve” (T1106).  He was then asked in cross-examination whether the chip quality remained the same from then until December of that year.  He said that it was “very hard to say” but he agreed that nothing stood out “as to the changing quality of chip between that point of time and December” (T1107).

In maintaining that the residue chip that Auspine was required to deliver to the Boyer mill had to meet ANM’s Boyer mill specification, ANM relied upon the following assertions in par 9C of its defence:

• The residue chip was, to the knowledge of Auspine, purchased by ANM for use in paper manufacture at the Boyer mill;

• The Boyer mill used a thermo-mechanical process for which only chip of the grade, size and geometry specified in the Boyer mill specification was suitable;

• In September 1994 ANM sent a copy of the Boyer mill specification to Auspine;

• From September 1994 onwards, Auspine sent ANM a daily report which purported to show the results of tests carried out on the chip supplied by Auspine for compliance with the Boyer mill specification;

• From September 1994 onwards, ANM, to the knowledge of Auspine, also tested the residue chip that had been delivered by Auspine for compliance with the Boyer mill specification;

ANM further pleaded in par 9D of its defence that ANM had made known to Auspine that the residue chip required was for use in paper manufacture at the Boyer mill “so as to show that the Respondent relied on the Applicant’s skill and judgment”.  In its reply, Auspine admitted that it knew ANM’s purpose but denied that ANM had relied on Auspine’s skill and judgment, pointing to the fact that since September 1994 and onwards ANM had tested the delivery of residue chip in order to satisfy itself that the chip was satisfactory; Auspine therefore claimed that ANM relied on its own skill and judgment

In par 9E of its defence, ANM pleaded that it was a term “of whatever contract was in force” that the residue chip would meet the Boyer mill specification or, alternatively, would be reasonably fit for use in the manufacture of paper at the Boyer mill.  Predictably, Auspine denied the application of the Boyer mill specification and, strangely, denied that it was a term of the agreement that the residue chip would be reasonably fit for use in paper manufacture.  Auspine knew, and had known since 1987, that ANM was using its chip for paper manufacture.  Auspine knew that ANM would not be interested in that chip unless it was capable of being so used.  Putting to one side the question of the identification of the correct specification, Auspine knew, and I find that it knew, that ANM relied on it to present chip that would be suitable for paper manufacture.  This conclusion is, in part, borne out in Auspine’s alternative plea in par 5.4 of its reply where it says that:

“in any event residue chip supplied by the applicant was reasonably fit for use in the manufacture of paper and/or paper products at the Boyer Mill.”

THE SPECIFICATION

I reject Auspine’s basic claim that it was a term of any agreement that it had with ANM that it would supply residue chip to Auspine’s Export specification.  But I also reject ANM’s like basic claim that its Boyer mill specification was the agreed specification.

Having rejected the evidence of both parties that their respective specification was the appropriate specification and there being no direct evidence that the parties had agreed on some hybrid specification, the question then is whether such a term can be implied into their agreement.

The circumstances in which a Court can imply terms into the contractual arrangements of parties to a disputed agreement were considered by Lord Simon when delivering the decision of the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-83:

“Their Lordships do not consider it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

The High Court has accepted this statement as authoritative: see Carter and Harland, Contract Law in Australia, 3 ed. 1996 at 205, Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at 605-06 and Codelfa Construction Pty v State Rail Authority of New South Wales (1982) 149 CLR 337. It has also been accepted that these requirements are particularly “strict” or “stringent”: Wright v TNT Management Pty Ltd (1989) 85 ALR 442 at 459, and as Carter and Harland point out, perhaps overly so (supra at 206). However, as Deane J stated in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121, those cases that have approved the criteria which must be satisfied before a term will be implied in a contract, like the BP Refinery Case itself, were concerned with the question whether a term should be implied in a formal contract which was complete upon its face. His Honour went on to say:

“…care should be taken to avoid an over-rigid application of the cumulative criteria which they specify to a case such as the present where the contract is oral or partly oral and where the parties have never attempted to reduce it to complete written form.” (at 121)

Deane J re-affirmed those sentiments in Hawkins v Clayton (1988) 164 CLR 539 at 571. His Honour also said additional terms would be less easily implied in a formal, written contract by virtue of the fact that:

“In such cases, the insertion of an additional term effectively involves an alteration to what the parties have formally accepted as the complete written record of the compact between them. As the judgment of Mason J. in Codelfa (1982) 149 CLR at pp345-347 (Stephen and Wilson J. concurring with his Honour’s comments on this aspect of the case) clearly indicates, the cumulative criteria formulated or accepted in such cases cannot be automatically applied to cases such as the present where the parties have not attempted to spell out all the terms of their contract but have left most or some of them to be inferred or implied. Where that is so, there is no question of effectively altering the terms in which the parties have seen fit to embody their agreement; the function of a court is, as Lord Wilberforce pointed out in Liverpool City Council v Irwin [1977] AC 239 at p 254: “simply…to establish what the contract is, the parties not having themselves fully stated terms.” In the performance of that function, considerations of what is “reasonable”, “necessary to give business efficacy to the contract” and “so obvious that ‘it goes without saying” … may be of assistance in ascertaining the terms which should properly be implied in the contract between the parties. There will not, however, be the need or the justification for the law to refuse to imply any imputed term which does not clearly satisfy all such requirements. This is particularly so where, as here, the contract has passed from the executory state and has been executed by one or both parties.” (at 571)

His Honour also said that a mechanical test for determining what terms, if any, should be implied in a case where the parties have sought to spell them out:

“…would introduce an element of inflexibility which would be likely to lead to injustice in the circumstances of particular cases…The most that can be said consistently with the need for some degree of flexibility is that, in a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, a court should imply a term by reference to the imputed intention of the parties, if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. That general statement of principle is subject to the qualification that a term may be implied in a contract by established mercantile usage or professional practice or by a past course of dealing between the parties.”(at 572-573)

• whether one party has indicated an intention to sign the printed contract (in Empirnall his Honour stated that Mr Jury’s emphatic refusal to agree to sign the written agreement “makes it more difficult to imply assent to the written agreement” (at 529));

• whether the printed agreement represented a complete contract between the parties.  As to this, Kirby P stated that, unless essential terms have been omitted from the contract, omissions will not invalidate the effective operation of the printed agreement: Brogden v Metropolitan Railway Co (1877) 2 App. Cas 666 at 674;

• whether there exists clear evidence of affirmative agreement by the parties to be bound by the terms of the agreement, which evidence is indicated by the existence of prior negotiations between the parties;

• the identity of the parties and the nature of their relationship as a commercial one may more readily give rise to the inference that they had previously agreed to be bound by a printed contract than would be the case if the dealings involved private individuals having no similar commercial attributes. In Empirnall Kirby P considered the relationship between a property developer and a firm of architects was an indicia that the parties had previously agreed to the written contract;

• the existence of progress payments made over the whole course of dealings between the parties is compatible with the acceptance by a party of the printed contract, particularly where progress payments are envisaged by the printed contract;

The test adopted by Kirby P was whether an objective bystander, examining the facts of the case, would conclude from the whole course of dealings between the parties that one party, by its conduct, had accepted the printed agreement tendered to it by the other. Upon examining all of the facts in their context, Kirby P held that there had been an agreement between Empirnall and Machon Paull by virtue of the former’s implied acceptance of the printed contract, notwithstanding its earlier protests that Mr Jury did not sign written contracts.

McHugh JA began with a similar premise that silent acceptance of an offer is generally insufficient to create any contract: Brogden v Metropolitan Railway (supra) and Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1432. However, his Honour noted that the silence of an offeree in conjunction with the other circumstance of the case may indicate that the offer has been accepted: Rust v Abbey Life Assurance Co Ltd (supra). His Honour went on to say at 534-535:

“The offeree may be under a duty to communicate his rejection of an offer. If he fails to do so, his silence will generally be regarded as an acceptance of the offer sufficient to form a contract. Many cases decided in the United States jurisdictions have held that the custom of the trade, the course of dealing, or the previous relationship between the parties imposed a duty on the offeree to reject the offer or to be bound: CMI Clothesmaker Inc v ASK Knits Inc 380 NYS 2d 447 (1975); Brooks Towers Corporation v Hunkin- Conkey Construction Co 454 F 2d 1203 (1972); Alliance Manufacturing Co Inc v Foti 146 So 2d 464 (1962). But more often than not the offeree will be bound because knowing of the terms of the offer and the offeror’s intention to enter into a contract, he has exercised a choice and taken the benefit of the offer…where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms.”

McHugh JA adopted a similar test to that of Kirby P, stating at 535:

“The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signaling to the offeror that his offer has been accepted.”

On the basis of an objective consideration of the fact that Empirnall as the offeree took the benefit of the work of Machon Paull with knowledge of the terms on which it was offered, McHugh JA held “an objective bystander would conclude that Empirnall had accepted the offer on those terms and conditions.”

In the well known case of Brogden v Metropolitan Railway Co  (supra) the House of Lords had cause to consider factual circumstances similar to those in the present case. Brogden had for several years supplied the plaintiff company with coal without a formal agreement.  At length the parties decided to regularise their relations.  The plaintiff’s agent forwarded a draft form of agreement to Brogden, who, having completed some blank spaces and having inserted the name of an arbitrator in a space which had been left blank for that purpose, signed it and returned it, marked “approved”.  The plaintiff’s agent put it on his desk and nothing further was done to complete its execution.  Both parties thereafter acted on the strength of its terms, supplying and paying for coal in accordance with its terms until a dispute arose between them.  At that stage Brogden denied any binding contract existed.  The question before the Court was when, if ever, mutual assent to the terms of the contract existed.  Assuming the delivery of the document by Brogden to the plaintiff was a final and definite offer to supply coal on the terms contained in the offer, the question before the Court was when was it accepted?  The subsequent conduct of the parties could only be explained on the assumption that both did, in fact, approve of the terms of the draft.  The House of Lords held that a contract came into existence either when the plaintiff ordered its first load of coal from Brogden upon the terms as contained in the draft, or at least when Brogden supplied it. Lord Hatherley stated:

“My Lords, Mr Herschell…put the case on a very proper foundation, when he says that he will not contend that this agreement is not to be held to be a binding and firm agreement between the parties, if it should be found that, although there has been no formal recognition of the agreement in terms by the one side, yet the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they dealt were made aware by that course of dealing that the contract which they had so propounded had been in fact accepted by the persons who so dealt with them.”   (at 682)

Lord Blackburn quoted from the judgment of Lord Chief Justice Cockburn in the Court of Appeal, agreeing:

“... that if a draft having been prepared and agreed upon as the basis of a deed or contract to be executed between two parties, the parties, without waiting  for the execution of the more formal instrument, proceed to act upon the draft, and treat it as binding upon them, both parties will be bound by it. But it must be clear that the parties have both waived the execution of the formal instrument and have agreed expressly, or as shewn by their conduct, to act on the informal one.”(at 693)

The Court held that all subsequent arrangements between the parties with respect to the supply and purchase of coal were referable to the terms of the agreement that had been endorsed “approved” and returned by Brogden to the plaintiff’s agent.

In Vroon BV v Foster’s Brewing Group (supra), the plaintiff (“Vroon”) and the defendant (“Fosters”) agreed to incorporate a company which would acquire a ship that would be used as a live sheep carrier between Australia and the Middle East.  The ship was to be managed by Vroon and chartered by a subsidiary of Fosters.  Vroon and Fosters had been involved in negotiations with respect to the proposed joint venture since early 1988 and on 15 September 1988, Vroon wrote Fosters stating that “we now have full agreement on the basic issues”.  A ship was found in November and agreements to buy the ship were entered into during December 1988.  A subsidiary of Fosters entered into a charterparty on 23 January 1989 for a four year charter period. Draft heads of agreement for a joint venture were produced in February 1989, but these were not proceeded with. Negotiations continued until September 1989 when a shareholders’ agreement and other associated agreements were executed by various related corporations. However, there was a downturn in the live sheep export trade and, moreover, hostilities had broken out in the Gulf Region in 1991.  Fosters’ subsidiary terminated the charter-party pursuant to a war clause, but Vroon alleged that there was an overriding joint venture agreement between it and Fosters which obliged Fosters to provide long term employment for the ship and pay the appropriate hire for the balance of the four years.  It alleged this agreement was made in September 1988 or alternatively December 1988. It further alleged that Fosters was subject to an implied obligation under the joint venture agreement to act in good faith. Fosters denied the existence of any joint venture agreement, alleging that the only agreements between the parties were those made on 23 January and in September 1989, that is, the charter-party and the shareholders agreement.

Ormiston J held there was an implied agreement “which might be characterised as a joint venture” and that it was reached either at the end of December 1988 or at the middle of January 1989.  In support of that conclusion he pointed to several factors.  For example; the subject matter of the joint venture (ie the ship) was known along with its price and the costs of its conversion. Contracts for purchase and conversion of the ship had been entered into and Fosters had paid its half share of the deposit. Further, Fosters had approved two contracts under which it and Vroon were obliged to make further payments.

As early as August 1988, Fosters had sent a letter to Vroon setting out the basis of their negotiations and further stating there should be “acceptable heads of agreement, partnership agreement associated documentation” (at 75).  His Honour found (at 41) that the representatives of Fosters were “insistent that every aspect of the agreement should be fully and adequately documented”.  But despite this, it was Vroon’s case that there was an overall joint venture agreement which relationship was to be inferred from the relationship between the parties but which never took the form of a signed agreement.

In discussing whether a contract may be inferred from the acts, conduct and language of parties, Ormiston J (at 83) referred to the decision of McHugh JA in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 (C.A(N.S.W.)) where his Honour had said:

“The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract”(at 11,117-11,118)

Ormiston J in Vroon said:

“The conclusion must depend on whether the parties’ acts can be seen to be inconsistent with an insistence on the signature of documents as a pre-condition to contractual liability.”(at 88)

His Honour held that having gone so far in the implementation of the joint venture, this was a case where the law must imply agreement to perform that which was necessary to bring about the desired end, especially when the obligations already incurred were as substantial as they were in that case. More importantly, his Honour held that the parties’ acts from November 1988 to January 1989 were inconsistent with Foster’s earlier insistence on the signature of documents as a precondition to contractual liability.  They were so far committed to the acquisition and use of the vessel that the court ought to imply that they had reached  agreement.  However, unlike the present case, the parties in Vroon BV v Foster’s Brewing signed additional documents in September 1989.  The nature of those documents was such that his Honour came to the conclusion that there was no general joint venture agreement on foot after the execution of those agreements.  His Honour held that the September documents, coupled with the documents that had earlier been signed in the preceding January, were intended to take the place of the implied agreement.  In other words, the totality of the executed agreements amounted to almost every conceivable aspect of the dealings between the parties.  The case remains of interest and relevance however, for his Honour’s view on the situation as it existed prior to September 1989.

As I have already said, the Court must embark on an objective analysis of the facts and, in particular, of the parties’ intentions.  What then is the position in this case?  Can it be said, as has been submitted on behalf of ANM that the parties did not intend their arrangements to be binding unless and until there had been an exchange of letters?  Clearly the answer to this question was, initially:  Yes.

• There is a reference to “Heads of Agreement” in Mr Humphreys’s letter of 13 October 1993 (Ex A15);

• Auspine’s memorandum of understanding (Ex A31), compiled in early 1995 contemplated the parties completing and executing two agreements - the “log supply” and the “woodchip” agreements;

• Mr Humphreys wrote Mr Ogilvie an internal memorandum on 31 January 1995 (Ex A42) commenting that the agreement was to commence on the “Signing of Heads of Agreement”;

• Mr Panagopoulos of Auspine wrote Mr Simpson on 3 March 1995 (Ex A48) in reply to Mr Simpson’s letter of 28 February 1995 (Ex A47) in which he referred to an “exchange of letters between our respective Managers”;

• Mr Ogilvie’s letter to Mr de Bruin of 7 March 1995 referred to the parties signing “Heads of Agreement”;

• Mr Bankes, in his letter of 26 July 1995 (Ex A105), wrote “Letter of Agreement to be used in preference to formal legal agreement” and Mr Humphreys’ replied on 11 August 1995 (Ex A112) saying that “our arrangements will be documented by an exchange of letters”.

However, it is just as clear that the parties attached reducing importance to this issue as time went by.

• Trading between the parties resumed on 14 August 1995 notwithstanding that there had been no exchange of letters;

• Mr Bankes endorsed a note to Mr Panagopoulos (on Mr Simpson’s letter of 11 September 1995 Ex A128) asking him to “put together letter of agreement”;

• The commercial relationship between the parties and the manner in which that relationship evolved in the period from April 1995 when Auspine ceased deliveries until August 1995 when it resumed deliveries infers that the parties, at the most, only intended the exchange of letters to reflect the terms to which they had already committed themselves.

The conclusion that I have reached, based in part on:

• the history of the parties’ trading relationship

• the many references in the correspondence to a fixed term agreement from both parties

• Auspine severing its business dealings with North Forest Products and Mitsubishi and

• the resumption of deliveries of woodchip on 14 August 1995

indicates that the arrangements that were made between Auspine and ANM fall into the first category of the cases described in Masters v Cameron.  Gradually, over a period of time the parties “reached finality in arranging all the terms of their bargain”; they intended to be bound immediately to the performance of those terms even though some of them were not finalised before deliveries recommenced.  They expected to have the terms of their agreement set out in an exchange of letters and Mr Humphreys’ letter of 11 August 1995 was one of the first steps in that exercise but, despite earlier indications to the contrary, it was not their intention to defer the making of a concluded bargain pending the intended exchange of letters.  If either of them was silent with respect to any particular term there was, nevertheless, as a consequence of the conduct of the parties, “an implied acceptance, derived from an objective consideration of all the relevant facts and circumstances”:  Empirnall Holdings v Machon Paull (supra at 528).

Having concluded that there was on foot in January 1997 an enforceable agreement the next question to determine is the term or period of that agreement.

In my opinion it was always the intention of the parties that they would commit themselves to a fixed term agreement.  This conclusion is supported by the following evidence:

• The parties had earlier had a fixed term contract and ANM was seeking a renewal of that contract:  see ANM’s letters of 15 October 1991 (Ex A3) and 14 July 1992 (Ex A7);

• Mr Humphreys wrote on 13 October 1993 (Ex A15) offering a term contract determinable on one year’s notice and commencing on 1 November 1993;

• Mr Bankes wrote on 14 March 1994 (Ex A23) advising that Auspine was interested in developing a long term arrangement with respect to the purchase of sawlog;

• Mr Humphreys wrote on 12 December 1994 (Ex A36) offering to take all Auspine’s woodchip for a “five year rolling term” and Mr Bankes replied on 13 December (Ex A37) suggesting a three year rolling term;

• The draft agreement (Ex A41) prepared by ANM’s solicitors in late 1994 - early 1995 contained a provision that the initial term of the contract would be five years;

• Mr Humphreys wrote Mr Ogilvie an internal memorandum on 31 January 1995 (Ex A42) referring to a five year rolling term;

• Mr Bankes wrote on 2 February (Ex A44) and 15 February 1995 (Ex A45) advising that Auspine sought $38 per tonne for its woodchip.  Initially he said that Auspine wanted a three rolling term in lieu of the suggested five year rolling term but in the later letter he reverted back to five years;

• Mr Simpson’s letter of 28 February 1995 (Ex A47) which discussed the supply of woodchip and sawlog for “the next five years”;

• ANM’s conduct in writing the Commonwealth Minister and pressing for a resumption of discussions when Auspine terminated its deliveries of woodchip and sought entry into the export market;

• Mr Bankes’ letter of 26 July 1995 (Ex A105) in which he referred to a term of three years and Mr Humphreys’ letter of 11 August 1995 (Ex A112) agreeing to that term;

• ANM’s offer on 8 January 1996 to pay during “the term of the chip agreement” 50 per cent of the cost of constructing a storage pad, which offer was repeated in Mr Simpson’s facsimile transmission on 14 February 1996 (Ex A159).

I find that this last mentioned transmission, in particular, corroborates other evidence and supports Auspine’s claim that there was in place, and binding on the parties, an agreement for a fixed period of time.  That agreement was for a term of three years as from 1 August 1995 and, originally, it was in relation to ANM taking delivery of all Auspine’s residue chip from its Scottsdale mill.  If, however, I am wrong and the correct position is that the parties did not intend a fixed term agreement (of three years) to come into force unless and until there had been an exchange of letters, then it is my opinion that there was such an exchange and that it was constituted by Mr Humphreys’ letter of 11 August 1995 (Ex A112) and Mr Bankes’ letter of 13 December 1995 (Ex R145).

AUSPINE’S FURTHER CLAIMS

In pars 13 and 14 of its statement of claim Auspine has alleged that ANM engaged in misleading and deceptive conduct in breach of ss 51A and 52 of the Trade Practices Act 1974 (Cth) (“the TPA”) and the comparable South Australian and Tasmanian legislation.  The impugned conduct is based on allegations that at the 9 June meeting Messrs Ogilvie and Humphreys represented to Auspine that ANM would take all Auspine’s residue chip that was generated at the Scottsdale mill.  I am satisfied that such a representation was originally made; specific reference to it appears in Mr Humphreys’ earlier memorandum to Mr Ogilvie dated 31 January 1995 (Ex A42) and Mr Ogilvie confirmed it in his evidence.  But, as I have already said, Auspine chose to accept the changes in the loads.  It clearly waived compliance with that representation on the three occasions in December 1995, July 1996 and October 1996 when it accepted variations to the number of loads that it could deliver to the Boyer mill.

Auspine has alleged in par 21 of the statement of claim that ANM “is estopped from denying the existence of the 1995 agreement” (or indeed any of the variations or alternative agreements) or is estopped from “resiling from performing its obligations thereunder by reason that the respondent has since August 1995 by its conduct led the applicant to believe that such an agreement was in place and the applicant has acted to its detriment”.  In particularising this allegation Auspine alleged that:

“ ... on the understanding that there was and remains an agreement in force between the parties for the supply of residue chip until 31 July 1998, the applicant has not secured and has not sought to secure contracts for the supply of all of the residue chip produced at its Scottsdale Mill to alternative purchasers.”

I do not consider that Auspine can establish its case in estoppel even though soon after the meeting of 9 June 1995 Mr Plummer ceased pursuing both the application for an export licence and the prospect of a long term contract with Mitsubishi.  Whilst it is true that it broke off its negotiations with Mitsubishi and ceased trading with North Forest Products, both these events occurred before 14 August 1995 - that being the date when Auspine resumed deliveries of residue chip to ANM’s Boyer mill.  Auspine broke of its relationships with Mitsubishi and North Forest Products in anticipation that it would conclude a satisfactory trading relationship with ANM, not because it had concluded such a relationship.  It could not be said of ANM that it had, at any time prior to 14 August engaged in some sort of conduct representing that it had entered into a binding legal contract.  Any such representation would have had to have been clear and unequivocal:  Legione v Hateley (1983) 152 CLR 406 at 435-437.

The next plea that was raised by Auspine appears in par 21B of the statement of claim.  It was there alleged that ANM’s termination of the contract was “unreasonable or represented a failure on the part of the respondent to act, in respect of the .... termination of such contractual arrangements, in good faith towards the applicant”.  Auspine made that plea based on the allegation that ANM terminated the contract, not for reason of breach on Auspine’s part, but rather so that it could source chip that it required for the Boyer mill more economically from alternative suppliers.  ANM denied this allegation.  In view of the findings that I have made and which favour Auspine, it will not be necessary to consider this submission in any detail even though I am of the opinion that the allegation made by Auspine reflects the truth of the matter.

THE CASE FOR ANM - UNCERTAINTY

ANM’s primary submission was that the so-called 1995 agreement never came into existence; alternatively, if it did come into existence, it was cancelled or terminated by mutual consent when the parties agreed - either in July 1996 or October 1996 - for the introduction of new supply arrangements.  I do not accept that alternative proposition.  The admitted changes were in my opinion variations to the basic contract that then existed.  I do not regard the changes in the daily loads, nor any other alteration, as being of such a dramatic nature as to warrant a finding that an existing agreement was cancelled and that another agreement between the same parties (dealing with the same twin subjects of residue chip and sawlog) came into existence for a limited duration of time.

As I have said, ANM has submitted that the short answer to the alleged existence of the 1995 agreement is that an exchange of letters between the parties was a precondition to any such agreement coming into existence: there being no exchange of letters, there could be no agreement.  In support of its proposition that no agreement ever came into existence ANM further submitted that Mr Humphreys letter of 11 August 1995 was uncertain in that:

• it did not specify a complete mechanism for determining the price of chip and log (in the absence of agreement between the parties); and

• it did not stipulate the required chip specification. As to the failure to stipulate the specification, I have already stated my finding on that subject.

The alleged absence of a complete mechanism has not been shown on the evidence to have been an issue that arose during the parties trading history:  on the contrary, the evidence points to the parties successfully implementing reviews of prices on three occasions. Adjustments to price calculations were made by consent for the quarters up to and including the quarter that commenced on 1 May 1996.  Mr Bankes agreed that he had no knowledge of an exercise being carried out for the delivered log and chip prices for the quarter which began on 1 August 1996 (T255):  nor was it done for the quarter which began on 1 November 1996.  But it is a fact that the parties were able, in June 1996, to negotiate prices for the quarter beginning on 1 May 1996.  The agreed price for chip was $45.03 per tonne and Auspine sought and obtained a new cartage rate for sawlog to reflect the different areas from which sawlog was then being serviced.  As a result, the delivered sawlog price was agreed at $80.51 per tonne:  see transmission dated 7 June 1996 from Mr Papamatheou to Mr Simpson (Ex A207) and Mr Simpson’s reply to Mr Papamatheou dated 18 June 1996 (Ex A212).

On 1 November 1996, ANM was paying $45.03 per tonne for Auspine’s chip, that being the same figure as had resulted from the calculation and agreement which had been made for the three months starting 1 May 1996.  As counsel for ANM acknowledged in his closing submissions, that figure remained current when the injunction was granted.

It would seem to me therefore that it was common ground that representatives of the parties met and agreed on their review of chip and sawlog prices for the quarters up to and including the quarter commencing on 1 May 1996.  Thereafter the position appears to have remained unaltered, but not because of any default or refusal by one or other of the parties to conduct a price review.  Neither party has led evidence pointing the finger of default against the other party on this issue.  I am unable to say why no quarterly reviews took place thereafter.  But it serves no purpose to say that the agreement might have then collapsed if the parties were unable to agree on price reviews.  The fact was, that on 22 January 1997 when ANM wrote saying that it had decided to discontinue its purchases of residue chip, there had been no disagreement on prices.  Both parties remained content with the prices that had been agreed in respect of the quarter that commenced on 1 May 1996.  I reject the submissions by counsel for ANM to the effect that the areas of uncertainty in Mr Humphreys’ letter were of such significance as to lead to a conclusion that his letter should not be treated as part of the “exchange of letters”.

Auspine had from time to time supplied chip which was not suitable for the Boyer mill.  According to the submissions on behalf of ANM those supplies put Auspine in breach of an implied condition that the chip be reasonably fit for the use to which ANM intended it to be put.  If ANM had, at the time of the faulty deliveries, refused to trade further with Auspine, it could be that such a submission might have been available to it to ward off an attack by Auspine to the effect that ANM was somehow in breach of its contractual obligations.  But that did not happen:  instead the parties got back together again and re-activated their trading relationship.  I find that from time to time in the period August 1995 to January 1997, the woodchip that Auspine delivered to the Boyer mill was not fit for use in that mill.  I find that ANM reacted by sometimes rejecting loads of chip and on other occasions by rescreening the chip.  Occasionally it advised Auspine that it would not take further deliveries of chip.  But on every occasion, trading between the parties either continued or resumed with further deliveries of woodchip by Auspine to the Boyer mill.  The agreement that existed between the parties was never terminated.

ANM contends that it was entitled to terminate and that it did lawfully terminate such agreement as may have subsisted between the parties at the time of the termination.  It cites in support of that claim:

• its allegation that all residue chip was sold by Auspine to ANM under the description of chip meeting the Boyer mill specification;

• the failure on the part of Auspine to supply chip to that specification;

• Auspine’s refusal in June 1996 to accept further sawlog from the Star of Peace plantation and its refusal on or about 17 July 1996 to accept any sawlog;

I reject these contentions; I have already stated my reasons for concluding that it was not a term of any agreement that the residue chip was required to achieve the Boyer mill specification; the relevant term was, in my findings, a term that the chip would be based on Auspine’s Export specification and suitable for use in the Boyer mill.  I allow for the fact that there were times when the chip supplied might have achieved the Boyer mill specification but that was not because Auspine had contractually committed itself to achieve that specification; it was because Mr Mathys and others at the Scottsdale mill were doing their best to supply chip that would be of a sufficient standard for use at the Boyer mill (even though that standard might not be as good as the Boyer mill specification).  As to the sawlog, the short answer is that ANM made a commercial decision to accept Auspine’s conduct on that issue just as Auspine accepted from time to time ANM’s changes to the number of loads that it would accept.

Furthermore, I am satisfied, in respect of the conduct of both parties, that if the changes in the number of loads, or the rejection of some of the loads, or the rejection of any of the sawlog, amounted at the time to a breach of contract, the innocent party has, by its subsequent conduct, waived that breach and cannot now rely on it.  Whether the changes or the rejections were introduced unilaterally or by consent, the fact remains that the other party accepted them and continued to trade, thereby affirming (subject to the variations) the continued existence of the contractual arrangement that subsisted between the parties.  Based on these findings, it is more appropriate to say, and I so find, that the base agreement between the parties, that is, the 1995 agreement, was varied from time to time rather than finding that there was a series of terminations of existing agreements followed by the establishment of new agreements.

ANM’S CROSS CLAIM

ANM has filed a cross-claim alleging breach of contract by Auspine and seeking damages.  It has based its claim first, on Auspine’s alleged wrongful refusal to accept sawlog from the Star of Peace plantation and secondly, because the chip that Auspine supplied to the Boyer mill did not meet the required specification and was not reasonably fit for use in paper manufacture.  For the reasons that I have given in my consideration of Auspine’s claim, I do not consider that there is any merit in either of those claims.  ANM accepted Auspine’s decision to reject the Star of Peace sawlog; it waived such rights as it may have had.  Likewise, ANM mostly accepted the quality of the residue chip that Auspine supplied, rejecting loads from time to time, insisting for a period in having loads rescreened at Auspine’s cost, but, nevertheless continuing to trade with Auspine and continuing to take deliveries of loads of residue chip.  It is, in my opinion, quite significant that the letter of termination of 22 January 1997 (Ex A279) made no mention of either of these matters as the cause of termination.

SUMMARY

The findings that I have made favour Auspine.  Although I have rejected many of the propositions that were advanced on its behalf, I have nevertheless made findings to the effect that:

• the parties entered into a contract for the supply of woodchip for a period of three years from 1 August 1995;

• the quality of the woodchip was to be such that it would be suitable for use in the Boyer mill;

• although there were occasions when deliveries did not match the required quality, ANM did not assert such rights (if any) as it may have had to terminate the agreement;

• ANM’s notice of intention to “discontinue its purchase from Auspine of sawmill chips” was without justification and its intended conduct in refusing further deliveries after the end of March 1997 would have been an unlawful repudiation of the parties’ agreement.

I will hear the parties further on such consequential findings as should or might be made.  For that purpose I grant leave to relist the matter for mention on 14 days notice.  On that occasion I will also hear argument on the question of costs.

In the course of these findings it has been necessary for reference to be made to the commercial arrangements that existed from time to time between the parties.  It is possible that some of the details of those arrangements may be of a commercially sensitive nature.  I am making available to the parties today copies of my findings with the advice that these findings will not be formally published.  Liberty is granted to the parties to approach the court to have identified material in the findings withheld from publication upon establishing that such material is commercially sensitive.

Subject thereto, publication of these findings will thereafter be made.

I certify that this and the preceding (85) eighty five pages are a true copy of the Findings of Fact and Law herein of the Honourable Justice O’Loughlin

Associate:

Dated:            

Counsel for the Applicant:	Mr T R Anderson QC and Mr M Selley
Solicitor for the Applicant:	Messrs Piper Alderman
Counsel for the Respondent:	Mr T G R Parker Mr N J Kidd and Mr A Wiseman
Solicitor for the Respondent:	Messrs Allen Allen & Hemsley
Date of Hearing:	30 June, 1-4 July, 11 July, 14-18 July, 1 August, 7 August 1997
Date of publication of findings:	23 January 1998