Cedar Meats Pty Ltd v Five Star Lamb Pty Ltd
[2013] VSC 164
•12 April 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. S CI 2012 01888
BETWEEN
| CEDAR MEATS PTY LTD (ACN 007 149 343) | Plaintiff |
| and | |
| FIVE STAR LAMB PTY LTD (ACN 138 874 343) | Defendant |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4-7 and 13 March 2013 | |
DATE OF JUDGMENT: | 12 April 2013 | |
CASE MAY BE CITED AS: | Cedar Meats Pty Ltd v Five Star Lamb Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 164 | First Revision: 16 April 2013 |
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CONTRACT – Abandonment – Conduct and factors relevant to mutual intention to abandon contract – Objective assessment.
CONTRACT – Termination – Whether discussions amounted to an agreement to terminate contract.
CONTRACT – Construction – Whether termination clause required notice to be given.
CONTRACT – Enforceability – Whether conduct gave rise to estoppel, waiver and misleading or deceptive conduct.
CONTRACT – Penalty – Whether liquidated damages clause was extravagant and unconscionable.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Korman | Kennedy Guy |
| For the Defendant | Dr O Bigos | Hunt & Hunt |
HIS HONOUR:
A. Introduction
The Plaintiff (Cedar Meats) operates an abattoir at 690 Geelong Road, Brooklyn, Victoria.
The Defendant (Five Star) is a producer of lamb.
By agreement made on 24 December 2009 between Cedar Meats and Five Star (the Agreement), Cedar Meats agreed to provide Five Star with manufacturing, processing and packaging services for lamb products for export and domestic sale by Five Star.
The Agreement set out agreed daily volumes of lamb to be provided by Five Star (clause 7 and item 2 of Schedule 2), and the price per head (clause 9 and items 2 and 3 of schedule 2).
Clause 8(a) of the Agreement – which is at the heart of the dispute – provides that if the daily volume fell “more than 25% below the agreed daily volume … [Five Star] will pay to [Cedar Meats] a minimum of 75% of the agreed daily volume and price for those days”.
It is common ground that Five Star delivered far less than the agreed daily volume.
Cedar Meats seeks to enforce clause 8(a) of the Agreement. The claim is for an amount in excess of $15 million.
Five Star has raised a number of defences. It alleges that the Agreement was abandoned or terminated on or at some point after 4 November 2010. It alleges further that by its conduct Cedar Meats is not entitled to enforce the Agreement. Finally, Five Star alleges that if the Agreement is enforceable, clause 8(a) is a penalty and is unenforceable. It is also alleged that Cedar Meats, in any event, failed to mitigate its loss.
B. Summary of Issues and Conclusions
The first issue is whether the Agreement was abandoned or terminated. Five Star contends that on a detailed consideration of the external manifestations of the parties from September 2010 there is sufficient evidence of an intention on the part of each of Five Star and Cedar Meats, communicated to the other, to the effect that the Agreement no longer applied to the relationship between the parties. Alternatively, it is contended that the Agreement was specifically terminated on 4 November 2010. Cedar Meats contends that the relevant conduct does not constitute either an abandonment of or termination of the Agreement.
The second issue is whether the Agreement was terminated in or about November 2010 pursuant to its terms. Two clauses are relevant. Under clause 12(b) the Agreement could (may) be terminated if Five Star entered into a scheme of arrangement with its creditors. Under clause 12(c) the Agreement could be terminated if Cedar Meats failed to maintain any of its current export licences. Five Star alleges that it entered into an informal scheme of arrangement with its creditors and that Cedar Meats failed to obtain export accreditation for China. As a consequence it contends that the Agreement came to an end. Cedar Meats contends that properly analysed there was no informal scheme of arrangement and that it never held an export licence for China as it was not considered a major market. Further it contends that formal notice of termination was required and it is common ground that none was given.
The third issue concerns the enforceability of the Agreement. Five Star alleges that Cedar Meats is precluded from claiming under clause 8(a) because by its conduct, particularly with effect from November 2010, it led Five Star to believe that it would not enforce the clause either prospectively or in respect of the period prior to November 2010. This claim is put on the basis of estoppel, waiver and misleading or deceptive conduct. Cedar Meats contends that the evidence does not support any of these claims.
The remaining issues proceed on the basis that the Agreement has not been abandoned or terminated, as identified in the first and second issues, and Cedar Meats is entitled to enforce the Agreement because none of the defences referred to under the third issue are made out.
The fourth issue is the penalty issue. Five Star contends that clause 8(a) is an agreed or liquidated damages clause and, because it imposes a burden that is extravagant and far exceeds the greatest loss that could conceivably be suffered by Cedar Meats, is a penalty and as such unenforceable. Cedar Meats contends that the effect of the clause is to create a debt payable in the circumstances referred to.
The fifth issue relates to whether Cedar Meats mitigated its loss and brought to account any benefit it received as a result of Five Star’s short delivery. This issue depends on the outcome of the fourth issue. If clause 8(a) is not a penalty the fifth issue does not arise. If it is a penalty and the Agreement is on foot and enforceable the usual principles as to damages apply including those embraced by the fifth issue.
My conclusions may shortly be stated as follows:
(a)In relation to the first issue, I am of the opinion that the Agreement was abandoned by the parties at some point in 2011. I do not consider that the Agreement was specifically terminated on 4 November 2010.
(b)In relation to the second issue, I am of the opinion that the Agreement was not terminated pursuant to clause 12(b) or 12(c) of the Agreement.
(c)In relation to the third issue, I am of the opinion that the evidence is sufficient to make good the defence of estoppel, waiver and misleading or deceptive conduct.
(d)In relation to the fourth issue, I am of the opinion that clause 8(a) is a penalty and is unenforceable.
(e)In relation to the fifth issue, I consider that it is not necessary or desirable to deal with the issue which is not without some complexity.
C. Relevant Factual Background
From the commencement of the Agreement Five Star fell far short of the agreed daily volumes specified in the Agreement. During 2010 Tony Kairouz (Tony) of Cedar Meats kept reminding Five Star of such failure. Despite not meeting the agreed daily volume, Cedar Meats never pressed for payment of the shortfall or sent any tax invoices in this regard or recorded the extent of the deficiency. It was common ground that Cedar Meats wanted to provide as much help and assistance to Five Star as possible.
During the later part of 2010 Five Star was increasingly experiencing financial difficulties. In late October discussions were held with its bankers, National Australia Bank. It was clear that the business of Five Star needed to be restructured. Matters discussed between Five Star and its bankers included the requirement that additional equity be invested and a wind down of the business in its present form.
The Agreement was discussed on 27 September 2010 at a meeting between Eckard Huebl (Huebl) of Intec Australia Pty Ltd (Intec) and Cedar Meats. Intec performed quality control and manufacturing supervision services at Cedar Meats on behalf of Five Star, pursuant to an agreement between Five Star and Intec that was entered into around the same time as the Agreement. All present at the September meeting, except Joseph Kairouz (Joseph) of Cedar Meats held the view that the Agreement should come to an end because of the very low numbers. The discussions at the meeting are contained in an email sent by Huebl to Mark David Suttie (Suttie) of Five Star on 27 September 2010. The email contains the following paragraph:
There was a suggestion that CM should charge for all past shortages, but that was dropped after some discussions and my advise [sic] that FSL would not accept such a claim.
Although Huebl did not give evidence, the email was in the original court book and referred to during the case. Tony was cross-examined on the contents of the email. It is properly part of the evidence.[1]
[1]Pursuant to s 60 of the Evidence Act 2008 (Vic), the email may be used for all purposes. There was no application under ss 135 or 136 of the Evidence Act to exclude or limit the use of the email. It is unlikely that any such application would have been successful. Finally, it should be noted that my decision and the result in this case would not be affected by exclusion of the email.
The Agreement was also discussed at a meeting two days later, on 29 September 2010, during which Joseph said he wanted Five Star to commit to the Agreement or let it go. Tony, who was at that meeting, gave evidence that he considered that the words attributed to his father, Joseph, were inaccurate. However he did not make his own notes of the meeting and his recollection was vague. Suttie recorded the discussions in an email of the same date (to the effect above) which he confirmed to be correct. It is clear that all parties were concerned about the low volume of production.
On Friday 29 October 2010 production ceased at the plant. There was no further production that year.
On the same day, Suttie attended a meeting at the plant. Joseph, Tony and Pierre Kairouz attended on behalf of Cedar Meats. Suttie discussed the wind down of the business, and ending the Agreement. Cedar Meats’ representatives said they would think about it but that they wanted to keep and use Five Star’s brand in the short term. If Five Star wanted to recommence production they would renegotiate the Agreement and start afresh. When Five Star was ready, it would be welcomed back to the plant to process in its own right. Suttie recorded the discussions in an email dated 30 October 2010 which he confirmed to be correct. In the email Suttie noted that Cedar Meats may try to enforce the “volume requirements in retrospect if we were not to give them access to the brand”. There is a further email of 1 November 2010 to similar effect.
After production ceased, a meeting between Five Star and Cedar Meats was scheduled for 4 November 2010 (the November Meeting). Five Star placed much reliance on what was said at this meeting.
William Clarke (Clarke) and Suttie, both directors of Five Star at the time, proposed to attend the November Meeting and had discussions prior to the November Meeting regarding possible solutions. In an email to Clarke, dated 1 November 2010, Suttie noted that Cedar Meats wanted volume and a full commitment to a workforce in the boning room. He noted that Cedar Meats had suggested that they put their own product in Five Star’s packaging until Five Star was ready to produce in its own right. Suttie also proposed, as an option, that Cedar Meats could invest in Five Star. At about this time the agreement between Five Star and Intec was terminated by agreement.
The November Meeting took place at the plant. There is no agreed or accurate written record of what was said at the meeting. The parties who gave evidence had different recollections and came away with different views as to whether the Agreement was on foot. On the whole the evidence was general and conclusionary. To a great extent it was based on reconstruction and impression rather than recollection. However, I hasten to add that I do not regard any witness as being deliberately untruthful. With these considerations and limitations the court is required to do the best it can.
Those present at the meeting were Suttie and Clarke on behalf of Five Star and Joseph and Dick Merton (Merton) on behalf of Cedar Meats. Tony was not present for the entire duration of the meeting and has no specific recollection of the meeting.
Suttie gave evidence that both he and Clarke said words to the effect that Five Star was unable to continue with its current business model and the Agreement. According to Suttie he presented Joseph with a deed of termination of the Agreement and Joseph said that he was very sorry to hear that Five Star could not continue on and that there was no need for any written document because they were all hoping that Five Star could recommence production when it was ready and able to do so. According to Suttie, Joseph said that all Cedar Meats wanted was that if Five Star started to trade again it would use Cedar Meats’ plant. Suttie gave evidence that when he left the meeting he thought the Agreement was no longer on foot. Had he been told otherwise he would have considered taking further steps.
Clarke’s evidence was to similar effect. However, according to Clarke, Joseph said that Cedar Meats was happy to end the Agreement. Further, Clarke said that as far as he could recall the deed of termination was signed although he conceded that he did not observe the actual execution thereof and could not recall having sighted a signed copy. No signed copy has been produced. Clarke gave evidence that when he left the meeting he thought the Agreement was no longer on foot. Had he been told otherwise he would have considered taking further steps.
Other than Tony, no other witness gave evidence on behalf of Cedar Meats. Merton and Joseph were not called. Tony could not recall the November Meeting specifically or that his father Joseph said that he was happy to end the Agreement. Tony gave evidence of a general nature to the effect that he referred to the Agreement on many occasions, and in particular usually noted the failure by Five Star to comply with the volume requirements specified in the Agreement.
In the circumstances I am inclined to accept the uncontradicted evidence of Suttie and Clarke as far as it goes.[2] Despite vigorous and sustained cross-examination they adhered to their version in every major respect.
[2]No explanation was given as to why Merton and Joseph were not called and I proceed on the basis that their evidence would not be of any assistance to their case (Jones v Dunkel (1959) 101 CLR 298).
After the November Meeting, Cedar Meats commenced marketing lamb under its own brand called “Jimba”. In late December 2010 Five Star refused to permit Cedar Meats to pack its new Jimba branded product in Five Star’s packaging.
The events of 2011 are important.
According to Clarke, Five Star commenced operations in 2011 on a new and fresh basis following the November Meeting and the disastrous 2010 year. Clarke described this new period as Five Star Mark 2. So far as may be relevant it was his understanding that Five Star Mark 2 would not be encumbered by the Agreement (and in particular clause 8(a)) and could, after discussions with its bankers, continue with fresh equity and a new business model.
In January 2011 Clarke met Joseph at Cedar Meats’ plant. Clarke said words to the effect that he had a few lambs he wanted to put through but could not guarantee any numbers. Joseph responded that Clarke could put lambs through and, so far as numbers were concerned, could start with one, then two, then three, and build from there. According to Clarke the Agreement was not referred to or discussed. Joseph was not called and this evidence remains uncontradicted.
After the discussion between Clarke and Joseph, Five Star started production with Cedar Meats on an ad hoc basis. Five Star began processing very small quantities at the plant, on one occasion in January 2011, two occasions in March 2011, and then there was some production in 2011 but no more than once a week. The production in 2011 consisted of small ad hoc quantities after a long break. Even Tony described the processing as being ad hoc.
The production of Five Star lamb at the Cedar Meats plant occurred when space was available, often on Friday afternoons. Cedar Meats also processed other products. This was not a situation where Cedar Meats reserved space at the plant each day, in case Five Star turned up with deliveries of the agreed daily volumes.
In relation to the ad hoc production that commenced in 2011 the following matters are relevant:
(a)Tax invoices were rendered by different entities. Brooklyn Meat Processors Pty Ltd rendered invoices for killing, Cedar Meats rendered invoices for boning and United Cold Storage Pty Ltd rendered invoices for storage. This differed from the position during 2010. From 1 February 2010 until 29 October 2010 all invoices had been provided by Cedar Meats. Further, the invoices rendered by Cedar Meats to Five Star in 2010, and the various invoices rendered in 2011, did not mention agreed numbers or shortages. They referred only to quantities actually processed.
(b)From November 2010 Intec was not involved in any quality control functions. Intec had been involved in quality control between February and October 2010. The quality control agreement between Intec and Five Star, which was negotiated and drafted together with, and entered into at about the same time as the Agreement between Cedar Meats and Five Star, and operated together with that Agreement, came to an end in November 2010.
(c)Cedar Meats processed other lamb products including Jimba and set aside Friday afternoons – or another specific day or period – to process Five Star lambs.
(d)A revised pricing schedule applied with effect from August 2011. The prices were higher than those recorded in the Agreement. In late July 2011 Cedar Meats notified Five Star of a change in prices. Instead of $21.50 per head of lamb it would charge $27.00 per head of lamb. From that time, the invoices reflected the increased price. Under the Agreement, prices per head were fixed for the duration of the agreement (clause 9). Tony said that Simon Neylon (Neylon) – a Five Star employee with an office at the Cedar Meats plant – was happy to accept the new charges, however Neylon said that he did not like it, so he spoke to Clarke about it, and at the end of the day Five Star agreed to the revised pricing schedule.
(e)Tax invoices rendered by Cedar Meats were paid by Five Star. These tax invoices reflected the new price and no reference was made in the tax invoices or otherwise to the Agreement.
(f)During 2011 there was no written reference at all by any party to the Agreement, the quantities referred to thereunder or that Cedar Meats reserved its position in that regard. Whether the matter was raised in discussions is a matter of some dispute. In my opinion it is more probable than not that the matter was not raised in 2011. Prior to 4 November 2010 there were complaints about short deliveries. They were usually in the form of emails.
It was only in December 2011, after Five Star indicated that it was going to process lambs at a different company, namely CRF Group Limited (CRF), that Cedar Meats rendered invoices under the Agreement for the shortfall under clause 8(a). This was the first time that Cedar Meats claimed moneys owing for shortfalls on deliveries.
During the period after the November Meeting Five Star renegotiated its banking facilities, converted debt to equity and wound down the business. Debts were collected, creditors were contacted and by and large eventually paid. This aspect will be dealt with as part of the second issue. I accept that all of this was done because Five Star believed that the Agreement was no longer on foot.
D. First Issue – Was the Agreement terminated or abandoned
Termination
The critical question is whether the parties reached a consensus on 4 November 2010 to the effect that the Agreement would come to an end.
In my opinion the discussions held during the November Meeting in relation to the termination of the Agreement are not sufficiently clear and unequivocal so as to amount to an agreement to terminate the Agreement. It is more probable than not that despite reference to the Agreement the parties did not at that meeting reach a clear consensus that the Agreement would be at an end.
The words attributed to Joseph (particularly by Suttie) although uncontradicted are not in my view sufficiently clear, unambiguous and unequivocal so as to amount to the necessary meeting of the minds in relation to whether the Agreement was at an end. However, although no express agreement to terminate was reached at the November Meeting that is not the end of the matter.
Abandonment
The critical question is whether the parties conducted themselves mutually in such a way so as to convey to the other that they did not intend that the Agreement should be further performed or that such party did not regard the Agreement as being in force. In other words did the parties by their external manifestations evince an intention to abandon or abrogate the Agreement. If they did the Agreement will be discharged.[3]
[3]Summers v The Commonwealth (1918) 25 CLR 144, 151-2; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] 138 CLR 423, esp 434 (DTR Nominees); Wallera Pty Ltd v CGM investments Pty Ltd [2003] FCAFC 279, [40], [50] (Wallera).
In Australia, several appellate decisions have concluded that whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of each party as evinced to the other and acted upon.[4] The Court is not required to examine whether the party actually had the intention of abandoning the agreement.[5]
[4]Wallera [2003] FCAFC 279, [30]-[32]; Marminta Pty Limited v French [2003] QCA 541, [22]; Ryder v Frohlich [2004] NSWCA 472, [136]; JR Marine Systems Pte Ltd v Wavemaster International Pty Ltd (in liq) [2011] WASCA 16, [42]. See also Paul Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 All ER 34 (HL), 47.
[5]Marminta Pty Ltd v French [2003] QCA 541, [22]; Fazio v Fazio [2012] WASCA 72, [74].
The inference of abandonment will be drawn more readily where “an inordinate length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them …”. What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that “the matter is off altogether”.[6]
[6]Fitzgerald v Masters (1956) 95 CLR 420, 432.
As the New South Wales Court of Appeal stated in Ryder v Frohlich:[7]
The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an “inordinate length of time has been allowed to elapse” is relative. In DTR Nominees Pty Limited v Mona Homes Pty Limited the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution.
[7][2004] NSWCA 472, [137].
In my opinion after both the November Meeting and the meeting in January 2011 between Clarke and Joseph, and at some point during 2011 that it is not necessary to identify, the parties conducted themselves and operated[8] for a sufficient period of time on a different basis to the Agreement, in such a way so as to effectively abandon it. A number of matters inform this conclusion.
[8]Of course the discussions held at the meetings referred to are part of such conduct.
First, in 2011, and after a break of many months, ad hoc processing at the plant commenced. The volume was very small and far short of the agreed daily volume referred to in the Agreement. Nothing was said about this. Production was no more than once a week usually on a Friday. It was as if the parties started afresh as contemplated in the various discussions referred to.
Although the various meetings held in September, October and November 2010 did not result in the termination of the Agreement, they provide a relevant foundation for the new basis on which the parties conducted business in 2011.
Secondly, as referred to in paragraph 37(a) different companies provided the services and rendered tax invoices without any reference to the Agreement.
Thirdly, and with effect from August 2011, the pricing structure changed significantly. Although the parties agreed to the new pricing structure no reference was made to the Agreement. There was no need to. By this stage at the very latest it was clear to all that the Agreement was no longer relevant to the relationship between the parties. It had been abandoned and was of historical relevance only. The price increase is not without some significance.
In G W Fisher Ltd v Eastwoods Ltd,[9] the Court inferred that both parties treated a contract for delivery of 25,000 tonnes of cement at a fixed price per tonne as at an end as the parties proceeded to deal with each other at different prices. The Court held that the acceptance of deliveries at a figure below the contract price was an election to treat the contract as at an end, so that the contract was abandoned. It regarded the evidence of abandonment as cumulative. The position is the same in the present case. The price increase, not expressed as a variation to the Agreement, forms part of the relevant conduct of the parties.
[9][1936] 1 All ER 421.
Fourthly, as referred to in paragraph 37(b) Intec no longer provided quality control services.
Fifthly, from the various discussions it is clear that Cedar Meats was aware that Five Star had engaged in a financial restructuring and in effect commenced 2011 under “Five Star Mark 2” and on a different basis.
Sixthly, if Cedar Meats had intended to charge for the shortfalls, it would presumably have included the shortfall amounts (which were in the millions of dollars) as an asset (receivable) in its balance sheet. However it did not do so in 2010, 2011 or 2012. Nor were the shortfalls referred to in Cedar Meats’ debtor maintenance report. By itself this point may not be of great significance. However it is not irrelevant.[10]
[10]In Warwick Entertainment Centre Pty Ltd (Receivers and Managers Appointed) v Silkchime Pty Ltd (Receivers and Managers Appointed) (No 2) [2012] WASC 275, the parties’ accounting treatment of contractual obligations was the foundation of a finding that the contract was abandoned.
Finally, the length of the period of inaction, or rather action on a basis different to the Agreement and without reference to it, is significant. The length of the term of an agreement is a matter of some relevance in assessing the likelihood of abandonment.[11] The Agreement had a total term of 3½ years. The period of inaction between the November Meeting and the letter of demand in December 2011 was about one third of the total duration of the Agreement. This is on top of the period of Cedar Meats’ inaction in enforcing the penalty prior to the November Meeting.[12]
[11]Wallera [2003] FCAFC 279, [50]; Fazio v Fazio [2012] WASCA 72, [74].
[12]Nine months between February and November 2010 during which, despite constant short deliveries, Cedar Meats did not take action to enforce clause 8(a).
I consider that in these circumstances there was a lapse of time, sufficiently long so as to enable the Court to infer that both parties thought that each of them had treated the Agreement as at an end. The whole of the circumstances point to the conclusion that neither party continued to have the Agreement in mind throughout 2011. Again it is not necessary to identify a specific date or event or point in time. They communicated to each other, in the manner identified, that they were content to operate on a new basis and that the Agreement was a thing of the past.
Of course these matters are also relevant to and to a large extent underpin the third issue which concerns the enforceability of the Agreement. However they also in my view point to and sufficiently evidence an intention on the part of each party, communicated to the other, that although hopeful that things would improve they would operate on a different basis. I am unable to conclude that this was no more than an indulgence or that a temporary hold was placed on the Agreement. There was no express or even implied reservation of rights on the part of Cedar Meats and although to its credit it was being helpful and supportive and did not enforce the Agreement, the conduct of the parties as set out above evidences an intention (whatever the subjective intention of the parties) to move forward on a different basis which in fact occurred.
Mr Korman of counsel who appeared on behalf of Cedar Meats submitted that there were significant factors that told against the defence of abandonment.
First it was submitted that during the period November 2010 and November 2011 Cedar Meats called upon Five Star to deliver the agreed daily volume. The calls were made in person by Tony, it was submitted. I do not accept the evidence of Tony in this regard. It was too general and was unsupported. Further, Neylon could not recall any such statements being made, although he asserted that Tony had said that he wanted Five Star to do more.
Next it was submitted that Cedar Meats provided an office rent free to Neylon at Cedar Meats and that this was consistent with the Agreement remaining on foot. “Why else would they have done so?”, it was suggested rhetorically. I do not regard this conduct as sufficient to convey to Five Star that, despite all the other factors referred to, the Agreement was still on foot. Further it is not inconsistent with the fresh anticipated and perhaps optimistic basis on which the parties hoped to continue trading.[13] According to Neylon, he was employed by Five Star in October 2010 as sales manager. After the November Meeting he began to wind down the business and sell all the stock. He believed the Agreement was at an end. In 2011 things changed and in early 2011 he moved to Cedar Meats. No doubt everyone was hopeful that things would improve.
[13]The same may be said of the employment by Cedar Meats of Rowan Clark, formerly a representative of Intec. In addition Cedar Meats was developing its own brand, namely Jimba.
Other matters said to negate abandonment include Joseph’s refusal to sign the deed of termination and Cedar Meats’ agreement to process low and uneconomical quantities of lamb. I do not regard either of these matters as persuasive given the totality of the circumstances referred to. It is the conduct as a whole that is relevant. Failure to sign the deed of termination did not amount to an affirmation of the Agreement in the circumstances.
The consequences of abandonment of the Agreement are such that in the particular circumstances of this case Cedar Meats is not entitled to claim any amount under the Agreement. The Agreement is at an end and there is in this case no accrued right to claim any amount up to the date that the abandonment should be regarded as having occurred.[14] In my opinion the conduct referred to evinced a mutual intention not only to abandon the Agreement but also any right which accrued prior to the implied agreement to abandon the Agreement. It follows that it is not necessary to fix any date that the abandonment should be regarded as having taken place.
D. Second Issue – Was the Agreement terminated under Clause 12(b) (Scheme of Arrangement) or 12(c) (China accreditation).
[14]J W Carter, LexisNexis, Carter on Contract (as at 8 April 2013) [ 32-001]; Fazio v Fazio [2012] WASCA 72, [412].
Clause 12 provides that the Agreement “may” be terminated in a number of specified circumstances. Clauses 12(b) and (c) are relied on by Five Star.
The Agreement does not provide for automatic or ipso facto termination upon the occurrence of any of the events referred to. Rather, the parties contemplated that the party wishing to terminate in such circumstances would have an election as to whether to terminate. In such event termination would only take place by a clear, unequivocal and unambiguous communication of such termination to the other party.
There is no evidence of the communication of such termination by Five Star to Cedar Meats based on the matters referred to in clauses 12(b) and (c). As indicated, Five Stars’ primary submission was that the Agreement was terminated on 4 November 2010 by agreement or was effectively abandoned.
Clause 12(b) provides that the Agreement “may be” terminated “immediately” in the event that Five Star or Cedar Meats goes into “administration, liquidation or enters into a scheme of arrangement with its creditors”.
Five Star submitted that sub-clause (b) is the only subclause in clause 12 which starts with the word “immediately”. On its proper construction it was submitted that the sub-clause is triggered immediately if the event in question occurs. Although the word “may” was used at the beginning of clause 12, it was submitted that in context the word “immediately” should be construed as obligatory rather than discretionary.[15]
[15]Reference was made to Pearce & Geddes, Statutory Interpretation in Australia (7th ed, 2011), ch 11.
I reject the submission. In my opinion notice was still required although the notice could terminate the Agreement with immediate effect. Further, if there was to be ipso facto termination it could only occur on a specific contemplated date, that is a date that was certain (such as the day an administrator or liquidator is appointed). The reference to a scheme of arrangement in this context contemplates in my view a more formal scheme or at the very least a date that is certain. Although Five Star made contact with its creditors it can hardly be said that any scheme of arrangement was entered into. What was the scheme? What was the arrangement? Although it is possible to enter into an informal scheme of arrangement, I do not consider that, in context, that is what the parties contemplated or that is what indeed happened.
It is further alleged that the Agreement came to an end under clause 12(c). That provision states that the Agreement “may” be terminated by Five Star if Cedar Meats “loses or fails to maintain any of its current export licences”. Recital B, says that Cedar Meats is an export abattoir and has export accreditation with all major overseas markets except Russia. At no stage has Cedar Meats had export accreditation to China. It applied for such export accreditation in early 2009. Before the Agreement was signed, Merton told Suttie that Cedar Meats was in the final stages of obtaining export accreditation to China, and that it would do whatever was needed to obtain export accreditation to Russia. That was the reason why China was not mentioned specifically in the Agreement, but Russia was referred to. Clarke regarded China as a relatively large and growing market for Australian lambs. Tony described the Chinese market as gaining momentum. Five Star made contact with potential Chinese clients. Because of Cedar Meats’ inability to export to China, Five Star had to make alternative arrangements for processing.
In November 2011 Neylon of Five Star informed Cedar Meats that it would no longer process lambs at the plant. Although Five Star did not stipulate the failure to obtain export accreditation to China as a basis for termination, that ground was available, and Five Star submitted that it was entitled to rely on it.[16]
[16]Reference was made to Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359.
In my opinion the ground is not made out. First, no notice was given and secondly, Cedar Meats did not lose or fail to maintain a current export licence in relation to China. It never had one to start with and this was known to Five Star. The matter was not pleaded on any other basis and the sole ground relied on has not been made out.
Finally, Five Star submitted that Cedar Meats repudiated the Agreement on 2 December 2011, when, at a meeting, Cedar Meats evinced an intention to no longer perform services for Five Star. This was about three weeks after Neylon’s announcement to Cedar Meats that Five Star would not process at the plant any more. According to the evidence, Clarke and Neylon went to the plant, and Clarke brought some beer and wine as a thank you. When Clarke arrived at the plant he was met by Merton. They discussed Five Star leaving the plant and Merton accused Clarke of lying. Joseph allegedly threw his keys across the table directly at Clarke. Joseph criticised Clarke for a few minutes and then left. This was the only time that Joseph had lost his temper, as he felt betrayed. He said that from then on it would be between solicitors. Clarke told Pierre that the relationship had broken down. Clarke was, in effect, thrown out of the premises. Pierre told Clarke on his way out that there would be consequences for not showing respect for Joseph and it was not personal but business. The family felt insulted that Five Star would leave to go to a competitor.
Five Star submitted that the conduct of Cedar Meats referred to above evinced a clear intention not to continue with the Agreement. The Agreement was for the provision of services. The hostilities between the parties were such that it was unrealistic and impractical to expect that processing would continue. The letter of demand dated 8 December 2011 demanded the immediate payment of $4.397 million, and the immediate supply of lamb product for processing within seven days, failing which Cedar Meats intended to terminate the Agreement and sue for damages of $15 million. It was artificial, it was submitted, to believe that after what had happened Five Star would switch production back to the plant. There was no further contact between Five Star and Cedar Meats after the 2 December 2011 meeting. There would be a risk to go back to Cedar Meats after the relationship had broken down. Five Star accepted Cedar Meats’ repudiation of the Agreement it was submitted when it served its defence in May 2012.
As I have concluded that the Agreement was no longer on foot as at December 2011 it is strictly not necessary to deal with this issue. However if the Agreement was on foot and otherwise enforceable I do not accept that Five Star was entitled to accept any repudiation by Cedar Meats as it was self-evidently not willing and certainly not able to fulfil its end of the bargain.[17]
[17]Idamenco Pty Ltd v Ticco Pty Ltd [2004] NSWCA 329.
E. Third Issue – Estoppel, waiver and misleading conduct
The facts that underpin the contention that the Agreement is unenforceable because the conduct of Cedar Meats gives rise to an estoppel or waiver or was misleading or deceptive are to a great extent the facts that evidence the abandonment of the Agreement. Having found that the Agreement was effectively abandoned it is strictly not necessary to deal with this issue.
Estoppel
The elements required to make out a successful defence of estoppel are not in dispute. Five Star is required to establish a representation, reliance, detriment and unconscienability.[18]
[18]Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
The first element is whether a representation was made by Cedar Meats to the effect that the Agreement was at an end and that Cedar Meats would not enforce clause 8(a). The representation must be clear and unequivocal and not be phrased in tentative or non-committal terms. Of course a representation can be inferred from conduct. It is necessary to consider objectively what the relevant conduct would convey to the party asserting the representation.
In my opinion the necessary representation that clause 8(a) would not be enforced and that the Agreement was at an end may properly and reasonably be inferred from the conduct of Cedar Meats. Its conduct as identified above was sufficiently clear and unequivocal to justifiably permit Five Star to assume that the Agreement had ended, clause 8(a) would not be enforced and that a new regime would apply to Five Star Mark 2.
The discussion at the November Meeting and the conduct (including silence) of Cedar Meats after the November Meeting are critical. What was communicated is sufficiently clear, unambiguous and unequivocal. When the trading relationship resumed in January 2011, it was very different to the relationship that existed between February and November 2010. The events which are set out in relation to the abandonment issue provide a sufficient foundation for the assumption made by Five Star that the Agreement was no longer on foot and that Cedar Meats would not enforce clause 8(a) of the Agreement. Although the Agreement did not stipulate when Cedar Meats was required to submit a tax invoice for any shortfall, the failure to invoice for the lengthy period referred to, together with the other conduct referred to, constituted sufficient conduct to provide a basis for the estoppel defence.
Further, Cedar Meats by its conduct (including silence) induced Five Star to adopt the assumptions or expectations. From February 2010 to November 2010 Cedar Meats did not insist on Five Star’s compliance with clause 8(a), but rather led Five Star to believe, as was the case, that it was trying to support Five Star through Five Star’s financial woes. This culminated in the November Meeting. From 4 November 2010 to 8 December 2011 Cedar Meats acted, and encouraged Five Star to act, as if the Agreement was not on foot. The relevant conduct is referred to in detail above in relation to the abandonment issue.
Five Star clearly relied on the representation. Such reliance was reasonable in the circumstances. The steps taken by Five Star in 2011 were based on the assumptions and expectations referred to. Five Star reorganised its affairs and finances on the basis that it would not, so far as Five Star Mark 2 was concerned, be encumbered by the Agreement and the potential ‘noose’ that clause 8(a) created.
Both Suttie and Clarke relied on the representations. Both understood, following the November Meeting, that the Agreement had ended, that Five Star had no obligation to provide minimum quantities, and that the agreed daily volume provisions would not be enforced by Cedar Meats. Suttie’s evidence was that if he had known that Cedar Meats would later contend that the Agreement was still on foot, he would have pushed for termination harder. His understanding at the time was that there was the opportunity to renegotiate the contract and to come back to Cedar Meats when Five Star had got its financing together. Clarke’s evidence was that if he had known that Cedar Meats would at a later stage argue that the Agreement remained on foot, he would have sought legal advice in order to ascertain whether that was true or not. He said that if there was any risk to Five Star in relation to payment of minimum quantities, which it could not in any event pay, he would have wound up the company. Further, when Five Star Mark 2 commenced operations in early 2011 he would have negotiated a new agreement and begun a fresh relationship with Joseph and Merton of Cedar Meats. In early 2011 the relationship between Clarke and Joseph was close. Clarke’s understanding was that the original Agreement no longer stood, and when he chose to move to CRF he had no idea that there would be repercussions. Had he not had the belief that the Agreement was terminated, he would not have shifted processing to CRF. I accept this evidence.
If Cedar Meats was permitted to depart from the representation that created the assumption that was relied on, Five Star would be exposed to a substantial claim that it did not expect to have and indeed assumed that it did not have.
Five Star would suffer detriment as a result of Cedar Meats’ conduct if Cedar Meats was permitted to resile from the representation that it made. Five Star lost the opportunity to take those steps, which it could have done at the time. A lost opportunity is sufficient detriment for estoppel.[19] Five Star lost the opportunity to seek legal advice about the termination of the Agreement, and to closely monitor Cedar Meats’ compliance with the Agreement in an attempt to find an event of termination. It lost the opportunity of renegotiating an agreement with Cedar Meats in early 2011, at a time when the personal relations were still good. Such a renegotiation had been envisaged by Joseph at the November Meeting. Five Star’s financial situation at the time was so precarious that it was highly likely that it would have been able to negotiate a fresh agreement with much smaller volumes.
[19]Paul Vout, Thomson Reuters, The Laws of Australia (as at 1 October 2011), [35.6.850].
Finally, it would in the circumstances be unconscionable to permit Cedar Meats to enforce clause 8(a).
Consequently if I am wrong about the abandonment issue I would find that the estoppel defence has been made out.
Waiver
Given the findings in relation to abandonment (and in particular the consequences on any suggested accrued rights) and estoppel it is strictly not necessary to deal with this issue. However in my opinion the defence is made out.
Five Star submitted that an intentional act, done with knowledge, in circumstances where a person abandons a right by acting in a manner inconsistent with that right is sufficient to constitute a waiver of such right.[20]
[20]Reference was made to Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, [56].
First, it was submitted by Five Star that on 27 September 2010 Cedar Meats intentionally dropped any claim for retrospective charging. On that day there was a meeting between Huebl and Cedar Meats. There was a discussion about charging for all past shortages, but that was dropped after discussion and the advice of Huebl that Five star would not accept such a claim. Tony accepted that at that meeting Huebl said that if charges for past shortages were enforced Five Star would fold, and that Cedar Meats wanted to see Five Star succeed in what they were doing. However, Tony did not agree that Huebl said that Five Star would not accept such a claim. I accept that there was discussion alone the lines stated in the email. It is more probable than not that the discussions proceeded along these lines. Tony accepted that charges for past shortages were referred to in the context of Five Star’s ability to pay. It is in this context likely that Huebl went on to say that Five Star would not accept such a claim. Further, as stated previously the evidence of Tony was general and imprecise. I mean no criticism of Tony in this regard. However, his general recollection of the various meetings and comments from time to time must be assessed against the specific documentary evidence.[21]
[21]Again, as pointed out in footnote 1 above, the result would be the same if I did not have regard to this email.
Second, it was submitted that at the November Meeting Cedar Meats intentionally waived its right to insist on Five Star’s compliance with clause 8(a) altogether.
Five Star also relied on the facts relating to abandonment. The only evidence of Cedar Meats’ intention was that of Tony. However his hard-line attitude often diverged with that of his colleagues at Cedar Meats, who were more lenient. No other witness was called by Cedar Meats. The conduct of the parties after the November Meeting was, it was submitted, inconsistent with the continuation of the Agreement.
The conduct of Cedar Meats referred to in relation to the abandonment and estoppel issues is in my opinion sufficient to constitute an intention or election not to pursue ,and therefore to waive, any claim for arrears under clause 8(a) of the Agreement.
Misleading or deceptive conduct
As a further or alternative submission, Five Star alleged that Cedar Meats engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and/or s 18 of the Australian Consumer Law. The conduct of Cedar Meats (described in relation to abandonment and estoppel above) was, it was submitted, a representation that the Agreement had ended or that Cedar Meats would not enforce clause 8(a). To the extent that the conduct comprised silence, there was a duty, it was submitted, to disclose or a reasonable expectation of disclosure if Cedar Meats intended to act differently.
Cedar Meats’ representation, it was submitted, was false, as in December 2011 it started invoicing for shortfalls in purported enforcement of clause 8(a). Five Star, it was submitted, relied on the representation and was misled. It was submitted that the Court may make an order under s 87 of the Trade Practices Act 1985 (Cth) and/or s 237 of the Australian Consumer Law which prevents Cedar Meats from enforcing the agreement, and in particular clause 8(a).
Given the findings in relation to the abandonment and estoppel issues it is strictly not necessary to deal with this issue. However it probably follows from the reasoning, particularly in relation to estoppel, that the claim is made out.
F. Fourth Issue – Is clause 8(a) a penalty?
Having found that the Agreement was effectively abandoned or is otherwise unenforceable because of the successful estoppel defence it is strictly not necessary to deal with this issue, which assumes that the Agreement is on foot. Nevertheless in deference to the submissions made by the parties and in the event that the matter goes further I will shortly state my reasons as to why I consider that clause 8(a) is a penalty and is unenforceable.
The principles in relation to penalties are not in dispute. They were recently dealt with by the High Court in Andrews v Australia and New Zealand Banking Group Ltd (Andrews).[22]
[22][2012] HCA 30. ..
In Andrews, the High Court held that the law of penalties applies not only in relation to the breach of a contract but also to a term or stipulation in a contract.
The traditional view relied on by Cedar Meats is, as stated in Chitty on Contracts, that “the law on penalties is not applicable to many sums of money payable under a contract … it is not relevant where the claimant claims an agreed sum (a debt) which is due from the defendant in return for the claimant’s performance of his obligations”.[23] Five Star submitted that the claim of Cedar Meats under clause 8(a) was not in return for performance of its obligations but for hypothetical lambs for which it provided no processing services at all. For this reason Five Star submits that the statement in Chitty on Contracts does not apply.
[23]Joseph Chitty, Chitty on Contracts (2012) Vol 1, 1873.
Five Star relied on authority for the proposition that even clauses which provide for a debt, rather than damages, can constitute a penalty.[24] In M & J Polymers Ltd v Imerys Minerals Ltd, [25] Burton J described the statement in Chitty on Contracts as too simplistic, because a debt may be a penalty. His Lordship discussed whether a “take or pay” clause can be an unenforceable penalty, and concluded that although as a matter of principle the rule against penalties may apply, in the particular case the clause was enforceable.
[24]M & J Polymers Ltd v Imerys Minerals Ltd [2008] 1 Lloyd’s Rep 531; [2008] 1 All ER (Comm) 893, [41].
[25]Ibid, [39]-[48]. See also E-Nik Ltd v Dept for Communities & Local Government [2012] EWHC 3027 (Comm), [25]; Cavendish Square Holdings BV v El Makdessi [2012] EWHC 3582 (Comm), [27], [29]; Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd [2013] ScotCS CSOH_18, [101].
The question whether a provision is a penalty is one of characterisation, to be determined as a matter of substance, taking into account all the circumstances[26]. The critical question is whether the burden imposed by the clause is “extravagant and unconscionable”[27]. The factors to consider include the circumstances of the parties at the date of the contract, their perceptions at that time regarding their respective positions should breach of contract occur at a later and perhaps distant time, and their understanding of the likely imposition generated by the clause.[28]
[26]O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359, 141-2, 400.
[27]Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, 507-8 (Multiplex)..
[28]Multiplex, 509-10.
It is also necessary to consider the relationship between the stipulated sum and the unliquidated damages which would be recoverable on breach[29]. Although “breach” is no longer considered to be an essential requirement, the High Court has recently referred to a distinction between (i) a payment that is “collateral” to secure performance of a primary obligation (which is a penalty), and (ii) a payment in return for the provision of further services or accommodation (which is not a penalty) .[30]
[29]Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656, [21].
[30]Andrews v Australia & New Zealand Banking Group Ltd (2012) 290 ALR 595, [79].
Following Andrews, it is therefore necessary to consider whether there is a link between the payment and securing the performance of a primary obligation, but the payment need not necessarily relate to a breach of contract.
In Lake River Corporation v Carborundum Co (Lake River),[31] the United States Courts of Appeals held that a minimum-quantity guarantee was an unenforceable penalty. The clause provided that in consideration of Lake River acquiring and furnishing a new bagging system, Carborundum would, for the three year term of the agreement, ship to Lake River for bagging a minimum quantity of 22,500 tons, and if that amount had not been bagged at the end of the three year term, Lake River would invoice Carborundum for the difference between the quantity bagged and the minimum guaranteed amount. Judge Posner (writing for the Court) said:
Mindful that Illinois courts resolve doubtful cases in favour of classification as a penalty, we conclude that the damage formula in this case is a penalty and not a liquidation of damages, because it is designed always to assure Lake River more than its actual damages. The formula – full contract price minus the amount already invoiced to Carborundum – is invariant to the gravity of the breach. When a contract specifies a single sum in damages for any and all breaches even though it is apparent that all are not of the same gravity, the specification is not a reasonable effort to estimate damages; and when in addition the fixed sum greatly exceeds the actual damages likely to be inflicted by a minor breach, its character as a penalty becomes unmistakable. This case is within the gravitational field of these principles even though the minimum-guarantee clause does not fix a single sum as damages.[32]
[31]769 F 2d 1284 (7th Cir 1985).
[32]Ibid, [22] (citations omitted).
Judge Posner said further:
We do not mean by this discussion to cast a cloud of doubt over the “take or pay” clauses that are a common feature of contracts between natural gas pipeline companies and their customers. Such clauses require the customer, in consideration of the pipeline’s extending its line to his premises, to take a certain amount of gas at a specified price – and if he fails to take it to pay the full price anyway. The resemblance to the minimum-guarantee clause in the present case is obvious, but perhaps quite superficial. Neither party has mentioned take-or-pay clauses, and we can find no case where such a clause was even challenged as a penalty clause – though in one case it was argued that such a clause made the damages unreasonably low. If, as appears not to be the case here but would often be the case in supplying natural gas, a supplier’s fixed costs were a large fraction of his total costs, a take-or-pay clause might well be a reasonable liquidation of damages. In the limit, if all the supplier’s costs were incurred before he began supplying the customer, the contract revenues would be an excellent measure of the damages from breach. But in this case, the supplier (Lake River, viewed as a supplier of bagging services to Carborundum) incurred only a fraction of its costs before performance began, and the interruption of performance generated a considerable cost saving that is not reflected in the damage formula. [33]
[33]Ibid, [30] (citations omitted).
In the present case, there was a requirement under clause 8(a) to pay $21.50 per head of lamb, in circumstances where this greatly exceeded the actual damages likely to be inflicted by a failure to deliver 75% of the agreed daily volumes. In Lake River, Judge Posner gave an example that a requirement to pay four times the lost profit was a huge windfall; and gave another example where the total gain was 2½ times the lost profit.[34] As in the present case, most of the costs of performing the contract (the variable costs) would be saved if the contract was broken, and this saving was not reflected in the damage formula. As a result, at whatever point in the life of the contract a breach occurred, the damage formula gives one party significantly more than its lost profits from the breach.[35]
[34]Ibid, [23]-[24].
[35]Ibid, [26].
Further, Cedar Meats had an established, operating meat processing plant since 2008. Its kill capacity was 4,500 heads per day. The only new element associated with the Five Star contract was the lamb boning line. Cedar Meats required new equipment for that line. But initially the equipment was borrowed and it was only purchased (by a different company) in mid 2010, after the Agreement had commenced, and for a lower sum than had been expected. Cedar Meats incurred any equipment-related expenses after, not before, it began supplying the customer. Further, as part of its schedule of fees, Cedar Meats also charged Five Star an amount of $0.50 per head (up to $280,000) in respect of equipment fee. The evidence establishes that the interruption to performance generated significant cost savings which are not reflected in the $21.50 per head fee. In contrast to a gas supply contract, where nearly all the costs associated with supply are sunk costs and once the pipeline is operational very little effort is required to push gas through, in the meat processing industry much effort is required, as the process of killing and boning is labour intensive. Insisting on payment of the full amount per head without making any allowance for the significant cost savings associated with not performing the relevant tasks constitutes in my opinion the stipulation for an extravagant amount that far exceeds the greatest loss suffered by Cedar Meats.[36]
[36]Whilst difficult to assess the exact loss it is nowhere near $21.50. Loss of profits was $8.54 according to Cedar Meats own figures. Variable costs were $12.96. No fixed costs were given. Presumably the variable costs would not be incurred if production did not take place. Requiring a party to pay the full amount of $21.50 whether or not production takes place and in circumstances where the profit would only be $8.54 or lower on the cases presented by Five Star is clearly extravagant. It is a penalty.
G. Fifth Issue – Mitigation of Loss
Again, it is not strictly necessary to deal with this issue.
Clause 8(a) is a penalty, and is unenforceable. However, Cedar Meats can still recover unliquidated damages for its loss.[37] In such a case, Cedar Meats has an obligation to mitigate its loss.[38] This includes bringing to account any benefits it received as a result of Five Star’s short-deliveries.[39]
[37]AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, 191, 212.
[38]Ardlethan Options Ltd v Easdown (1915) 20 CLR 285, 296.
[39]British Westinghouse Co v Underground Railways [1912] AC 673, 689-90, recently cited with approval in Cardno BSD Pty Ltd v Water Corporation (No 2) [2011] WASCA 161, [143]-[145].
If clause 8(a) is a liquidated damages provision, then there is still a need to bring to account benefits which have accrued to Cedar Meats as a result of Five Star’s short-deliveries, otherwise Cedar Meats would be unjustly enriched to the extent of the benefits and would receive a windfall gain.
The steps which Cedar Meats did take as a result of Five Star’s short-deliveries include the filling of any excess capacity by production of its own brand of lamb, Jimba, and limited processing of meat for other customers.
Cedar Meats started processing lambs under its own brand, Jimba, in May 2011. It has been steadily producing such meats since then. According to Tony, Cedar Meats did this only in order to make up for the short production numbers that Five Star supplied. Cedar Meats started processing Jimba brand only to boost the numbers. The lambs are processed on the same lamb boning equipment as was used for Five Star’s lambs. Tony gave evidence that there are no other uses of that production line, though Neylon’s evidence was that the line had alternative uses – there were some six-way cuts or repacking of all types of meats – lamb, veal, mutton. Under the Jimba brand of lamb, a total of 63,525 units were processed in 2011 and a total of 153,057 were processed in 2012. The production started at 450 per day to about 600 per day, and recently it got up to 1,800 per day. Mr Blashki, an expert witness called by Five Star, calculated that the benefit to Cedar Meats from producing the Jimba product was a total of $1.74 million, being the total production multiplied by the processing contribution per head of lamb ($5.94). Five Star submitted that this was the best estimate, available on the evidence, of the benefit to Cedar Meats as a result of Five Star’s short-deliveries.
As regards the processing meat for other customers, Tony said that the processing done for other customers, such as for a company called Aurora, was on a very minor scale, and all in an effort to try and make use of the existing equipment.
In the final analysis and on the available evidence I am unable to reach any conclusion on this issue. As pointed out it is at this stage unnecessary to do so.
H. Disposition
Cedar Meats has failed to make out any of its claims and I propose to dismiss the proceeding.
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